The court discussed how it should approach the task of establishing whether a contract had been made.
Performance can be a critical factor in demonstrating that the parties intended to create legal relations.
Steyn LJ said: ‘Before I turn to the facts it is important to consider briefly the approach to be adopted to the issue of contract formation in this case. It seems to me that four matters are of importance. The first is the fact that English law generally adopts an objective theory of contract formation. That means that in practice our law generally ignores the subjective expectations and the unexpressed reservations of the parties. Instead the governing criterion is the reasonable expectations of honest men. And in the present case that means that the yardstick is the reasonable expectations of sensible businessmen. Secondly, it is true that the coincidence of offer and acceptance will in the vast majority of cases represent the mechanism of contract formation. It is so in the case of a contract alleged to have been made by an exchange of correspondence. But it is not necessarily so in the case of a contract alleged to have come into existence during and as a result of performance. See Brogden v. Metropolitan Railway (1877) 2 AC 666; New Zealand Shipping Co Ltd v A M Satterthwaite and Co. Ltd. [1974] 1 Lloyd’s Rep. 534 at p.539 col.1 [1975] AC 154 at p. 167 D-E; Gibson v. Manchester City Council [1979] 1 WLR 294. The third matter is the impact of the fact that the transaction is executed rather than executory. It is a consideration of the first importance on a number of levels. See British Bank for Foreign Trade Ltd. v. Novinex [1949] 1 KB 628 at p. 630. The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as inessential. In this case fully executed transactions are under consideration. Clearly, similar considerations may sometimes be relevant in partly executed transactions. Fourthly, if a contract only comes into existence during and as a result of performance of the transaction it will frequently be possible to hold that the contract impliedly and retrospectively covers pre-contractual performance. See Trollope and Colls Ltd. v. Atomic Power Constructions Ltd. [1963] 1 WLR 333.’
Steyn LJ
[1993] 1 Lloyd’s Rep 25
England and Wales
Citing:
Cited – Brogden v Metropolitan Railway Co HL 1877
The parties wished to contract to sell and buy coal. A draft was supplied by the railway company to the supplier once head terms were agreed. The draft was returned with minor additions and the proposed name of an arbitrator. The coal was then . .
Cited by:
Cited – RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh and Co Kg (UK Productions) TCC 16-May-2008
The parties had gone ahead in performing the contract for the supply of machinery for manufacturing yoghurt pots, despite not having concluded formal agreements. . .
Cited – RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh and Co KG CA 12-Feb-2009
The parties went ahead with performance of a contract or the provision of a substantial production line without formally completing negotiation of the contract. . .
Cited – RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh and Company Kg (UK Production) SC 10-Mar-2010
The parties had reached agreement in outline and sought to have the contract formalised, but went ahead anyway. They now disputed whether an agreement had been created and as to its terms if so.
Held: It was unrealistic to suggest that no . .
Cited – Parties Named In Schedule A v Dresdner Kleinwort Ltd and Another QBD 28-May-2010
The defendant merchant banks resisted two group claims for annual bonuses for 2008 made by the employee claimants. They now sought summary judgment against the claims. The employer had declared a guaranteed minimum bonus pool available to make the . .
Lists of cited by and citing cases may be incomplete.
Contract
Updated: 14 November 2021; Ref: scu.242133
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