An invitation to treat is the step that comes before an offer. It is an invitation for the other side to make you an offer, and on its own it creates nothing that can be accepted. Most of the advertising, window displays, catalogues and price lists a business puts out are invitations to treat, and that distinction decides when a binding contract actually exists.
This article explains what an invitation to treat is, how courts tell one apart from an offer, where the line falls in the everyday situations Australian businesses deal with, and the mistakes that cost retailers, auctioneers and tenderers real money. It also covers when the Australian Consumer Law still polices what you advertise, even though contract law does not.
What an invitation to treat is
An invitation to treat is a communication that invites the other party to make an offer, without itself offering anything. A shop that displays a jacket with a price tag is not offering to sell the jacket to anyone who walks in. It is inviting customers to offer to buy it. The customer who takes the jacket to the counter makes the offer, and the shop is free to accept it or not.
The doctrine exists because businesses need to advertise to the world without being bound to the world. If every advertisement, price tag and catalogue were an offer, a retailer would be contractually committed to sell an advertised item to every customer who "accepted", however many turned up and however the price moved between print and purchase. Treating these communications as invitations to treat lets a business attract interest while keeping control of whether and on what terms it contracts.
The legal effect follows from that. An invitation to treat cannot be accepted, so no contract is formed by responding to it. The person who responds makes an offer, and it is only when that offer is accepted that the parties are bound. That makes the invitation to treat the first of the elements a contract needs. The full set is:
- Offer: A clear statement of the terms on which one party is willing to deal, intended to be binding on acceptance.
- Acceptance: An unqualified agreement to those terms, communicated to the offeror.
- Consideration: Something of value exchanged by each party.
- Intention to create legal relations: The parties must intend their arrangement to be legally enforceable.
- Capacity: The parties must be able to enter a contract, which includes being of age and sound mind.
If a communication is only an invitation to treat, the offer element has not yet happened, and the rest of the machinery never starts.
How courts tell an offer from an invitation to treat
The test is objective. A court asks whether a reasonable person in the position of the recipient would understand that the maker of the statement intended to be bound immediately upon acceptance, or whether the maker was merely inviting offers. Labels are not decisive. A document headed "offer" may still be an invitation to treat if it reads like a statement of terms to be negotiated, and a document that avoids the word can still be an offer if it promises to be bound.
The classic example of a genuine offer buried in advertising is Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, where the manufacturer promised £100 to anyone who used its smoke ball and still caught influenza. The court held that the advertisement was an offer because the manufacturer had made its intention to be bound unmistakable, including by depositing £1,000 in a bank to meet claims. Advertisements are usually invitations to treat, but they become offers where the advertiser clearly promises to be bound.
The other side of the line is Gibson v Manchester City Council [1979] 1 WLR 294, where a council wrote that it "may be prepared to sell" a house to a tenant and asked him to apply for a loan. The House of Lords held that this was not an offer. It was an invitation to treat, a statement of a possible willingness to deal, and no contract arose from the tenant's response. Australian courts apply the same objective approach, and the Federal Court has treated both cases as settled authority on the distinction.
Where invitations to treat appear in practice
The concept shows up in a handful of recurring situations, and each has its own rule.
Shop shelves and window displays
Goods displayed on shelves or in shop windows are invitations to treat, a rule established in the classic English decisions Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401 and Fisher v Bell [1961] 1 QB 394 and long applied in Australia. The offer is made when the customer presents the goods at the checkout, and the shop accepts by taking payment or otherwise indicating it will sell. The practical consequence is that a shop is not contractually obliged to sell at the price shown on the ticket. The ticket is information designed to attract an offer, not a promise to sell.
Advertisements and catalogues
The general rule from Carlill is that advertisements, catalogues and price lists are invitations to treat. A newspaper ad for a car or a catalogue showing a price does not oblige the advertiser to sell to the first person who responds. The exception is where the advertiser makes its intention to be bound clear, which happens most often with unilateral offers such as reward posters, "first person to..." promotions and some competitions. If the terms of the promotion promise a prize to whoever meets the stated condition, the advertiser can be held to it.
Auctions
At an auction, the auctioneer's call for bids is an invitation to treat. Each bid is an offer, and the contract is formed when the auctioneer accepts by bringing down the hammer. Until the hammer falls, no contract exists, which means a bidder whose bid is rejected has no right in ordinary circumstances to force the sale: see AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454 and the discussion in Seivewright v Brennan [2005] NSWSC 216.
For real property auctions in NSW, the auction conduct regulations make the position concrete: the highest bidder becomes the purchaser subject to any reserve price, the auctioneer may refuse to accept a bid, and no bid can be made after the fall of the hammer.
There is one important exception. Where an auction is advertised "without reserve", the auctioneer is taken to promise that the property will be sold to the highest bidder, and can be sued if it is withdrawn: Barry v Davies [2000] 1 WLR 1962. A vendor who wants the freedom to reject bids should therefore never describe an auction as without reserve unless that is genuinely what is intended.
Tenders
A request for tender is an invitation to treat, and the tender itself is the offer, a rule established in Spencer v Harding (1870) LR 5 CP 561. The party calling for tenders is ordinarily free to accept none of them, to accept any of them, and to reject the lowest price. The tenderer is not bound until its tender is accepted.
The qualification is the "process contract". Where the request for tender promises that conforming tenders will be considered, or that the tender evaluation will follow stated criteria, that promise is itself a contract and can be enforced: Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195, applied in Australia in Hughes Aircraft Systems International v Civil Aviation Authority [1995] FCA 434. A tenderer excluded from consideration in breach of such a promise can sue even though no main contract was ever formed. The wording of the request for tender decides which regime applies, which is why it should be drafted deliberately.
Online stores and marketplaces
The traditional rules still apply in principle online, but no Australian appellate court has settled whether an ordinary online listing is an invitation to treat or an offer, so the words on the site decide the question. Platform terms and checkout design matter a great deal. In Peter Smythe v Vincent Thomas [2007] NSWSC 844, an aircraft sold through an eBay-style online auction, and the court examined the platform's terms, which stated that eBay was not an auctioneer and that a bid bound the bidder only if accepted by the seller. Those terms displaced the traditional auction analysis.
Many Australian retailers deal with the uncertainty in their own terms and conditions, stating that orders are offers that the retailer accepts only when it confirms dispatch or sends a confirmation email. Others take the opposite approach and promise to honour listed prices. The point is that the retailer, not the law, usually chooses where the line falls, provided the choice is written clearly enough for a customer to understand it.
Worked example: a pricing error in an online store
Imagine a retailer's website lists a coffee machine worth $1,200 at $120 because of a system error in the pricing feed. Two hundred customers order overnight and pay by card. The retailer wants to cancel every order. Can it?
Start with the listing. If the website states that listings are invitations to treat and that orders are accepted only on confirmation, then each order is an offer. The retailer can decline each offer by refunding the money, and no contract exists to breach. If the site instead says that a completed order or a confirmation email creates a binding agreement, or if the confirmation email the customer received promises dispatch, the retailer may already have accepted, and cancelling would be a breach of contract.
The consumer law overlay is separate. Even where no contract is formed, s 18 of the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law) prohibits misleading or deceptive conduct in trade or commerce, and s 29 prohibits false or misleading representations, including about price. A pricing error that misleads customers can engage those provisions, although a genuine mistake that is corrected promptly and refunded in full is unlikely to attract regulator action. The retailer should correct the listing, refund promptly, and check what its own confirmation emails promised before it decides it is safe to cancel.
The example shows why the invitation to treat analysis matters in practice. Everything turns on the wording of the listing, the design of the checkout, the terms of the site and the speed of the correction. None of that can be assumed.
Common misconceptions
Misconceptions about invitations to treat tend to come in a few recurring forms:
- "The shop must honour the advertised price": As a matter of contract law it does not have to, because the price tag is an invitation to treat, not an offer. But the Australian Consumer Law still prohibits misleading conduct and false representations about price, so a retailer is not free to mislead. A genuine error fixed quickly is very different from advertising a price with no intention of supplying at it.
- "An advertisement is an offer, so anyone can accept it": Generally it is an invitation to treat. The exception is where the advertiser clearly promises to be bound, as in the smoke ball case, and that is rare outside unilateral promotions.
- "The highest bidder always gets the property": At an auction with a reserve, the auctioneer can refuse a bid and the property can be withdrawn before the hammer falls. The "without reserve" case, where the highest bidder can compel a sale, is the exception.
- "The lowest tender must win": There is no such obligation. The party calling for tenders can reject every tender unless it has made a process contract promising to consider conforming tenders.
When a lawyer helps
The invitation to treat line is simple in theory and treacherous in practice, because it is decided on the words of each document. A commercial lawyer can review the documents that sit on the line: advertisements and promotional terms, price pages, checkout flows and confirmation emails, requests for tender, and auction conditions. The work is usually about making the line land where the business wants it.
The typical tasks are checking that terms and conditions state clearly when an order is accepted, drafting a request for tender that creates a process contract only if one is intended, advising whether an auction should be with or without reserve, and assessing whether a marketing campaign or a pricing practice risks the misleading conduct provisions of the Australian Consumer Law. The stakes are highest where the volume is large, such as a pricing error that generates hundreds of orders, a government or major contract tender, or the auction of a significant asset, because the cost of the line being drawn in the wrong place is measured in the value of the whole transaction.
The question to ask before you publish anything
Before you publish a price, call for tenders or run an auction, ask yourself one question: do I intend to be bound by this, and would a reasonable reader think I do? Decide where you want the line, then draft the document so the line lands there. The most expensive mistake is the assumption that advertising carries no obligations at all. Contract law may not hold you to a displayed price, but the Australian Consumer Law still polices what you say, and a carelessly drafted confirmation email or request for tender can bind you in the opposite direction, whether you meant it to or not.