Acceptance or a counter-offer - what relevance are communications after the fact?

11 November 2016. Published by Christopher Whitehouse, Associate and Simon Hart, Partner

In Caroline Gibbs v Lakeside Developments the High Court held that an email purporting to accept a settlement offer but attaching a consent order specifying a different payment date was not an acceptance but a counter-offer.

The facts

Gibbs had a claim for damages against Lakeside dismissed and appealed the decision. Approximately one month prior to the date the appeal was due to be heard the parties engaged in settlement negotiations. Gibbs, by letter dated 1 March 2016, offered to settle the case for a sum of £90,000 subject to the offer being accepted on or before 4pm on 9 March 2016 and the sum paid to her account prior to 4pm on 16 March 2016.

Lakeside replied by email on 8 March 2016 stating "The claimant accepts your offer. I attach a draft consent order for your consideration and approval". However, the draft consent order deviated from the terms of Gibbs' offer by providing for payment of the settlement sum by 8 April 2016 rather than 16 March 2016.

A dispute arose as to whether the 8 March email was an acceptance of the 1 March offer (as submitted by Gibbs) or a counter-offer (as submitted by Lakeside). At first instance, in the County Court, it was held that the 8 March email was a counter offer and found for Lakeside.

The appeal

Gibbs appealed, arguing that, the 8 March email was a valid acceptance of the 1 March offer on the bases that (a) it purported to be so and (b) the attached consent order was merely a proposed formal document to give effect to the agreement, which if it did not accurately reflect the agreement reached, could have been varied or rectified as necessary. Counsel for Gibbs reinforced this argument by inviting the court to consider what the position would have been if the consent order had been sent after the email – for example - two days later.

Lakeside submitted that the 8 March communication must be considered as a whole, including the relevant term of the consent order. Considered in its totality, the communication was not an acceptance of all the terms of the 1 March offer and as such was a counter-offer.

Decision

Mr Justice Arnold dismissed the appeal and upheld the first instance decision, finding that the 8 March email was a counter-offer as it did not amount to an acceptance of the whole of the 1 March offer; the settlement amount and the date by which that sum had to be paid were "a package" and the latter had not been agreed.

Comment / relevance of subsequent communications

The core reasoning of the case is a useful practical example illustrating some aspects of contractual formation and the pitfalls which can arise. However, of more interest are the ancillary comments it contains regarding the legal relevance of the parties' communications subsequent to the 8 March email. Mr Justice Arnold, despite agreeing with the first instance decision's overall conclusion, did not agree with its approach to the parties communications, citing the High Court case Newbury v Sun Microsystems. The first instance court had only considered the two communications in question and not any subsequent communication of the parties.

Mr Justice Arnold considered that this was wrong and that it was "well established" that, in considering whether an agreement has been concluded, that the court was entitled to have regard to all the communications between the parties, citing (in addition to passages from Chitty) Pagnan SPA v Feed Products Ltd, and in particular the first principle namely In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole… ”. However, Mr Justice Arnold omits from his analysis that the Newbury case relied on at first instance also quotes the same wording from Pagnan but interprets it in a different manner.

The divergence in views between Mr Justice Arnold and the reasoning in Newbury appears to arise out of the ambiguous wording used in Pagnan, originates from Hussey v. Horne-Payne. Hussey states that in cases where you have to "find your contract" (i.e. where there is a chain of correspondence negotiating the terms of an agreement as opposed to a single definitive agreement) "You must take into consideration the whole of the correspondence which has passed". The wording continues, "You must not at one particular time draw a line and say, "We will look at the letters up to this point and find in them a contract or not, but look at nothing beyond"".

In Newbury looking at "the correspondence as a whole" appears to be so as to identify within the correspondence the point at which the parties have to all outward appearances agreed in the same terms on the same subject matter. Having identified this point it does not consider that any subsequent conduct is relevant to reaching a conclusion as to whether a binding agreement has been formed as at that point. In contrast, Mr Justice Arnold's approach takes an additional step and considers whether subsequent actions support or undermine the conclusion. In this case he held the post 1 and 8 March communications supported the view that acceptance had not occurred. (Gibbs had in fact stated this explicitly on 10 March 2016 and changed position on 15 March 2016.)

On balance the Newbury analysis seems to arising more naturally from the original wording in Hussey although it is sufficiently ambiguous to permit either interpretation. Regardless which is correct, the case provides an interesting case study in how even a "well established" principle can be interpreted in different ways.