Queen Mary Law Journal

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1 Queen Mary Law Journal First-Year Essay Competition, Autumn 2015 First-Year Essay Competition, Autumn 2015 Anisa Daud 1 Elvina Han Ning Leong 9 Kevin Roche 15 Malwina Anna Wójcik 23 Saleh Zaheer 31

2 Queen Mary Law Journal First-Year Essay Competition Autumn 2015

3 The Queen Mary Law Journal seeks to publish innovative student legal scholarship. Published by the Queen Mary Law Society in the United Kingdom. Queen Mary Law Journal c/o School of Law Mile End Road London E1 4NS All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, electronic, mechanical, recording or otherwise, or stored in any retrieval system of any nature, without the prior, express written permission of the Queen Mary Law Journal. Exceptions are permitted with regard to fair dealing for the purpose of research of private study, or criticism or review, as permitted under the Copyrights, Designs and Patents Act Enquiries concerning reproducing outside these terms should be sent to the Editor-in-Chief Queen Mary Law Journal

4 EDITORIAL BOARD FIRST-YEAR ESSAY COMPETITION, AUTUMN 2015 Editors-in-Chief Emma Randall Sukania Prem Kumar Managing Editors Nicole Charles Kevin Roche General Editors Amir Ben Shabat Saurabh Chaudry Amy Chen Anna Maria Deligkari Jia Yen Ong Pascal Krummenacher Carolyn Minaudo Rebecca Neumann Rosalyn Pierce Niall Rand Michelle Silongan Postgraduate Editors Natalie Corthésy Aleksandra Jolkina Design & Typography Kevin Roche

5 1st year essay competition - Contract Law Anisa Daud 1st year LLB, Queen Mary, University of London It is a mistake to think that all contracts can be analysed into the form of offer and acceptance (Lord Denning). How is, and how should, contract formation be determined? Can the mirror image approach be improved? The offer and acceptance rule proposes that this is the general application for all contracts, but this universal rule has faced many criticisms from academics and judges. Ewan McKendrick argues that contracts are made in many different ways and it is extremely difficult, if not impossible, to frame rules that can be applied across such a broad spectrum. 1 Contracts can be unilateral or bilateral, they can be in writing or made orally, and they can also be made by . In this essay, I will explain how contracts can be made, what the exceptions to the general offer and acceptance rule are, and whether contract formation should be determined. Furthermore, I will also consider if the mirror image approach can be improved. The formation of a contract today requires a definite offer by one party and a definite acceptance of that offer by another party. The courts also seek to know if there was an intention to create legal relations; if all of these requirements are met, there is an enforceable contract. However, Jack Beatson states that it would be a mistake to think that all contracts can thus be analysed into the form of offer and acceptance. 2 Lord Denning, 1. Ewan McKendrick, Contract Law: Text, Cases and Materials (6th edn, OUP 2014) J Beatson, A Burrows and J Cartwright, Anson s Law of Contract (29th edn, OUP 2010) 30.

6 2 Queen Mary Law Journal the leading judicial critic, has also criticised this approach of analysing contracts in terms of offer and acceptance. In order to conclude that there is a contract we must first see if there is a binding agreement between the parties; for an agreement to exist there must be a meeting of minds, but to determine this agreement, there must also be a valid and communicated offer. An offer is an expression of willingness to contract on the specified terms without further negotiation, so that it requires only acceptance for a binding agreement to be formed. 3 In Gibson v Manchester City Council, 4 the courts determined whether there was an offer or an invitation to treat by using the objective approach. The plaintiff, Mr Gibson, was a council house tenant who had applied for details to buy his council house. The council treasurer stated that the council may be prepared to sell the house to you. 5 After completing his application Mr Gibson alleged that he had entered into a contract with the defendant. The House of Lords held that there was no contract by examining the language that was used; they concluded that the letter was not an offer that Mr Gibson had accepted, rather it was inviting Mr Gibson to make an offer to buy. 6 By determining this case objectively does create a sense of certainty and it does play a key role in contract law; however this approach has been open to criticisms as it appears to be quite technical and removes itself from reality. There have been arguments to adopt a broader approach when we want to know whether or not parties have reached an agreement. Lord Denning put this argument forward in this case, to my mind it is mistake to think that all contracts can be analysed into the form of offer and acceptance you should look at all the correspondence as a whole. 7 Even though this can bring on more uncertainty, it is important 3. Jill Poole, Textbook on Contract Law (12th edn, OUP 2014) [1978] 1 All ER ibid ibid. 7. McKendrick (n 1) 46.

7 Anisa Daud 3 to understand offer and acceptance as the principle, but it is not the only way a contract can be created. The orthodox view that all contracts can be formed from an offer and acceptance may not be true for all unilateral contracts, where the obligation is all one sided and no acceptance is needed. Professor Simpson states that Carlill v Carbolic Smoke Ball Co 8 is a leading case which illustrates the mysteries surrounding the conception of a unilateral or one-sided contract. 9 In this case no communication was required for the contract to be enforceable, only a performance was needed; the plaintiff has caught influenza after using the smoke ball in the required manner. 10 The Court of Appeal held that the advertisement was an offer since it requested a performance, using the smoke ball and catching influenza. The Carlill case created a new legal doctrine into contract law, which was an intention to create legal relations. This linked to the more recent case of Bowerman v Association of British Travel Agents Ltd, 11 where the notice from the tour operator stated, ABTA arranges for you to be reimbursed the money you have paid in respect of your holiday arrangements. 12 In both of these cases, particularly in Carlill, the performance of an act stated in the offer for unilateral contracts constitutes an acceptance. It is important to understand that the rule of offer and acceptance is not mechanically developed and applied by the courts in every case; the courts must consider the advantages and disadvantages of each case, and consider the case as a whole. For example, McKendrick s text states that there is 8. [1893] QB 256 (CA). 9. McKendrick (n 1) Poole (n 3) [1996] CLC McKendrick (n 1) 60.

8 4 Queen Mary Law Journal no obvious answer to the question of the time at which an acceptance sent through the post should take effect. 13 The postal acceptance rule was first established in the case of Adam v Lindsell 14 when the courts had to decide the moment when a contract formation took place by post. The postal rule states that the post might be used as a means of communicating the acceptance of an offer; the acceptance is complete as soon as it is posted. 15 This rule has faced a great number of criticisms, since there is a gap of time and a delay between sending a letter and receiving it and parties are not in a position that they can control transmission of letters by post. 16 The justification for the postal rule, however, is that it provides the best time and a greater chance for the meeting of minds. The courts have made various attempts to justify the rule on different grounds. In Henthorn v Fraser 17 it was argued that if the offeror has indicated that use of the post is permissible, then it is the offeror who should bear the risk of that system. 18 This case concluded that the postal rule is applicable only where it was reasonable for the offeree to have used the post in all of the circumstances. Several authors, including Elizabeth McDonald, have expressed the view of whether the postal rule should be applied to and similarly modern methods of communication. 19 The postal rule is often seen as an out-dated version of communication and the dispatch rule may no longer exist due to new methods of communication. These new methods challenge the approach that new communication technologies require a sub-division within 13. ibid (1818) 106 ER M Ibrahim, A Ababneh and H Tahat, The Postal Acceptance Rule in the Digital Age [2007] JICLT ibid [1892] 2 ch Poole (n 3) Elizabeth McDonald, Dispatching the Dispatch Rule? The Postal Rule, , Revocation and Implied Terms [2013] WJCLI 1.

9 Anisa Daud 5 contract law. 20 In deciding if the postal rule applies to electronic mail it must first be determined whether an is seen as an instantaneous or non-instantaneous method of communication. In Entores v Miles, 21 an was described as being instantaneous and was therefore not applicable to the postal rule. However, Deveral Capps argues that an should be covered by the postal rule, whilst s are, in most cases, exceptionally quick, they may on occasion take hours or even days to reach their intended recipient. 22 Another argument that supports the application of the postal rule to relates to control. In Household Fire Insurance Co Ltd v Grant, Thesiger LJ stated that the acceptor, in posting the letter has put it out of control and done an extraneous act which clenches the matter. 23 This same principle can be applied to s; once the is sent, the sender has no control over it or whether it reaches the addressed person. The postal rule in electronic mail has not been adopted by English Law due to the sheer number of instantaneous methods of communication available today. But the authors of the The Postal Acceptance Rule in the Digital Age still argue that the logical conclusion would be that acceptance do benefit from the postal rule and may be the last bastion for the application of such rule. 24 The approach of the courts is to first seek out whether there was an offer and having found it, determine if there was a matching acceptance. McKendrick states that in practice the process is much more complex as the facts of 20. Eliza Mik, The Unimportance of being Electronic or Popular Misconception about Internet contracting [2011] IJLIT [1955] 2 All ER Deveral Capps, Electronic Mail and Postal Rule [2004] ICCLR ibid; [1879] 4 Ex D Ibrahim (n 15) 52.

10 6 Queen Mary Law Journal cases tend to not fit neatly into the rules that the courts have devised. 25 The battle of the forms cases such as Butler Machine Tool Company v Ex- Cell-O Corporation, illustrates this point. 26 The case showed inconsistency from the action of the seller, on the one hand, they signed the buyer s tearoff acknowledgement slip (thus indicating their assent to the buyer s terms), but also referred to their own terms and conditions of business. 27 The courts held that because of this. The sellers were not entitled to the sum claimed as the contract had been concluded on the buyer s terms. Longmore LJ stated in the judgement, that Butler was not a precedent for abandoning the traditional analysis, noting that the traditional offer and acceptance analysis was applied by the other members of the court. 28 As a result, the traditional rule would still apply to battle of the form cases. The justification for this conclusion was that it provided a greater degree of certainty, which is required in order to create effective commercial relationships. Lord Denning on the other hand, rejected the mirror image approach. He held that the better way is to look at all the documents passing between the parties and glean from them whether they have reached agreement on all material points. 29 Both approaches in this case have been questioned by the majority and Lord Denning; the former has been criticised on the grounds that it encourages business men to carry on as normal, in the hope of getting last shot in and it places the party in receipt of the last communication in a very difficult position. 30 On the other hand, Lord Denning s approach has been criticised on the grounds that it creates uncertainty and gives little guidance to the courts when trying to examine if an agreement has been 25. McKendrick (n 1) [1979] 1 WLR McKendrick (n 1) Phillip Morgan Battle of Forms: Restating the Orthodox [2010] CLJ Ewan McKendrick, The Battle of the Forms and the Law of Restitution [1988] OJLS ibid 198.

11 Anisa Daud 7 reached. Although the mirror image approach suffers some drawbacks, it is suggested that the deficiencies of alternative solutions should preclude those solutions from adoption by the courts. 31 While the traditional offer and acceptance analysis faces many difficulties, Morgan and McKendrick believe that the Court of Appeal was correct to not follow Lord Denning s analysis of the out-dated approach. This approach resets on insufficient precedential foundation, and is questionable after Gibson. 32 As seen in this paper, contracts can be formed in many different ways and will not always be as straightforward as the offer and acceptance rule, so it is important that courts do provide a degree of flexibility and consider the facts of each individual case. Moving forward, it is important that the courts take elements of Lord Denning s approach by adopting a more global approach when it comes to future cases. This approach allows for more flexibility and the chance to make more sensible decisions. 31. Rick Rawling The Battle of Forms [1979] MLR Morgan (n 29) 232.

12 8 Queen Mary Law Journal

13 1st year essay competition - Contract Law Elvina Han Ning Leong 1st year LLB, Queen Mary, University of London Lord Ackner, who gave the leading judgement in Walford v Miles, said that, as a matter of principle, an agreement to negotiate in good faith is not generally enforceable in English law as it is unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that uncertainty lies. Is this still true? Should it be true? Lord Ackner s judgement regarding good faith in Walford v Miles 1 has been extremely contentious as it established a rule wherein a duty to negotiate in good faith is not recognised in English courts, which differs greatly from other legal systems. 2 This essay aims to prove that even though the idea of good faith in negotiations is not assimilated into English law, judges are not disregarding the requirement of good faith as a subjective test used on a case by case basis to determine the compatibility of good faith. Also, it seeks to establish that the noncommittal approach to good faith in negotiations is the best way to protect the interests of contracting parties. To achieve this, this essay will first discuss the idea of good faith and trace the application of Lord Ackner s rule. Thereafter, it will explore the basis and rationale behind Lord Ackner s judgement, while considering if the duty of good faith in negotiations should be enforceable. The term good faith is known to be elusive. 3 It is difficult to construe a solid definition for it as it has multiple meanings which vary in different 1. [1992] 2 WLR 174, [1992] 2 AC 128 (Ackner LJ). 2. Some examples include the legal systems in France, Germany and Israel. 3. R Korde, Good Faith and Freedom of Contract [2000] UCL Jurisprudence Review 142, 165.

14 10 Queen Mary Law Journal contexts. Academics such as Brownsword, 4 have distinguished good faith into two aspects: where it can be applicable in both the execution of a contract, where performance of the contract should be in accordance to what was agreed, as well as the construction of the contract, where parties are expected to negotiate in a fair manner. For the purposes of this essay, the second facet of good faith is relevant as it expects parties to engage in fair and open dealings. 5 Therefore, this implies that good faith in negotiations aims to change the adversarial nature of negotiations and imposes certain obligations on the parties, including not to take advantage, in the course of the negotiations, of the known ignorance of the other party 6 and to not withdraw from the negotiations without first giving a reason and a reasonable opportunity for the other party to respond. 7 Since Lord Ackner s judgement in Walford, there have been immense debates regarding the rule that was established. Additionally, there seems to be a general trend towards distinguishing cases as incompatible with Walford and upholding Lord Bingham s dictum in Interfoto instead, which states that English law does not want to commit to an overarching principle of good faith but seeks to use objective reasoning to determine breach, even if the outcome is similar to that of civil legal traditions where good faith is enforced. 8 This is evident in cases such as Petromec v Petroleo 9 and more recently, Yam Seng Pte Ltd v International Trade Corporation Ltd R Brownsword, Good Faith in Contracts Revisited (1996) 49 CLP 111, Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 (Bingham L). 6. A Berg, Promises to Negotiate in Good Fatih [2003] 119 LQR 357, ibid. 8. Interfoto (n 5) [2005] EWCA Civ [2013] EWHC 111 (QB).

15 Elvina Han Ning Leong 11 Firstly, in Petromec, 11 it was ruled that because the parties intended to be bound by good faith in their negotiations, the court should not interfere and disregard their intention to be legally bound. Although Lord Justice Longmore distinguished the case from Walford by noting that there was an express agreement to negotiate in good faith, he also addressed some of the issues of uncertainty raised by Lord Ackner. Longmore LJ believes that unless there are special forces present, there should be no difficulty in deciding what the result of good faith negotiations is likely to have been and therefore, the difficulty of a problem should not be an excuse for the court to withhold relevant assistance by declaring a blanket unenforceability of the obligation. 12 Secondly, the judgement in Yam Seng 13 can be said to be revolutionary as Mr Justice Leggatt ruled that even though there was no explicit term of good faith, the duty of good faith was to be recognised with respect to the intentions of the parties. He believed that good faith is the cornerstone of every contract as contracts should be constructed based on honesty, which is an aspect of good faith and should be adhered to. 14 He then reiterated Lord Bingham s 15 proposal for an objective test of good faith and defended the notion that good faith should be recognised on a case by case basis. However, it should be noted that other rulings, such as that of Abballe vs Alstom UK Ltd 16 still adhered to the principle set out in Walford, stating that agreements to agree are unenforceable. As a whole, there is some inclination for English courts to be more flexible in enforcing good faith and prescribe 11. Interfoto (n 5). 12. ibid [118]-[119]. 13. Yam Seng Pte Ltd (n 10). 14. ibid [121]-[123], [131]. 15. Interfoto (n 5). 16. [2000] EWHC Technology 122 [4].

16 12 Queen Mary Law Journal to the objective approach which was introduced in Interfoto. 17 It would now be relevant to investigate the basis of Lord Ackner s judgement. He relied on two cases, the first being Courtney Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd. 18 Lord Denning drew an analogy between contracts to contract and contracts to negotiate and held that if the former is unenforceable, the latter would not be recognised due to its uncertainty in identifying when a breach occurred and the damages that should be awarded. Subsequently, Lord Bingham 19 stated that English law does not recognise a legal duty to negotiate in good faith as any commitment to the legitimacy of good faith in negotiations. Hence, in Walford, Lord Bingham s dictum was followed and the rule that an agreement to negotiate in good faith is not enforceable was established. Lord Ackner states that it is impractical and incompatible with the positions of a negotiating party as well as uncertain because of the reasons given in Lord Denning s dictum. The rationale and validity of Lord Ackner s quoted judgement will now be examined. Firstly, it has been accepted within the common law that contracting parties are constantly competing to act in a self-interested manner and therefore possess both the freedom to contract and freedom from contract. 20 Lord Ackner recognises this aspect of the nature of negotiations and his judgement can be seen to protect parties freedom from contract. However, this assertion of what negotiation entails may be myopic, as it assumes that negotiations are always adversarial. Academics have established 17. Interfoto (n 5). 18. [1975] 1 WLR 297 (Denning MR). 19. Interfoto (n 5). 20. Cohen, Pre-contractual Duties: Two Freedoms and the Contract to Negotiate in J Beatson and D Friedman (eds), Good Faith and Fault in Contract Law (OUP 1997). Cohen proposes two types of freedoms to contract: the first has positive connotations where parties have the liberty to construct a contract based on their own terms and the second has negative connotations, which is the freedom from contract where parties are free from a contract that has been uncompleted.

17 Elvina Han Ning Leong 13 that negotiations can also serve as a problem-solving 21 technique where the contracting parties are not strangers, they have to be considerate 22 and may wish to work together in a way that will be mutually beneficial. 23 It is argued, therefore, that contractual justice entails that parties should decide the nature of their negotiations and the courts should uphold their intentions, 24 rather than a mere over protection of parties freedom from contract. Secondly, the uncertainty element of Lord Ackner s judgement stems from two issues: first, the courts cannot decide when a breach has occurred and even if it is able to, the problem of determining appropriate reimbursement persists. 25 Second, the meaning of negotiating in good faith is too uncertain. The first problem was not a difficulty in Petromec, as LJ Longmore concluded that the court could determine the detriment incurred by the claimant by evaluating the cost of upgrade and if that could be achieved, the court could also could determine what the result of good faith negotiations is likely to have been. 26 This is evidence that uncertainty in a contract has been overcome in cases where there has been an express intention to negotiate in good faith without the court interfering with the construction of the terms. The second issue could be a result of drawing an analogy between agreements to negotiate and agreements to agree. The analogy is problematic as agreements to agree require further formalities 27 to be binding, whereas agreements to negotiate 21. Berg (n 6) Korde (n 3) PB Quagliato, The Duty to Negotiate in Good Faith (2008) 50(5) Int JLM 213. It is proposed that the primary idea about business is cooperation in order to obtain mutual profits. 24. Korde (n 3). 25. Walford (n 1). 26. Petromec (n 9) [117]-[118]. 27. H Hoskins, Contractual Obligations to Negotiate in Good Faith: Faithfulness to the Agreed Common Purpose (2014) 130(1) LQR 131, 135.

18 14 Queen Mary Law Journal may be enforceable if the parties intended for it to be so. 28 Therefore, it is argued that the analogy between agreements to agree and agreements to negotiate are flawed 29 as an overarching principle of unenforceability due to uncertainty and it does not take into account whether or not the parties had an intention to be bound. Thus, by distinguishing between the uncertainty in the meaning and uncertainty in their intentions, it can be determined if good faith should be enforced to uphold the intention of the parties. Therefore, even though Walford seems to reject all the notions of negotiating in good faith, there is evidence in subsequent cases that judges do not consider the case binding on all contracts, especially if express terms to negotiate in good faith are present. This is also proof that enforcing agreements to negotiate is not impractical as it has been accomplished in cases such as Petromec and Yam Seng. It cannot be said, however, that judges are willing to commit to integrating a duty of good faith in negotiations in the English law as there are other methods of resolving issues relating to a breach of contract to negotiate in the fields of tort, negligence and fraud. This was the rule in R v Immigration Officer at Prague Airport 30 where Lord Bingham s dictum of using piecemeal solutions in response to demonstrated problems of unfairness was reiterated in the judgement. 31 Therefore, despite the seemingly overriding principle Lord Ackner had established, judges have set a current precedent of subjective testing. Hence, to uphold the duty of the court to enforce contracts which parties have willingly entered into, this essay argued that the current tradition should be preserved for its flexibility and ability to protect negotiating parties. 28. ibid. 29. ibid. 30. [2003] EWCA Civ 666 (Lord Hope of Craighead). 31. ibid.

19 1st year essay competition - Contract Law Kevin Roche 1st year LLB, Queen Mary, University of London No one relies on the law of good faith negotiations Lord Ackner, who gave the leading judgement in Walford v Miles, said that, as a matter of principle, an agreement to negotiate in good faith is not generally enforceable in English law as it is unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that uncertainty lies. Is this still true? Should it be true? The law on good faith is a mess it is unclear and inconsistent. The leading judgment on obligations to negotiate in good faith in English law contracts is that of the House of Lords in Walford v Miles. 1 The finding at that time was that these agreements are unenforceable in English law. Since this ruling in 1992 there have been developments in English law that have called concerns regarding the enforceability of these types of contracts into question. This essay will deal with developments in the common law since Lord Ackner s ruling in Walford v Miles and argue that while there has been some development relating to the enforceability of good faith contracts in English common law, the law has been consistent with respect to the unenforceability of the doctrine of good faith. There are, however, exceptions of matters in 1. Edwin Peel, Locking Out and Locking in : The Enforceability of Agreements to Negotiate (1992) 51(02) CLR 211; Stuart Rowson and Sarah Vickers, UK - Obligations To Negotiate In Good Faith: Where Does English Law Stand? (Linklaters, 15 January 2007) < Publication1403Newsletter/PublicationIssue /Pages/PublicationIssueItem2013.aspx> accessed 25 October 2014.

20 16 Queen Mary Law Journal which the conditions that the law has ruled in favour of the enforceability of good faith contract has been so specific that these agreements to agree can be distinguished from the more typical applications of good faith contracts. In the case of Walford v Miles, 2 the purchasers, Martin Walford, and his brother, Charles Walford, entered into negotiations with Mr and Mrs Miles concerning the sale of their business P.N.M. Laboratories Ltd. The Walford s, thinking that they had found a bargain with respect to the purchase of this business, proceeded in negotiations with the Miles where an oral agreement from the seller not to negotiate with any other party and a letter titled subject to contract was produced. Ultimately, the Miles did not sell their business to the Walford s, and consequently, the Walford s sued the Miles on the basis that they owed a duty to negotiate in good faith. The nature of this claim was troublesome however, as it relied on an agreement that was subject to contract, and subsequently, the agreement was found plainly unenforceable. 3 The reason for this unenforceability is due to the fact that there was neither a concluded agreement, nor an express agreement to negotiate in good faith. All negotiations were subject to contract and the lock-out agreement itself was unenforceable because it lacked a time limit 4 and that a bare agreement to negotiate contains no legal content. This is similar to the findings in Courtney and Fairburn Ltd V Tolaini Brothers (Hotels) Ltd, 5 where the courts could not realistically be expected to say when negotiations had broken down for a proper reason as opposed to good faith. Furthermore, according to Lord Ackner, the concept of a 2. [1992] 2 AC John D McCamus, The Law of Contracts: Essentials of Canadian Law, (Irwin Law Inc. 2005) Antonio Bueno and Deborah Tompkinson, Enforcing Agreements: Part 2 (2009) 159 NLJ [1975] 1 WLR 297.

21 Kevin Roche 17 duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. 6 Lord Denning MR, in his judgement, argued: If the law does not recognise a contract to enter into a contract (where there is a fundamental term yet to be agreed) it seems to me it cannot recognise a contract to negotiate. The reason is because it is too uncertain to have any binding force. No court could estimate the damages because no one can tell whether the negotiations would be successful or would fall through; or if successful, what the result would be. It seems to me that a contract to negotiate, like a contract to enter into a contract is not a contract known to the law. 7 The unenforceability of good faith negotiations in contracts continues to be found in recent cases. According to Teare J, in Shaker v Vistajet Group Holdings SA: The reason for such unenforceability is that there are no objective criteria by which the court can decide whether a party has acted unreasonably and that a duty to negotiate in good faith is unworkable because it is inherently inconsistent with the position of a negotiating party. 8 From the cases listed above, it appears that a clear rule has presented itself with respect to the courts approach towards good faith contracts. The notion of uncertainty in the structure of the core principle of good faith is perhaps, best articulated by Jane Stapleton, who discusses the issue from a theoretical perspective. The issue of uncertainty, with respect to good faith negotiating, is that from a legal perspective, there are issues that result from what is considered reasonable behaviour and what is considered acting in good faith. For Stapleton, it is considered reasonable conduct for one to act in good faith, whereas, to act dishonestly, deliberately contradictory and/ 6. Peel (n 1) Courtney and Fairbairn Ltd. V Tolaini Brothers (Hotels) Ltd, [1975] 1 W.L.R. 301 (Denning MR). 8. Shaker v Vistajet Group Holding SA [2012] EWHC 1329 (Comm) [7] (Teare J).

22 18 Queen Mary Law Journal or exploitative will always be considered to be unreasonable. The issue with the law appears when we confront judicial statements that effect must be given to the reasonable expectations of honest people. 9 Herein the problems arise, as the expectations people have towards concepts such as (1) honesty, sincerity, and no deliberate exploitation, qualities one associates with good faith, and the expectations one associates with (2) fair and reasonable conduct vary greatly and are open to subjective interpretation. As Stapleton argues, the nature of variety within these concepts is due to the fact that they are socially constructed, and there is not always a clear consensus on what constitutes a notion such as dishonesty, and therefore, by implication, individuals will differ in their perspectives on how this notion applies itself to a set of facts. When Lord Ackner states; an agreement to negotiate in good faith is not generally enforceable under English law as it is unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies, 10 we find Stapleton s arguments provide clarity towards this issue. From the legal perspective of good faith negotiating, the difficulties between what constitutes as bona fide versus mala fide negotiations cannot be easily distinguished. It is on this case that the courts find difficulty in enforcing the principle. Dealing with the Walford v Miles case, McCamus writes that: [A] certain amount of posturing is to be expected in the context of contract negotiations. Accordingly, for the House of Lords at least, the line between good-faith and bad-faith negotiation is too difficult to discern. On the facts of the Walford case, their Lordships were of the view that the lack of a specified terms for the lockout meant that the agreement would only come 9. Jane Stapleton, Good Faith in Private Law (1999) 52 CLP 1, Walford v Miles [1992] 2 AC 128 [138] (Lord Ackner).

23 Kevin Roche 19 to an end when good-faith negotiations had come to an end. Accordingly, the enforceability of the agreement rested on the enforceability of a duty to negotiate in good faith. As a result, the agreement failed for lack of certainty. 11 In cases where the courts have found a basis for enforcing good faith agreements, we find that the circumstances in which they are permitted typically contain specific circumstances which warrant such agreements enforceability. Consequently, for practitioners of law, it can be held that relying on the principle of good faith, as a rule, is not sufficient as a guarantee to render a contract enforceable. In Petromec Inc Petro-Deep Societa Armamento Navi Appoggio SPA v Petrobas Brasileiro SA, 12 the courts showed that agreements to negotiate in good faith can be enforced when they are part of a legally effective agreement where the level of certainty is to such a degree as to make the agreement workable. 13 In this case, the clause to negotiate in good faith was contained in a Supervision Agreement that Longmore LJ found to be not a bare agreement to negotiate. He continued: It would be a strong thing to declare unenforceable a clause into which the parties have deliberately and expressly entered. I have already observed that it is of comparatively narrow scope. To decide that it has no legal content to use Lord Ackner s phrase would be for the law deliberately to defeat the reasonable expectations of honest men I would only say that I do not consider that Walford v Miles binds us to hold that the express obligation to negotiate as contained in clause 12.4 of the Supervision Agreement is completely without legal substance. 14 When the subject of good faith negotiations are found to be sufficiently 11. McCamus (n 4) [2006] 1 Lloyd s Bueno (n 5). 14. Petromec Inc Petro-Deep Societa Armamento Navi Appoggio SPA v Petrobas Brasileiro SA [2006] 1 Lloyd s 121 [121] (Longmore LJ).

24 20 Queen Mary Law Journal narrow, the courts have found reason to uphold contract negotiations on the basis of good faith. However, as a general rule, this cannot always be relied upon, as the following example demonstrates. Yam Seng PTE Ltd v International Trade Corporation Ltd illustrated that English courts have found reason to imply good faith into commercial contracts, such as franchise, joint venture and long term distribution agreements where a high degree of communication [and] co-operation is required to make the relationship work. 15 In this case, Leggatt J found that the contract between the parties lacked sufficient clarity and that the level of dishonesty on the part of the International Trade Corporation was so that there was a basis to enforce good faith negotiating into the contract as a matter of principle, or, as a matter of what is reasonably expected of parties entering into agreements with one another. On the principle of good faith, Leggatt J says that the fear that recognising a duty of good faith would generate excessive uncertainty is unjustified [and] I respectfully suggest that the traditional English hostility towards a doctrine of good faith is misplaced. 16 The courts also found reason to enforce good faith negotiations in Emirates Trading Agency LLC v Prime Mineral Exports Private Limited. 17 Firstly, that a time limit of four weeks for negotiations was contained in the contract. Secondly, this time limit was enclosed with a dispute resolution clause which permitted the Court to find a reason to uphold the agreement, namely, that the purpose for this clause was to support a public interest to avoid 15. Good faith: what does it mean? (Travers Smith, July 2013) < media/ / good_faith what_does_it_mean_july_2013.pdf> accessed 25 October Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB) [ ] (Leggatt J). 17. [2014] EWHC 2104 (Comm).

25 Kevin Roche 21 expensive arbitration and litigation costs. And finally, that the clause did not require any outcome from the friendly discussions. 18 In conclusion, the position of the English courts towards the unenforceability of good faith in negotiations has appeared to have gradually declined, as it has been observed in recent cases the courts have permitted it to be enforced. However, when there are inconsistencies in the law, it is helpful to find those cases which do no align with the traditional view of the courts to not be seen as evidence of incompatibility with the law, but rather these cases are best understood as demonstrative of the exception to the rule. In Yam Seng v ITC, it was found that in relational contracts the English law should recognise the duty of good faith, but does not always mean that it will. 19 In Shaker v Vistajet, it was found that a good faith clause is likely to be unenforceable even if it is included in a professionally drafted commercial contract. 20 Taking all things into consideration, the English courts are likely to continue following the Walford lead and conclude that the duty to negotiate in good faith is unenforceable under English law Neuberger and Young, Friendly Discussions Obligation is Enforceable Under English law (Bracewell & Giuliani, 15 July 2014) < blog.com/archives/ 2014/07/15/5703> accessed 25 October Mark Alsop, Good faith implied as a term in a relational contract (Charles Russell, March 2013) < accessed 26 October Kevin Kilgour, The status of express obligations to negotiate in good faith (Herbert Smith Freehills, 7 June 2012) < accessed 26 October Rowson (n 2).

26 22 Queen Mary Law Journal

27 1st year essay competition - Contract Law Malwina Wójcik 1st year LLB, Queen Mary, University of London It is a mistake to think that all contracts can be analysed into the form of offer and acceptance (Lord Denning). How is, and how should, contract formation be determined? Can the mirror image approach be improved? According to English law, a contract comes into existence when one party makes an offer and the other party accepts it. A valid acceptance must match the terms of a contract in an exact way. This approach is known as the mirror image rule. The offer and acceptance model has many strengths, but it does not fit easily into every case. Therefore, it is sometimes subject to criticism for being too rigid or out of date. The words of Lord Denning incorporated in the topic of this essay are an example of such a critical approach. The traditional approach of offer and acceptance in solving disputes in contract law has been a long lasting authority for a few reasons. In many cases the course of events fits perfectly into the offer and acceptance model. In those contracts, the intention to create legal relations, which is vital for a contract to exist, can be simply reduced to question and answer. 1 The mirror image approach in assessing the contract formation is analytically convenient and contributes to a high degree of certainty within the judgments. It is important especially in trade transactions, where uncertainty is obviously undesired. However, there is also some degree of flexibility as the courts are 1. Sir William Anson, Principles of the English Law of Contract (2nd edn, Oxford University Press 1882) 15.

28 24 Queen Mary Law Journal willing to enforce a contract where the intention to be bound is clearly seen. There is no need for the acceptance to be expressed precisely by saying I agree or I accept, because other words or special conduct can also be seen as an acceptance. 2 In Harvela Investments Ltd v Royal Trust Co of Canada, 3 it was held that an invitation to tender contained an offer within it because it indicated that the highest bid will be accepted. In Brogden v Metropolitan Railway Company, 4 it was established that an offer can be accepted by conduct. The offer and acceptance approach is also consistent with international and European law. The Convention on the International Sale of Goods 1980 recognises the model in Article 14, et seq, so do the Unidroit Principles of International Commercial Contracts in Article et seq. and Principles of European Contract Law in Article 2:201 et seq. The standard model of offer and acceptance is not free of limitations and often becomes subject to criticism. There are a considerable number of cases in which the existence of a contract cannot be easily and naturally determined by presence of offer and acceptance. Mathias M Siems calls these contracts unevenly formed contracts because of their atypical method of formation. 5 Siems argues that in situations of unevenly formed contracts the presence of consensus in idem is more important than the concept of offer and acceptance. 6 There are cases, to which Siems refers as simple cases, 7 in which the strict 2. Mathias M Siems, Unevenly Formed Contracts : Ignoring the Mirror of Offer and Acceptance (2004) 12 ERPL [1986] AC 207 (HL). 4. (1877) 2 App Cas 666 (HL). 5. Siems (n 2). 6. ibid ibid.

29 Malwina Wójcik 25 application of the standard model of offer and mirroring acceptance is impossible. Siems gives multilateral agreements as one of the examples. 8 In Clarke v Earl of Dunraven, 9 the parties entered a yacht competition, both agreeing to follow the sailing rules of the organizer. Satanita (the claimant s yacht), sank Valkyrie (the yacht of the defendant). If the offer and acceptance model was to be followed strictly, the conclusion would be that each of the parties had accepted an offer made by the yacht club by agreeing to its regulations, but there was no contract between the participants themselves. The Court of Appeal held in favour of the defendant, that there was a binding contract between the parties, but the offer and acceptance was not clearly identified. Lord Herschell claimed that: The effect of their entering for the race, and undertaking to be bound by these rules to the knowledge of each other, is sufficient, I think, where those rules indicate a liability on the part of the one to the other, to create a contractual obligation to discharge that liability. 10 Therefore there is no need for the offer and acceptance to exist, the intention to enter into a contract is enough to be bound in cases involving more than two parties. Siems also distinguishes between another type of unevenly formed contracts, which he calls hard cases. 11 In these, the existence of a contract itself is put into doubt. As an example of these types of contracts that give difficulties, he uses contracts by conduct. 12 In New Zealand Shipping Co Ltd v Satterthwaite & Co Ltd, 13 the owner of the Eurymedon vessel that 8. ibid. 9. [1897] AC 59 (HL). 10. ibid Siems (n 2). 12. ibid [1975] AC 154.

30 26 Queen Mary Law Journal transported a drilling machine to New Zealand, hired stevedores responsible for loading and unloading the machine. The stevedores damaged the machine while unloading it. The bill of lading for the shipment of the machine stipulated that unless a claim was brought within one year, the carrier or stevedore was not liable for loss or damage. The owners of the machine sued the stevedores after one year, claiming that the stevedores were not bound by the clause in the bill of lading because they were independent contractors hired by the carriers. The Privy Council held that by signing the bill of lading, the owner of the drilling machine made a unilateral offer that could be accepted by anyone. The stevedores accepted the offer by loading the machine. Although Lord Wilberforce eventually analysed the case using the offer and acceptance model, he admitted that applying it presents difficulty in many situations of daily life. 14 He pointed out that: English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration. 15 Lord Wilberforce s words signify that, although offer and acceptance is a preferable model to adopt because it makes the judgment certain and rational, applying it in some cases seems artificial and unrealistic. It often makes the judges adopt backward reasoning when they look for offer and acceptance to justify their conclusion. This might prevent them from thinking empirically and from achieving a balance between the intentions of the parties, fairness and certainty ibid ibid. 16. Mindy Chen-Wishart, Contract Law (4th edn, Oxford University Press 2012) 79.

31 Malwina Wójcik 27 A further hard case example is Gibson v Manchester City Council 17. The defendants had a practice of selling council houses to the tenants. The claimant, wanting to buy a house, applied for details. The defendants replied that that they may be prepared to sell the house to him and asked him to complete the application. After the claimant did so, the council administration changed and they did not wish to sell the house anymore. A question arose as to whether there was a valid contract for sale between the parties. Denning MR held that the contract existed, claiming: it is a mistake to think that all contracts can be analysed into the form of offer and acceptance. 18 He argued that one should look at the correspondence as a whole and at the conduct of the parties and see therefore, whether the parties have come to an agreement on everything that was material. 19 The House of Lords reversed the judgment by applying the offer and acceptance model. Lord Diplock saw no reason for departing from the conventional approach. 20 Moreover, he claimed that it was by departing from this conventional approach that the majority of the Court of Appeal was led into error. 21 Another example of a hard case is one called the battle of forms. The modern business practice often involves the usage of standard terms and conditions exclusive to each party. These conditions may differ in some more or less crucial aspects. When the correspondence is exchanged between the parties, the question arises: whose terms prevail? In Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd, 22 the claimants sold a machine tool to the 17. [1978] 1 WLR 520 (CA), [1979] 1 WLR 294 (HL). 18. [1978] 1 WLR 520 (CA) ibid [1979] 1 WLR 294 (HL) ibid [1979] 1 WLR 401.

32 28 Queen Mary Law Journal defendants. The standard terms and conditions of the claimants were to prevail over any terms and conditions in the buyer s order, which included a price variation clause. The defendants letter placing the order contained different conditions and it did not include a price variation clause. In the defendants letter there was a tear-off confirmation slip, which the claimants signed and returned. A disagreement occurred between the parties as to whether the price variation clause was a part of the contract. The Court of Appeal held unanimously that it was not. However, the approach of the judges in reaching this conclusion was very different. Lawton and Bridge LJ used the last shot approach, analysing the case in terms of offer and acceptance. Applying the mirror rule, they saw the buyer s letter as a counter-offer that was accepted by the sellers when they signed and returned the tear-off slip. Lord Denning agreed that the decisive document 23 was the buyer s letter but he found the approach of Lawton and Bridge LJ out-of-date. 24 Instead of focusing on searching for the offer and acceptance, he suggested that attention should be paid to the conduct and correspondence of the parties. The most important issue in his opinion is to determine whether the parties reached agreement on material points. 25 This could be true even if the terms and conditions of both parties differed. If it is determined that the parties reached an agreement, the second question the court should deal with is identifying the terms of the contract. The conflicting terms may need to be scrapped and replaced by a reasonable implication. 26 The alternative solution of Lord Denning is undoubtedly more flexible and practical than the traditional offer and acceptance approach, especially in 23. ibid ibid ibid. 26. ibid 405.

33 Malwina Wójcik 29 the modern trading conditions. The negotiations between the parties often take on a complex form and cannot be easily reduced to offer and acceptance. Moreover, the application of the traditional mirroring model may often lead to a conclusion that there was no contract at all, which would be contrary to parties beliefs and expectations. However, Lord Denning s approach has a significant disadvantage it tends to create uncertainty. Determining, for example, what are the material terms seems to be highly subjective. The judges are rather reluctant to take responsibility for a conclusion based solely on their subjective opinion. This was illustrated Tekdata Interconnections Ltd v Amphenol Ltd, 27 another battle of forms case. The Judge in the first instance followed Lord Denning s reasoning in Butler in an attempt to displace traditional offer and acceptance analysis by reference to the conduct of parties over a long-term relationship. 28 Longmore LJ gave the leading judgment in the Court of Appeal, admitting that the traditional approach may not be applicable when the documents passing between the parties and their conduct show that their common intention was that some other terms and intentions prevail. 29 However, he stated that this is not the case in Tekdata. He decided to apply the offer and acceptance model, reversing the previous judgment. Article II of European Draft Common Frame of Reference stipulates that the rules relating to offer and acceptance apply with appropriate adaptations even though the process of conclusion of a contract cannot be analysed into offer and acceptance. The courts are generally willing to apply the offer and acceptance model because it gives certainty, even if the facts must be sometimes artificially forced to fit into the model. Although 27. [2009] EWCA Civ Phillip Morgan, Battle of the Forms: Restating the Orthodox (2010) 69 CLJ [2009] EWCA Civ 1209 [11].