© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Formation of contract
GENERAL
- (1) Agreement; (2) intended to be legally binding; (3) supported by consideration; (4) sufficiently certain
"[49] Generally speaking, it is possible under English law to make a contract without any formality, simply by word of mouth. Of course, the absence of a written record may make the existence and terms of a contract harder to prove. Furthermore, because the value of a written record is understood by anyone with business experience, its absence may – depending on the circumstances – tend to suggest that no contract was in fact concluded. But those are matters of proof: they are not legal requirements. The basic requirements of a contract are that: (i) the parties have reached an agreement, which (ii) is intended to be legally binding, (iii) is supported by consideration, and (iv) is sufficiently certain and complete to be enforceable: see e.g. Burrows, "A Restatement of the English Law of Contract" (2016) section 2. Points have been taken by Mr Ashley in relation to each of these requirements." (Blue v. Ashley [2017] EWHC 1928 (Comm), Leggatt J)
- Ordinary law of contract applies to agreement to settle tax liability, but contextual factors may differ
"[22] ... Secondly, and more significantly, context includes the identity and special features that attach to one, or both, parties. In this case, it is right to have regard to the fact that HMRC is a very large public body that operates within a highly complex statutory framework. It has duties to collect tax and, of course, the taxpayer has a duty to pay tax that is properly due and payable. Decisions made by HMRC may be challenged under the statutory regime and, in limited circumstances, at common law. There are obvious differences between HMRC and a commercial person or entity, where HMRC is undertaking its duties to collect tax. Different considerations may apply where HMRC is negotiating the terms of a commercial deal with a business that is hoping to provide commercial services to it. That said, HMRC regularly reaches contractually binding agreements with taxpayers about the amount of tax that is payable and it agrees to accept a sum that is less that the full amount that would be payable if HMRC's view of the facts or the law were to be upheld in the Tribunal. The language used by the parties in this case might be very similar to that used by business people in the context of negotiating a commercial deal. The same words may have a different effect depending upon the context in which they are provided. In one context it might be obvious that a contract had been concluded, but it may be clear in another context that the same or similar words lead to the opposite conclusion. That said, the law of contract applies to an agreement to settle a tax liability in the same as any other agreement." (Kyte v. HMRC [2018] EWHC 1146 (Ch), Chief Master Marsh)
(1) AGREEMENT
- Offer + acceptance or signing document containing agreed terms
"[50] In general, the agreement necessary for a contract is reached either by the parties signing a document containing agreed terms or by one party making an offer which the other accepts. Acceptance may be by words or conduct. Typically, acceptance involves promising to do something but in one kind of contract known as a "unilateral contract", where the offer made by A is to reward someone for doing something, a contract is established when the recipient of the offer (B) starts to perform the action required to earn the reward, even though B does not promise A to do anything. The example of a "unilateral contract" taught to all first year law students is an offer by A to pay B £100 if B walks from London to York.[1] B is not obliged to walk to York, but if B sets out on the journey, A's offer becomes contractually binding." (Blue v. Ashley [2017] EWHC 1928 (Comm), Leggatt J)
- Offer + acceptance often artificial analysis
"[52] It is necessary to analyse the communications between the parties by reference to the traditional approach of offer and acceptance and, additionally, to consider whether the words used were sufficiently certain and complete. I bear in mind, however, the observation by Professor John Cartwright in Formation and Variation of Contracts at 3-19 that the notion of there being an offer and an acceptance is very often an artificial analysis. As Lord Wilberforce observed in New Zealand Shipping v AM Satterthwaite and Co Limited (The Eurymedon) [1975] AC 154 at 167:
"… English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration." (Kyte v. HMRC [2018] EWHC 1146 (Ch), Chief Master Marsh)
- Expression of willingness to be bound by specified terms as soon as there is acceptance
"[50] For the purpose of the law of contract, an offer is an expression, by words or conduct, of a willingness to be bound by specified terms as soon as there is acceptance by the person to whom the offer is made: see e.g. Burrows, "A Restatement of the English Law of Contract" (2016) section 7.3; and Chitty on Contracts (32nd Edn, 2015), vol 1, para 2-003..." (Blue v. Ashley [2017] EWHC 1928 (Comm), Leggatt J)
Offer
- Failure to agree some terms may not prevent binding agreement being reached
"[48] These principles apply to all contracts, including both sales contracts and construction contracts, and are clearly stated in Pagnan SPA v Feed Products Ltd [1987] 2 Lloyd's Rep 601, both by Bingham J at first instance and by the Court of Appeal. In Pagnan it was held that, although certain terms of economic significance to the parties were not agreed, neither party intended agreement of those terms to be a precondition to a concluded agreement. The parties regarded them as relatively minor details which could be sorted out without difficulty once a bargain was struck. The parties agreed to bind themselves to agreed terms, leaving certain subsidiary and legally inessential terms to be decided later." (RTS Flexible Systems v. Molkerei Alois Muller GmbH [2010] UKSC 14)
- Sending tax calculation not regarded as offer
"[57] I consider that the language used Ms Nottage's email sent on 4 January 2016, even seen in light of the previous communications, is some considerable distance from the type of language which could be described as 'promissory language' or the language of commitment. It is oversimplistic to see the calculations, that involve a considerable number of factors relating to a number of tax years, as leading to a figure that could be accepted. In the context of, say, negotiations about the purchase of a chattel or a specified quantity of a commodity, putting forward a figure may amount to an offer that is capable of acceptance. The context here is materially different. Using traditional language, the figure HMRC put forward in its calculations was an invitation to treat." (Kyte v. HMRC [2018] EWHC 1146 (Ch), Chief Master Marsh)
Acceptance
- T wanting to go ahead with settlement but requesting settlement deed and no payment dates agreed not acceptance
"[59] I do not consider that this question gives rise to any real difficulty. The language contained in Mr Lamont's email sent on 12 January 2016 is plainly equivocal. He says that the claimant would like to "go ahead with the settlement on Scion". He follows this by requesting a "settlement deed". Furthermore, he then asks a question, namely whether it would be acceptable for the claimant to pay over a nine-month period? In his analysis of the email, Mr Casey QC relied heavily on the first paragraph. However, when looked at as a whole, Mr Lamont was saying to HMRC that the figure was acceptable but there were terms that needed is to be negotiated, in particular a payment date.
[60] A date for payment is an essential part of an offer to pay a sum of money. There are circumstances in which the court may, by virtue of an implied term, fill a gap. However, I find it hard to see how the acceptance of an offer could include the acceptor asking the offeror about terms for payment. This is not leaving a gap about the settlement date. It is either properly seen as a counter-offer, or as a step in a negotiation that might lead to a concluded contract.
[61] Mr Lamont's request for a settlement deed is also indicative of a wish to receive a more detailed proposal." (Kyte v. HMRC [2018] EWHC 1146 (Ch), Chief Master Marsh)
Objective approach
- Objective consideration of what was communicated
"[45] The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a pre-condition to a concluded and legally binding agreement." (RTS Flexible Systems v. Molkerei Alois Muller GmbH [2010] UKSC 14)
- How words used, in context, would be understood by reasonable person
"[63] ... As with all questions of meaning in the law of contract, the touchstone is how the words used, in their context, would be understood by a reasonable person. For this purpose the context includes all relevant matters of background fact known to both parties." (Blue v. Ashley [2017] EWHC 1928 (Comm), Leggatt J)
- Full exchange of correspondence to be considered
"[26] It is essential to have regard not just to the Offer and Acceptance emails but also to full exchange of emails between the parties. The starting point is a letter sent by HMRC to the claimant on 25 January 2013 relating to the Scion Scheme headed "Without Prejudice Settlement Opportunity":
"HMRC is prepared to discuss entering into an agreement with you as an individual to settle on the basis set out below …."." (Kyte v. HMRC [2018] EWHC 1146 (Ch), Chief Master Marsh)
- Words not reasonably taken seriously
"[52] ... There can be circumstances in which a person uses the language of offer without expressing a genuine willingness to be bound. For example, if someone says at a party "I will give you a million pounds, if you can speak for a minute on [a random subject] without hesitation, deviation or repetition", this is unlikely to be interpreted as an offer despite the literal words used. That is because it is unlikely that anyone would reasonably have thought that the words were meant seriously. In such circumstances the words uttered would not be capable of creating any obligation, even a purely moral obligation, let alone one that is legally enforceable." (Blue v. Ashley [2017] EWHC 1928 (Comm), Leggatt J)
Performance before intended written agreement reached
- Query the position where one party knew the subjective intention of the other
"[64] There is, at least arguably, a limitation on the objective nature of the test where one party's subjective intention is actually known to the other: see Novus Aviation Ltd v Alubaf Arab International Bank BSC(c) [2016] EWHC 1575 (Comm); [2017] 1 BCLC 414, para 56. But no reliance has been placed on any such principle in this case..." (Blue v. Ashley [2017] EWHC 1928 (Comm), Leggatt J)
- Performance begins before draft terms agreed: not assumption it was performed subject to the draft terms
"[47] We agree with Mr Catchpole's submission that, in a case where a contract is being negotiated subject to contract and work begins before the formal contract is executed, it cannot be said that there will always or even usually be a contract on the terms that were agreed subject to contract. That would be too simplistic and dogmatic an approach. The court should not impose binding contracts on the parties which they have not reached. All will depend upon the circumstances. This can be seen from a contrast between the approach of Steyn LJ in the Percy Trentham case, which was relied upon by the judge, and that of Robert Goff J in British Steel Corporation v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504, to which the judge was not referred but which was relied upon in and by the Court of Appeal." (RTS Flexible Systems v. Molkerei Alois Muller GmbH [2010] UKSC 14)
- Facts may show that the parties waived reliance on a "subject to contract" proviso
"[55] We note in passing that the Percy Trentham case was not a 'subject to contract' or 'subject to written contract' type of case. Nor was Pagnan, whereas part of the reasoning in the British Steel case in the passage quoted above was that the negotiations were throughout conducted on the basis that, when reached, the agreement would be incorporated in a formal contract. So too was the reasoning of the Court of Appeal in Galliard Homes Ltd v J Jarvis & Sons Ltd (1999) 71 Con LR 219. In our judgment, in such a case, the question is whether the parties have nevertheless agreed to enter into contractual relations on particular terms notwithstanding their earlier understanding or agreement. Thus, in the Galliard Homes case Lindsay J, giving the only substantive judgment in the Court of Appeal, which also comprised Evans and Schiemann LJJ, at page 236 quoted with approval the statement in Megarry & Wade, The Law of Real Property, 5th ed (1984) at pages 568-9 that it is possible for an agreement 'subject to contract' or 'subject to written contract' to become legally binding if the parties later agree to waive that condition, for they are in effect making a firm contract by reference to the terms of the earlier agreement. Put another way, they are waiving the 'subject to [written] contract' term or understanding.
[56] Whether in such a case the parties agreed to enter into a binding contract, waiving reliance on the 'subject to [written] contract' term or understanding will again depend upon all the circumstances of the case, although the cases show that the court will not lightly so hold. We turn to consider the facts." (RTS Flexible Systems v. Molkerei Alois Muller GmbH [2010] UKSC 14)
- Price agreed and work began: must be a contract on some terms
"[55] We agree with the judge that it is unrealistic to suppose that the parties did not intend to create legal relations. This can be tested by asking whether the price of £1,682,000 was agreed. Both parties accept that it was. If it was, as we see it, it must have formed a part of a contract between the parties. Moreover, once it is accepted (as both parties now accept) that the LOI Contract expired and was not revived, the contract containing the price must be contained in some agreement other than the LOI Contract. If the price is to be a term binding on the parties, it cannot, at any rate on conventional principles, be a case of no contract. Although it did not address this question, the Court of Appeal's solution involves holding that there was no binding agreement as to price or anything else and that evidence of the agreed price is no more than some evidence of what a reasonable price would have been for quantum meruit purposes. The difficulty with that analysis seems to us to be threefold. First, neither party suggested in the course of the project that the price was not agreed and RTS invoiced for percentages of the price and Müller paid sums so calculated as described above. Second, the price of £1,682,000 was agreed and included in the LOI Contract on the footing that there would be a detailed contract containing many different provisions including, as expressly recognised in the LOI Contract, the MF/1 terms. Third, there was an agreed variation on 25 August which nobody suggested was not a contractual variation.
[59] In these circumstances the no contract solution is unconvincing. Moreover, it involves RTS agreeing to proceed with detailed work and to complete the whole contract on a non-contractual basis subject to no terms at all." (RTS Flexible Systems v. Molkerei Alois Muller GmbH [2010] UKSC 14)
Means of proof
- Contract in document
"[55] What must be proved is an intention to create a trust. If A asserts that a declaration of trust has been made by B in a document, the claim might be analysed in two stages. First, A would have to prove, on the balance of probabilities, that B had signed the document. Secondly, A would have to persuade the court that the document, properly interpreted, constituted a declaration of trust. In principle, a similar two-stage analysis applies if A asserts an oral declaration of trust by B. First, A has to prove, on the balance of probabilities, what B said. Secondly, A has to persuade the court that this demonstrated an intention to declare a trust.
[56] The principal difference between these scenarios is that, in the case of a documentary declaration, the first stage of the analysis involves a question of fact whereas the second stage is a question of law, and evidence as to B's subjective intentions and subsequent conduct is not admissible at that stage;..." (Gill v. Thind [2023] EWCA Civ 1276, Arnold, Jackson, Asplin LJJ)
- Oral contract
"[55] What must be proved is an intention to create a trust. If A asserts that a declaration of trust has been made by B in a document, the claim might be analysed in two stages. First, A would have to prove, on the balance of probabilities, that B had signed the document. Secondly, A would have to persuade the court that the document, properly interpreted, constituted a declaration of trust. In principle, a similar two-stage analysis applies if A asserts an oral declaration of trust by B. First, A has to prove, on the balance of probabilities, what B said. Secondly, A has to persuade the court that this demonstrated an intention to declare a trust.
[56] The principal difference between these scenarios is that, in the case of a documentary declaration, the first stage of the analysis involves a question of fact whereas the second stage is a question of law, and evidence as to B's subjective intentions and subsequent conduct is not admissible at that stage; whereas, in the case of an oral declaration, the questions of what was said and what was intended by it are both questions of fact, and evidence as to B's subjective intentions and subsequent conduct are admissible: compare the position concerning oral agreements (and agreements made partly in writing, partly orally and partly by conduct) as explained by Lord Hoffmann in Carmichael v National Power plc [1999] 1 WLR 2042 at 2049A-D and 2050H–2051C." (Gill v. Thind [2023] EWCA Civ 1276, Arnold, Jackson, Asplin LJJ)
- May not be possible make finding of exact words
"[57] A secondary difference is that, in the case of an oral declaration, it may well not be possible for the court to make a finding as to the exact words used by B, and so the court may only be able to make a finding as to their gist. In those circumstances, there would be nothing wrong in the court running the two questions together and asking whether, on the balance of probabilities, B said words that were such as to demonstrate an intention to declare a trust." (Gill v. Thind [2023] EWCA Civ 1276, Arnold, Jackson, Asplin LJJ)
- Subjective understanding as evidence of the objective perspective
"[64] ... What is accepted by counsel on both sides is that where, as here, the court is concerned with an oral agreement, the test remains objective but evidence of the subjective understanding of the parties is admissible in so far as it tends to show whether, objectively, an agreement was reached and, if so, what its terms were and whether it was intended to be legally binding. Evidence of subsequent conduct is admissible on the same basis. In the case of an oral agreement, unless a recording was made, the court cannot know the exact words spoken nor the tone in which they were spoken, nor the facial expressions and body language of those involved. In these circumstances, the parties' subjective understanding may be a good guide to how, in their context, the words used would reasonably have been understood. It is for that reason that the House of Lords in Carmichael v National Power Plc [1999] 1 WLR 2042 held that evidence of the subjective understanding of the parties is admissible in deciding what obligations were established by an oral agreement." (Blue v. Ashley [2017] EWHC 1928 (Comm), Leggatt J)
UNILATERAL CONTRACTS
- Arises when promisee does the stipulated act
"[62] ... As the passages from Chitty quoted at [41] above show, a unilateral contract is made when A makes a promise to B to pay a sum of money (or do some other act or forbear from doing something) if B will do or forebear from doing something without B making any promise to that effect. It is unilateral because it arises where B does the stipulated act or forbearance without making any promise to do so. But on the judge's findings, this is a case of mutual promises: in return for Mr Harper's promise to pay £50,000 if Mr Schweppe obtained the annulment, Mr Schweppe promised to arrange the necessary finance and obtain the annulment." (Schweppe v. Harper [2008] EWCA Civ 442)
- Offer may not be withdrawn once promisee begins performance, but promisee not obliged to continue performance
"[49] This is a classic unilateral contract of the Carlill v Carbolic Smoke Ball [1893] 1 QB 256 or the 'walk to York' kind. Once the promisee acts on the promise by inhaling the smoke ball, by starting the walk to York or (as here) by not suing for the maintenance to which she was entitled, the promisor cannot revoke or withdraw his offer. But there is no obligation on the promisee to continue to inhale, to walk the whole way to York or to refrain from suing. It is just that if she inhales no more, gives up the walk to York or does sue for her maintenance, she is not entitled to claim the promised sum.
[50] The facts of this case are analogous to Errington v Errington [1952] 1 KB 290 in which a father paid a lump sum for a house for his son and daughter-in-law leaving a balance payable by mortgage to a building society. He promised his son and daughter-in-law that if they continued in occupation and paid the mortgage instalments, he would transfer the property to them after the last instalment had been paid. When the father died, his personal representatives sought to revoke this promise and claimed possession. It was held that the couple were entitled to occupy the house as long as they paid the mortgage instalments. Denning LJ said at page 295:-
"The father's promise was a unilateral contract - a promise of the house in return for their act of paying the instalments. It could not be revoked by him once the couple entered on performance of the act, but it would cease to bind him if they left it incomplete and unperformed, which they have not done. If that was the position during the father's lifetime, so it must be after his death"
The present case is stronger than Errington since on Mr Soulsbury's death, Mrs Soulsbury had completed all possible performance of the act required for enforcement of Mr Soulsbury's promise." (Soulsbury v. Soulsbury [2007] EWCA Civ 969 - promise to pay £100k if promisee did not enforce order for periodical payments/seek other ancillary relief)
(2) INTENTION TO BE LEGALLY BOUND
- Not every agreement is reasonably intended to be enforceable in the courts
"[55] Even when a person makes a real offer which is accepted, it does not necessarily follow that a legally enforceable contract is created. It is a further requirement of such a contract that the offer, and the agreement resulting from its acceptance, must be intended to create legal rights and obligations which are enforceable in the courts, and not merely moral obligations. Not every agreement that people make with each other, even if there is consideration for it and the terms are certain, is reasonably intended to be enforceable in the courts. For example, if two people agree to meet for a drink at an appointed place and time and one does not turn up, no one supposes that the other could sue to recover his wasted travel expenses. Examples of agreements which have been held not to amount to contracts for this reason include an agreement to give a prize to the winner of a golf competition where "no one concerned with that competition ever intended that there should be any legal results flowing from the conditions posted and the acceptance by the competitor of those conditions": Lens v Devonshire Club, The Times, 4 December 1914, referred to in Wyatt v Kreglinger & Fernau [1933] 1 KB 793, 806. The same conclusion was reached in relation to an agreement between members of a band who were also friends to share publishing income from songs credited to one of the band members: Hadley v Kemp [1999] EMLR 589, 623. Many other examples can be found but it is not helpful to multiply them as each case depends on its own facts.
[56] Factors which may tend to show that an agreement was not intended to be legally binding include the fact that it was made in a social context, the fact that it was expressed in vague language and the fact that the promissory statement was made in anger or jest: see Chitty on Contracts (32nd Edn, 2015), vol 1, paras 2-177, 2-194 and 2-195." (Blue v. Ashley [2017] EWHC 1928 (Comm), Leggatt J)
- Agreement in pub to pay £15m not serious offer capable of creating legally binding contract
"[80] The next question is whether what was said on 24 January 2013 gave rise to a binding contract. In answering this question, the key issue is whether, when Mr Ashley said that he would pay Mr Blue £15 million if he could get the Sports Direct share price to £8 per share, this would reasonably have been understood as a serious offer capable of creating a legally binding contract. Having heard the evidence, I am quite sure that it would not. I have reached this conclusion for eight main reasons.
(i) The Setting...
(ii) The purpose of the occasion...
(iii) The nature and tone of the conversation...
(iv) Lack of commercial sense...
(v) Incongruity with Mr Blue's role...
(vi) Vagueness of the "offer"...
(vii) Perceptions of the ESIB witnesses...
(viii) Mr Blue's perception..." (Blue v. Ashley [2017] EWHC 1928 (Comm), Leggatt J)
- Parties conduct indicating they intended there to be a further document to conclude tax settlement
"[24] The fourth limb of HMRC's case is that if offer, acceptance and certainty are satisfied, the 'agreement' was subject to contract. A useful summary of the relevant principles is found in the judgment of HH Judge Pelling QC (sitting as a High Court judge) in Bieber v Teathers Limited [2014] EWHC 4205 (Ch) at [14].
...
[64] It is not essential for there to be any formality before a taxpayer concludes an agreement with HMRC. It is right there is no evidence of a requirement from HMRC for the taxpayer to make an offer to HMRC or for there to be a settlement deed (or indeed any additional document). However, Mr Lamont expressly requested HMRC to provide a draft settlement deed. I consider that such a request was not made not merely as a matter of form, or good practice, such that an agreement that had already been concluded remained contractually binding. Rather, it appears to me that his email was intended to be a further step along the path toward a concluded agreement being reached and that the agreement was to have additional formality. Even if all the other elements of a binding contract were present, which I do not accept, the acceptance was conditional upon their being a further document to conclude the agreement. The request for a deed can be analysed in a number of different ways, either as a counter offer, or as an acceptance that is subject to contract. Indeed, the Acceptance can be seen as being too uncertain by virtue of the request for a deed. Whichever way it is looked at, the Acceptance was not the last step in concluding a binding contract." (Kyte v. HMRC [2018] EWHC 1146 (Ch), Chief Master Marsh)
- Familial/connected person situations
"[45] In Roger Dyer and Jean Dyer v HMRC [2016] UKUT 381 (TCC) (Dyer) the Upper Tribunal (UT) considered various authorities on the circumstances in which a contract otherwise than in writing can be determined to have come into existence. The authorities (relevant quotations of which are set out by the UT in paragraphs 25 - 28) confirm that for a contract to come into existence the parties to it must have reached agreement as to the terms on which they propose to transact. The three "essential characteristics of a contract are recorded by the UT in paragraph 33 as:
"... an intention to enter into a legally binding relationship; mutuality of obligation; and certainty..."
[46] In Dyer the First-tier Tribunal had found, on the evidence, that the relationships were familial and not contractual. Mr and Mrs Dyer and their daughter acted in a certain way, but their conduct was not sufficient to establish a contract between their daughter and the family company and there was nothing which was enforceable between them. The UT also considered that the conduct between the parties lacked the necessary certainty required for a contract - the parties had not agreed their respective rights and obligations. In the context of a contract of employment a description of the role, hours to be worked, place of work, remuneration etc. would, in the UT's view, have been necessary to provide the certainty to establish a contract. Finally, the UT considered that there was no evidenced mutuality of obligations.
...
[48] However, and in our view, most critically, there was insufficient certainty as to the terms of the purported agreement prior to 3 December 2014. On 3 December 2014 MDNSL had been incorporated, it had entered into a lease agreement (with break clause) and employed a head teacher. However, we consider that these are all steps it took preparatory to any contract to acquire the goodwill of the Appellant's business. It was putting itself in a position to acquire the business but as at 3 December 2014 it was not in a position to be certain that it could take any proposed transfer as it awaited planning consent for the property to be used as a nursery, it required OFSTED registration but most significantly there was, at that point, no agreed mechanism by reference to which the consideration payable for the transfer would be determined and thereby there was a lack of certainty that MDNSL would acquire and at what price (or how such price would be determined)." (Delaney v. HMRC [2024] UKFTT 214 (TC), Judge Brown KC)
(3) CONSIDERATION
- Law will not enforce a promise for which nothing at all has been done in return
"[58] It is traditionally said that, to be legally binding, an agreement (unless made by deed) must be supported by consideration. The basic idea is that English law will not enforce a promise for which nothing at all has to be done in return. Thus, an offer to pay Mr Blue £15 million if the Sports Direct share price reached £8 per share which Mr Blue merely said that he was accepting without doing or promising to do anything at all on his part could not give rise to a legally binding contract. On any view of what was discussed, however, Mr Blue had to "get" the Sports Direct share price to £8, or at least to do work which was aimed at increasing the share price to that level, in order to qualify for the payment. The requirement of consideration therefore does not cause a problem. It would be unusual if it did, as I am not aware of any case in the twenty-first century in which a claim founded on an agreement has failed for want of consideration.
" (Blue v. Ashley [2017] EWHC 1928 (Comm), Leggatt J)
- Performance of a pre-existing duty can be consideration where it provides a practical benefit
"[59] ... There used to be a rule that a promise to perform, or actual performance of, a pre-existing duty could not constitute consideration. That rule may sometimes have helped to protect contracting parties against exploitation through the other party refusing to do what it had contracted to do unless some extra payment or other benefit was provided. But it is now recognised that this mischief is better addressed by other doctrines such as economic duress and public policy. The decision of the Court of Appeal in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1999] 1 QB 1 effectively rendered the rule obsolete by accepting that performance or a promise to perform an existing duty can satisfy the requirement of consideration by providing a practical benefit to the other party, which it will invariably do. In any event, the purported rule could not have applied in this case as the duties under the Management Services Agreement were owed by Aspiring Capital Partners to Sportsdirect.com Retail Limited, whereas any duty to provide services under the alleged oral agreement would have been owed by Mr Blue to Mr Ashley." (Blue v. Ashley [2017] EWHC 1928 (Comm), Leggatt J)
(4) CERTAINTY
- Court will give effect to agreement whose detailed terms are incomplete but which was intended to be binding
"[102] Whilst we agree with Mr Vallat that there are circumstances in which a term in a contract can be too vague to be contractually binding, we do not think that the circumstances of this case fall within that category. It is apparent from the authorities that a contractual term which the parties intend to be contractually binding and whose overall effect is explicit but whose detailed terms are incomplete should be given effect by the courts.
...
[107] Applying the principles set out above in the present case, we think that there can be little doubt that both TBC and the participants intended the contract between them to include the salary sacrifice. We say that notwithstanding the view expressed by Mr Bramwells in his testimony to the effect that the salary sacrifice was not contractually binding. We think that that view flies in the face of all the other evidence with which we have been provided apart from the statement in the FAQs to the effect that the scheme was a "non–contractual arrangement" and, in our view, that statement should be construed, in context, as saying no more than that TBC reserved the right to terminate the scheme without facing a claim from participants to the effect that it was not entitled to do so. Indeed, the FAQs stated that, if a participant chose to opt out of the BSS at a later date, that would "constitute a variation to your contract" and that could hardly be the case if participation in the scheme, and the salary sacrifice which that necessarily entailed, were not intended to be contractually binding.
[108] We agree that the participants were not made aware of the detailed terms on which the salary sacrifice would operate but that is no different from the clawback provision in Openwork or the option to buy standards in Hillas and, in both cases, the relevant court considered that the relevant provision should be upheld and sought to give effect to its terms. In this case, it was apparent from the written terms of the contractual documentation that the amount of salary that each participant would be required to sacrifice would be greater than the amount of the payment which the participant would receive in respect of mileage, subsistence expenses or public transport expenses and that an entitlement in respect of mileage, subsistence expenses or public transport expenses would be carried forward in circumstances where payment of that entitlement and the consequent adjustment to salary would take the participant below the NMW.
[109] It is possible that, had a court been asked to resolve a contractual dispute between TBC and a participant as to a point of detail such as whether or not TBC was entitled to apply a de minimis in calculating the payment to be made in any week in respect of a participant's entitlements or entitled to write off the overall carried forward pool of entitlements at a particular time, the court might have had difficulties in determining whether or not those were part of the terms on which the salary sacrifice was agreed. However, to quote Lord Wright in Scammell and Leggatt J in Astor, those are simply difficulties in interpreting the relevant terms. In this case, we do not have to consider the answers to those questions for the simple reason that there never was a dispute between the parties in relation to the terms of the salary sacrifice. Those difficulties in relation to the details do not mean that the salary sacrifice as a whole was too vague to be a valid and binding contractual term." (Best Connection Group Limited v. HMRC [2024] UKFTT 1103 (TC), Judge Beare)
- Only void for uncertainty if legally or practically impossible to give agreement/part any sensible content
"[30] By no stretch of the imagination was this simply an agreement to agree, even though it was "Subject to Price + Spec". As a matter of general principle, the courts are readier in modern times to find a contract "even though apparent certainty may be lacking as regards some term such as the price, provided that some means or standard by which that term can be fixed can be found": Cudgen Rutile (No.2) Pty Ltd v. Chalk [1975] AC 520, 536F-G, per Lord Wilberforce. That is the case here. The specification details for the vehicle were to follow, but clause 4 of the terms and conditions expressly contemplate that these might not be stated in the order form and sets out the procedure for that eventuality. With respect to price, clause 5(d) of the terms and conditions covers this, providing that once a vehicle is available for delivery a purchaser must pay the balance of the purchase price, being the difference between "the importer's recommended retail price" and any deposits paid. So the price is the importer's recommended retail price, the list price as described in the evidence, but taking into account the cost of additional items, in other words, the specification details. That was not specified at the time of the contract but, consistently with section 8 of the Sale of Goods Act 1979, it was a price which was to be fixed in a manner agreed in the contract. Albeit that the order form was populated with dummy details, that was explained by Pendragon's Mr Mansfield: there was no dropdown menu on the computer covering this model of Porsche. In sum, this was an agreement for the sale of a Porsche 911 GT3 RS4, subject to the contingency of Porsche allocating one to Pendragon." (Hughes v. Pendragon Sabre Limited [2016] EWCA Civ 18)
"[61] Vagueness in what is said or omission of important terms may be a ground for concluding that no agreement has been reached at all or for concluding that, although an agreement has been reached, it is not intended to be legally binding. But certainty and completeness of terms is also an independent requirement of a contract. Thus, even where it is apparent that the parties have made an agreement which is intended to be legally binding, the court may conclude that the agreement is too uncertain or incomplete to be enforceable – for example, because it lacks an essential term which the court cannot supply for the parties. The courts are, however, reluctant to conclude that what the parties intended to be a legally binding agreement is too uncertain to be of contractual effect and such a conclusion is very much a last resort. As Toulson LJ observed in Durham Tees Valley Airport v bmibaby [2010] EWCA Civ 485, [2011] 1 Lloyd's Rep 68, at para 88:
"Where parties intend to create a contractual obligation, the court will try to give it legal effect. The court will only hold that the contract, or some part of it, is void for uncertainty if it is legally or practically impossible to give to the agreement (or that part of it) any sensible content." (citing Scammell v Dicker [2005] EWCA Civ 405, para 30, Rix LJ)." (Blue v. Ashley [2017] EWHC 1928 (Comm), Leggatt J)
- Court unable to fill gap re period within which share price would have to rise to £8 for payment to be due (no yardstick for what is reasonable)
"[136] What, in my view, would defeat such an attempt, even if an intention to make a contract had been shown, is Mr Blue's failure to prove that a particular period was agreed within which the share price had to reach £8. That gap is not one which the court can fill. There are many situations in which an agreement is silent about the time within which something must be done and the court can give content to it by implying a term that the obligation will be performed within a reasonable time. But that is only possible when a court can apply some yardstick of what is reasonable. For example, in a contract for the carriage of goods when no date for delivery is specified, the court can assess what constitutes a reasonable period within which to expect delivery in the light of any past dealings and ordinary commercial usage, and imply a term on that basis. This does not seem to me, however, to be an approach which is available in the present case. There is no objective standard which the court can invoke to identify a period within which Mr Blue would need to get the share price to £8 in order to be paid £15 million. That is a matter which could only be decided by express agreement between the parties themselves. As Mr Blue has failed to prove that a specific period was agreed, I conclude that the "offer" made by Mr Ashley could not create a contract for the further reason that it lacked an essential term." (Blue v. Ashley [2017] EWHC 1928 (Comm), Leggatt J)
- Payment date for tax settlement could not be filled in by Court
"[60] A date for payment is an essential part of an offer to pay a sum of money. There are circumstances in which the court may, by virtue of an implied term, fill a gap. However, I find it hard to see how the acceptance of an offer could include the acceptor asking the offeror about terms for payment. This is not leaving a gap about the settlement date. It is either properly seen as a counter-offer, or as a step in a negotiation that might lead to a concluded contract.
...
[62] It follows from what I have said that the terms included in the exchange of emails lacked a sufficient degree of precision to enable them to amount to a binding contract. In this connection, it is possible to put interest on one side because both parties could be assumed to have understood that interest was not a matter of discretion. It would simply have fallen to be calculated in accordance with the relevant regulations up to the payment date (or dates). There is however, real difficulty about the payment date. Mr Casey QC submitted that the calculation of interest to 31 January 2016 was a clear indication that this was the payment date and could be seen as an express term. I do not agree. The calculation of interest to that date is far more likely to have been merely a matter of convenience." (Kyte v. HMRC [2018] EWHC 1146 (Ch), Chief Master Marsh)
- Insufficient precision about scope of complex tax settlement and release that would follow
"[63] I also consider that the terms contained in the Offer and Acceptance were insufficiently precise about the scope of the settlement and the release that would follow from it. It is here that the context is important. The claimant's tax liabilities were plainly complex and it would have been essential for both HMRC and the claimant to have understood with precision exactly what the scope of the agreement was intended to be and how it might affect the enquiry into the claimant's participation in the Scion Scheme. In theory it is possible for a taxpayer, perhaps in less involved circumstances, merely to agree a sum with HMRC, provided terms for payment are agreed, but here, Mr Lamont expressly asked HMRC to provide a settlement deed and it and it is clear he did so with a view to the claimant, and BKL, being able to understand what the effect of agreeing a settlement would be. Mr Casey QC relied upon an answer to one of the FAQs to make good the scope of the agreement. I can see nothing wrong with that approach in principle, if the answer to the FAQ is sufficiently precise. The difficulty with it in this case, however, is that the notion of the claimant's tax affairs being 'brought up to date' is far too general to be of assistance." (Kyte v. HMRC [2018] EWHC 1146 (Ch), Chief Master Marsh)
- Can be an agreement to sell goods that do not exist yet
"[28]...Under the Sale of Goods Act 1979 there can be an agreement to sell what are called future goods, which include goods to be acquired by the seller after the making of the contract of sale and there can be a contract for the sale of goods the acquisition of which by the seller depends on a contingency which may or may not happen: ss. 5(1)-(2). That there was no vehicle at the time of any agreement to sell, and that Pendragon might not be allocated one, were not fatal, therefore, to the existence of a contract..." (Hughes v. Pendragon Sabre Limited [2016] EWCA Civ 18)
- Price and delivery date for goods do not necessarily have to be agreed
"[28]...Similarly, the Sale of Goods Act 1979 makes explicit that the price of goods need not be fixed by the contract but may be "left to be fixed in a manner agreed by the contract, or may be determined by the course of dealing between the parties": s.8(1). Further, the fact that there was no delivery date is irrelevant to the existence of a contract, since when under a contract of sale the seller is bound to send the goods to the buyer, and no time for this is fixed, they are to be delivered within a reasonable time: s.29(3). In practice, a seller may restrict his delivery burden to the minimum by undertaking merely to hold the goods available for collection: see Goode on Commercial Law (E. McKendrick ed.), 4th ed., 2010, 294." (Hughes v. Pendragon Sabre Limited [2016] EWCA Civ 18)
- "Reasonable finance" too uncertain
"[81] I agree with Dyson LJ, certainly in the context of this case, that a notion of "reasonable finance" is too uncertain to be given any practical meaning and that the appeal should be dismissed because the arrangement on which Mr Schweppe relies is too uncertain to be a contract. With respect to Waller LJ's reasoning in paragraph 53 of his judgment, I do not consider that such lack of certainty can be overcome by providing a worthy claimant with a remedy for loss of a chance."
(Schweppe v. Harper [2008] EWCA Civ 442)