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LAW OF CONTRACT

LPAB – Summer 2016/2017

Week 2

Alex Kuklik

Lecture 2Formation of contract

• The Fact of Agreement: Acceptance

– Acceptance generally

− Text: Radan & Gooley, Chapter 4 (paras 4.74-4.121)

− R v Clarke (1927) 40 CLR 227 (R&G(C)[4.9])

− *Household Fire & Carriage Accident Insurance Co v Grant (1879) LR 4 Ex D 216 (R&G(C)[4.10])

− *Brinkibon v Stahag Stahl [1983] 2 AC 34 (R&G(C)[4.11])

− *Bressan v Squires [1974] 2 NSWLR 460 (R&G(C)[4.12])

– Alternatives to Offer & Acceptance

− Butler Machine Tool Co v Ex-Cell-O Corporation [1979] 1 All ER 965 (R&G(C)[4.13])

– Termination of Offers

− Stevenson, Jacques and Co v McLean (1880) 5 QBD 346 (R&G(C)[4.6])

− Dickinson v Dodds (1876) 2 Ch D 463 (R&G(C)[4.7])

− *Mobil Oil v Lyndell Nominees (1998) 153 ALR 198 (R&G(C)[4.8])

Lecture 2Formation of contract

• Certainty and Completeness

− Text: Radan & Gooley, Chapter 5

− Booker Industries v Wilson Parking (Qld) (1982) 149 CLR 600 (R&G(C)[5.2])

− Whitlock v Brew (1968) 118 CLR 445 (R&G(C)[5.3])

− Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1

− United Group Rail Services Limited v Rail Corporation New South Wales

[2009] NSWCA 177 (R&G(C)[5.4])

− Masters v Cameron (1954) 91 CLR 353 (R&G(C)[5.25)

− Meehan v Jones (1982) 149 CLR 571

AcceptanceAims and Objectives

At the end of this lecture students should understand the rules of acceptance, the duration of offers and the concepts of certainty and completeness.

Acceptance

Acceptance generally

– R&G, Chapter 4 (paras 4.74-4.121)

• If an offer has been made and it has not been terminated, an agreement will come into effect if the offer is accepted.

• Acceptance is usually express, but can be implied.

• Acceptance must be unequivocal.

• The acceptance brings about: consensus ad idem – a meeting of the minds

Acceptance

Acceptance must be unequivocal

• The requirement that it be unequivocal means that in accepting the offer, there if nothing left to be negotiated.

• This is a matter of interpreting the language used by the parties.

Acceptance

Acceptance must rely upon the offer.

• The offeree must have knowledge of the offer for this to occur.

• This can be rebutted with evidence to the contrary.

Acceptance


R v Clarke (1927) 40 CLR 227 (R&G(C) [4.9])

– WA Government offered reward of £1000 (about £54,552 now or $116,584) for information leading to arrest and conviction of killers. Clarke provided the information (and had knowledge of the offer). He gave testimony at their trial that when he proffered the information, he had no intention of claiming the reward. Later he asked for the money.

– Majority of the HCT said NO. When he gave the information, he did not do so with the offer in mind, even though he was performing the required act. He had this in his mind later. Therefore providing the reward was not a proper acceptance.

Acceptance


R v Clarke (1927) 40 CLR 227 (R&G(C) [4.9])

– Isaacs J:

• The information was not given in exchange for the offer. For consensus to exist acceptance is essential as offer, even when the same act is sufficient for acceptance and performance. Must act on the offer.

• He was doing it exclusively to clear himself of the charge.

– Higgins J:

• He did not intend to accept the offer. He did not mentally assent to the offer. Therefore consensus of mind until after he gave the information.

Acceptance


R v Clarke (1927) 40 CLR 227 (R&G(C) [4.9])

– Starke J:

• If he performs the condition, but does not act upon faith or in reliance of the offer, he does not accept the offer (including if he forgets the offer).

• As a matter of proof, any person, knowing of the offer, who performs the condition, is prima facie taken to accept the offer.

• But this can be rebutted: It is an inference of fact that can be excluded by evidence (as here, where he explicitly disavows reliance).

Acceptance


R v Clarke (1927) 40 CLR 227 (R&G(C) [4.9])

– Starke J:

• Took a different view on facts: Here the inference is not displaced because he did know of the offer and provide the information and nowhere in the evidence is it said that he did not act upon faith of or in reliance of the offer (and this was not put directly to him).

• The evidence suggested that Clarke acted on the offer, but had not addressed his mind to whether he would claim the reward or not.

• But ultimately the inference of fact was for the trial judge to determine.

Acceptance


R v Clarke (1927) 40 CLR 227 (R&G(C) [4.9])

– Some commentators argue that acceptance should be valid even without reliance: R&G(C) p 70.

– Or that the concept of reliance is very weak and the claimant has to clearly deny that he/she relied on the offer for the inference to be rebutted: R&G [4.78].

– Cf: UK – the position has been held to be ‘open’:

• *Eastern Shipping Company Ltd v Far East Chartering Ltd [2011] EWCA 1372 (Comm), [47].

Acceptance

Acceptance must correspond with the offer.

• If an acceptance alters or adds to the terms of the offer in any way, it is not an acceptance. It is a counter-offer which has the effect of rejecting the original offer.

– *Turner Kempson & Co Pty Ltd v Camm [1922] VLR 498 (R&G [4.79])

• Camm sent a letter to Turner, accepting an offer from Turner to sell him a quantity of raspberry pulp, but adding that he wanted it delivered ‘in 3 lots of 5 tonnes each, approximately 10 days between each delivery.’

• The Court held this to be a counter-offer and not an acceptance.

Acceptance

Acceptance must correspond with the offer.

Exceptions

• However, if the additional clauses clearly do not affect the acceptance, with the offer, suggestion or request of additional terms, then the contract will be formed.

• That is, the ‘acceptance’ can be an acceptance on the terms as offered and proffering additional terms that the original offeror can accept if she wishes.

– *Dunlop Higgins (1848) 9 ER 805 (R&G [4.80])

• Accepted offer, and requested delivery on a certain date. It was held that the acceptance was valid because it did not depend on the offeror accepting the proposed delivery date – it was a request

that the delivery rake place on a certain date.

AcceptanceAcceptance must correspond with the offer.

Exceptions

• If there is a deviation from the offered terms but it is solely in favour of the offeree, it may still be a valid acceptance.

• If acceptance does not coincide exactly with the offer due to some error or mis-description by the offeree when acceptance is made, this does not necessarily invalidate the acceptance.

– *Carter v Hyde (1923) 33 CLR 115

• Offer: Sell you the hotel including furniture at time of offer. Acceptance: Sell me the hotel including furniture at time of acceptance. Court held this not to be a counter-offer but merely an error in the acceptance. Therefore acceptance was valid.

• But CF: *Redowood Pty Ltd v Mongoose Pty Ltd [2005] NSWCA 32

Acceptance

Communication of Acceptance

– The acceptance of an offer must be communicated to an offeror. Acceptance is only effective once communicated.

• *Tim Hoffman & Co (1873) 29 LT 271, 278

– *Powell v Lee (1908) 99 LT 284

• School management committee accepted Powell’s application for headmaster’s job, but did not officially communicate this to him. He was told informally by a committee member. Job went elsewhere. He sued for breach. It was held that there had been no authorised communication of the acceptance.

• The requirement for communication for the benefit of the offeror.

AcceptanceCommunication of Acceptance

• Most acceptances are by means of some express statement made by the offeree.

• Generally, silence cannot amount to acceptance.

• An offeror cannot stipulate that no response to the offer will be treated as an acceptance. i.e. “If I don’t hear from you in 48 hours, I will take that as

acceptance of the terms..”

– *Felthouse v Brindley (1862) 142 ER 1037

• There are exceptions to this:

– Equitable estoppel (dealt with in week 4).

– Where conduct of the offeree amounts to an implication that he or she has accepted the offer• *Empirnall Holdings v Malcolm Paull Partners (1988) 14 NSWLR 523

AcceptanceCommunication of Acceptance

• In some circumstances where there has been an offer, acceptance can be inferred from conduct of the offeree that is consistent with the offer.

– “Pif it is clear that the offeree did the act in question with the intention of accepting the offer.”

• *Day v Morris Associates v Voyce [2003] EWCA Civ 189.

– “Pwhether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted.”

• *Empirnall Holdings v Malcolm Paull Partners (1988) 14 NSWLR 523

•

Acceptance

Communication of Acceptance

• Communication of the acceptance can be dispensed with

– As it is for the benefit of the offeror, she is at liberty to dispense with this requirement. Such a dispensation can be explicit or implied.

• Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (R&G(C)[4.2])

– Offers that lead to unilateral contracts usually involve an implied dispensation (by the offeror) of the requirement to communicate acceptance.

• *Kuzmanovski v NSW Lotteries Corporation (2010) 270 ALR 65

– A ‘scratchie’ which said, ‘Prize payable on presentation’, was an offer which could be accepted on presentation.

Acceptance

Postal acceptance rule

*Household Fire & Carriage Accident Insurance Co v Grant (1879) LR 4 Ex D 216 (R&G(C) [4.10])

– Grant applied for shares, a number were allotted to him, and notice was sent by post, but never arrived. Three years later the company was liquidated and unpaid amount on the allotted shares was claimed by liquidator. Grant said that he never got the allotment and therefore the acceptance never reached him. – No agreement

– Majority held that acceptance was complete when allotment was posted. Failure to arrive was irrelevant.

AcceptancePostal acceptance rule

*Household Fire & Carriage Accident Insurance Co v Grant (1879) LR 4 Ex D 216 (R&G(C) [4.10])

– Thessiger LJ

• Post office is agent of both parties and so acceptance complete when posted. The acceptor has done an extraneous act, which clenched the matter.

– Bramwell LJ (diss)

• Equal hardship to offeror if not received, so why should posting be binding? No different to delivery by hand (which, if it fails = no acceptance), so why different in principle by post?

– Idea that postal service is agent of both parties later rejected in *Henthorn v Fraser [1892] 2 Ch 27, 35-36.

Acceptance


*Henthorn v Fraser [1892] 2 Ch 27, 35-36.

– “Where the circumstances are such that it must have been in the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is completed as soon as it is posted.” (R&G [4.98])

• It has been held that sending by telegram is analogous to postage and therefore the rule applies to telegrams.

– *Cowan v O’Connor (1888) 20 QBD 640.

Acceptance


• However, Courts have restricted the further operation of the rule:

*Bressan v Squires [1974] 2 NSWLR 460 (R&G(C) [4.12])

– Squires granted an option to purchase a property. Could be exercised ‘by notice in writing addressed to [Squires] at any time on or before 20 December 1972 and received by Squires on 21 December 1973.’

– Held that the postal acceptance rule was excluded.

– Bowen CJ in Eq

− Adopted Henthorn v Fraser formulation.

Acceptance


*Bressan v Squires [1974] 2 NSWLR 460 (R&G(C) [4.12])

− Given that based on notions of expediency and convenience, it does not apply where its application would produce manifest inconvenience or absurdity, particularly for options for the purchase of land.

− The clause simply described the notice and did not stipulate that it should be exercised by being addressed in the sense of sent or posted on or before 20th December 1972. What was required was actual notice before 20th December 1972.

Acceptance


*Brinkibon v Stahag Stahl [1983] 2 AC 34

– Negotiations over steel purchase. Communications were by telex. Acceptance taken to have occured when return telex was received.

– Lord Willberforce

• Telex is to be likened to other forms of instantaneous communication and therefore offer is accepted when the telex is received and is taken to occur where the telex was received (this was important here to determine which jurisdiction applied, UK or Austria).

Acceptance


*Brinkibon v Stahag Stahl [1983] 2 AC 34

– Lord Fraser Tullybelton

• Telex directly from acceptor‘s office to offeror‘s office is to be treated as instantaneous communication.

• Not unreasonable to treat it as delivered when it arrived at the offeror‘s telex machine (even if not read).

• Therefore instantaneous communications such as telex and telephone are to be treated as being accepted when received (if telephone – the moment when it is heard)


• But if the telex is sent after hours?

– *Schelde Delta Shipping BV v Astarte Shipping Ltd (The Pamela)

[1995] 2 Lloyd‘s Rep 249, 252

• Deemed to have been received by offeree at the start of the next business day.

– The rule does apply to indirect use of telex (using Chief Telegraph Office): *Leach Nominees v Walter Right Pty Ltd [1986] WAR 244.

• Offer was made by private telex to offeree‘s agent by way of public telex system and the offerer must have known that an answer would be by way of a public telex operated by a third party. So acceptance made when dictated.

Acceptance


• Rule does not apply to facsimile transmission:

– *Egis Consulting Australia Pty Ltd v First Dynasty Mines Ltd

[2001] WASC 22 at [9] – [10].

• Rule does not apply to email:

– *Olivaylle Pty Ltd v Flottweg GMBH & KGAA (No 4) (2009) 255

ALR 632 at 642

• What about DX, courier or interactive website?

Acceptance


• Principles:

– Only applies if it is reasonable, contemplated or authorised that acceptance be by letter or telegram.

• *Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vic) Pty Ltd

(1957) 98 CLR 93

– “Pcannot be justified unless it is inferred that the offeror contemplated and intended that his offer might be accepted by the doing of that act.” Contentious negotiations regarding dispute between the clients of two solicitors. Held not to apply.


• Principles:

– Letter or telegram must be properly posted:

• Proper address

• Postage properly paid

• And actually left with post office

– Receipt is irrelevant

• *Household Fire & Carriage Accident Insurance Co v Grant (1879) LR 4 Ex D 216 (R&G(C) [4.10])

– The offeror can exclude the operation of the rule at the time that the offer is made.

• *Bressan v Squires [1974] 2 NSWLR 460 (R&G(C) [4.12])


*Electronic Transactions Act 2000 (NSW), s 13:

(1) For the purposes of a law of this jurisdiction, unless otherwise agreed between the originator and the addressee of an electronic communication, the time of dispatch of the electronic communication is:

(a) the time when the electronic communication leaves an information system under the control of the originator or of the party who sent it on behalf of the originator, or

(b) if the electronic communication has not left an information system under the control of the originator or of the party who sent it on behalf of the originator-the time when the electronic communication is received by the addressee.

Note : Paragraph (b) would apply to a case where the parties exchange electronic communications through the same information system.

(2) Subsection (1) applies even though the place where the information system supporting an electronic address is located may be different from the place where the electronic communication is taken to have been dispatched under section 13B.


*Electronic Transactions Act 2000 (NSW), s 13A:

(1) For the purposes of a law of this jurisdiction, unless otherwise agreed between the originator and the addressee of an electronic communication:

(a) the time of receipt of the electronic communication is the time when the electronic communication becomes capable of being retrieved by the addressee at an electronic address designated by the addressee, or

(b) the time of receipt of the electronic communication at another electronic address of the addressee is the time when both:

(i) the electronic communication has become capable of being retrieved by the addressee at that address, and

(ii) the addressee has become aware that the electronic communication has been sent to that address.

(2) For the purposes of subsection (1), unless otherwise agreed between the originator and the addressee of the electronic communication, it is to be assumed that the electronic communication is capable of being retrieved by the addressee when it reaches the addressee’s electronic address.

(3) Subsection (1) applies even though the place where the information system supporting an electronic address is located may be different from the place where the electronic communication is taken to have been received under section 13B.


*Electronic Transactions Act 2000 (NSW), s 13B:

(1) For the purposes of a law of this jurisdiction, unless otherwise agreed between the originator and the addressee of an electronic communication:

(a) the electronic communication is taken to have been dispatched at the place where the originator has its place of business, and

(b) (b) the electronic communication is taken to have been received at the place where the addressee has its place of business.

(2) For the purposes of the application of subsection (1) to an electronic communication:

(a) a party’s place of business is assumed to be the location indicated by that party, unless another party demonstrates that the party making the indication does not have a place of business at that location, and

(b) if a party has not indicated a place of business and has only one place of business, it is to be assumed that that place is the party’s place of business, and


*Electronic Transactions Act 2000 (NSW), s 13B:

(c) if a party has not indicated a place of business and has more than one place of business, the place of business is that which has the closest relationship to the underlying transaction, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the transaction, and

(d) if a party has not indicated a place of business and has more than one place of business, but paragraph (c) does not apply-it is to be assumed that the party’s principal place of business is the party’s only place of business, and

(e) if a party is a natural person and does not have a place of business-it is to be assumed that the party’s place of business is the place of the party’s habitual residence.

(3) A location is not a place of business merely because that is:

(a) where equipment and technology supporting an information system used by a party are located, or

(b) where the information system may be accessed by other parties.

(4) The sole fact that a party makes use of a domain name or electronic mail address connected to a specific country does not create a presumption that its place of business is located in that country.


*Electronic Transactions Act 2000 (NSW)

• In relation to the applicability to contracts – see ss 14A – 14E

• In relation to compliance with the need for writing or signature – see ss 7 -9


*Electronic Transactions Act 2000 (NSW)

14B Invitation to treat regarding contracts

(1) A proposal to form a contract made through one or more electronic communications that:

(a) is not addressed to one or more specific parties, and

(b) is generally accessible to parties making use of information systems,

is to be considered as an invitation to make offers, unless it clearly indicates the intention of the party making the proposal to be bound in case of acceptance.

(2) Subsection (1) extends to proposals that make use of interactive applications for the placement of orders through information systems.

Alternatives to Offer and Acceptance• R&G [4.109]

• Tradditional rule of offer/acceptance does not work well in all situations – neither sufficient or necessary in all cases: e.g. travel on mass transit, exchange of contracts to sell land, brokers acting for both parties.

– *Brambles Holdings Pty Ltd v Bathurst City Council (2001) 53 NSWLR 153, 176, per Heydon J.

• Although it doesn‘t work well in some cases, no reason for wholesale abandonement.

– *Magill v Magill (2006) 226 CLR 551, 617, per Heydon J.

Alternatives to Offer and Acceptance• R&G [4.109]

• One area where simple offer and acceptance does not work well is in ‘Battle of the forms‘ cases...

– A offers to buy goods from B on A‘s terms

– B offers to sell those goods only on B‘s terms

• What is the result?

– The Court will examine the conduct of the parties and try to objective interpret the documents

– The result could be:

• Contract on A‘s terms

• Contract on B‘s terms

• Contract on terms implied by law – but not A or B‘s terms

• Contact blending A and B‘s terms

• No contract

Alternatives to Offer and AcceptanceBattle of forms

Butler Machine Tool Co v Ex-Cell-O Corp (England) Ltd [1979] 1 All ER 965. (R&G(C) [4.13])

• Butler sent offer for purchase of machine on standard agreement which included price escalation clause, which allowed a price increase in certain circumstances. Ex-Cell-O placed order at the set price stating that subject to its standard terms (which did not include price escalation). There was a tear off strip to confirm the order and sign acceptance. Butler did this, but noted that acknowledgment was in accordance with its standard offer. Ex-Butler built the machine and claimed price in accordance with price escalation clause.

• Did the agreement include the escalation clause?


Butler Machine Tool Co v Ex-Cell-O Corp (England) Ltd [1979] 1 All ER 965. (R&G(C) [4.13]) (R&G [4.112])

Denning MR

• Adopting traditional analysis:

– Butler made offer to Ex-Cell-O with terms and conditions on the back

– Ex-Cell-O sent an acceptance, but with such changes to the terms that it was in reality a rejection and counter-offer

– Butler accepted the counter-offer (the reference to the original quote referred only to price and the identity of the machine)

• Held – Ex-Cell-O’s terms were a counter-offer which was accepted when Butler returned the signed strip. Butler’s notation on the strip was a reference to price and identity of the machine only and did not amount to a re-affirmation of the terms and conditions of the original offer. But discussed the problem arising in these cases.


Butler Machine Tool Co v Ex-Cell-O Corp (England) Ltd [1979] 1 All ER 965. (R&G(C) [4.13]) (R&G [4.112])

• Often traditional analysis will be out-of-date. The better way is to look at all of the documents and glean from them or the conduct of the parties, whether they have reached agreement on all material points even though there are differences in the forms and conditions on them.

• Using this guide, the agreement is usually formed when the last form is sent. But on what terms? Which form or which part of a form is included in the agreement.

• Battle may be won by last shot, first shot or may depend upon circumstances. The terms and conditions of both parties are construed together.


*Goodman Fielder Consumer Foods Ltd v Cospack International Pty Ltd

[2004] NSWSC 704, [46] – [53] (R&G [4.114 - 120])

– 3 Approaches:

• ‘Last shot doctrine’ – each document is a counter-offer, so if any contract is formed, it is on the terms of the final document.

• ‘Higher Status Doctrine’ – forms with the higher status wins. It is the status of the document itself.

• ‘Synthesis approach’ – Agreement established without reference to offer and acceptance. In all the circumstances, can an agreement be inferred? Has mutual assent been manifested?

Termination of Offer

Rejection

• An offer once rejected, is terminated

– Stevenson, Jacques & Co v McLean (1880) 5 QBD 346 (R&G(C) [4.6])

– Offeror need not formally revoke it after rejection. It is dead. A subsequent attempt to accept is in effect a counter-offer.


Revocation

• An offer can be revoked at any time before it is accepted

– *Routledge v Grant (1828) 130 ER 920, 924 (R&G [4.54])

• Unless it is an option:

– An option is either a conditional agreement,

– Or an irrevocable offer

• *Goldsborough Mort & Co Ltd v Quinn (1910) 10 CLR 674.

Termination of OfferRevocation

Stevenson, Jacques & Co v McLean (1880) 5 QBD 346 (R&G(C) [4.6])

– McLean offered to sell iron for a set price C.O.D. Stevenson asked for credit. McLean took this as rejection; sold it somewhere else. But Stevenson accepted prior to formal notification of rejection. Sued, arguing that there was a contract.

• “Please wire whether you would accept forty for delivery over two

months, or if not, the longest limit you would give.”

– Here, asking for credit was not a rejection, but merely an inquiry as to whether terms would be offered. (C.F. Hyde v Wrench). Court said that this is how McLean should have taken it.

– Looked at the form of the telegram and the circumstances of the sale in the current turbulent market.

Termination of OfferWithdrawal

• If an offer is open for a fixed period of time, it can be withdrawn at any time prior to that, but until it is withdrawn, the offer is open (until the stipulated time runs out).

• A withdrawal is only valid when it is received by the offeror. Postal rule does not apply here.


Withdrawal

Dickinson v Dodds (1876) 2 Ch D 463 (R&G(C) [4.7])

• Dodds offered to sell land, but before Dickinson accepted, Doddssold it elsewhere. Dodds did not tell Dickinson, but Dickinson was made aware by his agent, Berry. Dickinson subsequently tried to accept the offer.

• Communication by Berry that the property was sold was enough to terminate the offer. Could not be accepted.

James LJ:

• Does not have to be an express withdrawal. If offeree knows that the

offer has been withdrawn, there cannot be consensus.


Dickinson v Dodds (1876) 2 Ch D 463 (R&G(C) [4.7])

Mellish LJ:

• If offeree received notice in some way, cannot validly accept the offer. If does not know, can accept. The communication does not have to come from the offeror, but it does have to get to the offeree.

• Does this make it hard for the offeree? How good is her information?

• Withdrawal of offer takes place when the offeree receives the communication (cf: Postal acceptance rule)


• If the offeree cannot hear the communication or the phone goes dead –withdrawal not received and no withdrawal.

– *Entores v Miles Far East Corporation [1955] QB 327

• If a message is sent to offeree to withdraw, communication takes place when, in all the circumstances, a reasonable offeree would have accessed the message.

• So of telex sent, withdrawal is taken to have occurs when the telex was received irrespective of when it was read, because it was the offerees responsibility to read it.

– *Brinkibon v Stahag Stahl [1983] 2 AC 34

• But conduct of the the offeror could displace the rule – dialled wrong number and left message?

Termination of OfferWithdrawal after commencement of performance

• The traditional view was that you cannot revoke an offer after the offeree has begun to perform.

• ButP.


*Mobil Oil v Lyndell Nominees (1998) 153 ALR 198, at 222-228 (R&G(C) [4.8])

• Franchisees of Mobile said it had offered benefits if reached sales targets over a period of time. Mobile withdrew the offer before the time was up. Franchisees alleged that the offer could not be revoked because there had been part-performance.

Held

• No offer was made.

• No universal principle that cannot revoke after performance has commenced. And if there is an implied promise not to revoke, this would not prevent revocation, but may leave a damages action.

• A fortiori if the performer has reaped a benefit (therefore no injustice).



• In some cases it may be appropriate to find that the offeree has entered into an implied ancillary contract not to revoke, or that the offer is estopped from falsifying an assumption, engendered by it

• However that is not always the case. And in some cases the offeror can legitimately withdraw the offer. In particular, where what the offeree has done is of benefit to it.

• Factors that affect the issue: p 64.

• Here, could revoke offer.



• The respective positions of offeror and offeree vary greatly from the case of one unilateral contract to another. The following factors illustrate:

i. The offeror may or may not know that the offeree has commenced performance;

ii. The offeree may or may not have an understanding that the offeror is at liberty to revoke and that any incomplete performance of the act of acceptance by the offeree will be at his or her risk;

iii. The notion of ‘commencement of performance of the act of performance’ can be problematic and lead to injustice to the offeror – here can performance of 90% in year one be commencement of performance of six years of 90% performance?



iv. The act called for by the offer may be detrimental to the offeree, or of some benefit to the offeree as well as to the offeror, as in the present case;

v. Although the offeree is not obliged to perform, or to continue performing, the act of acceptance and is at liberty to cease performing at any time, ex hypothesi, the offeror remains bound, perhaps over a lengthy period as in the present case, to keep its offer open for completion of the act of acceptance, without knowing whether the offeree will choose to complete or not to complete that act;

vi. The circumstances of the particular case may or may not, by reference to conventional criteria, suggest that the parties intended that the offeror should not be at liberty to revoke once the offeree had performed the act of acceptance to some extent.

Termination of Offer• Withdrawal of offers to the world

– If publication of the revocation is as broad and given the same notoriety as the offer, then it does not matter that the offeree did not see it.

– *Shuey v United States 92 US 73 (1875)

– What if the offeree has begun to perform?

• *Mobil Oil v Lyndell Nominees (1998) 153 ALR 198, at 222-228 (R&G(C) [4.8]) ??

Certainty and Completeness

• Text: Radan & Gooley, Chapter 5

• In addition to offer and acceptance, a contract must be sufficiently certain

and complete.

• If an agreement is uncertain in a material respect it cannot constitute a binding contract. This might occur if the agreement is 'vague or ambiguous', incomplete or constitutes a mere 'agreement to agree'.

• There are two limbs to the certainty doctrine. A contract (or a term is void for uncertainty if:

(1) all the essential and critical terms of the bargain have not been agreed upon; or

Certainty and Completeness(2) the language used is so obscure and incapable of any precise or

definite meaning that the court is unable to attribute to the parties any particular contractual intention.

• Under the first limb, the contract is incomplete. Under the second limb, the court is unable to attribute a meaning to the language used by the parties. Both limbs apply only to essential terms.

– *Australian Goldfields NL (in liq) , North Australian Diamonds

(2009) 40 WAR 191

Certainty and Completeness• Certainty is not a fixed concept, it is a matter of degree and sufficiency.

• The courts have traditionally delineated certainty from uncertainty by relying on indicators such as essentiality and obscurity and have traditionally divided the issue of uncertainty into two related principles:

– Uncertainty – the language of the agreement is so vague or imprecise as to make it undiscernible what obligations and rights have been agreed between the parties.

– Incompleteness – rather than in precision of language, the agreement is missing a key element such that it is held that there is no complete agreement.

• These categories are overlapping and a contract can be uncertain in a number of ways.

Certainty and Completeness• The courts have traditionally taken a strict approach to the problem of

uncertainty, striking out clauses or agreements when it is found that an essential term is missing or undecipherable: If a given term was found to be uncertain, and was essential, the contract would be void, and if not, then the clause may be severed.

– A repurchase option in an agreement for the sale of land which specified that the repurchase price was the sale price plus the value of additions and improvements since the sale, less the deficiencies of chattel and a reasonable sum for depreciation, was held to lack specificity and therefore be unenforceable due to uncertainty.

• *Hall v Busst (1960) 104 CLR 206.

Certainty and Completeness• More recently, the courts in Australia have placed an emphasis on

trying to uphold agreements if at all possible, particularly in commercial transactions:

“It is obvious, in my opinion, that in dealings between business people there cannot always be certainty or predictability about the future course of events arising out of or in the performance of a business relationship which they desire to, and may lawfully, create. The course of business often means that this must be so and it would, as Lord Tomlin said [in Hillas & Co Ltd v

Arcos (1932) 147 LT 503] be a reproach upon the law if parties who intended to agree, and believed they had agreed in this way, should be told that their agreement for legal reasons had never come into existence.”

• *Prints for Pleasure Ltd v Oswald-Sealy (Overseas) Ltd [1968] 3 NSWR 761, 765.

Certainty and Completeness• And it was recently held that for a clause to be void for uncertainty, it must

be “utterly impossible to put a meaning to the words.” This clearly appears to be a shift away from a traditional assessment of uncertain clauses.

– Seven Network (Operations) v Warburton (No.2)(2011) 206 IR 450, [37].

• If it is clear that the parties regard themselves as having reached a concluded and binding contract, a court will seek to give effect to that contract even if there are terms that were left to be agreed upon at a later time

– Fletcher Challenge Energy Ltd v Electricity Corporation of New

Zealand Ltd [2002] 2 NZLR 433 at 446.

• If the court is unable to do so, the agreement is void, and thus completely unenforceable. The court will not fix the deficiency itself because that would involve it in writing the contract for the parties. It is up to the parties to come to agreed terms - the court will not make an agreement for them.

Certainty and CompletenessSufficient completeness

*Booker Industries v Wilson Parking (Qld) (1982) 149 CLR 600 (R&G(C) [5.2])

• Booker leased to Wilson a service station and car park. A clause of thelease gave an option for a further 3 years at a rent to be mutually agreed.Failing such agreement the lease provided for rent to by set by anarbitrator appointed by the President of the QLD Law Society.

• Wilson tried to exercise the option. Booker rejected this and soughtrecovery of possession.

• At trial it was held that the clause was valid and specific performance wasgranted. P was to do whatever was required to permit the appointment ofan arbitrator.



• On appeal to the Full Court it was agreed that the option was validlyexercised, but the relief granted was considered too wide. Both partiesappealed to the High Court.

Held

• Authority makes it clear that the courts will not enforce an incomplete agreement - "an agreement to agree". If the lease was for renewal at a "rental to be agreed" there clearly would be no enforceable agreement.

• But parties can provide a procedure which allows even essential terms to be determined by a 3rd party.



• Here, the lease provides the mechanism to determine the rent - no further agreement is required of the parties. Thus there is a valid agreement to renew.

• To give business efficacy, it was necessary to imply a term that the parties will do what is necessary to ensure the appointment of an arbitrator.

• “Machinery provisions” as they are often called are new a topical issue in contract law.

• What if the machinery breaks down (What if the Law Society President refused to appoint someone?) – here it suggested that this would result in no renewal of lease.



• But it’s not always that simple.

• To what extent should the Court step in to imply a terms to otherwise plug the hole? Here the Court allowed limoited specific performance on the basis of teh implied term.

• What if one party confounds the machinery?

Certainty and CompletenessSufficient certainty

Whitlock v Brew (1968) 118 CLR 445 (R&G(C) [5.3])

• Brew entered a contract to purchase land from Whitlock. A condition provided that Brew, on taking possession of the land, would then lease the current petrol station on the land to Shell “on such reasonable terms

as commonly govern such a lease.” Disputes were to be referred to arbitration - failing agreement, the arbitrator was to be appointed by the President of the Law Institute of Victoria.

• Whitlock rescinded the contract. Brew sued to recover deposit – he argued that the condition was uncertain and could not be severed from the rest of the agreement. Therefore the whole agreement was void for uncertainty and he could get the deposit back.



HELD Taylor, Menzies and Owen JJ

• The clause as expressed is not sufficient to cover:

– the period of the lease, or

– the rent.

• The arbitration provision "as to the interpretation or operation" of this clause is not sufficient to cover either of those matters either.

• Therefore the clause is uncertain.



HELD Taylor, Menzies and Owen JJ

• Is it severable? Depends if the contract is divisible, and this depends on the intention of the parties.

• Extrinsic evidence cannot be used - except to interpret the written instrument.

• One must determine intention as disclosed by the contract. Like situation where A agrees to sell land to B provided B agrees to grant a lease to any person who buys A's business (*Duggan v Barnes). In earlier cases no difficulty in seeing B's undertaking as a material and inseverable part of the consideration for A's promises. The same applies here. VOID

Certainty and CompletenessAgreements to agree

• ‘Agreements to agree’ are void for uncertainty.

– i.e. We agree that we will later agree on terms X, Y Z.

– *Booker Industries v Wilson Parking (Qld) (1982) 149 CLR 600 (R&G(C) [5.2])

• But what about agreements to “negotiate in good faith“?

Certainty and CompletenessAgreements to negotiate in good faith

• Courts have not always been consistent in defining what it means to negotiate in good faith. It has even been suggested that “a promise to negotiate in good faith is illusory and therefore cannot be binding”

– Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 at 42 per Handley JA).

• However, a duty of good faith will be enforceable in certain circumstances. If such a promise is enforceable, the following broad principles will usually apply to the promise to negotiate in good faith:

– the parties must act honestly;

– each party must have regard to the legitimate interests of the other party; and

– neither party must act in a manner which is arbitrary, capricious or intended to cause harm to the other party.


• It is also important to note what the duty is not. The duty does not:

– limit the parties seeking to strike the best possible bargain in their own interests; or

– limit the parties, for instance, from negotiating with someone else at the same time (unless there is a specific contractual prohibition on doing so).


Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1

• Parties entered into a ‘heads of agreement’ to jointly develop mining rights. The agreement anticipated execution of a joint venture in the future. However, they failed to reach final agreement and a few years later negotiations were terminated. Sijehama alleged breach of ‘heads of agreement’ and claimed damages.

• The heads of agreement included the term:

“The parties will proceed in good faith to consult together upon the formulation of a more comprehensive and detailed joint venture agreement ... which when agreed [would] take the place of these heads of agreement.”



• It was found that this promise was unenforceable given that it was essentially “an agreement to agree” and therefore too vague and uncertain.

• However, it was suggested that an explicit promise to negotiate in good faith could be certain enough to be legally binding in some circumstances, including where:

– the promise is clear and part of an undoubted agreement between the parties; and

– there is reference to a readily ascertainable external standard, and the court is able to attribute a meaning to a provision.



• Kirby P: ‘Courts and lawyers may expect the agreements of business people to be clear and complete. Unfortunately, in the marketplace, agreements often fall short of these lawyerly desires. Yet the law of contracts serves the marketplace. It does not exist to satisfy lawyers’ desires for neat rulesPI have already noted the basic law that courts will not enforce an agreement to agree. This is accepted by the High Court as part of the law of this countryP’



• However Kirby refers to the English case of *Hillas & Co Ltd v Arcos Ltd

(1932), where the House of Lords found that ‘in strict theory, there is a

contract (if there is good consideration) to negotiate, though in the event

of repudiation by one party the damages by nominalF’ Lord Denning disagreed in a later judgement with the decision in Hillas, saying that the opinion ‘does not seem to be well founded’ because ‘if the law does not

recognize an agreement to agreeFit 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

could 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.’



• Kirby ultimately rejects the notion that a contract to negotiate is unknown to the law. He agrees with the House of Lords in Hillas that, provided there was consideration for the promise, in some circumstances a promise to negotiate in good faith will be enforceable, depending upon its precise terms.

• Acknowledged that an agreement to negotiate in good faith brings up questions like ‘what must you disclose to one another in these future negotiations? How will any potential disputes be resolved? What must be disclosed to each other at these negotiations?’ Kirby said you must look at the clause’s drafting and mechanisms to see if it can stand on its own two feet as having sufficient content. Things such as a prescribed tiebreaker mechanism will help the court give content to the clause.


United Group Rail Services Limited v Rail Corporation New South Wales

[2009] NSWCA 177

• United contracted to construct rail infrastructure for Railcorp, but a dispute arose between the parties.

• A clause required a dispute to be referred to senior representative of each party and they were obliged to ‘meet and undertake genuine and good faith negotiations with a view to resolving the dispute of difference.’

• Negotiation was a preliminary step in the contract's overall dispute-resolution mechanism; if the senior representatives failed to resolve the dispute within 14 days, the final step was to send the parties to arbitration.



[2009] NSWCA 177

• United asserted that the clause requiring the parties to negotiate in good faith lacked certainty to the point of being incomplete, and so was void and unenforceable. Railcorp denied this.

• The Court of Appeal found that the obligation to negotiate in good faith was enforceable in these circumstances because the clause provided an objective “yardstick” by which the Court could determine whether the parties had complied with it.



[2009] NSWCA 177

• In other words, the clause should contain some criteria or objective measure against which the negotiations can be judged, such as here, where if the senior representatives failed to resolve the dispute within 14 days, the final step was to send the parties to arbitration. In order to determine whether there had been compliance with the clause, the Court looked to whether the parties had brought an honest and genuine approach to settling the contractual dispute, and whether they had given fidelity to the existing bargain.

Certainty and CompletenessAgreements subject to contract

Masters v Cameron (1954) 91 CLR 353 (R&G(C) [5.5])

• An agreement was reached to sell a farming property on certain terms. It was stated that, "this agreement is made subject to the preparation of a

formal contract of sale which shall be acceptable to my solicitors on the

above terms and conditions."

• On the same day a deposit of £1750 was paid to the vendor's agent. When the purchaser refused to proceed with the sale, both parties claimed the deposit - the purchaser on the basis that there was no contract, therefore money paid should be returned - the vendor claiming that there was a contract and in the event of a failure to proceed, the money was forfeited.

• The judge held that there was a contract. The purchaser appealed.



• The situation may be one of three possibilities:

1. The parties have finalised their agreement and intend to be bound straight away, but intend to put it into more precise form. Lord Blackburnin Rossiter (1878) - said that the mere fact that you have indicated a desire to have a more formal expression of the terms does not mean that negotiations are still continuing. An assent without power to vary the terms indicates a completed contract.

2. The parties have agreed all the terms, but have made performance of one or more terms conditional upon the execution of a formal document.

3. The parties do not want to be bound until they have completed the formal document. Here, the parties may wish to retain the right to withdraw, if agreement cannot be reached on outstanding matters.



• In the first two cases we have a binding contract. In the third case we merely have a record of the terms which are intended to form the basis of a contract to be finalised.

• The question is to be determined by the parties intention as disclosed by their language. If "subject to contract" means there are terms to be agreed, or conditions to be fulfilled, then there is no contract until those things have been done.



• To determine which category the agreement falls within, the intention of the parties must be determined based upon the language used. Here, the use of the language, ‘this agreement is made subject to the

preparation of a formal contract of sale which shall be acceptable to

my solicitors on the above terms and conditions’, was held by the court to indicate that the terms were not intended to be legally binding. The clause allowed the vendor’s solicitors to modify the agreement to their satisfaction and include any other terms they consider appropriate. In this respect, the agreement was not a concluded agreement until a formal contract was executed, therefore the parties were not legally bound by the agreement and able to decide against formalising the agreement.



• Some jurisdictions accept a fourth category:

– Parties immediately bound by the terms on which they have agreed, but expect to make a further contract in substitution for the first contract, containing, by consent, additional terms.

• There is debate about this.


Meehan v Jones (1982) 149 CLR 571

• Contract for sale of land, subject to purchaser entering into agreement to purchase satisfactory quantity of crude oil and ‘purchaser receiving

approval for finance on satisfactory terms and conditions in an amount

sufficient to complete the purchase.’

• The purchaser told the vendor that he had found satisfactory finance, but the vendor refused to complete. The purchaser sought specific performance, but the defendant argued that there was no contract on the following grounds:

1. That the condition left vital matters yet to be agreed - so what appeared to be a "contract" was really no more than an agreement to agree.


Meehan v Jones (1982) 149 CLR 571

2. That the language was so imprecise that one could not say what actions would satisfy it.

3. That if P retains discretion as to whether he will perform obligations, then what appears to be a contract is really illusory.

• Were these terms sufficiently certain?

• High Court – YES.

• It was for the purchaser to determine whether he had entered into a satisfactory agreement for the supply of oil, and his satisfaction that the finance was sufficient.

Certainty and CompletenessMeehan v Jones (1982) 149 CLR 571

Gibbs CJ:

• May be implied that the purchaser will act honestly, but this is not necessary for business efficacy.

• When a contract is ‘subject to finance’, question immediately arises whether the test to be applied is a subjective or an objective one. Although courts differ in opinion, if the court can decide which of the two possible meanings the parties intended, there will be no uncertainty

• Also said that it is clear that condition was not a condition precedent to the formation of the contract because certain obligations under the contract attached immediately after the contract was signed, even though the condition had not been fulfilled

Certainty and CompletenessMeehan v Jones (1982) 149 CLR 571

Mason, Wilson JJ

• Purchaser had obligation to do all that was necessary to obtain finance. Obliged to act honestly in deciding whether finance was satisfactory. Did not have to be reasonable.

“Although the binding words of the special condition suggest that its effect is to make the existence of the contract conditional, it is more sensible to regard the provision as one which provides for the determination of a valid and binding contract in the event that the purchaser or his nominee is unable to obtain approval for satisfactory finance on or before the appointed date.

• Ultimately, the High Court found that the clause in question was a condition precedent to performance; the High Court was in no doubt that that contract was actually binding on the parties. Point was that obtaining finance became a precondition to engaging the rest of the contract

Problems

• Greg visited the local supermarket and took from the shelf a bottle of cleaning fluid. Immediately after he placed the bottle in the trolley provided, it exploded, severely injuring him. He sued the supermarket alleging a breach of contract. Advise Greg.

Problems• When is the contract formed?

• Pharmaceutical Society of Great Britain v Boots Cash Chemists

(Southern) [1953] 1 QB 401 (R&G(C) [4.3])

– Somerville J:

• Shopkeeper has to accept offer (p, 51)

– Generally a display of priced goods is an invitation to treat.

– CF: (R&G[4.26]) discussion of why this is unrealistic in department stores.

– Who really is the offeror and who is the offeree??

Problems

The XYZ Furniture Store advertises that as it is ceasing business, it is holding a closing down sale. It states that "all goods must be sold. No reasonable offer refused." Jones sees a rocking chair which is labelled as priced at $200. When he says that he will buy the chair at that price, he is told that the manager of the store has decided to keep the chair for himself. Advise Jones.

Problems• When is the contract formed?

• Pharmaceutical Society of Great Britain v Boots Cash Chemists

(Southern) [1953] 1 QB 401 (R&G(C) [4.3])

– Somerville J:

• Shopkeeper has to accept offer (p, 51)

– Generally a display of priced goods is an invitation to treat.

– CF: (R&G[4.26]) discussion of why this is unrealistic in department stores.

Problems– But what about the advertisement?

– Advertisements generally are invitations to treat.

– However the genral rule does not apply if it is clear from the circular that the seller is limiting his liability to the amount of stock on hand: Lefkowitz

– Is it clear, explicit, leaves nothing open for negotiation? If so, it may be an offer.

– Here price is not specified - no reasonable price refused. Is this certain enough to be an offer? Can the manager still refuse.

– But limited to stock on hand....

– Does Carbolic Smokeball apply – is there an evident intention to make this an offer?

Problems

Bill advertised that he would pay $100 to anyone supplying him with information as to the whereabouts of his lost bull. Jim went to Bill's home and told him he had seen it grazing on Sally's property. Before Bill could set out to recapture the animal, Sally telephoned Bill and informed him of the whereabouts of the bull. Advise Sally.

Problems• Offer to the world.

• Does Carbolic Smokeball apply – is there an evident intention to make this an offer? Are there limiting factors?

• Has he done anything to show intention to make it an offer rather than a puff? Has he put the money aside? Has he limited the number of rewards?

• Did Sally call him in reliance of the offer? Why did she tell him the bull was there? R v Clarke – reward casesP Any person knowing of the offer who performs its conditions establishes prima facie an acceptance of that offerP Inference that can be excluded by evidence.

• Has he revoked?

• Reward cases generally binding.

ProblemsThe following communications passed between NZ Imports Ltd, a New Zealand company, and NSW Exports Ltd, a company carrying on business in NSW:

• Fax dated 1 November from NZ Imports Ltd: “Please quote us price per tonne of canned peaches”.

• Letter dated 6 November, delivered 10 November from NSW Exports: “We can supply canned peaches at $500 per tonne. Cans are in 150g, 400g and 850g and your order would consist of a fair distribution between these sizes. Delivery would be in equal monthly shipments commencing February 1.”

• Fax dated 11 November from NZ Imports: “Your offer to supply one tonne canned peaches accepted. Formal order follows.”

• Order form dated 12 November, delivered 17 November from NZ Imports ordering one tonne, setting out the terms given in paragraph (b) and containing the following condition printed at the bottom of the form: “All orders subject to the standard form contract terms of the International Fruit Trading Association”

• Fax dated 14 November from NSW Exports: “Thank you for your order. We note your acceptance of our terms”.

Problems• What is the effect of each communication?

• Is there a concluded contract between the parties, and if so, on what terms?

1. Invitation to treat – enquiry for information – not an offer.

2. Offer?

3. Is this acceptance subject to documentation – Masters v Cameron category 1?

4. Is this consistent with Masters and Cameron? Or is this a counter offer? Does this change or add to terms? What about delivery? If it is a counter offer, does it matter when it was sent?

5. Battle of forms

6. Agreement? Which terms prevail?

Problems• What is the effect of each communication?

• Is there a concluded contract between the parties, and if so, on what terms?

1. Offer on 11 November. Accepted on 14 November.

2. Masters v Cameron 1 or 2? Language precise. Does Masters v Cameron apply

3. If Masters v Cameron 1 then do the additional terms make the agreement more precise or different in effect?

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