- What an offer needs to be capable of acceptance
- When a response becomes a counter-offer
- What a counter-offer does to the original offer
- Where the line sits: inquiry, invitation to treat and conditional acceptance
- A worked example: the quote that came back changed
- Misconceptions that cost businesses money
- How a lawyer helps you stay on the right side of the line
- Before you hit send: know which move you are making
Every business negotiation is a series of offers and responses, and the response that changes a term has a special name in contract law: a counter-offer. In one stroke it rejects the offer you were given and puts a new offer on the table, and the original deal is usually gone for good unless the other side brings it back.
This guide explains what makes a response a counter-offer, what that does to the offer you were negotiating over, and where the common traps sit, including the battle of the forms, conditional acceptance and silence. It ends with a worked example and the questions worth asking before you reply to your next quote.
What an offer needs to be capable of acceptance
An offer is a clear proposal by one party, the offeror, to another, the offeree, setting out definite terms that the offeree can accept. If the offeree agrees to those exact terms, and the other elements of formation are present, a contract can form.
Not every statement of price is an offer. Advertisements, price lists, catalogues and website product pages are usually invitations to treat: they invite customers to make an offer that the seller can accept or reject. That is why a customer who orders from your online store has made the offer, and your business decides whether to accept it, usually when you confirm the order or dispatch the goods.
For a proposal to be an offer at all, its terms need to be definite enough to be accepted. A message that says "we will supply you at a fair price to be agreed" is generally not an offer capable of acceptance, because the essential terms are not certain. If the terms are too vague, a court may find that no contract ever formed.
When a response becomes a counter-offer
A counter-offer is a response to an offer that changes a term rather than accepting the offer as it stands. The change does not have to be dramatic. A different price, quantity, delivery date, payment term, warranty or limitation of liability can all turn a response into a counter-offer, as can adding a new obligation or removing a protection.
Common examples include:
- Price: $5,000 per unit becomes $4,500 per unit
- Quantity: 1,000 units becomes 800 units
- Timing: delivery in 14 days becomes delivery in 30 days
- Payment terms: 50 per cent upfront becomes net 30
- Scope or protection: a deliverable is added, or a warranty or limitation of liability is removed
If your response changes any of these, you have not accepted. You have made a counter-offer. The same logic applies to a partial acceptance: "we accept everything except the delivery date" is itself a counter-offer, not an acceptance, because acceptance must be unqualified and match the offer exactly.
What a counter-offer does to the original offer
The critical rule is that a counter-offer operates as a rejection of the original offer. As the New South Wales Supreme Court put it in NWA Realty Pty Ltd v Christou [2019] NSWSC 1364, it is a basic principle of contract law that an offer open for acceptance will be brought to an end if it is rejected by the offeree, and the making of a counter-offer operates as a rejection of the offer. The principle dates back to Hyde v Wrench (1840) 3 Beav 334, where an offer to sell a farm for 1,000 pounds was answered with a counter-offer of 950 pounds, and the buyer later tried to accept the original offer. The court held he could not: his counter-offer had destroyed it.
The practical consequence is that you cannot go back and accept the original offer after you have made a counter-offer, unless the offeror revives it in clear terms. From the moment your counter-offer is communicated, the ball is in the offeror's court. They can accept your new terms, reject them, or come back with another counter-offer of their own. If they accept your counter-offer, a contract forms on your terms.
An offer can also come to an end in other ways. It can generally be withdrawn at any time before acceptance is communicated, unless the offeror has been paid to keep it open, as with an option. Offers that state an expiry lapse at that time, and a lapsed offer cannot be accepted without being reissued.
Where the line sits: inquiry, invitation to treat and conditional acceptance
Not every response changes the deal. A request for information is not a counter-offer. Asking "can you do better on price?" or "can you deliver by 1 October?" keeps the original offer alive, because a reasonable person would understand it as a question, not a rejection. The distinction goes back to Stevenson, Jacques & Co v McLean (1880) 5 QBD 346, where an inquiry about whether the seller would accept different terms was held not to be a counter-offer, and Australian courts apply it today.
Whether words amount to acceptance, rejection or a counter-offer is ultimately a question of construction: courts look at the words in their full context and ask what a reasonable person in the offeror's position would have understood them to mean. That is why the same sentence can be a counter-offer in one conversation and harmless negotiation in another, as the worked example below shows.
Conditional acceptance sits on the other side of the line. A response that accepts only "subject to contract" or "subject to board approval" is generally not an unqualified acceptance. In Masters v Cameron (1954) 91 CLR 353, the High Court set out when "subject to formal contract" language leaves the parties without a binding agreement. If you intend to be bound now, say so plainly. If you intend to be bound only once a formal document is signed, keep your language consistent with that, because the messages you send during negotiations can themselves form the contract.
Silence is not acceptance. The old English case Felthouse v Bindley (1862) 142 ER 1037 established that an offeror cannot impose an obligation on the offeree to reject the offer: you cannot say "if I do not hear from you by Friday, you are deemed to have accepted". Acceptance must be communicated, and it must be unqualified. Australian courts will, however, sometimes infer acceptance from conduct, such as starting work or accepting delivery, which is why beginning performance while terms are still being negotiated can be risky.
A worked example: the quote that came back changed
A packaging supplier quotes $12,000 for 5,000 boxes, delivery by 30 June, payment within 30 days, with the quote expressed to be open for 14 days. The buyer replies: "we will take the boxes at $11,000 with delivery by 15 July". That reply is a counter-offer. The supplier's original quote is dead the moment the reply is sent, so if the buyer later emails "actually, we accept your original quote of $12,000", the supplier is free to say no. There is no longer any offer to accept.
If the supplier comes back with "we can do $11,500 with delivery by 10 July", that is another counter-offer, and the deal is done only when one side accepts the other's current terms without qualification. If the buyer had instead simply asked "can you do better on price, and could delivery slip to mid-July?", that is an inquiry, and the original quote would stay open for the full 14 days.
The case of NWA Realty Pty Ltd v Christou [2019] NSWSC 1364 shows how finely the line can be drawn. A commercial lessee with a first right of refusal was offered a property for $3 million, and in response sent an email setting out its "best position" on price and settlement. The vendors argued that was a counter-offer that killed their offer, but the court held it was not. Because the agents had asked the lessee for its best position in order to keep negotiating, a reasonable person would have understood the email as part of the negotiation, not as a rejection. The original offer stayed open and the lessee was able to accept it.
Misconceptions that cost businesses money
Some common beliefs about counter-offers are wrong, and acting on them can cost businesses money.
- A counter-offer keeps the original deal on the table: It does not. The counter-offer rejects the original offer, and the offeror is free to walk away or accept your new terms. The original deal returns only if the offeror revives it.
- Asking a question counts as a counter-offer: It does not, provided the question does not propose different terms. An inquiry leaves the offer open, as Stevenson, Jacques & Co v McLean established, so asking for a better price does not forfeit the deal you were offered.
- Silence means the other side has accepted: It does not. Felthouse v Bindley makes clear you cannot deem an offer accepted just because the other side did not reply. If you need an answer by a date, ask for one in writing.
- In a battle of the forms, the last document wins: Not as a strict rule. Where each side deals on its own standard terms, such as a quote followed by a purchase order followed by an invoice, it can be unclear whose terms govern. In Goodman v Cospak [2004] NSWSC 704, the court noted that Australian courts favour a global approach, examining the whole exchange to work out if and when the parties reached agreement and on what terms. If the forms conflict and neither set is clearly accepted, a court may still find a contract based on performance and knock out the conflicting terms in favour of reasonable or statutory ones. The safer course is to state in your initial offer that your terms apply exclusively and that any different terms are rejected unless agreed in writing.
- An advertisement is an offer I can accept: It is usually an invitation to treat, so the customer's order is the offer and the seller chooses whether to accept it.
- Informal agreement does not count: Emails and phone calls can create binding contracts if the essentials are present. Confirm what was agreed in a short email, and keep your language consistent with whether you are still negotiating or already bound.
How a lawyer helps you stay on the right side of the line
Most negotiations do not need a lawyer in the room, but there are three points where a practitioner earns their fee.
The first is when a dispute has already crystallised: a lawyer can review the negotiation trail of quotes, purchase orders and emails, and advise whether and when a contract formed, and on whose terms. That analysis decides who is bound and what happens if the deal sours.
The second is drafting the clauses that stop the problem before it starts. A well-drafted offer states that your terms apply exclusively and that any different terms are rejected unless agreed in writing, and defines how acceptance occurs, for example "a binding contract forms only when we issue a written order confirmation". A variation clause requiring signed written amendments keeps post-formation changes clean, so a later email does not silently rewrite the deal.
The third is compliance for standard form contracts. Under s 23 of the Australian Consumer Law, which is Schedule 2 of the Competition and Consumer Act 2010 (Cth), an unfair term in a standard form contract with a consumer or a small business is void, and proposing or relying on such a term is a contravention that can attract a penalty. A small business for these purposes employs fewer than 100 people or has turnover of less than $10 million in its last income year, so most Australian SMEs are covered. A lawyer can check your standard terms against these rules before a regulator or a counterparty takes an interest.
A short review of your standard terms, or of a high-value or long-term contract before you accept it, is usually inexpensive relative to the cost of discovering later that you are bound to terms you never intended to accept.
Before you hit send: know which move you are making
The mistake that costs businesses the most in this area is not misunderstanding the word "counter-offer". It is assuming the original offer will still be there after you push back on terms. Every time you reply to a quote or a proposal, you are making one of three moves: asking a question, which keeps the offer alive; counter-offering, which kills it and puts your own terms on the table; or accepting, which locks you in.
Before you send that email, ask yourself which move you are making, and whether you are comfortable with the consequence if the other side simply stops responding. If you cannot answer that question with confidence, or the deal is big enough that being bound to the wrong terms would hurt, a short conversation with a lawyer is a cheap way to find out where you stand before you commit.