That settles it then…
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A recent decision provides a useful reminder of the basic principles of contractual formation through the exchange of correspondence, explains Nii Anteson
Caroline Gibbs v Lakeside Developments Ltd [2016] EWHC 2203 (Ch) concerned a claim for damages relating to the forfeiture of a lease of a property.
The claim was dismissed at the County Court level and the appellant (Gibbs) sought, and was granted, permission to appeal to the High Court.
In the intervening period, the parties engaged in settlement discussions, which culminated in the appellant offering by email to accept the sum of £90,000 in full and final settlement of the claim on two conditions – the first, that the offer be accepted by a certain date, and the second, that payment of the settlement monies be made before a particular day.
The solicitors for the respondent (Lakeside) responded, also by email, stating, ‘the claimant accepts your offer’ and enclosed a draft consent order for the appellant’s consideration. Notwithstanding the seemingly unequivocal acceptance of the appellant’s offer, the draft consent order proposed payment of the settlement monies on a different date to that specified in the offer. There followed a sequence of events that culminated in the appellant arguing that the settlement offer had been accepted by the respondent and the respondent arguing that it had not.
It was common ground between the parties that the relevant principle to be applied is that stated in Foskett’s Law of Compromise (at paragraph 3.22): ‘The essential task is to determine whether the parties’ negotiations have crystallised into a contractually binding agreement. In order to achieve this the traditional test applying an objective test is to seek to identify a definite offer by one party and a definite acceptance of that offer by the other party.’
In the first instance, the judge in the County Court found the respondent’s email enclosing the draft consent order was a counter-offer and not an acceptance. However, in doing so Lewis J rejected the respondent’s argument that both of the conditions of settlement in the appellant’s offer – i.e. acceptance and payment by the specified dates – would have to be fulfilled to create a contract between the parties. Lewis J held that unequivocal acceptance of the offer would have been sufficient to create such a contract. The judge also held that the determination as to whether there had been acceptance was to be made by reference to the two emails alone, to the exclusion of other communications between the parties.
Considering this on appeal, Arnold J concurred, holding that the respondent’s reply to the offer constituted a counter-offer rather than an acceptance. However, Arnold J disagreed with Lewis J’s assertion that the question of whether there had been unequivocal acceptance fell to be determined based on the two emails alone – citing various authorities that the court is entitled to have regard to all the communications between the parties in considering whether an agreement has been concluded.
The decision re-affirms the now trite basic principle of contractual formation: valid acceptance must mirror the offer purporting to be accepted.
Nii Anteson is an associate at Simmons & Simmons and a committee member of the Junior London Solicitors Litigation Association