Whether there is a binding contract

February 13th, 2019 by James Goudie KC

Whether an agreement was complete and enforceable despite there being no express identification of the event which would trigger the payment obligation was one of the issues before the Supreme Court in Wells v Devani (2019) UKSC 4.  This gave rise to questions whether there was a binding contract and as to whether there was an implied term.

The Supreme Court said as regards whether there was a binding contract:-

“17.    The question whether there was a binding contract between Mr Devani and Mr Wells required a consideration of what was communicated between them by their words and their conduct and whether, objectively assessed, that led to the conclusion that they intended to create a legally binding relationship and that they had agreed all the terms that the law requires as essential for that purpose….

  1. It may be the case that the words and conduct relied upon are so vague and lacking in specificity that the court is unable to identify the terms on which the parties have reached agreement or to attribute to the parties any contractual intention. But the courts are reluctant to find an agreement is too vague or uncertain to be enforced where it is found that the parties had the intention of being contractually bound and have acted on their agreement. …”

As regards implied term, the Supreme Court said:-

“28.    In Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72; [2016] AC 742, the Supreme Court made clear that there has been no dilution of the conditions which have to be satisfied before a term will be implied and the fact that it may be reasonable to imply a term is not sufficient. Lord Neuberger of Abbotsbury PSC, with whom Lord Sumption and Lord Hodge JJSC agreed without qualification, explained (at paras 26 to 31) that (i) construing the words the parties have used in their contract and (ii) implying terms into the contract, involve determining the scope and meaning of the contract; but construing the words used and implying additional words are different processes governed by different rules. In most cases, it is only after the process of construing the express words of an agreement is complete that the issue of whether a term is to be implied falls to be considered. Importantly for present purposes, Lord Neuberger also made clear (at paras 23 and 24) that a term will only be implied where it is necessary to give the contract business efficacy or it would be so obvious that “it goes without saying”.

The leading judgment (Lord Kitchin) further said:-

“33.    … I recognise that there will be cases where an agreement is so vague and uncertain that it cannot be enforced. So too, there will be cases where the parties have not addressed certain matters which are so fundamental that their agreement is incomplete. Further, an agreement may be so deficient in one or other of these respects that nothing can be done to render it enforceable. But I do not accept that there is any general rule that it is not possible to imply a term into an agreement to render it sufficiently certain or complete to constitute a binding contract. Indeed, it seems to me that it is possible to imply something that is so obvious that it goes without saying into anything, including something the law regards as no more than an offer. If the offer is accepted, the contract is made on the terms of the words used and what those words imply. Moreover, where it is apparent the parties intended to be bound and to create legal relations, it may be permissible to imply a term to give the contract such business efficacy as the parties must have intended. For example, an agreement may be enforceable despite calling for some further agreement between the parties, say as to price, for it may be appropriate to imply a term that, in default of agreement, a reasonable price must be paid.”

“35.    Accordingly, where, as here, the parties intended to create legal relations and have acted on that basis, I believe that it may be permissible to imply a term into the agreement between them where it is necessary to do so to give the agreement business efficacy or the term would be so obvious that “it goes without saying”, and where, without that term, the agreement would be regarded as incomplete or too uncertain to be enforceable. Each case must be considered in light of its own particular circumstances. …”

Lord Briggs added:-

“59.    Lawyers frequently speak of the interpretation of contracts (as a preliminary to the implication of terms) as if it is concerned exclusively with the words used expressly, either orally or in writing, by the parties. And so, very often, it is. But there are occasions, particularly in relation to contracts of a simple, frequently used type, such as contracts of sale, where the context in which the words are used, and the conduct of the parties at the time when the contract is made, tells you as much, or even more, about the essential terms of the bargain than do the words themselves….”

“61.    The judge decided the case by reference to implied terms. But it follows from what I have set out above that I would, like Lord Kitchin, have been prepared to find that a sufficiently certain and complete contract had been concluded between them, as a matter of construction of their words and conduct in their context rather than just by the implication of terms, …

  1. … If a contract plainly creates a liability for payment in the events that have happened, a perception that a difficult issue or uncertainty as to liability might have arisen on other hypothetical facts should not stand in the way of recognising contractual rights as enforceable where, as here, no such issue arises. …”

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