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Koffman, Macdonald & Atkins' Law of Contract

Koffman, Macdonald & Atkins' Law of Contract (10th edn)

Ruth Atkins
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date: 30 March 2023

p. 393. Certainty and formalitiesfree

p. 393. Certainty and formalitiesfree

  • Ruth AtkinsRuth AtkinsSenior Lecturer in Law, Swansea University


This chapter looks at the need for certainty and formalities in contracting. It explores case law which illustrates, on the one hand, that a willingness of the parties to make a contract does not necessarily amount to a legally binding agreement, whilst on the other hand, there is potential for the court to fill in any gaps to give effect to agreements. The issues surrounding an agreement which is expressed to be ‘subject to contract’ are explored, as too are the reasons for when contract formalities may be required. There is discussion of electronic signatures in light of the Law Commission Report on Electronic Execution of Documents and the case of Neocleous v Rees.


3.1 In Chapter 2 we saw that contracts are normally based on agreement. Although courts will try to give effect to apparent agreements, it may be difficult to do so in cases where the parties have expressed themselves in vague or incomplete terms. Much will depend on how far a court is willing to go in filling in any gaps left by the parties. Whilst not wishing to ‘incur the reproach of being the destroyer of bargains’ (per Lord Tomlin in Hillas & Co. Ltd v Arcos Ltd (1932) 147 LT 503 at 512), a court may find it impossible to give effect to an uncertain ‘agreement’. For example, in the Court of Appeal decision in Schweppe v Harper (2008) at [72]–[76] and [80]–[81], the majority held that there was no binding contract between the parties because of uncertainty over important terms of the alleged agreement, with Sir Robin Auld stating (at [81]) that ‘the notion of “reasonable finance” is too uncertain to be given any practical meaning’. Such disputes must be viewed within the confines of legal principle; if no contractual bargain exists, it is not for a court to invent one.

3.2 However, in the business world it is not uncommon for negotiating parties to leave matters vague for as long as possible. For example, this may arise where there may be some understandings between the parties, but where these have not been expressed with any certainty or finality. (For a broader discussion, see S. Mouzas and M. Furmston, ‘From Contract to Umbrella Agreement’ (2008) 67 CLJ 37.) This may be desirable in certain circumstances because the ‘agreement’ in question might be conditional on one of the parties securing another contract with a third party. (For example, where company A uses a ‘letter of intent’ to indicate to company B that a subcontract is likely to be entered into with them if A’s tender for a major contract with company C is successful. But the more widespread use of letters of intent, especially in the construction industry, may be a cause for concern. For a discussion of this practice and some of the resulting case law, see C. Hoar, ‘We Do Intend to Contract with You, and May Actually Just Have’ (2008) Construction Newsletter May/June 4–5, and for a recent case law example see p. 40Balfour Beatty Regional Construction Ltd v Van Elle Ltd [2021] EWHC 794 (TCC). The parties may even proceed as if a concluded contract has been made, despite the fact that in a technical (legal) sense there is no final agreement. (For examples of this problem, see British Steel Corpn v Cleveland Bridge and Engineering Co. Ltd (1984) and G Percy Trentham Ltd v Archital Luxfer Ltd (1993); and for a more recent approach see RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (2010) discussed at para. 3.17.) We have considered further examples of this in relation to the ‘battle of the forms’ (see Chapter 2) and it will be recalled that commercial practice may depart from the finer points of legal theory. It is difficult to lay down general rules about the extent of a court’s power to fill in the gaps left by the parties and, for this reason, some of the cases that follow may appear to be inconsistent with one another. Much depends on the factual situation in each case rather than on any consistent or underlying precepts.

The need for certainty

3.3 Where contractual intention is expressed in such imprecise terms that no clear meaning can be given to it, there will be no binding agreement. For example, in Gould v Gould (1969), a husband promised his wife £15 per week ‘so long as he could manage it’, that is, as long as his business was doing well. On appeal, it was held that this agreement was too vague and uncertain to be enforceable. (Also, in Loftus v Roberts (1902), an agreement to employ an actress at a ‘West End salary’ was held to be too vague. For a more recent example, see Cook v Norlands Ltd (2001).) In other cases, the parties may clearly have intended to enter into a contract, but may have used some vague or ambiguous expression. In G Scammell and Nephew Ltd v Ouston (1941), the facts were:

Ouston (C) wrote to the defendant company (D) ordering a new Commer motor van, stating that the ‘order is given on the understanding that the balance of purchase price can be had on hire purchase terms over a period of two years’. The order was accepted, but the defendants dropped out before any specific hire purchase agreement was entered into. C sued D for non-delivery and D claimed that there was no final agreement between the parties. The trial court and the Court of Appeal decided that there was a binding contract between the parties, and D appealed to the House of Lords.

It was held that there was no contract, as the phrase ‘on hire purchase terms’ was too vague to constitute a binding agreement. This was because different types of hire purchase agreements existed (imposing different obligations on the parties) and therefore there was an ambiguity in the apparent agreement. If C could have shown, by reference to previous dealings with D or by reference to trade practice, that one particular meaning could be given to the phrase ‘hire purchase terms’, he may well have succeeded. But this was not possible in this instance and the contractual intention of the parties may not have been identical.

3.4 In Peter Lind & Co. Ltd v Mersey Docks and Harbour Board (1972), C submitted two tenders to build a container freight terminal. The first offer was to build the terminal for a fixed price, whilst the second was to do the work for a price which was subject to variations in the cost of labour and materials. D purported to accept C’s tender without making it clear which one. It was p. 41decided that there was no contract on the terms of either of C’s tenders as there was an obvious ambiguity that could not be resolved by the court.

3.5 In contrast, there are instances where a court is able to make sense of vague statements and to give effect to the contractual intention of the parties. For example, in Hillas & Co. Ltd v Arcos Ltd (1932), C had previously agreed to buy a quantity of timber, ‘of fair specification’, from D. The contract gave C an option to buy a further 100,000 standards of timber the following year, but it failed to specify the size or type of timber. D argued that the vagueness of this ‘agreement’ prevented it from being binding on the parties. But this argument was rejected by the House of Lords. In contrast to the case of G Scammell and Nephew Ltd v Ouston (1941), the uncertainty in the agreement could be resolved by the court. It was possible to make reference to the previous dealings between the parties and the custom of the timber trade. In this way, the court could fill in the gaps left by the parties without making an entire contract for the parties. Clearly, the distinction between this type of case and that of Scammell is a fine one. In the case of Baird Textile Holdings Ltd v Marks and Spencer plc (2002), the Court of Appeal rejected a claim by Baird that M&S was in breach of a contractual obligation to order garments from Baird in quantities and at prices which were reasonable in all the circumstances. The court decided that this alleged obligation lacked certainty, as there were no objective criteria by which a reasonable quantity or price could be ascertained. It was held that the lack of certainty confirmed a lack of intention to create legal relations.

3.6 The issue of lack of certainty was also raised in Walford v Miles [1992] 1 All ER 453. This case involved negotiations for the sale of a photographic business. The parties entered into a so-called ‘lock-out’ agreement whereby the seller, in exchange for good consideration, agreed not to negotiate with any other party in respect of the sale of the business. Although such agreements can be enforceable, the House of Lords held that this one was not, because it was of unspecified duration. It was stated that no term could be implied by the court to give effect to the agreement. However, if the seller had agreed not to negotiate with any other party for a specified period of time, the agreement could have been enforced (see Lord Ackner’s judgment at 461–2).

3.7 It is important to distinguish between a clause in a contract which has still to be agreed (such as ‘hire purchase terms’ in G Scammell and Nephew Ltd v Ouston (1941)) and a clause which is simply meaningless. The former may lead to a court deciding that no contract exists, whereas the latter can often be disregarded. Much will depend on the importance attached to the clause by the parties. For example, if it is of central importance in defining the contractual obligations of the parties, the vagueness of the clause may negate agreement (see Bushwall Properties Ltd v Vortex Properties Ltd (1976)). In CPC Consolidated Pool Carriers GmbH v CTM Cia TransMediterranea SA (1994), the negotiations between the parties, for the shipment of a jet foil, were said to be ‘subject to details/logical amendments’. Potter J held that there was no concluded contract, as it was intended by the parties that a formal contract was still to be drawn up later. The expression ‘subject to details’ left matters too vague, as these terms and details needed to be finalized. But if the clause is ‘severable’ from the main part of the agreement (i.e. of little significance, or even superfluous), then it can be ignored without affecting the validity p. 42of the contract. If this were not so, those in breach of contract might look for any vague phrase in the agreement as a means of escaping liability.

3.8 In Nicolene Ltd v Simmonds [1953] 1 QB 543, for example, C ordered 3,000 tons of steel bars from D. D’s letter of acceptance of the order included the phrase that it was assumed that ‘the usual conditions of acceptance apply’. D, who failed to supply the steel and was sued for breach of contract, claimed that due to the uncertainty caused by the words ‘usual conditions of acceptance’, there was no binding agreement. This argument was rejected by the Court of Appeal. In the words of Lord Denning (at 552):

[T]here was nothing yet to be agreed. There was nothing left to further negotiation. All that happened was that the parties agreed that the “usual conditions of acceptance apply”. That clause was so vague and uncertain as to be incapable of any precise meaning. It is clearly severable from the rest of the contract. It can be rejected without impairing the sense or reasonableness of the contract as a whole, and it should be so rejected. The contract should be held good and the clause ignored.

Is there a complete contract?

3.9 Provided that the main terms of a contract have been agreed by the parties, the fact that further terms have still to be negotiated will not necessarily prevent there being a concluded contract (see Pagnan SpA v Feed Products Ltd (1987), applied recently in Bear Sterns Bank Plc v Forum Global Equity Ltd (2007); and De Jongh Weill v Mean Fiddler Holdings Ltd (2003) at [22]). In other instances the parties may negotiate a contract and reach agreement in principle but leave certain details to be decided later. (See for example RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (2010) discussed at para. 3.17.) As a matter of strict theory it might appear that this does not constitute a binding agreement, especially if important terms are left undecided. This may well be the result in practice too, as illustrated by Willis Management (Isle of Man) Ltd v Cable & Wireless plc (2005). In this case, the Court of Appeal held that an agreement by the parties, to agree an essential term in the future, was incomplete and unenforceable. The court was not prepared to make an agreement for the parties where further discussion and agreement was still required from them. More recently, in Barbudev v Eurocom Cable Management Bulgaria Eood (2012), the Court of Appeal held that a side letter signed by both parties was not a legally enforceable agreement but simply an ‘agreement to agree’, given that essential terms were not dealt with. Here, it was concluded that the side letter was not sufficiently certain to be an enforceable contract.

3.10 Similarly, in Morris v Swanton Care & Community Ltd [2018] EWCA Civ 2763, as the parties had deferred their agreement on key contractual matters, making it clear that for there to be a possible extension of the claimant’s consultancy services there had to be further agreement reached in the future, this was described as ‘the very paradigm of an agreement to agree’ (per Dame Gloster at [27]). Here, there was no enforceable right to provide the services beyond the initial period. In contrast, the High Court in Anchor 2020 Ltd v Midas Construction Ltd (2019) p. 43held that a partially signed contract, which had not been signed by the claimant, for the design and build of a retirement community, was indeed binding between the parties on the basis that agreement had been reached on all essential terms. A sum of £10 million hinged on this decision which serves as a stark illustration that if a party does not wish to enter into a contract other than by means of an acceptable written agreement, that position must be made evident, for example, by use of the phrase ‘subject to contract’ (discussed at para. 3.16). But much will depend on the circumstances of the case (as discussed in J Murphy and Sons Ltd v ABB Daimler-Benz Transportation (Signal) Ltd (1999) and further emphasized in RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (2010)). It is not the role of a court to make an agreement for the parties where none exists, but it may be able to give effect to contractual intention (e.g. by implying terms) where there is an agreement which has not been fully expressed. (For a discussion of this distinction, see Scancarriers A/S v Aotearoa International Ltd (1985) and for an example of the Court of Appeal striving ‘to give some meaning to contractual clauses agreed by the parties if it at all possible to do so’, see Openwork Limited v Forte [2018] EWCA Civ 786 per Simon LJ at [25].)

3.11 In some commercial contexts it may be necessary to allow the price to be fixed, or adjusted, after the agreement has been concluded. For example, in a contract between an oil company and a petrol station owner for the supply of petrol over a number of years, it would not be too uncertain an agreement to allow the price to be adjusted periodically by the supplier. In Shell (UK) Ltd v Lostock Garage Ltd [1977] 1 All ER 481, the buyer agreed to pay for his supply of petrol ‘at a price which shall be the wholesale schedule price ruling at [the] date and place of delivery’. Of course, such an agreement may be declared unenforceable by the court where it gives rise to an unreasonable restraint of trade, or even (perhaps) where it simply operates in an unfair and unconscionable way (Shell case at 489–93). But it is not void for lack of completeness.

3.12 As examples of contracting parties leaving important points unsettled, it is instructive to contrast the cases of May and Butcher Ltd v R [1934] 2 KB 17 and Foley v Classique Coaches Ltd [1934] 2 KB 1. In the former, the facts were:

C agreed to buy surplus tentage from the Controller of the Disposals Board. The agreement provided: ‘The price … to be paid, and the date or dates on which payment is to be made by the purchasers to the Commission for such old tentage shall be agreed upon from time to time between the Commission and the purchasers.’ The trial judge decided that this ‘agreement’ did not amount to a contract, and this was affirmed by the Court of Appeal.

The House of Lords held that such a vague and incomplete agreement was not enforceable and that there was no binding contract between the parties. Lord Buckmaster stated (at 20):

It is, of course, perfectly possible for two people to contract that they will sign a document which contains all the relevant terms, but it is not open to them to agree that they will in future agree upon a matter which is vital to the arrangement between them and has not yet been determined.

3.13p. 44 The failure of the parties to an agreement to fix a price for the goods need not prevent a binding contract from being concluded. The Sale of Goods Act 1979, s 8(1) provides that if the price of goods is not fixed by the contract of sale, it may alternatively ‘be left to be fixed in a manner agreed by the contract, or may be determined by the course of dealing between the parties’. If the parties have not fixed a price for the goods then, under s 8(2), the buyer must pay a reasonable price. These provisions were not applicable in May and Butcher Ltd v R (1934) because the parties had made it clear that the price was to be settled by future negotiation between them. This tends to indicate an incomplete agreement. (Also note King’s Motors (Oxford) Ltd v Lax (1970), where a lease contained an option for the tenant to accept a further lease ‘at such rental as may be agreed upon between the parties’. It was held that, in the absence of an arbitration clause or some supplementary agreement fixing the rent to be paid, the option was void for uncertainty.)

3.14 Although the decision in May and Butcher Ltd v R (1934) is defensible and probably correct, the law must be careful not to thwart the reasonable expectations of business people. (For further discussion on the reasonable expectations of contracting parties, see J. Steyn, ‘Contract Law: Fulfilling the Reasonable Expectations of Honest Men’ (1997) 113 LQR 433.) Wherever possible, an attempt should be made to give effect to the clear contractual intention of the parties. (See P. Nicholls, ‘My Word is My Bond’ (2008) 158 NLJ 122, for a discussion of how the law ‘seeks to uphold commercial transactions and is wary of technical attempts by parties to avoid their contracts’.) For example, in Foley v Classique Coaches Ltd (1934), the following facts occurred:

C agreed to sell a piece of land, adjoining C’s garage, to the defendants. The sale of the land (‘Contract One’) was conditional on the defendants, who ran a motor coach business, entering into a second agreement with C for the supply of all their petrol requirements (‘Contract Two’). Although the two agreements were contained in separate documents, the sale of the land was clearly conditional on the defendant’s agreement to buy petrol from C ‘at a price to be agreed by the parties in writing and from time to time’. (Note: There was also an arbitration clause included in the second contract to deal with any dispute between the parties arising out of the agreement.) After the conveyance of the land, the defendants bought their petrol from C for three years, but then they repudiated the second agreement. C sued for damages and sought a declaration that the agreement concerning the supply of petrol was binding on the defendants.

The Court of Appeal held that there was a binding contract despite the fact that the price was ‘to be agreed by the parties … from time to time’. It may seem that this decision is inconsistent with that of May and Butcher; but on closer examination the decisions are clearly distinguishable. In Foley, the agreement had been acted upon by the parties for three years. (See also F & G Sykes (Wessex) Ltd v Fine Fare Ltd (1967).) This was not the case in May and Butcher. Furthermore, the arbitration clause in Foley enabled the parties to resolve any problems caused by an incomplete agreement. One of the grounds put forward by the defendants in Foley for repudiating the second agreement with the claimant was that it constituted an unreasonable restraint of trade. p. 45This argument was rejected by the court and it was stated that it would have been unfair to allow the defendants to escape from their contractual obligations, having obtained a good deal on the purchase of the land in the first place. Therefore the respective behaviour of the parties in Foley also appears to be of some significance.1

3.15 An interesting point arose in Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444. If the parties to an agreement provide some procedure for resolving the uncertainty of that agreement, and that procedure is subsequently unsuccessful, can the court still give effect to the clear contractual intention of the parties? The facts were as follows:

The claimants were tenants of four adjoining properties let to them by the defendants. Each lease gave the claimants an option to purchase the freehold reversion of the leased properties at a price to be agreed by two valuers. Each party was to nominate a valuer, and if agreement was not reached by them, an umpire was to be appointed by both valuers. When the claimants tried to exercise the options contained in the four leases, the defendants argued that the option clauses were void for uncertainty and refused to name a valuer. (They argued that the options were nothing more than agreements to agree in the future.) Although the options to purchase were declared valid by the trial court judge, the defendants’ appeal was allowed by the Court of Appeal on the basis that there was no complete agreement which the court could enforce. The claimants appealed to the House of Lords.

The claimants’ appeal was allowed and the options were ordered to be specifically performed. The purpose of the option clauses had been to provide for the sale of the properties at a fair and reasonable price and a procedure had been provided to ensure this. The machinery for ascertaining the value of the property was merely subsidiary and non-essential to this main purpose. It would have been unfair if the defendants, by their own breach of contract, had been able to defeat this clear contractual purpose by their refusal to appoint a valuer. Because the procedure laid down by the parties was not essential, there was no reason why the court could not substitute its own machinery to prevent the contract from being unenforceable. Accordingly, it ordered an enquiry into the fair value of the properties. (But see Lord Russell’s dissenting judgment in this case.2)

Agreement reached ‘subject to contract’

3.16 A different problem arises where parties negotiate the terms of a contract, expressing their agreement ‘subject to contract’, and one of the parties incurs costs in preparing for the intended contract, which then fails to materialize. This occurred in Regalian Properties plc v London Dockland Corpn [1995] 1 All ER 1005, where C’s offer to build a residential development was accepted by D subject to contract. There were long delays for various reasons, and two years later, after a sharp decrease in land prices, D abandoned the project. There was clearly no p. 46complete contract between the parties, but could C claim £3 million for costs already incurred in relation to the proposed contract? This claim was rejected by Rattee J who stressed that the dealings between C and D had been ‘subject to contract’ only, and that D had not led C to believe that such costs would be paid for. The judge stated (at 1024) that in this situation the parties should understand ‘that pending the conclusion of a binding contract any costs incurred by [C] in preparation for the intended contract will be incurred at his own risk in the sense that [C] will have no recompense for these costs if no contract results’.

3.17 The difficulties which can arise when an agreement is expressed to be ‘subject to contract’ were more recently illustrated by the Supreme Court case of RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co KG (2010). Here a dispute arose between the parties, who had entered into negotiations for the supply and installation of automated packaging machinery. Although the parties had intended to enter into a detailed written contract, work began before the terms were finalized. Whilst continuing to negotiate the full contract terms, Müller and RTS entered into a contract formed by a Letter of Intent. This provided details of the full agreed contract price which extended beyond the price of the work to take place during the currency of the Letter of Intent contract. It also included a term which stated that the full contractual terms were to be based on Müller’s final draft version of contract terms known as the MF/1 terms. After four weeks, the Letter of Intent expired but as work on the project continued beyond that time, it was questioned whether the parties had entered into a contract and if so, on what terms.

3.18 The Supreme Court hearing recognized that the problems fell under two heads, both of which arose out of the parties agreeing to start work before execution of a formal written contract, ‘in accordance with the parties’ common understanding’ (at [46]). The first problem concerned the effect of the parties’ understanding that the contract would not become effective until they had executed and exchanged an agreement in written form. However, this had never occurred. Second, it needed to be questioned whether the parties had agreed upon all the terms which they objectively regarded, or the law required, as essential for the formation of legally binding relations. In the instant case, this related to the terms on which the work was being carried out, agreement on the price or remuneration, and the rights and obligations of the supplier.

3.19 The judge at first instance held that after the Letter of Intent had expired, the parties had entered into a contract whereby RTS would carry out the agreed work for the agreed price but that this contract did not include the final draft version of the MF/1 terms. The Court of Appeal overturned that decision and found that there was no contract between the parties. The Supreme Court recognized that a third possible conclusion could be reached (at [57]), namely that agreement had been reached between the parties and this had been reached on wider terms.

3.20 The Supreme Court found (at [85]–[86]), evidence of unequivocal conduct on the part of both RTS and Müller indicating that there was agreement that the project would be carried out by RTS for the agreed price, on the terms which the parties had agreed by 5 July and as varied on 25 August. When the agreement was varied in August, this was treated as a variation of the agreement which had been reached in July. At this juncture, no suggestion was made that there was no contract between the parties and therefore no terms to vary. Rather, it was not until November, by which time the parties were in dispute, that points were taken as to whether there was a contract.

3.21p. 47 Given that all essential terms had been agreed, and with reference to the standard of the reasonable honest businessman (see [86]), the Supreme Court overturned the Court of Appeal decision, concluding that a binding agreement had been reached. As the essential aspects of the project, including what sums would be paid, were clear, this created sufficient certainty of terms for there to be a binding contract (also see Pamela Allen v Fisher Jones Greenwood (A Firm) (2013)). The RTS case offers a useful summary of the existing position on contractual certainty and completeness and serves as a cautionary tale of the possible perils of beginning a project before agreeing the precise basis upon which it is to be carried out. In the words of Lord Clarke (at [1]): ‘The moral of the story is to agree first and to start work later.’

3.22 In Bieber v Teathers (in Liquidation) (2014) an agreement was reached between the parties, via email and through their solicitors, to settle their dispute. Here, although the negotiations had begun ‘subject to contract’, when objectively tested and determined by the court, this condition was found to have been waived. This remained unaffected by the fact that the parties had not reached agreement on the precise terms of the settlement. A willingness ‘to negotiate concerning the terms of a settlement agreement [did] not necessarily lead to the conclusion that the parties had not earlier entered into a binding agreement to settle the dispute’ (at [57]). (As an alternative, see Taylor v Burton (2015), which concerned a dispute over a right of way and where submission of a draft order with a deed attached by one party did not demonstrate both parties’ agreement to expunge the ‘subject to contract’ qualification.) More recent examples to reach the Court of Appeal include Farrar v Rylatt (2019) and Joanne Properties Ltd v Moneything Capital Ltd (2020), both testing the use of the phrase ‘subject to contract’ and questioning the extent to which the condition may be effectively carried through the parties’ negotiations.

Uncertainty and incompleteness

3.23 The apparent willingness of both parties to make a contract does not necessarily amount to a legally binding agreement. Essential terms, such as price and date of completion, should not normally be left incomplete and the intentions of the parties should not be couched in vague or ambiguous terms. (See Wallis v Learonal (UK) plc [2003] EWCA Civ 98 at [14]–[15].)

3.24 However, this basic principle is limited by the desire of the courts to give effect, particularly in business contexts, to the contractual intentions of the parties (for example, see Perry v Suffields Ltd (1916)). The law has to remain in touch with commercial reality and it is correct that problems of uncertainty and incompleteness are not decided purely on the basis of technical legal requirements. (See Liverpool City Council v Walton Group plc (2001), which illustrates the flexible attitude of the courts when faced with lack of certainty in commercial agreements. In this case, the draft lease did not include a commencement date, but the judge held that it was not void for uncertainty as the document was intended by both parties to have commercial effect.)

3.25 As we have seen, the courts are frequently able to fill in gaps left by the parties, and this judicial invention is assisted by the provisions of the Sale of Goods Act 1979 (s 8, for example) and the Supply of Goods and Services Act 1982 (see s 15(1)). Furthermore, a court is more likely to give effect to an incomplete or uncertain agreement which has been acted on by one or both p. 48of the parties than to one where the obligations on each party are in the future. This is both fair and commercially realistic.


3.26 It is commonly assumed that a contract is something which must be made in writing and signed. This assumption however has been borne from matters of common sense and practicality rather than from legal principles. In Blue v Ashley [2017] EWHC 1928 (Comm) it was said (at [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.

Usually, therefore, contracts require no formalities—most can be made orally—although a deed may substitute for consideration (see para. 4.2). As a recent example, see MacInnes v Gross [2017] EWHC 46, where the court was required to consider whether there was any intention to form an agreement based on an alleged oral contract, finding that the terms of the alleged contract were both too complex and too uncertain to be enforceable.

3.27 Formality requirements are restricted to a few specific types of contract, and these requirements vary. For example, a contract for the sale or other disposition of an interest in land is unenforceable unless in writing (Law of Property (Miscellaneous Provisions) Act 1989, s 2) (see Neocleous and another v Rees (2019)). Certain contracts of guarantee are unenforceable unless evidenced in writing (Statute of Frauds 1677, s 4).

3.28 Formalities may be required for a number of reasons (see L. Fuller, ‘Consideration and Form’ (1941) 41 Col LR 799; and Law Com Rep No 164 (1987)). They may be there to promote certainty by requiring clear evidence of the terms. They may be used to encourage the parties to give full consideration to the legal obligations being undertaken. Increasingly, they may also be required for paternalistic reasons, that is, to provide protection for people in a weaker bargaining position, such as consumers. The practical benefits of committing a contractual relationship to writing are notable and a written record of rights and responsibilities will undoubtedly promote clarity and certainty in the parties’ arrangement.

Electronic contracting

3.29 Requirements of ‘writing’ or ‘signature’ may cause difficulties in the e-commerce context. It may be argued that they can be fulfilled by communications by email (see J Pereira Fernandes SA v Mehta (2006), Orton v Collins (2007) at [21], and Neocleous and another v Rees (2019) discussed at para. 3.33) or over the internet, but mere uncertainty p. 49as to the position can be detrimental to the efficient growth of e-commerce and action has been taken at both the EC and UK levels. Article 9 of the EC Directive on Electronic Commerce (2000/31/EC) requires member states to ‘ensure that their legal system allows contracts to be concluded by electronic means’ and, in particular, to ‘ensure that the legal requirements applicable to the contractual process do not create obstacles for the use of electronic contracts or result in such contracts being deprived of legal effectiveness and validity on account of their having been made by electronic means’. Member states are allowed to exempt from this:


contracts that create or transfer rights in real estate, except for rental rights;


contracts requiring by law the involvement of the courts, public authorities, or professions exercising public authority;


contracts of suretyship granted and collateral securities furnished by persons acting for purposes outside their trade, business, or profession;


contracts governed by family law or the law of succession.

This takes the approach of requiring the removal of any formality barriers to electronic contracting in all but a small number of exceptional cases. As has been indicated, there are relatively few situations in which formalities are required for contract formation in English law.

3.30 There has been legislation in the UK in the form of the Electronic Communications Act 2000. The Act is more wide-ranging than the EC Directive, in that its coverage extends beyond the contracting process to requirements for ‘signature’, ‘writing’, ‘documents’, or ‘notices’, for example, which are legally significant in other ways. It does not in itself make any changes to the legislation under which such requirements are set out, but s 8 allows the ‘appropriate minister’ to amend any such legislation by statutory instrument ‘for the purpose of authorising or facilitating the use of electronic communications or electronic storage … for any purpose mentioned in subsection (2)’. The purposes mentioned in subs (2) are wide-ranging, but here it is relevant to note that they include:


the doing of anything which under any such provision is required to be or may be done or evidenced in writing, or otherwise using a document notice or instrument; …


the doing of anything which under any such provision is required to be or may be authorized by a person’s signature or seal, or is required to be delivered as a deed or witnessed.

Where necessary, this legislation may allow law in the UK to be brought into line with the requirements of the EC Directive. However, the Law Commission has advised the government that, generally, requirements of writing and signature may be fulfilled by some electronic form of communication without any change in the law, so ‘that it is only in very rare cases that the statute book will conflict with Article 9 [of the Electronic Commerce Directive]’. (See ‘Electronic Commerce: Formal Requirements in Commercial Transactions’, Advice from the Law Commission, December 2001, para. 3.49 and paras 10.1–10.3.) The Law Commission also stated p. 50that despite a ‘lack of consensus on these issues, statutory requirements for “writing” and a “signature” are generally capable of being satisfied by emails and by web-site trading’ (at para. 10.1). (For further discussion of the Law Commission’s views, see H. Beale and L. Griffiths, ‘Electronic Commerce: Formal Requirements in Commercial Transactions’ (2002) LMCLQ 467.)

3.31 The introduction of the Electronic Identification and Trust Services for Electronic Transactions Regulations (2016/696), which implement the provisions of Regulation (EU) 910/2014 known as ‘the eIDAS Regulation’, has been a notable development, particularly in respect of electronic signatures. The eIDAS Regulation repeals and revokes the Electronic Signatures Regulations (2002/318) and makes amendments to section 7 of the Electronic Communications Act 2000, both of which implemented the Directive on a Community framework for electronic signatures (1999/93/EC). The main objective of the eIDAS Regulation is to facilitate ‘secure and seamless electronic cross-border transactions between businesses, citizens and administrations and introduce a regime for the mutual recognition of electronic signatures, electronic seals, electronic time-stamping and acceptance of electronic documents and website authentication’ [at Recital 2]. It is anticipated that if contracting parties acquire an increased sense of security through the implementation and protection of the eIDAS Regulation, there will undoubtedly be an increase in the effective and appropriate use of e-signatures for legal transactions in the future.

3.32 The need for contracting parties to have an increased sense of security has been recognized. The Law Commission Report, Electronic Execution of Documents (2019) Law Com No 386, covers the validity of electronic signatures, noting that ‘lingering uncertainty around the legal validity of documents executed electronically, at least in some circumstances and for certain transactions, is discouraging some parties from making use of technological solutions which could increase efficiency’ (at para. 1.1). The Report broadly concludes that the current law around electronic signatures already provides for their validation through a combination of legislation (primarily the eIDAS Regulation) and case law (paras 3.1–3.79) and, whilst codification of the law into a single statement is not put forward as a recommendation, the Law Commission’s proposal to the government is to consider a broad legislative provision extending beyond commercial and consumer documents, and further, to establish an Industry Working Group to consider practical and technical issues associated with the electronic execution of documents (paras 1.1–4.129)

3.33 In the decision of Neocleous v Rees [2019] EWHC 2462 (Ch) Pearce J referred to the Law Commission position that an electronic signature is capable of meeting a statutory requirement for a signature, if an authenticating intention can be demonstrated [at 41]. Here, a solicitor, who sent an email that automatically inserted his name and title was held to have concluded a contract for the sale of land on behalf of his client. The email footer, as automatically generated by the email software, was found to amount to an electronic signature (at [57]). The court’s ruling that the solicitor’s name and details were applied with ‘authenticating intent’ led to the finding that the signature was valid and, therefore, so too was the contract. Here we can note that the ‘subject to contract’ expression could have been a useful addition and qualification to the correspondence, to objectively demonstrate a lack of the requisite intention to create a binding contract.

p. 51Summary

In some situations, the courts will intervene in making agreements for the parties.

Filling the gaps

The courts will try to give effect to apparent agreements by filling in the gaps left by the parties, although there are limits to how far the courts will go in making agreements for the parties.


There is often a need for flexibility in business contracts, which may not always conform to technical requirements of the law in relation to offer and acceptance.

Clarifying ambiguous terms

The courts will try to make sense of imprecise terms, except where the ambiguity is central to the contractual obligations, or where the imprecision suggests a lack of contractual intention.

Later additions or amendments

In some commercial contexts it is permissible to allow a price to be fixed, or adjusted, after the agreement is made.

Giving effect to incomplete or uncertain agreements

Courts are more likely to give effect to an incomplete or uncertain agreement which has been acted on by one or both of the parties.

Contract formalities

It is commonly, but wrongly, thought that a contract has to be in writing. Most contracts do not require any formalities.

Further reading

  • H. Beale and L. Griffiths, ‘Electronic Commerce: Formal Requirements in Commercial Transactions’ (2002) 4 (Nov) LMCLQ 467
  • I. Brown, ‘The Contract to Negotiate: A Thing Writ in Water?’ [1992] (Jul) JBL 353
  • L. Fuller, ‘Consideration and Form’ (1941) 41 Columbia Law Review 799
  • Law Commission, ‘Electronic Commerce: Formal Requirements in Commercial Transactions’, 2001
  • Law Commission, ‘Electronic Execution of Documents’ (2019) Law Com No 386
  • D. McLauchlan, ‘Rethinking Agreements to Agree’ (1998) 18 NZULR 77
  • S. Mouzas and M. Furmston, ‘From Contract to Umbrella Agreement’ (2008) 67 CLJ 37
  • P. Nicholls, ‘My Word is My Bond’ (2008) 158 NLJ 122
  • J. Steyn, ‘Contract Law: Fulfilling the Reasonable Expectations of Honest Men’ (1997) 113 LQR 433
  • Notes

    • 1 See the speech of Scrutton LJ at 7.

    • 2 His Lordship ([1982] 3 All ER 1 at 12) made the following observations: ‘Why should it be thought that the potential vendor and purchaser intended the price to be “fair”? The former would intend the price to be high, even though unfairly so. And the latter vice versa. Vendors and purchasers are normally greedy.’ Quaere: Is this an apposite criticism of the view of the majority in Sudbrook Trading Estate Ltd v Eggleton (1982)?

    © Ruth Atkins 2022