Contracts By Conduct: When Actions Create Binding Agreements In Australia

As a small business owner, you probably spend a lot of time thinking about contracts as “documents” - quotes, terms and conditions, purchase orders, signed agreements and invoices.

But in practice, plenty of enforceable contracts in Australia are formed without anything being signed. Sometimes, the “contract” is created through what you and the other party do.

This is where the idea of a contract by conduct comes in. It’s a common issue for businesses because it can create unexpected legal obligations (and disputes) when you thought you were still “negotiating” or operating informally.

Below, we’ll break down what contract by conduct means, how it happens, what the risks are for your business, and how you can protect yourself with clearer processes and documents.

What Is A Contract By Conduct (And Is It Legally Binding In Australia)?

A contract by conduct is a contract that forms because the parties behave as if they have a deal - even if they never sign a written agreement.

Under Australian contract law, a contract can be legally binding if the usual elements of a contract are present, including:

• Offer (one party proposes specific terms)
• Acceptance (the other party agrees to those terms)
• Consideration (something of value is exchanged - usually money for goods/services)
• Intention to create legal relations (a business arrangement typically has this)
• Certainty (the terms are clear enough to enforce)

With a contract by conduct, acceptance may be inferred from actions rather than a signature. For example, if you deliver goods, the customer receives them, and they pay your invoice - those actions can point to an agreement.

This doesn’t mean every interaction becomes a contract. The key question is whether a reasonable person would view the parties’ conduct as showing they intended to be bound by an agreement on sufficiently certain terms.

If you want the legal fundamentals in plain English, it can also help to understand what makes a contract legally binding, because the same core principles apply whether the agreement is written, verbal, or implied by conduct.

How Do Contracts Form Through Actions? Common Business Scenarios

Contracts by conduct show up in day-to-day operations - especially when you’re moving quickly, dealing with repeat customers, or trying to be flexible.

Here are some common scenarios where a contract by conduct can form.

1. Starting Work Before The Contract Is Signed

This is one of the biggest risk areas for service-based businesses (consultants, agencies, tradies, IT providers, marketing professionals, designers and many others).

For example:

• you send a proposal or scope of work
• the client says “sounds good” (but never signs)
• you start delivering work (meetings, drafts, onboarding, access setup)
• the client uses the deliverables or asks for revisions

Even without a signed agreement, a court may find there’s a contract on the basis of how both parties acted.

The tricky part is that you may assume your standard terms apply, while the client assumes something else (price, scope, ownership, timelines, cancellation rights). That’s when disputes begin.

2. Supplying Goods Based On Purchase Orders, Emails Or Repeated Dealings

If you run a product-based business (manufacturing, wholesale, distribution, importing, retail supply chains), you might be used to fulfilling orders quickly.

A contract can form when:

• a buyer emails an order request and you ship the goods
• a buyer issues a purchase order and you fulfil it
• the parties have a consistent pattern of ordering and supplying over time

Even if terms and conditions weren’t expressly agreed each time, the conduct may imply an ongoing arrangement (and may also help establish what terms apply).

3. Paying An Invoice (Or Accepting Payment) Without Finalising Terms

Payment is often a strong indicator that the parties believe there is an agreement in place.

If a customer pays your invoice and you continue supplying services, this conduct can support the existence of a binding contract.

On the flip side, if you accept a deposit or progress payment while still saying “the contract isn’t signed yet”, you may unintentionally strengthen the argument that a contract already exists (depending on what was communicated and how both sides behaved overall).

This is where having clear, upfront Terms of Trade can be a practical way to reduce confusion about payment timing, credit terms, late fees, delivery risk and other key issues.

4. Accepting Delivery Or Using Goods/Services

Sometimes it’s the customer’s conduct that suggests acceptance - for example, they:

• accept delivery and don’t object within a reasonable time
• use the goods in production
• on-sell the goods
• consume the service and continue requesting more

Even if they later argue they never “agreed”, their actions may suggest otherwise.

5. “We’ll Sort The Paperwork Later” Arrangements

Many small businesses operate on trust - especially with long-term suppliers, contractors, or partners.

But if you keep trading, delivering, and accepting payment while intending to finalise formal paperwork “later”, you may already be in a legally enforceable relationship. If things go wrong, you can be left arguing over what the actual terms were.

When you’re collaborating with another party on ongoing work (especially where deliverables, timelines, and money are involved), a written Service Agreement can help align expectations and reduce disputes about what was agreed.

What Terms Apply In A Contract By Conduct (If Nothing Is Signed)?

One of the hardest parts about a contract by conduct is not just whether there is a contract - it’s what the contract actually says.

If there is no signed agreement, the terms may come from a mix of sources, such as:

• Emails and messages setting out scope, price, timelines, or responsibilities
• Quotes and proposals (and any terms attached or referenced)
• Invoices (including payment terms and descriptions)
• Purchase orders (often the buyer’s terms)
• Past dealings between the parties (what you’ve consistently done before)
• Industry custom (in some cases)

This is also where “battle of the forms” issues can appear - where each party is sending their own terms and conditions, but neither side clearly agrees to the other’s terms.

When a dispute arises, it can become a fact-heavy argument about who said what, when, and which documents were actually incorporated into the deal. In practice, whether a term is incorporated often turns on whether it was sufficiently brought to the other party’s attention before (or at the time) the contract was formed, and whether the parties’ conduct shows acceptance of that term.

If you’re unsure how offer and acceptance can play out in real business communications, it’s worth being familiar with offer and acceptance principles, because they often sit at the centre of contract by conduct disputes.

Why Contract By Conduct Can Be Risky For Small Businesses

Operating informally can feel efficient - but contract by conduct can expose you to legal and commercial risk if your expectations don’t match the other side’s.

Scope Creep And Unpaid Work

If you start work before locking down scope and variation rules, clients may assume additional tasks are “included”. You might assume they’re billable. If the relationship breaks down, you can end up in a dispute about what was agreed and what must be paid.

Payment Disputes And Cash Flow Pressure

If payment timing isn’t clearly agreed, you might deliver first and chase payment later. If the customer delays, you may find it difficult to enforce payment terms that weren’t clearly agreed or incorporated into the arrangement.

Termination And Cancellation Confusion

Can the customer cancel? Are you entitled to a kill fee? Can you charge for work completed to date? Without clear terms, you may be relying on general contract law principles (and any terms that can be implied), which can be uncertain and stressful to enforce.

This is where well-drafted terms (including cancellation clauses) can help, but they generally need to be properly brought to the other party’s attention before the contract forms (or clearly agreed as a variation) - otherwise you may not be able to rely on them.

Liability, Warranties And “Who Pays If Something Goes Wrong”

If there is a dispute about defective goods, poor performance, delays, or consequential loss, the stakes can escalate quickly.

If your written terms weren’t properly incorporated, you may have limited protection around:

• limitations of liability
• exclusions of certain types of loss
• warranty and defect processes
• time limits for claims

If your business relies on limitation wording, it’s also important to understand how limitation of liability clauses work in Australia (and when they might not be effective).

Intellectual Property Ownership Problems

For creative, tech and professional services businesses, a big risk is: who owns the work product?

For example, if you’re building a website, producing content, designing branding, or developing software, ownership (and licence rights) should be clearly set out. If there’s only an informal arrangement, both parties may assume they “own” the output.

That’s not a position you want to be in if the relationship ends or you need to reuse templates, code, processes, or design elements.

How To Avoid Accidental Contracts (Or At Least Control The Terms)

You can’t always avoid contract by conduct - and in many industries, it’s simply how business gets done.

But you can reduce your risk by tightening your processes so that if a contract is formed by conduct, it’s formed on terms that protect you.

1. Use Clear Written Terms Early (Before You Start Performing)

If you want to rely on your terms, the safest approach is to provide them upfront and ensure they’re clearly connected to the work.

For example:

• attach terms to your quote
• include a clear link to terms in your proposal (and ensure they’re accessible)
• ask for written confirmation (even by email) that the customer accepts the quote and terms

The goal is that if you later need to enforce your terms, you can show they were part of the deal before the customer accepted (whether by signing, paying, or instructing you to start work).

2. Make “No Contract Until Signed” Language Consistent (And Actually Follow It)

Some businesses try to prevent a contract forming early by stating “no binding agreement exists until the contract is signed” (often described as being “subject to contract”).

This can help, but you need to apply it consistently, and the overall facts still matter. If your emails say “not binding until signed” but you then:

• commence work
• deliver key milestones
• accept payment

…a court may still find that the parties’ conduct (and communications) shows an intention to be bound despite that wording, or that a separate, more limited agreement was reached (for example, to pay for work performed to date).

If you truly need signature first (for example, because you’re taking on major liability or high-value work), align your internal process so you do not start performing until it is signed.

3. Clarify Variations, Extra Work, And Out-Of-Scope Requests

A practical way to avoid disputes is to make it easy to handle scope changes. If a customer asks for something extra, respond in writing with:

• what the extra work is
• how much it costs (or how it will be priced)
• what impact it has on timing
• that you’ll proceed once they confirm

This protects your margin and reduces “we thought it was included” disputes.

4. Keep Strong Records (Because Evidence Matters)

Contract by conduct disputes often come down to evidence. Keep clear records of:

• quotes and proposals sent
• emails where the customer instructs you to proceed
• what was delivered and when
• invoice acceptance and payment history
• any objections (or lack of objections) from the other side

This doesn’t have to be complicated. Even a consistent system in your CRM or project management tool can make a big difference if a disagreement arises later.

5. Use The Right Agreement For The Relationship

Different relationships need different documents. A one-size-fits-all approach can leave gaps.

Depending on how your business operates, you might consider:

• customer terms and conditions (for product sales or standard services)
• service agreements (for bespoke projects)
• supply agreements (for ongoing supplier/customer relationships)
• contract variations (to document changes properly)

And if you’re bringing staff on (which increases your risk profile), having a tailored Employment Contract helps set out expectations, confidentiality, IP and termination rules from the start.

What Should You Do If You Think You Already Have A Contract By Conduct?

If you suspect you’re in a contract by conduct situation right now - maybe work has started, money has changed hands, or both sides are acting as if there’s a deal - the key is to reduce uncertainty quickly and professionally.

Step 1: Confirm The Core Deal Terms In Writing

Send a short email confirming (in plain English):

• what you’re supplying
• price and payment timing
• timeframes
• any key exclusions or assumptions

You’re not trying to “win” an argument in that email - you’re trying to align expectations before the relationship gets more expensive or harder to unwind.

Step 2: Provide A Formal Agreement Or Terms For Future Work

Even if some work has already been done, you can still put a formal contract in place for the remaining scope or ongoing services.

This is often a sensible way to reduce risk without stopping the project entirely.

Step 3: Be Careful About Changing Terms Mid-Stream

If you try to introduce brand-new terms after the other party has already accepted the arrangement by conduct, you may not be able to rely on them (unless the other party agrees).

Think of it as a “reset” conversation: you can propose updated terms going forward, but you should treat it like a contract variation and get clear agreement.

Step 4: Get Legal Advice If The Stakes Are High

If there’s a lot of money on the line, if the relationship is deteriorating, or if you’re being threatened with legal action, it’s worth getting advice early. Contract by conduct disputes can escalate quickly because both sides often feel they’re “obviously right”.

Often, the fastest way to resolve it is to identify (1) whether a contract exists, (2) what evidence supports the terms, and (3) what a commercial resolution could look like.

Key Takeaways

• A contract by conduct can form when you and the other party behave as though you have a deal, even if nothing is signed.
• Common triggers include starting work before signing, fulfilling orders based on emails or purchase orders, accepting payment, or continuing a long-running business relationship informally.
• The biggest risk isn’t just whether a contract exists - it’s uncertainty about which terms apply, which can lead to scope, payment, cancellation, liability and IP disputes.
• You can reduce risk by providing written terms early, keeping consistent “signature first” processes when needed, documenting variations, and keeping strong records.
• If you think you already have a contract by conduct, confirming key terms in writing and formalising the arrangement for future work can help prevent disputes.

Important: This article is general information only and isn’t legal advice. If you’d like advice on your specific situation, get in touch with a lawyer.

If you’d like help setting up customer terms, service agreements, or contract processes that prevent accidental obligations, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.