As law students, we were taught that five key elements must be present for a contract to exist: (i) offer, (ii) acceptance, (iii) consideration, (iv) the intention to create legal relations and (v) certainty of terms. However, as two recent cases demonstrate, judges may be prepared to look past the lack of a clear offer and acceptance mechanism to imply a contract formed by conduct.
In Premia Marketing Ltd v Regis Mutual Management, an agent (Premia) sought remuneration for introducing a client to Regis. The parties had not attempted to enter into a written contract and had not even agreed the fundamental basis for calculating any fees due. Regis had rejected Premia's proposed basis for remuneration, and the parties had also not agreed on the level of involvement that would entitle Premia to receive payment.
Nevertheless, the judge found that "there was a sufficient meeting of minds between the parties to constitute a contract under which in return for effecting an ultimately successful introduction Premia would receive a reasonable fee for that service". Since this was a contract for the supply of services, a clause could therefore be implied into the contract (under section 15 of the Supply of Goods and Services Act 1982) that Regis would pay a reasonable charge for Premia's services.
The judge accepted that this was a "marginal" decision, but found that even if there had been no contract, Premia would have been entitled to payment for work done under the principle of "quantum meruit". This would have been on the basis of unjust enrichment: Regis had clearly been enriched at Premia's expense (in the sense that Premia had effected the introduction).
A "laxer" approach
Similar considerations arose in Zymurgorium v Hammonds of Knutsford. This case concerned a longstanding commercial arrangement between Zymurgorium, an independent gin distillery, and a drinks wholesaler, which had never been reduced to writing. When Zymurgorium started to supply drinks direct to another wholesaler, Hammonds brought a claim for breach of implied terms of exclusivity in either an overarching agreement or individual contracts in relation to key customers.
The claim as to an overarching agreement failed under the judge's meticulous contract analysis. The evidence did not clearly show that the parties had agreed to an exclusive arrangement at their initial meeting and there were no other crucial terms that made it necessary to imply an overarching contract at that point. Over time, a common understanding arose that the relationship was an exclusive one, but at no stage did the parties indicate that they intended to vary an existing agreement. That shared understanding therefore had no contractual effect.
The position was different in relation to specific customers. By the time Hammonds started supplying to those customers, the common understanding on exclusivity already existed. This meant that, taken together with details such as the pricing in relation to the customer, sufficient terms existed that made it necessary to imply exclusivity into individual sales contracts. Although the mechanism of offer and acceptance was not clear, in light of the parties' conduct, the judge was prepared to apply the "rather laxer principle" set out in the leading contract law text Chitty on Contracts:
"Occasionally, where it proves impossible to discern a clear offer or a clear acceptance then, when judged objectively, a contract may still be found to have been made since the canons of offer and acceptance are not the last word and may be incapable of precise application."
The result was that the individual sales contracts were implied, with key terms such as an exclusivity clause and a reasonable notice period for termination. Hammonds was therefore entitled to damages for breach of those terms.
A detailed analysis of offer and acceptance is often important, for example in "battle of the forms" cases, where the court is being asked to consider which party's standard terms apply. However, when businesses have been trading with each other or taking actions at their own expense for the benefit of the other, courts are often willing to find a contract of one form or another that carries an entitlement to payment for work done.
Of course, the best way to minimise uncertainty is to ensure that the business only trades on clear written contracts. An effective contract management programme – including training for procurement and sales teams, an easy-to-use document management system and regular contract audits – can reduce litigation risk, while also providing a clearer picture of the terms on which the business trades with customers and suppliers.