Chapter 2 Updates to the Law

Agreement
Untitled Document

Chapter 2: Agreement
2.3.4.1 Acceptance by Post
p. 74 Pause for Reflection - add
The Scottish Law Commission has therefore recommended the abolition of the postal acceptance rule. The Contract (Scotland) Bill section 13(3) states that: “A notification reaches a person when it is made available to the person in such circumstances as make it reasonable to expect the person to be able to obtain access to it without undue delay.” In particular,
(4)  “a notification is to be taken to reach a person-
(a) when it is delivered to the person,
(b) when it is delivered to the person’s place of business,
(c) in a case where either the person does not have a place of business or the notification does not relate to a business matter, when it is delivered to the person’s habitual residence, or
(d) in the case of a notification transmitted by electronic means, when it becomes available to be accessed by the person.”
In contrast, the UK Supreme Court has recently affirmed its validity in in Four Seasons Holdings Incorporated v Brownlie [2017] UKSC 80, [2018] 1 WLR 192. Lord Sumption (with whom Lord Hughes agreed) supports the rules associated with posting, which “were adopted for reasons of pragmatic convenience, and provide a perfectly serviceable test for determining whether a contract has been concluded at all” [16]. However, his Lordship described the effect of these rules on determining when and where a contract has been concluded as ‘not at all satisfactory’ since it requires the pinpointing of “who uttered the words which marked the point at which the contract was concluded and where the counterparty was physically located when he or she heard them.” The “analysis of an informal conversation in terms of invitation to treat, offer and acceptance will often be impossible without a recording or a total recall of the sequence of exchanges and the exact words used at each stage, in order to establish points which are unlikely to have been of any importance to either party at the time.”
Four Seasons Holdings Incorporated v Brownlie [2017] UKSC 80
The Claimant was on holiday with her husband, daughter and two grandchildren. They were staying at the Four Seasons Hotel Cairo (the First Defendant being the holding company of this hotel group; the Second Defendant owning the hotel building). On a previous visit she picked up a leaflet published by the hotel advertising safari tours, which it provided. Before leaving England on the subsequent trip, she telephoned the hotel and booked with the concierge an excursion to Fayoum in a hired chauffeur-driven car. The excursion took place on 3 January and the car crashed, killing the Claimant’s husband and daughter and leaving her and her grandchildren seriously injured. The Claimant commenced proceedings for damages for personal injury, as her husband’s executrix, and for bereavement and loss of dependency. The Court held that the claim did not meet the jurisdictional gateway in Practice Direction 6B given that there was no realistic prospect that the Claimant could establish that she had contracted with the First Defendant or that they would be held vicariously liable for the actions of the driver.
In the context of the contractual claim, Lord Sumption (with whom Lord Hughes agreed) addressed the postal rule at [16]:
…it is unnecessary to deal with the question where that contract was made ….  But I think it right to draw attention to the artificial nature of the issue as the law currently stands. The argument on the point turned on the question who uttered the words which marked the point at which the contract was concluded and where the counterparty was physically located when he or she heard them. This is the test which has for many years been applied where the contract was made by instantaneous exchanges, eg by telephone: see Entores v Miles Far East Corpn [1955] 2 QB 327 (CA). It differs from the test applied to contracts made by post, which are complete when and where the letter of acceptance is posted: Adams v Lindsell (1818) 1 B & Ald 681, Dunlop v Higgins (1848) 1 HLC 381. These rules were adopted for reasons of pragmatic convenience, and provide a perfectly serviceable test for determining whether a contract has been concluded at all. However, their deployment for the purpose of determining when or where a contract was made is not at all satisfactory. It depends on assumptions about the point at which an offer is accepted or deemed to be accepted, which are particularly arbitrary when the mode of communication used is instantaneous (or practically so). It also gives rise to serious practical difficulties. The analysis of an informal conversation in terms of invitation to treat, offer and acceptance will often be impossible without a recording or a total recall of the sequence of exchanges and the exact words used at each stage, in order to establish points which are unlikely to have been of any importance to either party at the time.… But the whole question could profitably be re-examined by the Rules Committee.’  
2.6.2.3. Previous dealing, custom and reasonableness
p. 90 on examples evidencing a pro-liability stance
Ö In Devani v Wells (2019) the Supreme Court, overturning the finding of the Court of Appeal on this point, held that there was a binding agreement where one party was acting as an estate agent and a rate of commission was agreed but no express agreement was reached as to the circumstances in which the commission would become payable.
Devani v Wells [2019] UKSC 4
The defendant wanted to sell his property. To this end, he had already contracted for the services of a local estate agent, which charged commission of 1.75%, or 3% if the properties were sold by another agent. In a phone call between the claimant (another estate agent) and defendant, the claimant told the defendant that he was an estate agent and that his commission terms would be 2% plus VAT. No information was provided about when the obligation to pay commission would arise. Shortly after the conversation, the claimant introduced a prospective buyer to the defendant, who later agreed to purchase the flats. The claimant therefore emailed the defendant requesting payment of the commission and attaching the terms of business. The defendant refused to pay the commission.
Overturning the decision of the Court of Appeal that the telephone conversation did not amount to a binding agreement, Lord Kitchen held:

  • The question is ‘whether, objectively assessed, that led to the conclusion that they intended to create a legally binding relationship and that they had agreed all the terms that the law requires as essential for that purpose’;
  • The court will be reluctant to find that ‘an agreement is too vague or uncertain to be enforced where it is found that the parties had the intention of being contractually bound and have acted on their agreement’;
  • On the facts, there was intention to create legal relations because:
    • The parties understood that the claimant would be entitled to 2% commission;
    • The claimant then introduced the defendant to the prospective buyer;
    • It would ‘naturally be understood that payment would become due on completion and made from the proceeds of sale’; this was the ‘only sensible interpretation’ of the phone conversation
  • The event giving rise to entitlement to commission ‘may be of critical importance’ but this does not mean that unless the event is expressly identified the agreement it is ‘necessarily incomplete’ and on the current facts a reasonable person would understand the bargain (which ‘in substance’ is ‘find me a purchaser’) to be that the parties intended the commission to be payable on completion and from the proceeds of sale.
  • While unnecessary on this reasoning to imply a term, if necessary to do so ‘where, as here, the parties intended to create legal relations and have acted on that basis, I believe that it may be permissible to imply a term into the agreement between them where it is necessary to do so to give the agreement business efficacy or the term would be so obvious that "it goes without saying", and where, without that term, the agreement would be regarded as incomplete or too uncertain to be enforceable’.

2.7.2.4 Social agreements
p. 100 add-
Mr Jeffrey Ross Blue v Mr Michael James Wallace Ashley [2017] EWHC 1928 (Comm)
The case concerned an alleged oral agreement between Ashley (founder of Sports Direct) and Blue (a consultant with a Marketing Services Agreement with a subsidiary of Sports Direct). In the course of discussion between Ashley, Blue and others at the pub after a meeting, Blue alleged that Ashley promised to pay Blue a certain (disputed) amount (Blue claimed £15 million) were Sports Direct’s share prices to reach £8 per share. The share price reached this amount. Ashley paid Blue £1 million but refused further payment.

  • Key factors that may ‘tend’ to show intention to create legal relations were [56], citing Chitty at Para 2-177, -194 and -195:
    • Social context
    • Expression in vague language
    • Whether the promissory statement was made in anger/jest
  • Objective test: ‘As with all questions of meaning in the law of contract, the touchstone is how the words used, in their context, would be understood by a reasonable person. For this purpose the context includes all relevant matters of background fact known to both parties.’ [63]
  • Oral agreements: Both sides accepted that [64]:

“where, as here, the court is concerned with an oral agreement, the test remains objective but evidence of the subjective understanding of the parties is admissible in so far as it tends to show whether, objectively, an agreement was reached and, if so, what its terms were and whether it was intended to be legally binding. Evidence of subsequent conduct is admissible on the same basis. In the case of an oral agreement, unless a recording was made, the court cannot know the exact words spoken nor the tone in which they were spoken, nor the facial expressions and body language of those involved. In these circumstances, the parties' subjective understanding may be a good guide to how, in their context, the words used would reasonably have been understood. It is for that reason that the House of Lords in Carmichael v National Power Plc [1999] 1 WLR 2042 held that evidence of the subjective understanding of the parties is admissible in deciding what obligations were established by an oral agreement.’

  • No serious intention to create legal relations because:
    • Setting: ‘But an evening of drinking in a pub with three investment bankers is an unlikely setting in which to negotiate a contractual bonus arrangement with a consultant who was meeting them on behalf of the company’. [81]-[83]
    • Purpose of the occasion: ‘Counsel for Mr Blue are plainly right in saying that the meeting with the ESIB traders was not merely social and that it had a business purpose. But that purpose was not to discuss Mr Blue's work for Sports Direct or terms for his remuneration. It was an outward-facing occasion in which Mr Ashley and Mr Blue were both representing Sports Direct in meeting the representatives of a prospective service provider.’ [84]
    • Nature and tone of the conversation [85]-[87]
    • Lack of commercial sense [88] – [93]
    • Incongruity with Mr Blue’s role:However, on even the most generous view of the value of Mr Blue's services, the idea that he could somehow, through his skills and contacts in corporate finance, "get" the share price to double its then level seems plainly fanciful’. [94]-[96]
    • Vagueness of the ‘offer’ [97]
    • Perception of other witness: ‘none of the three witnesses from ESIB who took part in the conversation thought that he was being serious.’ [98]-[101]
    • Mr Blue’s perception: ‘Mr Blue himself did not understand there to be such an intention at the time when the conversation in the Horse & Groom took place or in the period immediately afterwards.’ [102] – [107]
  • Insufficiently certain:

‘What, in my view, would defeat such an attempt, even if an intention to make a contract had been shown, is Mr Blue's failure to prove that a particular period was agreed within which the share price had to reach £8. That gap is not one which the court can fill. There are many situations in which an agreement is silent about the time within which something must be done and the court can give content to it by implying a term that the obligation will be performed within a reasonable time. But that is only possible when a court can apply some yardstick of what is reasonable. For example, in a contract for the carriage of goods when no date for delivery is specified, the court can assess what constitutes a reasonable period within which to expect delivery in the light of any past dealings and ordinary commercial usage, and imply a term on that basis. This does not seem to me, however, to be an approach which is available in the present case. There is no objective standard which the court can invoke to identify a period within which Mr Blue would need to get the share price to £8 in order to be paid £15 million. That is a matter which could only be decided by express agreement between the parties themselves. As Mr Blue has failed to prove that a specific period was agreed, I conclude that the "offer" made by Mr Ashley could not create a contract for the further reason that it lacked an essential term.’ [136]

 

 

Scottish Law Commission Report on Review of Contract Law: Formation, Interpretation, Remedies for Breach, and Penalty Clauses (Scot Law Com No 252).