March 2017 – Whitestone Chambers

GLOBAL V AABAR: THE COURT OF APPEAL STATE THAT CONTRACTUAL NEGOTIATIONS SHOULD BE CLEAR AND UNEQUIVOCAL

In the recent case of Global Asset Capital Inc and another v Aabar Block S.A.R.L and others [2017] EWCA Civ 37, the Court of Appeal held that the High Court was wrong to find that following a ‘subject to contract’ offer letter, a contract was concluded during a telephone call which was inconsistent with subsequent communications.

BACKGROUND:

For the purposes of the appeal the following version of events was accepted. On 23 April 2015, the claimants sent a letter marked ‘without prejudice – subject to contract’ wherein they proposed to pay €250 million for certain rights. On 5 May 2015, the second claimant was informed by the second defendant’s CEO that a board meeting was due on 6 May 2015 where the letter would be considered. On 6 May 2015, the CEO of the second defendant telephoned the second claimant. The claimants case was, that during the call a contract had been agreed subject to two conditions. First, that the second claimant resend the offer letter in an open and binding form and second, he provides satisfactory evidence of his ability to fund the transaction. Later that day the second claimant sent an email attaching the letter ‘as discussed’. On 7 May 2015, the second claimant texted the CEO of the second defendant that fully committed terms were to follow. On 9 May 2015, the second claimant emailed the CEO of the second defendant repeating the key commercial terms of the original offer but included various additional and different terms. On 10 May 2015, the CEO of the second defendant responded that the claimants’ offer was not accepted.

The claimants sought a declaration that there was a valid contract and applied for specific performance. The defendants requested summary judgment but this was refused by Walker J. The defendants appealed.

THE RULING:

The Court of Appeal held that Walker J erred in not considering the parties’ conduct after 6 May 2015 telephone conversation. Hamblen LJ delivering the judgment, with whom MacFarlane LJ agreed, emphasised that this was not a question of the interpretation of the terms of the contract, but was a determination whether a contract had been concluded. The court relied on the well-established principle set out in Hussey v Horne-Payne (1878) 4 App Cas 311, that in establishing whether a contract had been made the court will look at the whole of the negotiations. Hamblen LJ relying on Pagnan SPA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601, noted that the rule also applied to situations where both oral and written communications form part of the negotiations.

The court further held that even ignoring the parties’ subsequent communications, the claimants had no real prospect of success as the offer letter prior to the telephone call on 6 May 2015 was marked ‘subject to contract’. This meant that it was not open to the defendants simply to accept the offer. The claimants’ alternative case that the defendants made the offer also failed on two bases. First, this was not the claimants’ pleaded case and second, the defendants’ request that the claimant re-send the offer was inconsistent with this contention in any event.

During pupillage all our barristers to be are taught to take great care over settling cases and to read Foskett on Compromise. For frequently in a rush to close a file errors are made leading to claims now being made against the lawyer who erred. Undertaking drafting terminology is key.

So what effect does “subject to contract” actually have when inserted in an offer to settle? It shows that the parties are still negotiating and do not intend to be bound until a formal contract is exchanged. With subject to contract, it is only reasonable to expect the parties to enter into a proper and comprehensive sale and purchase agreement documenting all the terms agreed upon between the parties before a valid and binding contract is in existence between the parties. In conclusion, an agreement will only come into force if it is intended to bound the parties at the time the agreement was made. An agreement “subject to contract” will only bind the parties upon the conclusion and creation of a binding and valid contract, after all the terms are agreed.

SUMMARY:

An offer must be accepted clearly and unequivocally.
The court is entitled to consider all communications between the parties when deciding whether a contract has been concluded.
An offer marked subject to contract cannot be accepted so as to form a contract.

RULE 16.3(7) – STATEMENT OF UNDER VALUE TO BE INCLUDED IN THE CLAIM FORM?

Sir David Eady J delivered a judgment on 30 March in the case of Mohamed Ali Harrath v Stand for Peace Limited and Samuel Westrop [2017] EWHC 653 (QB) (available here) in which he held that a claimant is entitled to recover damages that exceed the statement of value included in the claim form.

The first defendant’s website described the claimant as a “convicted terrorist”, per paragraph 3 of Eady J’s judgment, those words were “plainly seriously defamatory to the claimant”. At paragraph 6, Eady J held that there “simply was no evidence to support the allegation of terrorism”.

The claimant had indicated on the claim form that he expected to recover no more than £10,000. At paragraph 10 of the judgment, the notional upper limit for damages in libel cases was described as being “around £300,000”. Given that “few if any allegations could be more serious” than that of being a terrorist, Eady J held at paragraph 11 that “an allegation of terrorism is likely to attract in most cases an award towards the upper end of the scale” referred to above.

As a result, had the claimant inadvertently limited his claim to merely £10,000 and not a significantly higher, six-figure sum?

At paragraph 22 of the judgment, Eady J considered Rule 16.3 of the CPR. This rule requires the claimant to provide an estimated value of his claim if it is a claim for value and he is able to provide an estimate. Sub-paragraph 7) of that rule reads as follows: “the statement of value in the claim form does not limit the power of the court to give judgment for the amount which it finds the claimant is entitled to.” On that basis, the court awarded damages in the sum of £140,000.

Paragraph 22 also records the claimant’s understandable willingness “to pay any additional fee if necessary.” This single sentence demonstrates the real interest in this case and is a reference to the fact that the court fee for issuing a claim is directly linked to the estimated value of the claim. Therefore, rule 16.3(7) leaves the door open for a claimant to undervalue his claim substantially so as to pay a much lesser court fee at the time of issue. If the claim is successful, the difference to be paid to the court can be paid at that point, possibly even out of the damages. If the claim is unsuccessful, the claimant will have benefited by paying the lower court fee. This tactic would most likely be more successful in claims for unliquidated damages than in cases for a specified sum, for obvious reasons. However, claimants will need to be able to explain why the statement of value in the claim form backed by a statement of truth does not accord with the final level of damages being sought and defendants should be alert to such differences, as indeed should the court.

Unless the court is alert to this possible tactical advantage being taken, the litigation risk for claimants can be deliberately reduced. According to the court fees applicable from 7 March 2017, the maximum issue fee for a claim valued at less than £10,000 is £455, compared to a fee of £10,000 for claims of £200,000 and above.

Undervaluing a claim could be very valuable indeed and quite naughty.

THE AIR ACCIDENTS INVESTIGATION BRANCH PUBLISHES REPORT ON THE SHOREHAM AIR DISASTER

The Air Accidents Investigation Branch published its report into the accident that occurred in Shoreham on 22 August 2015. The sole purpose of the investigation and the report is the prevention of accident and not apportioning blame. This is a brief summary of the key findings as set out in the report.

The normal technique for this manoeuvre was for the aircraft to enter it at 350 KIAS (Knots indicated air speed). In fact, the Hawker entered its ascent at 310 KIAS. The aircraft’s speed was varied and there was not full thrust as the aircraft was in the ascending trajectory of the manoeuvre. There is no evidence of any pre-existing mechanical defect that would have prevented the engine from responding to the pilot’s throttle inputs. The left altimeter under read by approximately 100 ft, while the right altimeter had a latent defect, which meant that it was no longer providing a synchronising signal to the left altimeter. The report identified no other technical defects as relevant to the accident.

The pilot needed to take the aircraft to 3,500 ft at the apex to ensure that on completion of the manoeuvre the aircraft was 500 ft above ground. Instead, the aircraft achieved only 2,700 ft height at its apex. Airspeed at the apex was 105 KIAS, which is at the lower end of the range of 100 to 150 KIAS appropriate for this manoeuvre.

In short, the aircraft had lower altitude than required at the apex. The AAIB reported that it was possible that the pilot misread or misinterpreted speed and height indicators during the manoeuvre or recalled these for a different aircraft type, possibly a Provost.

The risk assessment for the air display on 22 August 2015 relied upon compliance with Rule T of the Rules of the Air; that no aircraft should fly closer than 500ft to any person, vehicle, vessel or structure to mitigate the hazard presented by aircraft displaying over areas outside the control of the organisers.

Key is that the report recommends that the Department of Transport carry out an independent review of the rules and regulations governing air displays.

Furthermore, an inquest is set to begin with the pre-inquest review hearing to take place on 20 June 2017 at the Coroner’s Court at Crawley.