CONTRACT FORMATION (+ Intro)

Introduction

Until 1875, Common Law and Equity courts were separate; today, this influences jurisdictional sources (eg equitable doctrines). Equitable remedies are discretionary, not of right. Injunctions, specific performance, doctrine of account are all important equitable doctrines.

Several cases have diminished the CL/equity distinction – The Great Peace (2003), BCCI v Ali (2001) (when interpreting written contracts, use CL – no equitable principles). Burrows (2002) argues that equity should be abolished – there should be a single, unified law of obligations and property.

General Principles Freedom of contract – Freedom of contract is the fundamental principles of contract law – the court will respect parties’ agreements and will not attempt to re-write them. There are three aspects: 1. All parties must make free, voluntary decisions when entering the transaction 2. Parties can, by agreement, stipulate that the agreement is not legally binding 3. Parties can and do shape the contents of the contract (assuming non-mandatory terms exist in the contract)

Objective principle – Parties’ language or conduct must be assessed according to outward reasonable meaning or appearance. - Crest Nicholson (Londinium) Limited v Akaria Investments Ltd (2010) (issue of whether a party has made an offer is to be objectively determined)

Leggatt notes this principle enables courts and third parties to make sense of an agreement without exploring the messy subjective aspects of the deal (parties’ intentions).

Promisee-objectivity means considering how the matter appears from the reasonable and objective perspective of the promisee - McCutcheon v David MacBrayne Ltd (1964) (Reid – what A was reasonably entitled to conclude from B’s attitude) - The Hannah Blumenthal (1983) (Diplock – objectivity only requires us to determine whether the recipient drew a psychological inference and whether psychological reliance can be imputed)

Detached observer objectivity means the court considers the matter from the perspective of a detached third-party observer (rather than promisee). Since the text of contracts acquires a legal life of its own, external objectivity is used to interpret written contracts. This involves reading the whole text, considering context, and applying commercial common sense to give it effect.

Objectivity is only how it would look to a reasonable person, not how it did look to a party - Thake v Maurice (1986) (therapeutic comfort for vasectomy ≠ promise)

B is not obliged to bring to A’s attention the fact that A is in error concerning the nature or quality of the contract’s subject matter; however, if B is aware of A’s mistaken belief that there is an implied term or warranty of the contract protecting A, the court will give effect to A’s belief (B cannot use objective principle to prevent A from taking advantage of the term) - Smith v Hughes (1871) (old oats – buyer would have defence if seller knew B thought oats were implicitly warranted to be old; if B merely believed they were (physical mis-analysis), this is B’s error even if S knew of the misanalysis) – Bell v Lever Bros Ltd (1932) (Atkin approved Smith v Hughes) – BCCI v Ali (2002) (Hoffmann – parties can legitimately take advantage of known ignorance of another party) – Statoil ASA v Louis Dreyfus Energy Services LP (‘The Harriette N’) (2008) (unilateral mistakes will only make no binding contract when as to a term) - Hartog v Colin & Shields (1939) (skins by pound vs piece – B knew A’s mistake ≠ enforceable) - OT Africa Lines v Vickers plc (1996) (Mance suggests if B objectively should have known of A’s mistake ≠ enforceable)

Binding force of agreement (pacta sunt servanda) – you cannot withdraw from a contract once committed – it is binding. Radcliffe in Bridge v Campbell Discount Co Ltd (1962) noted an English judge cannot ‘serve as a general adjuster of men’s bargains’.

Estoppel – Estoppel provides protection against other parties’ inconsistency. (See S1 notes). Estoppel prevents A from unfairly derogating from B’s assumption or understanding which A has induced/encourage/been aware of or which both parties have informally assumed or explicitly agreed.

Note on Estoppel by convention – criteria in Republic of India v India Steamship Co Ltd (No 2) (1998). It arises where parties rely on a shared assumption or an assumption raised by one and acquiesced to by the other; it does not require a binding agreement. The assumption must be communicated between the parties (insufficient that both parties act on uncommunicated assumptions). - Hiscox v Outhwaite (1992) – once the common assumption is revealed to be false, estoppel will not apply to future dealings - Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd (1982) (Denning – where parties to a contract are mistaken in common as to its effect and embark on dealings under this mistake, the original contract is replaced by convention which binds as if an express term)

Good Faith and Fair Dealing There is no over-arching doctrine of good faith in contract law, though there as smaller doctrines which arguably substantiate a principle of good faith (not a general doctrine). Good faith has no independent validity, but is used to rationalise several independent doctrines. Implicit reliance on good faith:

v Promissory estoppel (equity), waiver and estoppel (CL), estoppel by convention v Protection where party has unconscionably acquiesced in the other’s mistake v Specific duties to disclose v Fiduciary duties (fair dealing duties on agents/fiduciaries) v Implied terms (eg implied duty to conduct tender process in good faith) v Equitable relief against forfeiture of proprietary or possessory interests v Decisions denying a party’s right to terminate contract where disproportionate to breach v Principle that equitable relief is withheld if applicant lacks ‘clean hands’

CRA 2015 prescribes ‘good faith’ as a criteria for determining the validity of standard contract clause for the supply of goods or services affecting a consumer (s 62(4)(6)).

In Yam Seng Pte Ltd v International Trade Corporation Ltd, Leggatt noted three reasons for English hostility to good faith as a general doctrine: 1. English law proceeds incrementally rather than by enforcing broad principles 2. English law allows parties to pursue their self-interest in negotiations and performance so long as they do not act in breach of terms 3. Fear that a general doctrine would create too much uncertainty

If parties agree to perform a contract in good faith, that will be given effect. Good faith may also be required when exercising contractual powers and making decisions affecting the counter-party’s interests - Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a Medirest) [2013] - Braganza v BP Shipping Ltd [2015]

What ‘good faith’ requires will be ‘sensitive to context’ (Leggatt in Yam Seng) and ‘heavily conditioned by its context (Lewison, Mid Essex). It may require relevant considerations to be take in, rationality, communication of facts, certain conduct et.

“The test of good faith is objective in the sense that it depends not on either party’s perception of whether particular conduct Is improper but on whether in the particular context the conduct would be regarded as commercially unacceptable by reasonable and honest people” (Yam Seng).

Collins proposes that the GF standard should be understood as a spectrum of norm, requiring honesty in fact at the narrowest and performance taking the other party’s interests into account at its broadest. The context-dependency explains why it is more accepted in actual contracts than negotiations – it is moulded by parties’ agreements and can be given objective meaning – within parties’ control.

Contract Formation

When determining whether an offer has been made, an objective approach should be used (how O’s intent would appear to the reasonable person) - Crest Nicholson (Londinium) Limited v Akaria Investments Ltd [2010] EWCA Civ 1331 - Tamplin v James (1880) (A bid at auction for mistaken plot; valid contract)

In order for a contract to form, there must be both offer and acceptance, but this analysis is often strained (eg where contracts come into existence as a result of performance) - Gibson v Manchester CC (1979) (council’s communication was not offer, but invitation to treat) - New Zealand Shipping v Satterthwaite (The Eurymedon) (1975) (Wilberforce notes strain of O&A model) - Clarke v Dunraven (The Satanita) (1897) (contracts with boat club stretched between participants) - Trentham (Percy) Ltd v Archital Luxfer (1993) (Steyn – performance-created contracts don’t fit)

Offers and Invitations to Treat An offer is an unequivocal proposal open to acceptance by the offeree without further negotiation. The offer is accepted by the offeree’s response to the offer, which almost always must be successfully communicated to the offeror.

The word ‘offer’ does not necessarily mean a contractually valid offer is made – Spencer v Harding (1870)

An invitation to treat is an opportunity for further dealings (not a firm proposal capable of acceptance)

Goods lying on shelves in shops are invitations to treat, not offers available for immediate acceptance. When brought to the till, the person wishing to buy makes an offer (silent offer through conduct of presenting goods), and a contract for sale arises when the cashier accepts (conditional on immediate payment). – Fisher v Bell (1961) (display of illegal knife ≠ offer to sell) – Pharmaceutical Soc of GB v Boots etc Ltd (1953) (drugs required to be sold under pharmacist’s supervision; display ≠ offer of sale, offer to be supervised at till)

An advertisement of goods or services is prima facie an invitation to treat, not an offer leading to a bilateral contract, but there are exceptions – Grainger & Sons v Gough (1896) (advertisement for sale is invitation to treat) – Partridge v Crittenden (1986) (advertisement for sale of illegal bird ≠ offer) – Cf. Carlill v Carbolic Smoke Ball Co (1893) (offer for a unilateral contract – acceptance by conduct)

Offers can be made to individuals or to the world at large (Eg Carlill). A person only becomes an offeree when they are aware that the offer has been made towards them - Gibbons v Proctor (1981) (A initially unaware, but aware when O received acceptance = offeree) - R v Clarke (1927) (Aus) (forgetting offer counts as being unaware ≠ offeree) - Williams v Carwardine (1891) (non-contractual motive does not prevent A from accepting the offer if aware – if A is aware of unilateral contract offer and does the act, contract is formed)

Identical cross-offers made at the same time do not equate to offer and acceptance – still only offers - Tinn v Hoffmann & Co (1873) (obiter, judges felt no contract)

Counter-Offers A counter-offer arises when an offeree’s response does not align with the offer made – it then becomes a fresh offer, which must be accepted by the other party (the original offer is extinguished).

A counter-offer is distinct from a mere request for clarification or confirmation of terms - Stevenson, Jacques & Co v McLean (1880) (inquiry about desired date left OG offer intact)

Because all terms to the contract must be contained expressly or impliedly in the offer itself, an acceptance purporting to add something is a counter-offer.

Cf. Sched 2, Art 2.6 Uniform Laws on International Sales Act 1967 – reply which purports to be an acceptance but contains additional or different terms which do not ‘materially alter’ the offer will be acceptance including those terms unless O promptly objects. This only applies where parties choose Uniform Law of Sales as the law governing the contract. Even outside these rules, if O acts on A’s modified acceptance it may be acceptance through conduct of a counter-offer.

Termination of an offer Rejection Once an initial offer has been rejected (including by making a counter-offer), it ceases to exist (because O views self as free to make inconsistent offers, and a reasonable A must know this) - Hyde v Wrench (1840) (counter-offer to buy car rejected, original offer not available) - Grant v Bragg (2009) (offer rejected by being not ready to transfer shares)

Withdrawal/Revocation An offer cannot be accepted if, at the moment A intends to accept, A knows O has revoked the offer (including where A indirectly discovers the offer is not available; incl. acting inconsistently). - Dickinson v Dodds (1876) (sale of house to another party = withdrawal)

If A does not have notice and accepts in time, O is bound to A and the other party and must break the contract with one of them.

An offer is only binding (irrevocable) if the option is binding. This requires a promise to keep the offer open, supported by consideration or presented as a deed. If O makes an offer and promises to keep it open for X time, O can revoke by notifying A unless A has given consideration - Routledge v Grant (1828) (offer to buy a house with 6 weeks for acceptance could be revoked) - Mountford v Scott (1975) (option to buy secured by £1 = no revocation, specific performance)

When an offer is made to the world at large, unclear what qualifies – not answered in the UK, but in the US suggested it can be revoked through same notoriety as the offer (eg if done by news ad, revoked through news ad) – A does not need to be aware of revocation.

A revocation will be effective even if not in explicit terms of revocation, as long as it is clear to A that O is unwilling to be bound on the terms of the offer - Financings Ltd v Stimson (1962) (O thought rescinding, but was in fact revoking offer to buy)

Expiry Offers have express or implied expiry dates (within a specified time or within a reasonable time if unspecified). The reasonable time is taken to be an implied term n the offer which any reasonable person would assume O intended.

Cf. Buckley in Manchester Diocesan Council for Education v Commercial and General Investments Ltd, where he preferred the explanation that a failure to respond in a reasonable time period impliedly rejects the offer (rather than expiry) – difference is implied rejection requires events after the offer was made to be taken into account to assess reasonableness.

If an offer is not accepted before then, it expires (is incapable of being accepted) - Grant v Bragg (2009) (offer rejected, but explicit time had also expired) - Korbetis v Transgrain Shipping BV (2005) (acceptance of arbitrator in excess of reasonable time) - Ramsgate Victoria Hotel Co Ltd v Montefiore (1866) (shares were not allotted in reasonable time, not bound to accept) - Manchester Diocesan Council for Education v Commercial & General Ltd (1970)

O can also expressly state that the offer will terminate upon a specific event – A cannot accept, whether or not A is aware of the event. These conditions may also be implied (where events would frustrate the making of a contract). An offer may sometimes be frustrated by an event where a contract would not - Financings Ltd v Stimson (1962)

The death of O will terminate an offer if for personal services; if capable of performance despite death, A can still accept so long as A is not aware of the death – Bradbury v Morgan (1862) (capable of performance, A had no notice)

If O contracted for a permanent liability, it binds personal representatives. Unilateral contracts are more likely to be within – offers of bilateral contracts are less likely to survive death (impossibility of performance nullifies, and promise exchange will likely give A notice of death) – Lloyd’s v Harper (1880) (father agreed to guarantee son’s debts, enforceable)

A’s death will also terminate the offer – agent loses authority to accept on A’s behalf when A dies, A cannot accept.

Acceptance

Eligibility for acceptance An offer which is not real/does not objectively exist cannot be accepted - Crest Nicholson (Londinium) Limited v Akaria Investments Ltd (2010) (initial letter did not make offer)

If no offer was intended, but is accepted in good faith on objective evidence that is exists, there is successful acceptance (but appears to be equitable – specific performance not demanded, damages were awarded to account for detrimental reliance) - Moran v University College Salford (No 2) (1993)

If A knows that the offer was not intended to be made to them, there can be no acceptance - Shogun Finance Ltd v Hudson (2003)

Forms of Acceptance Acceptance usually must be made by successful communication to O (either direct verbal/written communication, body language, or conduct), but there are exceptions. If the offer explicitly says acceptance does not need to be communicated, this will be an exception (rare).

An offeree cannot be made to accept by silence when a bilateral contract is offered (‘I will take it as accepted unless I hear otherwise’) - Felthouse v Bindley (1862) (purchase of a horse)

But if O offers by silence, and A takes this at face value (does not communicate), policy would seem to say O should be bound by the contract. However, Denning in Robophone Facilities Ltd v Blank ruled a written offer which would only bind on signature required signature and notification to O – otherwise A could keep the form unsigned and do what he wished, without O knowing if he had a contract.

When A indicates that an offer should be considered accepted unless he indicates contrarily in a specific time frame, Gibson (obiter) in Re Selectmove felt this was an undertaking to communicate if A did not want to contract – it should be valid acceptance.

Offers can be accepted by conduct which corresponds precisely to the contract - Nissan UK Ltd v Nissan Motor Manufacturing (UK) Ltd (production and delivery of cars as specified in the offer = acceptance)

When an offer is unilateral, dependent on conduct, A does not need to tell the company when they accept the offer (begin conduct), only when they make a claim – offeror waives the requirement of verbal acceptance – Carlill v Carbolic Smoke Ball Co

When an offer specifies a specific mode or time by which acceptance must be given to be binding, A must comply – O must make it very clear that this is the only method which will suffice - Holwell Securities Ltd v Hughes (1974) (acceptance given to O’s solicitor when O specified to O ≠ valid)

Where an offeror has prescribed a mode of acceptance, but has not insisted that only acceptance in that form will be binding, acceptance in another form equally advantageous to O can be used - Manchester Diocesan Council for Education v Commercial & General Ltd (1970)

Timing of Acceptance (Instant Communication) Acceptance occurs when O receives it (except postal rule – see below). In the case of instant communications (fax, email, telex), the contract is formed when and where acceptance is received by O - Brinkibon v Stahag Stahl (1983) - Entores Ltd v Miles Far East Corp (1955)

Note that with instant communication, A will usually get a bounce-back etc if it does not work, unlike postal situation.

When acceptance reaches O during normal working hours at O’s business, communication is valid when received, even if not actually read (capacity to access is sufficient) – adequate business notification. Where communicated acceptance arrives outside O’s business hours, the law is not settled but it seems acceptance occurs when O’s business re-opens the next working day - Brinkibon v Stahag Stahl (1983) (Wilberforce noted where communication is not intended to be instantaneous, question must be resolved by business practices, where risks should lie, and parties’ intent) - Schelde Delta Shipping BC v Astarte Shipping BV (The Pamela) (1995) - The Brimnes (1975) (acceptance sent outside business hours is accepted at next start of business)

Cf. Nolan, who suggests that emailed acceptance should take effect as soon as the email becomes accessible to O (on server or capable of download), which should apply on a 24/7 basis regardless of business hours.

Postal Acceptance

Where acceptance is made by post, an exception applies to create the contract at the moment of posting, rather than receipt by O – it will be accepted even if the communication never reaches O. - Adams v Lindsell (acceptance is complete and contract made when A posts the letter) - Household Fire Insurance Co v Grant (1879) (if letter is lost and never arrived = acceptance)

The letter must be correctly addressed and posted (non-delivery must not be A’s fault); if the letter does arrive anyways, the postal rule does not apply (acceptance takes effect on arrival) - Korbetis v Transgrain Shipping BV (2005)

O can expressly exclude the operation of the postal rule by requiring successful communication of acceptance - Holwell Securities Ltd v Hughes (1974) (‘notice in writing to O’ term excluded postal rule)

In Holwell, Lawton also suggested that the postal rule may be implicitly excluded by context in situations where it would produce manifest inconvenience or absurdity (eg where context makes it clear O must know by a specific time). Test is whether a reasonable man receiving the offer would realise it required actual communication. Rule is also implicitly excluded where a deadline is set.

Once acceptance has been posted, it cannot be revoked. However, Andrews proposes that if A contacts O (eg by email) and says that they will be rescinding the currently-posted acceptance, they should be able to retract it. The retraction notifies O that you are not interested, so no prejudice is suffered. Bramwell (obiter) in Household Fire Insurance Co thought the rejection/revocation should be valid. However, allowing revocation allows for unfair speculation – A can accept but is free to withdraw until point of arrival – Lord Craigie disliked revocation in Countess of Dunmore v Alexander. However, if A does call to revoke and O acts on this, A should not be able to rely on the postal rule.

Note: postal rule only applies to acceptance – negotiations, withdrawals, offers etc are not governed. If the acceptance is sent along with another legal action, the acceptance takes effect from posting but the other notice is only valid on arrival. If other actions were effective from posting, there would be too much uncertainty. - Byrne v Van Tienhoven (1880) (postal rule does not apply to withdrawal of offers)

Conveyancing Transactions Convention in contract for sale of land is that it becomes binding upon exchange of identical signed contracts (this concludes because of parties’ intent). The earliest it can become binding, if by post, is when the second party posts theirs. - Eccles v Bryant (1948) (only one party posted ≠ acceptance)

If parties’ objective conduct indicates they do not wish the exchange rule to apply, it will not - Storer v Manchester CC (1974)

Bilateral and unilateral contracts

Unilateral and bilateral contracts are both made by the mechanism of ‘offer and acceptance’.

Bilateral Contracts BCs exemplify the idea of offer and acceptance – they are agreements 1. If O approaches A with an offer, O can withdraw the offer at any point until A accepts 2. If A rejects the offer, O’s offer ceases to exist and cannot be accepted by A 3. A is only held to accept the offer if he informs O (Felthouse v Bindley (1863)).

Unilateral Contracts Unilateral contracts exist where O makes a promise to A with the object of inducing A to do X, and A is then induced by O’s promise and does X. O is then bound. This is portrayed as ‘offer and acceptance’ by saying the promise with the aim of inducement is an offer, and A’s action upon inducement is acceptance. A is not bound to do anything under the contract, even once they begin performance.

Unilateral contracts have defining features: 1. They impose a contingent obligation on one party, while the other party has complete choice as to whether or not they complete the contract (no binding reciprocal obligations) - Carlill v Carbolic Smoke Ball Co (1983) (offer to the world, A chooses to come forward and perform the condition)

2. A does not need to communicate acceptance - Attrill v Dresdner Kleinwort Ltd (2013) (bonuses of 400m euros on offer – explicit acceptance nn) - Carlill v Carbolic Smoke Ball Co (1983)

Note where the promise made by O is to induce A to communicate something to O – communication is necessary in order to complete the task (not for acceptance purposes)

Question as to whether O is able to withdraw once A has begun to perform but has not completed

For effort expended, A can recover expenses in unjust enrichment when a benefit is conferred on O, but when it is not A would be left without remedy.

Errington v Errington (1952) says once A has begun performance/compliance with conditions, A is legally protected and O cannot withdraw the offer (must wait for A to complete, at which point A is entitled to terms). – Soulsbury v Soulsbury (2007) (no spousal support during life in exchange for will money)

Once A begins, there is an obligation on O not to interfere/prevent the completion by A – Daulia v Four Millbank Nominees (1978)

Cf. cases where A consciously takes the risk that A will withdraw prior to completion – Luxor (Eastbourne) Ltd v Cooper (1941)

Goff suggests a better view (dicta only) in Daulia v Four Millbank Nominees (1978) which says an implied collateral contract should be used to protect A from withdrawal – O would be contractually obliged not to withdraw the offer. This would require O to have reasonably given A the impression that he promised not to interfere and that there was consideration.

Luxor and Errington can be understood as cases where there were not and were (respectively) implied collateral promises not to revoke. Courts will only find the implied promise where necessary for ‘business efficacy’ or because parties must have intended as reasonable people. Davies says Denning’s reasoning in Errington supports.

Cf. McBride suggests a non-contractual duty not to withdraw based on unconscionability – would allow O to withdraw if reasonable and not unfair to A.

Cf. Chitty on Contracts which suggests A accepts O’s offer by beginning to perform, but can only enforce on completion. Waller favoured this in Schweppe v Harper dissent. Unattractive approach, since unclear what conduct would be sufficient and artificial to say acceptance when A cannot sue for the promise.

- Devani v Wells (2016) (no solution, but reminds the issue exists)

If O does withdraw, A should be able to treat revocation as inoperative, but if A requires O’s cooperation, A may sue for damages for loss of chance to earn the sum (Schweppe v Harper).

A second issue relates to rejection by A – there is no authority on this, but McBride argues where rejection would cause O to seek out someone else, A’s rejection kills the offer, but where A’s rejection does not cause alteration of O’s actions (eg a general call for workers, or the Carlill situation), the offer is still open to A

Other unilateral contract examples/situations: - The Eurymedon (1975) - Rollerteam Ltd v Riley (2016)

Battle of the Forms Where there are two sets of standard terms, and each side wants the contract to proceed on theirs, English law imposes a rule that victory goes to the party presenting the ‘last shot’ (their proposed terms are the final stage in a sequence). If a party passively acquiesces through conduct, this is acceptance of a contract governed by the other’s terms.

- Tekdata Intercommunications v Ampenol Ltd (2009) (Dyson notes traditional A&O analysis should be applied) – Trebor Bassett Holdings Ltd v ADT Fire and Security plc (2011) (followed Tekdata)

Cf. Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd (1979) where the majority used the ‘last shot’ approach but Denning (minority) suggested alternative analysis – ‘last shot’ is too inflexible, it should be for the judge to find agreement on material terms and decide which terms constitute agreement.

– Lidl UK Gmbh v Hertford Foods Ltd (2001) (battle of forms so irreconcilable neither party’s applied, determined on minimum agreed terms)

Where a ‘last shot’ cannot be discerned (No O & A), the preferable view is that there is no contract and the remedy should be sought in unjust enrichment – British Steel Corp v Cleveland Bridge & Engineering Co Ltd (1984)

To displace this traditional analysis, must show a clear course of dealings between the parties which manifested a contrary arrangement (Dyson, Tekdata).

Cooling-off period Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013/3134, Part 3 (EU Regulation) concerns off-premises transactions (between traders and consumers who do not meet face-to-face). Statutory period of 14 days to determine whether to go through with transaction – designed to combat risk that the consumer has made an imprudent, impulsive decision.

Negotiations and Bidding

Negotiations and Conditional/Uncertain Terms

Agreements to negotiate a main contract in good faith or by reasonable bargaining, an agreement to negotiate, or an agreement to agree will not be valid - Walford v Miles (1992) (agreement to negotiate reasonably/in GF = void for uncertainty) – Barbudev v Eurocom Cable Management Bulgaria Eood (2012) (confirmed Walford – no agreements to agree) - Little v Courage Ltd (1994) (option depending on reaching further agreement ≠ valid) - London & Regional Investments Ltd v TBI plc (2002)

It Is possible Walford can be distinguished where there is an existing main agreement. An additional contract to negotiate in good faith as to side issues and future variations may be valid if there is a sufficiently clear objective criterion governing it. – MRI Trading AG v Erdenet Mining Corp LLC (2013) (contract as part of larger settlement)

A contract to make a further contract (eg a lease) will be valid where the first contract (often a provisional agreement) sets out all of the terms which will govern the second contract – Chillingworth v Esche (1924) (contract to grant a lease) – Branca v Cobarro (1947)

Negotiation clauses supporting a primary dispute-resolution clause in main contract (eg arbitration) will be valid (requirements that friendly negotiations are exhausted prior to dispute resolution) (these are ancillary negotiations added to the main, valid agreement) - Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd (2014) - Petromec Inc v Petroleo Brasileiro SA (2005)

Note distinction from Walford, where they were trying to reach a contract; in this case, a contract already existed and this was designed to govern disputes under it.

‘Lock-out’ agreements for specific periods are valid (agreements not to negotiate with third parties); these agreements must be positive statements, for a fixed time, and with consideration. Lock-outs for a ‘reasonable’ period or ‘until agreement is reached’ will be invalid. - Walford v Miles (1992) - Pitt v PHH Asset Management Ltd (1994) (period of 2 weeks agreed = valid)

Note an agreement not to negotiate with someone else is certain; cf. agreement to negotiate

An agreement to use ‘best endeavours’ (or similar) to obtain something from a third party (planning permission, export licence, etc) will be valid and legally binding. It is reasonably possible to enquire as to whether the party is using best endeavours and it is clear what the party must do – objective assessment of whether party has made the effort. - Sainsbury’s Supermarkets Ltd v Bristol Rovers Ltd (2015) (cited cases below) - Lambert v HTV Cymru (Wales) Ltd (1998)

Best endeavours requires adherence to reasonable commercial standards of fair dealings, with faithfulness to agreed common purpose and consistency with the other party’s justified expectations – Berkeley Community Villages v Pullen (2007) – CPC Group Limited v Qatari Diar Real Estate Investment Company (2010)

Taking all steps within power capable of producing the desired result, which a prudent, determined, reasonable owner pursuing his own interest in achieving the outcome would take – IBM v Rockware Glass Limited (1980)

An agreement that a term will be settled by anything other than ‘future/further agreement’ (eg a third party, or only one of the parties) will not preclude a contract - Lombard Tricity Finance Ltd v Paton (lender may vary interest rate at discretion) - Paragon Finance plc v Nash (implied term of no dishonesty/unreasonableness in the decision)

It is a general principle of contract, specifically applied in the Sale of Goods Act 1979 s 8(1), that the price may be left to be fixed in a manner agreed or may be determined by the course of the dealing between the parties. S 9 recognises the price may be fixed by a third party, which will be binding if in good faith no matter how unreasonable. If T is being paid for this, owes a duty of reasonable care and skill to both so damages can be secured (Campbell v Edwards). If a party prevents T from setting the price, the other party can sue (9(2)), and it T does not fix for other reasons, contract is avoided (9(1)). All of this is also CL principles.

If parties agree price should be set by two valuers, one nominated by each, with a set tiebreaker method, the contract will be binding – Sudbrook Trading Estate Ltd v Eggleton.

Agreements ‘subject to’ will put the terms of contract in place, but it will not be binding until something specific occurs

Subject to contract becomes difficult where a party begins performance before the contract is entered into. If A performs and B accepts performance, B will be bound.

‘Subject to contract’ consensus on negotiations can be overridden by an implied joint waiver, evidenced by two factors: 1. Parties went on to settle all outstanding issues during their negotiations 2. There has been substantial or complete performance of the contemplated contract

– RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH (2010) (negotiations subject to contract but installations have begun and price has been partly paid = contract)

Where performance begins, there is also the question of whether the negotiated agreement takes full effect (bound to these terms) or whether a different collateral agreement has been concluded through conduct (reasonable sum for performance implied by court). – Whittle Movers Ltd v Hollywood Express Ltd (collateral agreement)

Agreements might also be subject to other conditions – a binding contract can still exist provided the clause is sufficiently precise and definite for a court to identify when it is satisfied and it does not leave either party with discretion as to whether to proceed with the transaction. These conditions cannot be ignored while still having a complete contract. These terms can have different meaning depending on the context of the contract (eg ‘subject to satisfactory survey’ in one case might mean buyer can reject even a good survey, or might mean the survey must be objectively satisfactory).

Where such clause exclusively benefits one party, it can be waived by him.

English judges have not articulated a general duty to conduct negotiations in good faith prior to contract. There will be other doctrines regulating: estoppel, restitution, liability for certain misrepresentations, implied collateral warranties, fiduciary relations, constructive trusts.

If a party does something which confers a benefit on the other party to negotiations, particularly at their request, they can recover restitution - British Steel Corporation v Cleveland Bridge and Engineering Company (1984)

Bidding and Tenders

Tenders A tender is an invitation to submit bids for a contract (respond by tendering an offer). There is no expectation of victory, and the issuer is under no obligation to accept any of the tenders. However, the inviter does commit to three things: 1. Each valid tender will be considered 2. Each invalid tender will be ignored 3. Victory will not be declared before the deadline to tender has elapsed

- Pratt Contractors Ltd v Transit New Zealand (2003) (PC) (Hoffmann – tenderers must be treated equally because of the duty to act fairly) - Blackpool and Fylde Aero Club v Blackpool BC (1990) (Denning – tenders submitted on time in proper form have the right to be considered equally)

A tenderer may incur expense in responding to the invitation; if the tender is validly made and not fairly considered, T can have an action for breach of contract to consider the tender (in absence of contrary indication, assume implicit promise to consider tenders submitted in accordance with conditions).

Auctions An auctioneer who ‘offers’ goods for sale is merely inviting offers (not bound to accept); bidders may withdraw their offers before the gavel (or other customary signal) is used to accept.

When O advertises that the sale shall be without reserve to the highest bidder, it is an offer – O is bound to sell to the person who makes the highest valid bid (even if undervalued). This is not a contract of sale, but a contract to sell (to make a contract of sale), consideration for which is provided through attendance - Barry v Davies (2000) (collateral contract of sale without reserve)

Auctioneer advertising sale of goods without reserve makes an implied promise that if he does sell the goods, it will be without reserve, but this isn’t a promise to put them up for sale – Harris v Nickerson (1873)

An auction is a unilateral contract (assuming sale without reserve) – O promises A that if A is the highest bidder at X time, O will sell Y to A. The deadline makes it clear the offer must be received, not just posted by the deadline (since O must know who the person is at that time).

Bids not communicated/lost will not be valid, unless O is at fault for failing to receive it.

Multiple bids and bids made after rejecting O’s initial offer to bid are acceptable, as long as the bid is the highest at the deadline. Bids can be withdrawn prior to the deadline.

When O withdraws the offer before the deadline by notifying all current bidders and placing another ad withdrawing, the status is unclear. McBride says it depends on what O was trying to induce A to do – if it was to bid, then the contract has already formed, but if it was to be the highest bidder at X time, then the contract has not formed until then. But Errington might suggest O cannot withdraw because people have begun the process.

Sealed or ‘best bids’ do not allow for referential bidding – a fixed bid is needed - Harvela v Royal Trust Company of Canada (1986)

Templeman (obiter) thought a referential bid would be valid only if (1) the inviter expressly permitted it, (2) the referential bid is accompanied by a simultaneous fixed bid, and (3) the referential bid is capped.

Certainty of Terms

A successful contract will require a concluded bargain – it cannot be concluded until all of the terms (not just main) are certain (settling everything necessary and leaving nothing to be settled by later agreement); otherwise will be void for uncertainty. Parties can leave things out if they do not consider them to need agreement.

If parties agree on everything they need but do not specify a price, it will be enforceable as a contract to pay a reasonable price. If time or similar is not specified, also set to reasonable standard. A contract can be concluded if silent on a matter as long as an implied term can fill (but a base minimum of specified terms needed to make a certain contract).

An agreement to agree on a term later will preclude the contract - May & Butcher v R (1934) (price and date to be decided – price never agreed, no goods supplied – agreement was incomplete)

Cf. where a term is to be agreed periodically in the context of a series of commercial dealings, the dealings will finalise the contract so as to make it binding – Foley v Classique Coaches (1934) (trade of petrol for three years at price to be agreed from time to time = binding)

If parties impliedly leave something to be agreed, this will also be fatal (minimum specified content needed to make contract enforceable) – Scammell v Ouston (1941)

Where a contract is executory (neither side has begun performance), the conduct of the parties necessarily implies a contract that, in default of agreement, a reasonable sum is to be paid (Denning, British Bank for Foreign Trade v Novinex).

See also lock-out terms and other negotiation agreements above.

Where a term is ambiguous, the party responsible for the ambiguity cannot enforce it in the way they intended if the other party intended it differently - Falck v Williams (1900) (ambiguous telegram, ports for carriage unclear)

Examples of sufficient certainty (often influenced by contract running previously without issue): - Hillas & Co v Arcos Ltd (1932) (uncertainties informed by prior dealings) - Durham Tees Valley Airport Ltd v bmibaby Ltd (2010) - Jet2.com Ltd v Blackpool Airport Ltd (2012) - Attrill v Dresdner Kelinwort Ltd (2013) - Didymi Corporation v Atlantic Lines and Navigation Co Inc (1988) - Malcolm v Chancellor, Masters and Scholars of the University of Oxford (1994)

Examples of insufficient certainty: - Sulamerica Cia Nacional de Seguros SA v Enesa Engenharia SA (2012) (for mediation to be viable, must be clear commitment, named mediator or mechanism for appointment, and a clear mediation process identified) – Cf. Cable & Wireless v IBM United Kingdom Ltd (2002) (all three requirements for mediation were met) - Raffles v Wichelhaus (1864) (cotton shipped by Peerless) - Scammell v Ouston (1941) (hire-purchase agreements can take many forms, not enough detail) - Devani v Wells (2016) (non-specified payment trigger for estate agent = insufficient) - Walford v Miles (1992) (no agreements to agree – too uncertain) – Barbudev v Eurocom Cable Management Bulgaria Eood (2012) – Cf. Pitt v PHH Asset Management Ltd (1994) (fixed-term lockout is certain enough) – Cf. Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd (2014) (fixed term negotiation agreement preceding litigation is sufficient)