Alternative Text Posted by Hamish MacBean

Hamish MacBean considers the recent Court of Appeal decision in Global v Aabar on whether parties to a commercial contract had in fact agreed terms.

A recent Court of Appeal decision provides a useful reminder to both litigators and advisors of the points to consider when determining whether parties have concluded a contract. In Global v Aabar[1], the Court of Appeal concluded that there was no reasonable prospect of showing that the parties had concluded a contract.

The litigation arose out of the financing of the acquisition of the Spanish headquarters of Santander. In essence, the Claimant argued that an offer letter headed Without Prejudice – Subject to Contract was accepted during a telephone call on 06.05.2015. This was denied by the Defendants.

At first instance[2] Walker J refused to consider any correspondence between the parties subsequent to the alleged acceptance on 06.05.2015. The first issue on the appeal was whether he was right to so do. The Court of Appeal was clear that he was wrong to so limit himself.

The House of Lords decision in Hussey v Horne-Payne[3] was cited, where Lord Cairns at 316 said:

“…You must not at one particular time draw a line and say, “We will look at the letters up to this point and find in them a contract or not, but we will look at nothing beyond”. In order fairly to estimate what was arranged and agreed, if anything was agreed between the parties, you must look at the whole of that which took place and passed between them”.

The Court of Appeal went on to reinforce the point that it matters not whether it is said that a contract is concluded orally or in writing, a Court must consider the entirety of the correspondence if there is an issue as to whether a contract has been concluded.

That is not to confuse the principle that one cannot interpret the words of a contract by what subsequently transpired. That remains good law. However, that is a stage beyond determining whether in fact a contract exists in the first place.

Having thus determined that the entirety of the correspondence ought to have been considered, the Court of Appeal went on to consider the status of the initial offer letter. Hamblen LJ reasserted the well know principle that an offer which is ‘Subject to Contract’ negates contractual intent and cannot of itself be accepted. A case which therefore relies upon acceptance of such an offer, as the Claimant’s pleaded case here did, cannot be sustained.

The issue of whether and when two parties have in fact concluded a contract has long provided difficulties, both legally and factually. That is particularly so in complex commercial transactions. However, lawyers should not lose sight of the basic principles applicable. Whilst the decision in Global does not break any new ground, it is a useful reminder of the factors at play. It also serves as a good example of the care which is required when pleading a case on formation. It is always difficult, as the Claimant here found, to reformulate a case at trial.

In summary:

  1. There must be clear acceptance of an offer;
  2. The Court is entitled to take into account all of the correspondence between the parties in determining whether a contract has been concluded;
  3. An offer marked Subject to Contract is not capable of acceptance;
  4. Take care when pleading your case on formation.

 

[1] Global Asset Capital Inc & 1otr v Aabar Block SARL & 2otrs [2017] EWCA Civ 37

[2] [2016] EWHC 298 (Comm)

[3] (1878) 4 App Cas 311


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