Contract formation by negotiation
The Court of Appeal has held that a contract was not formed in a phone call following a letter of offer marked “WITHOUT PREJUDICE – SUBJECT TO CONTRACT”. There was no evidence of the unequivocal wavier of that condition required to form a contract and the parties' conduct after the call clearly showed no contract had been concluded: Global Asset Capital Inc v Aabar Block S.A.R.L. [2017] FICR 12.
A borrower who had defaulted on a €250 million loan wrote to the lender offering to purchase the rights to the loan. They had a phone call later and the lender asked the borrower to resent the letter in open and binding form and to show he was able to pay.
Three days later the borrower sent the letter again but with material changes such as the words “Upon your agreement that you are willing to proceed with the Proposed Transaction” and an expiry date. He provided a funding letter which spoke of the funder's "intention" to fund but expressly disclaiming contractual obligations to anyone.
The lender refused to go through with the deal and the borrowed sued. The lender made a summary judgement application which the judge refused, saying the borrower had realistic prospects of establishing a contract was formed in the phone call. The judge refused to consider conduct after the call, believing that to be the law. The lender appealed.
The Court of Appeal held that the court can look at conduct after the alleged formation of a contract to determine whether a contract was formed. "Subject to contract" negates contractual intention and the acceptance of such an offer only amounts to an agreement to agree. Waiver of that condition must be unequivocal and the court will not lightly so hold.
Here the language of the letter, the words in the phone call and the conduct afterwards all clearly indicated no contract was formed. The appeal was allowed and summary judgment granted.
Read the full head note in Ford's International Commercial Reports here: [2017] FICR 12.
