Essential Requirements of Contract

Objectives

• Explain the requirements of a valid offer
• Explain the requirements of a valid acceptance
• Explain the rules of consideration
• Understand the need for a valid contract to have intention to create legal relations
• Explain and evaluate the doctrine of the privity of contract

Introduction

• Invitation to Treat - Offer + Acceptance + Consideration = Contract
• Things on sale in a shop will be an 'invitation to treat' - an invitation to enter a contract
• Both sides agree to be bound by key terms of a contract. If any of these key terms, or 'conditions', are broken, the contract itself is broken
• Condition = a clause in the contract going to the heart of it

Carlill v Carbolic Smoke Ball Co [1893]:

• A Newspaper advert placed by the defendant stated:
• £100 reward will be paid by the Carbolic Smoke Company to any person who contracts the influenza after having used the ball three times daily for two weeks according to the printed directions supplied with each ball... £1000 is deposited with the Alliance Bank, showing our sincerity in the matter
• Mrs Carlill purchased some smoke balls and used them according to the directions and caught flu. She sought to claim the stated £100 reward
• The defendant raised the following arguments to demonstrate the advertisement was a mere invitation to treat rather than an offer:
• The advert was a sales puff and lacked intent to be an offer
• It is not possible to make an offer to the world
• There was no notification of acceptance
• The wording was too vague to constitute an offer since there was no stated time limit as to catching the flu
• There was no consideration provided since the 'offer' did not specify that the user of the balls must have purchased them
• The Court of Appeal held that Mrs Carlill was entitled to the reward as the advert constituted an offer of a unilateral contract which she had accepted by performing the conditions stated in the offer. The court rejected all the arguments put forward by the defendants for the following reasons:
• The statement referring to the deposit of £1000 demonstrated intent and therefore it was not merely a sales puff
• It is quite possible to make an offer to the world
• In unilateral contracts there is no requirement that the offeree communicates an intention to accept, since acceptance is through full performance
• Whilst there may be some ambiguity in the wording this was capable of being resolved by applying a reasonable time limit or confining it to only those who caught flu whilst still using the balls
• The defendants would have value in people using the balls even if they had not been purchased by them directly

Essential Requirements of a Contract

Invitations to Treat

• An invitation to treat is not an offer, it is an invitation for a party to make an offer
• Examples of invitations to treat:
• Goods on display at a shop - Pharmaceutical Society of GB v Boots Cash Chemists (1953)
• The customer doesn not make the offer until they take the goods to the till
• Goods on display in a window - Fisher v Bell (1961)
• Advertisements and price lists - Partridge v Crittenden (1968)
• Lots at an auction - British Car Auctions v Wright (1972)

Offer

• An offer is a statement containing the essential terms expressed in reasonably certain terms - for example: the goods, the price, the delivery date
• The offer must be communicated to the offeree - Taylor v Laird (1856)
• An offer can be made to the whole world - Carlill v the Carbolic Smoke Ball Co (1893)
• The terms of the offer must be certain - Guthing v Lynn (1831)
• An offer can be withdrawn at any point before acceptance - Routledge v Grant (1828)
• The withdrawal must be communicated - Byrne & Co v Leon Van Tienhoven (1880)
• Once there has been acceptance, the offer cannot be withdrawn
• An offer can be terminated by:
• being accepted, and a contract is formed
• being withdrawn
• a specified time can lapse
• a reasonable time can lapse - Ramsgate Victoria Hotel Ltd v Montefiore (1866)
• a counter offer being made - Hyde v Wrench (1840)

Acceptance

• Acceptance takes place when there is an unconditional assent to all terms of the offer
• The acceptance must be communicated to the offeror; silence cannot amount to acceptance - Felthouse v Bindley (1863)
• Where there are ongoing negotiations of a contract, any new condition, alteration or qualification is regarded as a counter offer - Butler Machine Tool Ltd v Ex-cell-O Corp (1979). This is sometimes referred to as battle of the forms
• Acceptance can be in any form, in writing, in words, or implied by conduct - Yates v Pulleyn (1975)
• Where the accepted form of acceptance is by post, the acceptance takes effect as soon as it is posted, rather than when it is received - Adams v Lindsell (1818). The rule applies even if the letter is never received - Household Fire Insurance v Grant (1879) - known as the postal rule
• Telex takes effect wherever received, and as soon as received, deemed instantaneous - Entores v Miles for East Corporation (1955)
• E-mail deemed instantaneous, and if it is the case that it was sent in office hours, it is deemed to have been read - but again it depends on the parties' intentions, context and previous course of dealing - Thomas v BPE Solicitors (2010)

Consumer Protection (Distance Selling Regulations) 2000:

• Although it is the law that once an offer has been accepted, it cannot be withdrawn, an exception has been created under the Consumer Protection (Distance Selling Regulations) 2000, which allows a consumer a 14 day cooling off period
• This allows a consumer to withdraw their acceptance within 14 days, so long as there has been no face to face contact between the buyer and the seller
• Exclusions:
• Contracts for the sale of land
• Purchase of something from a vending machine
• Contracts for transport and leisure
• Contracts to supply food for everyday consumption

Intention

• Courts will only enforce a contract where there is an intention to be legally bound 
• This is assessed objectively - that is, how does it look to the reasonable outsider?
• There is a distinction between social and domestic agreements and commercial agreements:
• Social and domestic agreements - no intention to be legally bound - Balfour v Balfour (1919)
• Commercial agreements - intention to be legally bound - Esso Petroleum Co v Commissioners of Customs and Excise (1976)
• Intention can be negated by express wording, such as "subject to contract" - Confetti Records v Warner Music UK Ltd (2003)

Consideration

• This means that each party must give something in return for what is gained by the other party
• It can be described  in terms of benefit to the person making the promise and detriment to the person to whom the promise is being made
• Rules of consideration:
• Consideration need not be adequate (it doesn't have to accurately reflect the value of the thing contracted for), but must be sufficient - Chappell v Nestle (1960)
• Past consideration is no consideration - the consideration must be given in return for the promise - Re McArdle (1951)
• Exception: where it is at the promisor's request and that payment will be made later - Lampleigh v Braithwaite (1615)
• The consideration must move from the promise - Tweddle v Atkinson (1861) - after a couple got married the two fathers-in-law said they would give the couple some money. When they didn't, the couple tried to sue but couldn't as it was a gift, so they weren't entering a contract as they weren't to give anything in return. As well as this, the couple were already married, so it just didn't count as a contract
• Performing an existing duty cannot be consideration for a new promise - Collins v Godefroy (1831)
• However, the position has changed slightly in recent years:
• Contractual duties to supply goods or services - Williams v Roffey (1991) - If the performance of the existing duty confers an additional benefit then it will be sufficient consideration - building contract- extra payment for getting the work done on time - counts as consideration because a condition of the contract was that it was due to be finished by a certain date, and the builders were paid extra as an incentive
• Contractual duties to pay existing debts - Pinnel's case (1602) - Part payment of a debt does not in itself constitute consideration, but it will be binding if there is some additional element that can be treated as consideration
• However, under the doctrine of promissory estoppel, a contract can be formed even where there is no consideration. A contracting party who promises not to enforce a contractual right will not be able to enforce that right later if it is inequitable to do so - Central London Property Trust v High Trees House (1947)

Privity of Contract

Common Law:

The basic rule here is that third parties cannot sue or be sued under a contract, even if they have an interest in its performance

Key case: Tweddle v Atkinson (1861) where even though a person was named in a contract, he was unable to claim a third party right

This can leave parties without justice, and as such some exceptions have developed over the years

• Married Women's Property Act 1882 allows the beneficiary to life insurance to enforce the terms even though they are not parties to the contract
• Road Traffic Act 1988 requires all drivers to take out third party liability insurance
• Restrictive covenants

Statute:

Contracts (Rights of Third Parties) Act 1999

This Act enables parties to enforce contractual terms even where they are not a party, provided:

• The contract expressly provides that they may do so; or
• The contract purports to confer a benefit upon them, unless the parties did not intend it to be enforceable - Nisshin Shipping v Cleaves (2003)

Advantages:

• Free will
• Unjust to allow a party to be able to sue, if they cannot be sued
• Restricts the rights of the parties to modify or terminate the contract
• It makes gratuitous promises enforceable
• Could expose parties to indefinite liability
• The 'holiday' cases - Jackson v Horizon Holidays (1975) - you CAN sue losses for third parties e.g family members when you book a holiday with someone (e.g Horizon Holidays), even though the third party members are not actually a part of the contract

Disadvantages:

• Extended litigation
• Does not reflect the intentions of the parties
• Does not protect those who incur losses because they rely on a contract
• Sheer number of exceptions makes it very legally complex
• Could allow some parties to escape their contractual obligations

Recap:

• Offer - contains conditions all parties intend to be bound by
• Acceptance - of conditions stated
• Invitation to treat - invitation to enter into a contract (e.g, goods on sale in a shop)
• Consideration - can be an act, or acts, or money, or money's worth - a condition that must be fulfilled for the contract to be valid 
• Conditions - paragraphs in an agreement that go to the heart of the contract
• Terms - still important but tend to set out how a condition is to be fulfilled (e.g time limit)

Rules of the Law of Contract

Objectives:

• Explain the origins and function of the law of contract
• Explain the concept of freedom of contract
• Understand the influence of European law on contract formation and discharge

The Origins of Contract Law

• Contracts are more common than you might initially think. Examples of everyday contracts include:
• A parking ticket
• Buying something from a shop
• Bidding for something on eBay
• Downloading a music album from iTunes
• Buying something online
• One wouldn't usually give these types of transaction a second thought, but what if something went wrong? What if only half of the album downloaded? What if the sandwich you bought had no filling? If something went wrong, you would seek redress and some form of solution
• A contract is essentially an agreement between two parties which is enforceable in law
• It is based on promises that the two parties make to each other
• Not all promises are contractual, and the aim of contract law is to distinguish those promises that can be enforced, from those that cannot
• A contract can alternatively be called a bargain. One party makes a promise in return for the promise of the other - one party will have paid some sort of price for the promise of the other. This "price" need not always be financial
• Where a contract "goes wrong", the aim of contract law is to compensate innocent parties and put them in the position they would have been in had the contract been performed
• Contracts can be oral or written
• Money changing hands to confirm a contract is called 'consideration'

Freedom of Contract

• This has its origins in laissez-faire which promotes the idea that since parties are the best judges of their own interest, they should be free to make contracts on any terms they choose
• They must be 'voluntary' participants - contracts entered through coercion will be void and treated as if they had never existed
• The court then acts as a "referee", holding the parties to their promises - it is not the court's role to ask whether the bargain made was a fair one
• Typical remedies for breach of contract:
• Damages (usually compensation) -must foreseeably arise from the breach of contract
• An injunction of some kind - either forcing you to do, or refrain from doing something
• An order for 'Specific Performance' - forcing someone to carry out their side of the contract

The Influence of European Law

• A range of European Directives have been passed in the notion of promoting a harmonious internal market and these have had a huge influence on UK contract law, particularly in relation to consumer law
• There is an encouragement of the use of standard European contractual terms for certain types of contract. The final draft of the Common Frame of Reference was published in December 2008
• In terms of the sale of goods across Europe, the Common European Sales Law was published in 2011, in order to remove the barriers in place between Member States wanting to do business with each other
• European Law has also been influenced in regulating online shopping in the UK, and the Consumer Contracts Regulations 2013 were as a direct result of EU legislation

Access to Justice and Funding

Key Terms:

• Legal Aid - State-funded legal help
• Conditional Fee Agreement - An agreement with a legal representative which provides for his/her fees and expenses, or any part of them, to only be paid under certain circumstances (e.g no win no fee) - however, if the case is won, the client has to pay a 'success fee', which can be 100% more on top of the lawyer's fees (although the recommended is 25%) - if the case is lost, the client doesn't pay costs but the solicitor recovers their fees through after the event insurance, which is a one off premium payment that will cover the costs
• Contingency Fee Agreement - An agreement with a legal representative which means that if the case is lost, no fees or expenses have to be paid (no win no fee) - if the case is won, the client has to pay all costs and the success fee. The after the event insurance premium is payable out of the winner's compensation. If the case is lost, the insurance covers the costs (same as conditional fee agreement; the only difference is that the solicitor cannot recoup a success fee)
• Legal Aid, Sentencing and Punishment of Offenders Act 2012 - introduced primarily to deal with the reform of civil litigation costs and funding - limited the civil matters that civil legal aid covered

Discussion Questions

• What is meant by the unmet need for legal services - when someone has a problem which could possibly be solved by going to law, but that person is not able to get the help they need from the system
• For what reasons would someone fail to get the legal help that they need? 
• they could fail to see that their problem has legal implications
• they choose not to pursue the case because of implications like cost/seeing solicitors as unapproachable
• they could not know of the existence of a legal service or cannot find one who can help

History of Legal Aid

• 1949 - first state-funded legal aid scheme
• 1980s - system had developed into 6 different schemes
• Legal Aid Board - administered the schemes
• Cost of the system escalated
• 1999 - Access to Justice Act 1999 - major changes to the system
• 2012 - Legal Aid, Sentencing and Punishment of Offenders Act introduced further cuts to legal aid

Access to Justice Act 1999

Key changes brought in by the 1999 Act:

• Legal Aid Board replaced with Legal Services Commission
• Community Legal Services Partnerships developed
• Introduction of a quality mark
• 6 schemes replaces with 2 new schemes:
• Community Legal Service
• Criminal Defence Service

Legal Aid Today

• The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) has dramatically reduced the availability of civil legal aid and criminal legal aid is also being reduced
• Legal aid is now administered by the Legal Aid Agency - who is in turn controlled by the Ministry of Justice

Civil Legal Aid

• LASPO - civil legal is only available where the subject area is listed in Schedule 1
• This concerns cases primarily that are directly concerned with an individual's human rights
• Civil legal aid is no longer available for:
• Medical negligence
• Welfare benefits
• Employment, consumer disputes
• Education (except special needs cases)
• Immigration
• Housing cases
• Private family cases do not qualify for legal aid unless the case involves domestic violence, child abduction or a forced marriage
• Civil legal aid has been retained for:
• Environmental law (fly-tipping/pollution etc)
• Asylum
• Clinical negligence cases (where the negligence occurred during the first few weeks of life)
• Mental health and child welfare cases
• Judicial review (a court process to test the legality of something)
• Means that tests for civil legal aid have been tightened
• Civil Legal Advice (CLA) is a national telephone service and website that provides free legal advice on civil matters

Criminal Legal Aid

• Still given on a demand-led basis, no set budget, all cases that fit the merits and means test criteria will be funded
• The Legal Aid Agency funds directly the provision of criminal legal services, it employs public defenders and pays for duty solicitor schemes - payment is made at the end of the case
• Therefore criminal legal services are provided by both public and private lawyers
• Contracts for criminal legal aid - there will be 2 different contract types - Legal Aid work is 'awarded' to firms on a 'franchise' basis (a contract between the government and a law firm for the firm to do the work for an agreed hourly rate) - Law firms need to do a lot of L.A casework in order to make it profitable
1.  A set number of Duty Provider contracts awarded in each geographic area through competitive tendering
2. Unlimited number of Own Client Work contracts to any provider who satisfies the requirements
• Means - income/outgoings, capital, savings
• Merits - could you win your case/successfully defend (if criminal)
• The Criminal Defence Service Act 2006 - reintroduced the means test for criminal cases in the Magistrates Court, Crown Court cases had a means test reintroduced in 2010
• LASPO 2012 - introduced a further financial eligibility threshold in the Crown Court - this again restricted those eligible for legal aid
• If the defendant is acquitted their contributions will be refunded

Public Defenders

• The Legal Aid Agency employs a number of criminal defence lawyers, known as public defenders
• They are limited in number and there are no plans to expand the scheme

Criminal Defence Direct

• A telephone service called Criminal Defence Direct was set up in 2005 - it provides free telephone advice to people detained by the police for non-imprisonable offences

Problems with the legal aid system

• Access to justice is often denies
• Problems with the public defender scheme
• The cost of criminal cases
• Unfair trial if legal aid is refused
• Too heavy reliance on private practice

Other Legal Service Providers

• Other than solicitors and barristers, the following agencies/persons offer legal advice:
• Law centres
• Community Legal Advice Centres
• Citizens' Advice Bureaux
• LAs
• Trade Unions
• Motoring Organisations
• Pro Bono Clinics
• Insurance

Conditional Fee Agreements

Courts and Legal Services Act 1990 & Access to Justice Act 199

• A solicitor can agree to take no fee, or a reduced fee if they lose, and raise their fee by an agreed percentage if they win (maximum of double the usual fee)
• The extra fee is called the 'uplift' or 'success fee'
• The loser pays the winner's costs and the uplift together with the insurance premium (if the court orders, and insurance has been taken out)
• Access to Justice Act 1999 - conditional fee available for all cases except medical negligence

Conditional Fee Agreement - Problems

• Coventry v Lawrence (No2) (2014) - in this case the homeowners had won a claim for insurance against a small business operating a noisy speedway track near their home. The claim was worth £74,000, but the costs order against the business was £640,000. The Supreme Court suggested that cost arrangements for conditional fee agreements might breach a defendant's right to a fair trial, since defendants who lose their case have to pay the lawyer's success fee and after the event insurance of the winning party, which can be extremely costly, as in this case
• Motto v Trafigura (2011) - this is the biggest costs case in legal history. Here lawyers brought a claim on behalf of 30,000 Africans who had suffered ill health when a contractor illegally dumped toxic waste in the sea near where they lived. They won the case and were awarded £30 million, which meant £1,000 compensation for each person. The lawyers, working under a conditional fee agreement, charged 100% success fee which took their bill to over £100 million; the defendants challenged this and the bill was reduced by 40%

Conditional Fee Agreements - after LASPO 2012

• Since Laspo 2012 - the success fee for conditional fee agreements is no longer recoverable from the losing party, except for privacy, defamation and insolvency claims
• The client will now have to pay the uplift fee themselves, even if they win their case
• For personal injury cases the success fee is now capped at 25%
• For all other cases, the success fee can be 100% of the lawyer's usual fee
• The result is that conditional fee agreements will probably be used less

Contingency Fee Agreements - LASPO 2012

• Under a contingency fee agreement, lawyers receive a share of the successful claimant's award of damages
• 'Contingency fee' comes from the fact that the payment of the lawyer is contingent on the claim being successful and damages being awarded 
• Before 2012 they were generally unlawful
• LASPO now allows lawyers to enter into contingency fee agreements known as damage- based agreements with their clients
• Lawyers are allowed to receive up to 25% of the damages for personal injury cases, 35% for employment cases and 50% for all other cases
• If the defendant loses they pay the claimant's costs, if the claimant loses each side bears their own costs

Advantages of contingency fee agreements

• No cost to the state - unless the dispute is eligible for Civil L.A
• Widens access to justice - unless law firms decide not to offer CFAs or Contingency Fees
• Encourages lawyers to perform better as they have a financial interest in winning - as long as the case is 'winnable'

Disadvantages of contingency fee agreements

• Low take-up rate - they are not popular with lawyers as there is no success fee
• No win no fee, in reality means no win, pay anyway (bleeding bastards) - there are also expenses that have to be paid upfront (Disbursements, A.T.E insurance
• Lawyers too heavily involved in the financial outcome
• Risky, uncertain cases will not be taken on - anything less than a 50% likelihood of success will usually not be taken up by a lawyer as they consider it to be too risky

Reforms

• Lord Carter's review, Legal aid: a market-based approach to reform (2006)
• Government paper, Legal aid: a sustainable future (2006)

Recommendations included:

• Procurement contracts and Price competitive tendering
• Price competitive tendering received a lot of opposition and in 2014 the Government decided not to introduce it. Instead they brought in Duty Provider work, though this is awarded through competitive tendering