Tue 07 Jan 2020

Are we in Agreement?

In the commercial world, we are used to dealing with long, complicated written contracts and so the discussion that we have in court tends to focus on the construction/interpretation of the contract in question on the basis of what are now well-understood principles (Prenn v Simmonds [1971] 1 WLR 1381; Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989; Arnold v Britton [2015] AC 1619; Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; and Wood v Capita Insurance Services Limited [2017] UKSC 24). 

However, even in the commercial world, the question can be far more fundamental - is there actually a contract between the parties at all? The general principles applicable to that sort of case are not in doubt either. Lord Clarke outlined them in RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH [2010] UKSC 14 at paragraph 45:

"Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a pre-condition to a concluded and legally binding agreement". 

In some cases, where the alleged agreement is said to have been agreed orally by the parties, its existence is primarily a matter for evidence and the pursuer will have an uphill struggle to prove that the parties' intended to create legal relations. In seeking to do that the parties words are important but the courts are reluctant to find an agreement is too vague or uncertain particularly where the parties have acted on their agreement. As Lord Wright said in G Scammel & Nephew Ltd v HC and JG Ouston [1941] AC 251 at 268:

"The object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is no synonymous with ambiguity so long as any definite meaning can be extracted. But the test of intention is to be found in the words used. If these words, considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract. Such a position is not often found".

The court must not lose sight of the fact that conduct is important. The most obvious example is where parties have, as in the RTS case, acted upon the agreement. However, there are some agreements with virtually no express terms at all, whether oral or in writing, which are perfectly capable of enforcement. Or where the conduct of the parties tells you as much about the essential terms of the bargain as the words themselves. Lord Briggs gives a good example of this in Wells v Devani [2019] UKSC 4:

"Take for example, the simple case of the door to door seller of (say) brooms. He rings the doorbell, proffers one of his brooms to the householder, and says "one pound 50". The householder takes the broom, nods and reaches for his wallet. Plainly the parties have concluded a contract for the sale of the proffered broom, at the price of £1.50, immediately payable. But the subject matter of the sale, and the date of time at which payment is to be made, are not subject to the terms expressed in words. All the essential terms other than price have been agreed by conduct, in the context of the encounter between the parties at the householder's front door".

In more basic or simple contracts the issue of implied terms is important. Again, the principle is not in doubt and in most cases it is only after construing the express words of the contract that the court will consider whether a term falls to be implied. Whether it is implied will depend on whether it is necessary to give the contract business efficacy or whether it is so obvious as to "go without saying" (Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72). However, as the court again says in the Wells v Devani case, there is no general rule that it isn't possible to imply a term into an agreement in order to render it sufficiently certain or complete to constitute a binding contract. Indeed, the court holds that it is possible to imply a term into an offer. That must be right. For example, in a contract for the sale of goods, there is a statutory implied term as to satisfactory quality. So, if a car salesman offers to sell a car, it must follow that he is offering to sell a car of satisfactory quality. There is no reason why the common law should be different.

All of this is worth bearing in mind. Although we deal with complicated contracts every day, contracts can come into existence in the most straightforward of ways and sometimes without the parties having agreed on very much at all. Fundamental to any such discussion is the intention of the parties. Where the parties are in dispute the surrounding context and subsequent (or prior) conduct will be important but the lack of writing will not necessarily mean lack of a contract.

Make an Enquiry

From our offices we serve the whole of Scotland, as well as clients around the world with interests in Scotland. Please complete the form below, and a member of our team will be in touch shortly.

Morton Fraser MacRoberts LLP will use the information you provide to contact you about your inquiry. The information is confidential. For more information on our privacy practices please see our Privacy Notice