Most business deals never get signed in one clean moment. They start with a quote, a reply that changes a price or a date, and work that begins before anyone says "agreed". Australian contract law has a precise set of rules for that back-and-forth, and they decide which version of the deal, if any, is enforceable.
At the centre of those rules is the counteroffer. When the person you are negotiating with replies to your offer with different terms, they have not accepted anything. They have rejected your offer and put a new one on the table, and your original offer is gone. This article explains what an offer is, what acceptance requires, what a counteroffer does, and where business owners most often get tripped up.
What makes something an offer?
An offer is a clear proposal by one party (the offeror) to another (the offeree) stating a willingness to be bound on particular terms if the offeree accepts. For a proposal to count as an offer, it must be definite enough for a court to identify what was promised, it must be communicated to the offeree, and the offeror must intend to be legally bound by it.
That last requirement is judged objectively. The High Court made this clear in Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8, where it held that intention to create legal relations is assessed by asking how a reasonable person would understand the parties' words and conduct, not by searching for a private state of mind. In practice this means an email that reads like a firm commitment can be an offer even if you privately thought it was "just a heads-up", and a vague "let's sort something out" will rarely be one.
Three things commonly stop a proposal from being an offer:
- Invitations to treat: An advertisement, a price list, a catalogue, or a product on a shelf is generally an invitation for customers to make offers, not an offer itself. A business can refuse to sell at the advertised price because no contract exists until a customer's offer is accepted.
- Requests for a quote: When you ask three suppliers to quote, you are inviting them to make offers. Their quotes are the offers, and you are free to accept, reject, or negotiate each one.
- Statements of price alone: Telling a customer a product "costs $1,200" does not by itself create an offer to sell. It usually needs surrounding detail about what is being supplied, when, and on what terms before it is definite enough to accept.
Acceptance and the mirror image rule
Acceptance is an unqualified assent to the terms of the offer. It must be communicated to the offeror, and it must match the offer exactly. This is the mirror image rule: acceptance has to reflect the offer back term for term. If the response changes anything material, it is not acceptance at all.
The general rule is that a contract is complete only when acceptance is actually communicated to the offeror. In Hinkley v de Vries (No 2) [2006] NSWSC 1049, the court noted the offeror may also prescribe the method of acceptance, for example by requiring a signed copy to be returned rather than a verbal "yes". If the offeree does not use the method prescribed, there may be no contract, even if they clearly wanted one.
What a counteroffer does
A counteroffer is a reply to an offer that introduces different terms. It is not a form of acceptance. It is a rejection of the original offer combined with a new offer of its own, and the original offer dies the moment the counteroffer is made. The offeree cannot later change their mind and accept the original offer, because it no longer exists.
The rule comes from the classic English case Hyde v Wrench (1840) 49 ER 132, where a buyer offered £1,000 for a farm, the seller countered at £950, and the buyer then tried to accept the original £1,000 offer. The court held there was no contract: the counteroffer had destroyed the original offer, which could not be revived.
Australian courts apply the same rule today. In Forte Sydney Construction Pty Ltd v N Moit & Sons (NSW) Pty Ltd [2022] NSWCA 186, a subcontractor quoted for excavation works and the head contractor replied with its own subcontract document on different terms. The Court of Appeal held that the head contractor's document was a counteroffer that rejected the quote, and that the subcontract, not the quote, became the contract when the subcontractor started work.
Two qualifications are worth knowing:
- A question is not a counteroffer: Asking for clarification, such as "would you accept payment over 60 days?", does not reject the offer. In Stevenson v McLean (1880) 5 QBD 346, an inquiry about modified terms was held not to be a counteroffer, so the original offer stayed open. The line between a question and a counteroffer is a fine one: "would you consider 60 days?" is a question, but "we accept, on 60-day terms" is a counteroffer.
- Conduct can accept a counteroffer: Where the parties keep sending each other documents with different terms, a contract can still form by conduct. In Forte Sydney Construction, the subcontractor's decision to start work was treated as acceptance of the head contractor's counteroffer, applying Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523. The party that starts performing is usually taken to have accepted the last offer on the table, whatever they thought they were agreeing to.
A counteroffer in practice: the café fit-out
A worked example shows how quickly these rules bite. Sophie owns a café in Brisbane and asks three fit-out companies to quote on renovating her kitchen. The quotes are offers. Builder A's quote says $85,000 including new extraction, with work to start in eight weeks.
Sophie replies by email: "We'd like to proceed, but we need the extraction hood from your quote replaced with a higher-spec model and a start date of six weeks." That is a counteroffer. Builder A's original $85,000 offer is off the table, and Sophie has made a new offer on her own terms.
Builder A does not reply. Instead, a crew shows up six weeks later and starts stripping out the kitchen. By starting work, Builder A has accepted Sophie's counteroffer by conduct. If the higher-spec hood costs more than the one in the original quote, Builder A cannot point back to the $85,000 figure and insist the original deal stands. The contract is on Sophie's terms, and any dispute about price will turn on what she wrote in that email and what was reasonably understood by it.
If Builder A had instead emailed back "we can do six weeks but the high-spec hood adds $4,000", that would have been yet another counteroffer, and the ball would be back in Sophie's court. Every changed term starts the sequence again.
When an offer ends before acceptance
An offer does not stay open forever. It can come to an end in four ways:
- Revocation: The offeror can withdraw the offer at any time before acceptance takes effect. The High Court confirmed this as early as Goldsbrough, Mort & Co Ltd v Quinn [1910] HCA 20. Revocation only works once it is communicated to the offeree. In Hinkley v de Vries, the court treated the offeror's letter enclosing a different agreement as revoking his earlier offer, precisely because the offeree could no longer accept the old terms.
- Lapse: If the offer states a deadline and it passes, or if a reasonable time elapses without acceptance, the offer lapses. In Forte Sydney Construction the court noted that failing to accept in the manner prescribed does not automatically lapse the offer, but a clear deadline usually will.
- Rejection: An outright "no" ends the offer.
- Counteroffer: As discussed, a counteroffer ends the original offer.
One important exception: if the offeree has paid for the offer to stay open, in an arrangement called an option, the offeror cannot revoke before the option period ends. Without that payment, a promise to "keep the offer open for 30 days" is generally not binding, which is a common trap in property and supply negotiations.
Misconceptions about offers and counteroffers
The rules above are simple to state and surprisingly easy to get wrong. The most common misunderstandings we see in business:
- Silence is acceptance: It is not. In Felthouse v Bindley (1862) 142 ER 1037, an uncle told his nephew "if I hear no more, I consider the horse mine", and the court held there was no contract because the nephew never accepted. You cannot impose acceptance on someone by telling them that not replying will be treated as a yes, and you should never assume your own silence has accepted a supplier's terms.
- "They started the work, so my terms must stand": The opposite is usually true. If you send a purchase order with your terms and the supplier starts supplying, the supplier has accepted your offer, or your counteroffer, by conduct. The risk cuts both ways, and the party that performs first is often the party bound to terms they never read.
- Advertisements and price lists are offers: They are generally invitations to treat, so a business can decline to sell at a displayed price without breaching a contract. (Consumer protection laws may still apply to misleading advertising, but that is a separate question from whether a contract was formed.)
- Asking a question kills the offer: A genuine request for information keeps the offer alive, while a counteroffer kills it. If you want to probe terms without losing the offer, phrase it as a question and say so.
- "We agreed in principle, so we have a deal": Agreement in principle is only enforceable if the terms are definite enough and the parties intended to be bound. An email exchange that reaches a firm position on price, scope and timing can form a contract; a vague "we're on the same page" usually does not.
Where a lawyer helps
Offer and counteroffer problems rarely announce themselves at the time. They surface later, when a customer refuses to pay, a supplier charges more than the quote, or a dispute arises over which document governs. A commercial lawyer can help in three practical ways:
- Reviewing the correspondence trail: They can give you a frank assessment of when the contract was formed and on whose terms. That analysis, done early, is usually worth far more than fighting about it after the work is done.
- Drafting your offers, quotes and purchase orders: They can make expiry dates, acceptance methods and governing terms explicit, which removes most of the ambiguity the courts have to resolve.
- Advising on existing disputes: Where a deal is already in dispute, they can advise on whether revocation was effective, whether conduct amounted to acceptance, and what evidence a court would weigh, before you commit to a position.
For high-value or complex deals, getting a lawyer involved before you reply to a significant counteroffer is the cheapest insurance available. A single email that says "yes, but" can silently rewrite the entire commercial arrangement.
Before you send the revised quote
The question that matters most in every negotiation is simple: which document, at this moment, is the operative offer? If you reply to a supplier's quote with different terms, your reply is the offer now, and the supplier's original quote is gone. If you start work, you accept whatever offer is currently on the table, whether you have read it or not.
Before you send your next revised quote or "yes, but" email, pause and check: have I just killed an offer I wanted to keep alive? Is the price, scope and deadline in this document something I am prepared to be bound by if the other side simply starts performing? If you cannot answer both questions confidently, that is the moment to get the document reviewed rather than to hope the other side reads it the same way you do.