Finality and Completeness of Agreement

Transcription

1 Finality and Completeness of Agreement Certainty A contractual agreement must be in terms which define with a sufficient degree of certainty the obligations which the parties are to undertake. Incomplete agreements. The parties know that they haven t actually dealt with everything. Future agreements There are also cases where the parties agree on most of the contract and then say we will agree on the rest of the contract later. Courts have had to deal with less than complete or precise agreements where: (i) negotiations are complete, but not all relevant matters are provided for (ii) the parties have reserved some matters to be decided in the future Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd [2002] In the (HOA) Heads of Agreement, certain provisions were agreed, some were not agreed and one was to be agreed. The CoA held that no contract had been concluded because the parties had not intended the HOA to constitute a concluded contract. Their decision was founded on: 1. A lack of the parties intention for the HOA to be immediately binding in law 2. A lack of machinery provisions for resolving uncertain matters Uncertainty: The issue of contractual intention arises in cases where the parties have reserved some matter for determination in the future. Intention and essential matters Hillas & Co Ltd The Court have an entirely neutral approach when determining whether the parties intended to enter into a contract. Having decided that they had that intention, however, the Courts attitude will change. It will then do its best to give effect to their intention and, if at all possible, uphold the contract despite omissions or ambiguities.

2 - This is usually dependant on whether there was some machinery present. The prerequisites for formation of contract; 1. An intention to be immediately legally bound 2. An agreement, express or found by implication, or the means of achieving an agreement (e.g. arbitration) on every term which: (i) was legally essential to the formation of such a bargain (ii) was regarded by the parties themselves as essential to their particular bargain I. Intention to be immediately bound The parties must intend to become legally bound. The courts will take a neutral approach to this. Courts must consider the factual matrix of the agreement: (i) Earlier negotiations/ communications between the parties, e.g. oral or written statements (ii) Drafts of the intended contract (iii) (iv) Post-agreement conduct Look at the dynamic negotiation process, at the internal interrelationships of bargaining. 2. Legally essential matters (Finn s opinion): The identity of the parties (me, or the company which I nominate) The identity of the subject matter. (Which house are we selling?) The consideration. (The value being exchanged. The price of the promise). When the contract is to be performed. (Often this is done by some kind of methodical/ machinery provision. E.g. agreement with builder to build if council permission.) Using Contractual Machinery Parties may leave matters to be settled by an external reference point or by some machinery provision in the contract at the future date. Robertson Enterprise Ltd v Cope

3 Parties may agree that the precise terms will be drafted by one party (or the party s agent) using standard provisions. Arbitration Attorney General v Barker Bros A widely drafted arbitration clause can be used to cover a failure to agree as to some future matter, if there is agreement to accept arbitration. No prior contractual obligation to accept arbitration is needed if: - The court can find a mutual intention to be contractually bound and - A mutual intention that even an essential matter be resolved by a machinery provision, then the provision will be used to determine even a legally essential term. Sudbrook Trading Estate Ltd v Eggleton The courts can replace defective machinery with its own machinery if: (a) (b) The machinery provision could be classed as a subsidiary or minor element of the entire bargain The parties had clearly intended the machinery to determine a contractual obligation objectively (neutrally), (as with a market or fair value). Money v Ven-Lu-Ree Ltd - Courts could supplement inadequate contractual machinery provisions. - Also, if the parties had mutually agreed the price would be determined on an objective or market basis, there was sufficient certainty because the court could determine the price on objective criteria. It is now possible for the Courts to create adequate machinery to achieve certainty, not merely to repair imperfect machinery provisions used by the parties themselves. Nelson v Cooks McWilliams Wines Ltd The court cannot intervene to repair a machinery provision which the parties have regarded the machinery provision as being essential to the agreement. I.e. Sudbrook and Money do not apply. Northern Regional Health Authority v Derek Crouch Construction Co Ltd

4 Where there is an existing, effective machinery provision, the courts cannot intervene, and cannot replace the existing provision. Hinterleitner v Heean If the parties reached agreement on most issues but have reserved some matter for a later determination on subjective grounds, there is no contract. (Subjective = unique to this particular case/ situation) Matters to be agreed and Barret v IBC International Ltd If parties intend matter to be settled only by their future agreement = there is no contract, as no intention to be bound. But if matters are to be agreed and there is an intention to be bound, then Court will try to resolve the matter even if no machinery is provided. Aotearoa International Ltd v Scancarriers A/S Need to avoid creating a contract that the parties refused to make. Future agreements: The critical question for the Courts is whether the parties had intended for the contract to be complete before or after that matter is determined. Willets v Ryan If the matter is to be decided by the parties alone, the courts cannot intervene. The courts cannot make a contract for the parties by substituting its view of a desirable balance of competing interests for that which the parties themselves should make. Agreements to agree Walford v Miles The courts will not accept a contract to make a contract or to negotiate a later agreement. Options:

5 Alexander v Tse - An option is a device whereby one party buys a right to later require another to enter a particular agreement. - Options require the precise terms of the transaction be clear. - An option may be regarded as an offer coupled with a contract not to revoke the offer Gulf Harbour Investments Ltd An option must be exercised exactly on its terms. Offer together with an agreement not to revoke it. "What is the nature of an option?" Assuming that the option is an option to purchase: (i) An irrevocable offer to sell; or, more fully stated, an offer to sell coupled with a contract, made for consideration or by deed, not to revoke it. (ii) A conditional contract of sale. Rights of pre-emption - A contractual agreement between A and B to the effect that if at some future time A wishes to engage in contractual dealings in respect of some matter, then B will have the first opportunity to either refuse the matter, or enter into a binding contract over the matter Morgan - Differs from an option in that neither party has an enforceable right to compel the other party to enter into any future contract. Adaras Developments The terms offered to the party must be no less favourable than the offeror would offer to anyone else. McLachlan v Mercury Geotherm Ltd (in liquidation) Offer to someone else will trigger the right of pre-emption. An option over the same subject matter will not. MacMillan v Covic

6 - The seller may force the issue in the absence of an interested third party by making an offer to sell at a fair and reasonable price. - The seller will have the onus of proving the offer was fair and reasonable. Lock-out provisions: Miles A promise between A and B; that A shall for a period of time give up the freedom to negotiate for a particular main contract with anyone A chooses and instead undertake that if any such negotiations are undertaken by A within the period, they will be with B only. Other lesser obligations: Contractual right of consultation Rothmans of Pall Mall Duty to consult An agreement whereby one party, B, fetters (to a limited extent) its freedom of future action by promising that the other party, C, will be consulted, or will have the opportunity to make representations or submissions to B before B undertakes actions of a certain kind. Where there is valid consideration between the parties, there will be a valid duty of consultation. Such a duty appears to carry with it a duty on the parties to act in good faith. Gaps and meaningless or ambiguous terms: Scammel v Ouston - If the terms the parties have chosen to state essential elements of their intended legal relations are ambiguous or uncertain, the courts may reluctantly have to conclude that no contract was ever formed. (E.g. motor-vehicle sold on hire purchase ). Nicolene Ltd v Simmonds - The courts will proclaim the existence of a contract even if one of the parties, after agreeing in substance to the proposals of the other, introduces a phrase or clause which has no significance.

7 - If there is agreement in all essential matters, the courts will ignore or strike out a subsidiary addition. - II. CONDITIONAL CONTRACTS Condition = an event or an occurrence, in which the existence or continued existence of contractual obligations depend. Pym v Campbell Condition precedent = some event which had to occur before an agreement between the parties became contractually binding. (e.g. an invention) Head v Tattersall Condition subsequent = an event upon the happening of which an existing contract is discharged. This discharge is seen as operating retrospectively back to the time that the agreement was made, so that the parties do not accrue any rights or obligations under it. (e.g. the horse getting injured) Promissory condition = an event on which the contract depends where one party has promised to obtain the occurrence of the event. Since Hunt v Wilson, the NZ courts have shown a remarkable reluctance to assign the precedent or subsequent labels to conditions. A functional analysis of contracts may be more useful 1. Conditions required for formation of an agreement Where part of the offer and acceptance procedure is made subject to a condition. Until that condition is fulfilled, the offer and acceptance procedure has not been completed, and there is no contract. Buhrer v Tweedie (Offered to sell house subject to solicitor s approval ) Conditional offer = Until the condition had been fulfilled, there is no offer capable of being accepted. Frampton v McCully