Maple Leaf Macro Volatility Master Fund v Rouvroy

English Contract Law

Maple Leaf Macro Volatility Master Fund v Rouvroy
Image: ‘Still Life with Vodka and Herring’ by Roxana Paul

When consideration is given by at least one party to a contract (whether interim or final) it becomes in principle very hard for the other party to claim no contract could stand, irrespective of signatures or third-party withdrawal. In this case the founder-directors of a beverage firm sought to rescind an agreement between themselves and a hedge fund provider despite a long-standing commercial history and openly agreed terms of engagement.

After enjoying moderate success as an alcoholic drinks manufacturer and having recently acquired a smaller company as part of their expansion, it was decided that the time had come to recoup on their investment and so a controlling share of their business was sold to a large financial holdings company. Within the year the working relationship between the investors and owners deteriorated to the degree that the appellants moved to buy back their company and regain controlling influence.

As part of this reversion the terms of the arrangement required them to obtain significant loans (within a very narrow timeframe) which themselves provided stakeholder rights to the lenders. During the construction of the funding package  the defendants took the step of paying the monies loaned directly to the controlling firm as part of their commitment to the loan arrangement and repurchase scheme. When a third party to the draft contract renegotiated a different arrangement with the appellants they declined to add their signature to the final agreement, leaving only the appellants and defendants ink upon the document.

It was then argued by the appellants that the absence of a third signature rendered the contract void and so there now existed no binding obligation on their part to continue with the loan or invitation to share control. When stripped down and reassembled in its proper context it was found by the Court of Appeal that due to the significant consideration given by the defendants there was sufficient evidence to show an enforceable contract that bound both signatories despite the reluctance of the third party.

Key Citations

“In the first place, there was no requirement either within or outside the Funding Agreement that it would only become binding when signed.”

“The fact that the agreement envisages a signature and leaves a space for those signatures is not a “prescription” that the agreement can nil become binding on the appending of signatures.”

“…although no contract can be made without an intention to be legally bound, that intention has to be ascertained objectively, not by looking into the parties’ minds.”

“…that there was objectively an intention to be bound was the fact that the appellants had signed Version 9.”

“Maple Leaf were themselves doubtful whether a binding agreement had been made, but nevertheless paid this not inconsiderable sum in the hope that it would in due course be concluded, by a court if necessary, that there was indeed a binding agreement.”

Moran v University College Salford

English Contract Law

Moran v University College Salford
Image: ‘Undergraduates’ by Edward Irvine Halliday

Interlocutory discourse between those that apply for or request obtainment of services and the party empowered to grant them can on the surface appear to suggest a verbal or somewhat provisional agreement to contract with one another. Unfortunately it would seem that under common law this would be false assumption as there is still yet more to require a binding agreement. When the applicant for a university degree course becomes victim to an administrative error it is left for the courts to clarify the mechanics of these arrangements in a light that might well preturb.

After choosing to study for a recognised qualification in a competitive field the appellant used a central admissions system to act on his behalf when approaching a number of suitable universities. After facing a volume of rejections he received an unconditional offer from a provider of notable standing. There were of course certain conditions attached to the offer and one of those was the preclusion from seeking admission through the clearing system as well as accepting any other offers from universities at a later date. The appellant duly acquiesced to these conditions and returned his acceptance form both in good time and using the methods prescribed by the university.

During the period between his acceptance and subsequent discovery that his application had been denied due to over subscription, the appellant had left his position of employment, turned down a second interview for another post, surrendered his tenancy with his landlord and made plans to relocate so as to support his education. In fact it was due to a phone call to the university that he learned of the error, at which point he was informed that he could try to apply for an alternative course through clearing (which by this time had run its course).

When seeking legal remedy under three heads of (1) specific performance (2) mandatory injunction and (3) breach of contract the court found that although the offer had been sent and the acceptance received within the guidelines, there was no guarantee of contract until the enrolment process and payment of fees had occurred. As this fact then prevented the existence of a contract any claim for specific performance was quashed along with that of a breach or mandatory injunction.

Upon appeal the details of the arrangement were given a thorough examination and some interesting facts emerged. While it was central admission policy to issue application guidelines to the public there were similar guidelines issued to the receiving universities that contained within them important information that upon consideration warranted inclusion to the former documentation as they outlined the responsibilities of the providers where such errors were found. In addition to this the failure of the admissions team to properly address the appellants application had denied him any opportunity to enter clearing, an act which was held as consideration prior to contract.

Unfortunately despite the good intention and sufferance of the applicant (under the assumption that a legal contract had been constructed) the court ruled that as with the first judgement there had been no evidence to suggest that a contract existed because there had been no formal enrolment and agreed payment of fees; a caveat which had been further construed from the terms contained within the central admissions guide.

Key Citations

“…giving up the chance of obtaining another place through PCAS clearing in this way was a sufficient detriment to constitute consideration moving from the plaintiff for the purposes of these technical rules of the law of contract.”

“…the respondents having made their own offer through PCAS, and in accordance with the PCAS scheme, did impliedly request the plaintiff, by inviting his acceptance of their offer, to take a step which to their knowledge necessarily involved his removal from the scheme and with it any opportunity to enter clearing in accordance with its rules.”

“…it would no doubt come as a surprise to many thousands of applicants who give firm acceptances in response to unconditional offers, were they told that the institution is not bound to provide them with a place, and is free to withdraw the offer at any time before they present themselves for enrolment at the beginning of the academic year.”

“Whether or not such an agreement is legally enforceable depends primarily upon the terms of the particular agreement and secondly upon the ‘matrix’ which is provided by the scheme itself.”

Scriven Bros & Co v Hindley & Co

English Contract Law

Scriven Bros & Co v Hindley & Co
Image: ‘Hull Docks by Night’ by Arthur E Grimshaw

Negligence and mistake are two elements of contract law which conflict as between vendor and purchaser, particularly when the former is unreasonably applied to the buyer. In this very brief but notable case the issue in hand turns upon the overpayment for a product at auction.

As was typical of the period many agricultural products were imported for domestic use as the temperate weather of foreign countries provided for larger tonnage and lower prices. On this occasion the subject matter was Russian industrial grade hemp which while grown widely across the UK remained their largest export at the time and was a much sought after commodity. Contrastingly tow is a by-product of hemp and is thus sold at a much lower price for use as upholstery stuffing and other secondary purposes.

When a dockside auctioneer put out large bales of both hemp and tow the samples shown to potential bidders were easily confusable. To make matters worse the two consignments were given similar lot names therefore for those uninitiated the possibility of bidding in error was high. On this occasion the purchaser had recruited a manager to bid on his behalf, at which point he had placed similar bids on both items on the assumption that he was buying hemp. To his further detriment the auction programmes failed to distinguish the lots and so only those who had the foresight to inspect them beforehand were spared the embarrassment of overpaying for items of lower market value.

When the purchaser discovered his managers error he sued the auctioneers for misrepresentation through the principle of ‘ad idem’ (which is parties not in agreement to the nature of a contract) who themselves counter-sued for negligence on the part of the manager. In the original trial it was found that there could be no evidence of a contract as per the principle of disagreement and that no grounds of negligence existed in the absence of any duty of care by the manager to examine the lots prior to bidding.

When brought before a deciding jury it became apparent despite appreciation of a number of opposing facts that the auctioneers had been recent victims of fraud thus were simply looking to pass on the loss to another unsuspecting buyer; and so irrespective of any argument that the onus of inspection fell to the buyer’s representative it was held that a contract could not be found to exist where no agreement had been settled between the vendor and the purchaser.

Key Citations

“The second and third findings of the jury shew that the parties were never ad idem as to the subject-matter of the proposed sale; there was therefore in fact no contract of bargain and sale.”

“It was natural for the person inspecting the “S.L.” goods and being shown hemp to suppose that the “S.L.” bales represented the commodity hemp.”

“…it was peculiarly the duty of the auctioneer to make it clear to the bidder either upon the face of his catalogue, or in some other way which lots were hemp and which lots were tow.”

“A buyer when he examines a sample does so for his own benefit and not in the discharge of any duty to the seller.”

“Such a contract cannot arise when the person seeking to enforce it has by his own negligence or by that of those for whom he is responsible caused, or contributed to cause, the mistake.”

Destiny 1 Ltd v Lloyds TSB Bank plc

English Contract Law

Destiny 1 v Lloyd's Bank plc
Image: ‘Flower Shop Doorway’ by Tom Nachreiner

As previously discussed in Crest Nicholson it is imperative for disputing parties to recognise that the wording of documents and the terms implied behind them are not to be misconstrued to the detriment of those seeking justice (as is demonstrated in this brief matter).

When a small business owner found himself in a position to expand upon his success as a retail outlet he began negotiations with a new bank that had shown an interest in helping him secure an additional property with a view to opening a second store. As there were complex requirements within the proposed arrangement there needed to be a number of component contracts that would collectively form a single binding contract.

These came in a number of different forms including several small charges against the properties held under title by the appellant, a guarantee of indemnity for a supplier the appellant had chosen for his new store and  a re-financing of an existing loan with his current bank, which due to its significant size formed the footing of the agreement because without it the bank had no means by which to achieve a workable profit.

As part of the pre-contract process the bank sent a letter that conveyed its agreement to proceed with the package contract on the proviso that the appellant also agreed to submit to the terms contained within the letter and the actions he was required to undertake prior to their commencement. The appellant duly signed and returned the letter to display his compliance with those terms but unfortunately for reasons not outlined within the appeal hearing the bank was unable to proceed with the loan refinancing and therefore the proposed arrangement could not be realised.

It was this unexpected withdrawal that promoted the appellant to cite that his business had subsequently suffered pecuniary losses through the inability to expand and that the banks unwillingness to endorse his guarantee to the potential supplier constituted a clear breach of contract.

When given broad and considered thought in the Court of Appeal it was reiterated that while the bank and the appellant had drawn up a multi-layered agreement to contract, no breach could be found without the complete participation of all the arrangements, for without them functioning as a whole no such contract could be seen to exist; while the banks letter merely outlined that they needed the appellants agreement to the terms contained within and that his acceptance did not by extension form a binding arrangement. Furthermore while the banks cessation to undertake business with the appellant had left him dissatisfied there could be no causal link between a failure of the contract to become manifest and any obstruction of commercial expansion under his own efforts.

Key Citations

“…even if the bank was in breach of contract, it had not caused the loss in respect of which Destiny sought to recover.”

“…the law decides whether a contract has come into existence by looking objectively at what each party said to the other, not at their subjective intentions or understandings.”

“There was never any attempt to reach an agreement with Destiny separate from that which was being negotiated with Mr Khalid; the two were inextricably linked.”

Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd

English Contract Law

Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd
Image: ‘The Junction’ by Elias Gayles

Law of contract operates in a world that extends well beyond the niceties of discourse and in doing so relies upon certainty of both intention and expression. In this appeal case the confused and often assumptive approach to business between a property owner’s asset manager and developer left the judges with no choice but to re-assess the contracting parties interpretations in order to establish conclusive judgment.

As part of an ongoing development agreement the two companies had outlined very specific terms to their arrangement and which due to their complex nature commanded considerate specificity. While the majority of the schedules to the contract were secure and without contention, the subject of rental values remained less certain due to the poor wording (or at least absent text) within the respondent’s letter.

Much like the ‘elephant in the room’ the discussion around whether unoccupied properties were subject to an expected target rental figure or market-driven rates was left improperly addressed while in the letter from the respondents there was also a tone of trying to set the terms of the contract. Clause 18.2.1 of the development agreement required that the developers were bound to seek open market occupation of the properties as soon as possible and that the target rents (as defined in sch.4 of the agreement) set down by the owners were to be achieved where reasonable. In addition to this clause 19.8.1 stated clearly that where no occupation occurred within an agreed period the appellants would agree to pay a calculable sum based upon the open market rent value at the time.

Unfortunately during the exchange of letter and email it was implied by the developer that the sum awarded would be based upon the pre-agreed target rent values and not (as was expressed within the above clause) the open market value. By the appellant explaining that the proposed terms within the letter were ‘acceptable’ it was also argued that they had by virtue of their response agreed to be bound by the principle that the target rent values were those in effect and not that of any (as yet undeterminable) open market rent rate.

After consideration of the assumptive wording of the letter it was concluded within the Supreme Court that no reasonable person including those with inside knowledge of the working arrangement would have construed that such a statement was (a) expressed (b) openly agreed to and for those two reasons the appeal was upheld.

Key Citations

“A statement to a party to an already existing contract which (incorrectly) purports to set out the legal effect or factual position under that contract is not, without more, to be taken as an offer to be bound by the position as stated.”

“An offer is defined as “an expression of willingness to contract on specified terms made with the intention (actual or apparent) that it is to be come binding as soon as it is accepted by the person to whom it is addressed.””

“There is nothing in those headings to suggest that any of the four sections is intended to introduce a further purpose in addition to the four which have been identified in the first paragraph.”

“…there is no sufficient evidential basis for a submission that Ms Smith did, in fact, understand that she was being invited to agree to a proposal that Target Rents should be treated as market rents.”

“…it would have been impossible for her to reach an understanding that the letter of 21 June 2007 was inviting her to agree to a proposal, advanced for the first time and in the absence of any prior discussion, that the Target Rents shown in the schedule should be taken as the open market rents for the purposes of clause 19.8.1.”