This recent decision in Gibbs v Lakeside Developments Ltd [2016] EWHC 2203 (Ch), 12 July 2016 reiterates the age-old principle that an offer must be accepted in its entirety for acceptance to be legally binding. The judgement also brings to light some interesting practical points in the modern age of digital communication.
The substantive issue in Gibbs v Lakeside Developments was whether a communication by one side constituted genuine acceptance of an offer, or whether it was actually a counter-offer. Party A made an offer to settle a dispute to Party B, the terms of which were payment to Party A of the sum of £90,000 by a specified date. Party B responded with an email stating that Party A’s offer was accepted and directed Party A to an attached draft consent order. The attached draft consent order specified a later payment date than the one which had formed part of Party A’s original offer.
The court was asked to decide whether Party B’s email, which on the face of it accepted Party A’s offer, was legally binding acceptance or whether the attachment made the communication a counter-offer.
Party B argued that it had accepted the offer and that the attached draft consent order was ‘merely a proposed formal document to give effect to the agreement’ and that ‘if it did not accurately reflect the agreement which had been reached, it could be varied or rectified as necessary so as to accurately reflect the agreement that had been reached’. Mr Justice Arnold rejected this argument. He said that it was clear that Party A’s offer contained two conditions both of which were required to be accepted for there to be legally binding acceptance. The first condition being the agreement to pay the £90,000 and the second condition being to agree to pay this by the date specified – i.e. the date that the attached draft order had varied. The judge decided that given the clear lack of consensus on the second point, by virtue of attaching a conflicting draft order, Party B’s email and attachment constituted a counter-offer. Thus reiterating the point that acceptance must unequivocally cover every part of the other party’s offer.
An additional point to note from this case is that Mr Justice Arnold reiterated Lloyd LJ’s principle in Pagnan SPA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601 at 619:-
“In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole … ”.
Thus, in Gibbs v Lakeside Developments, Mr Justice Arnold looked at later correspondence between the parties to reinforce the fact that Party B’s email and attachment had in fact constituted a counter-offer rather than acceptance. The later correspondence had clearly discussed the fact that acceptance of the original offer had not taken place.
Practical Implications of the Decision
In order to be legally binding, acceptance must unequivocally encompass every part of the other party’s offer. You cannot accept an offer on the face of it and at the same time include draft documents stating differing terms – this will amount to further negotiation and therefore constitute a counter-offer.
It does not matter whether the main body of a communication, such as the text of an email, states that the offer is accepted, if attachments say something contrary then acceptance will not be binding. The attachments hold no less weight than the email itself. The entire communication is to be taken as a whole and must not vary the terms of the original offer in any way, otherwise a counter-offer will be held to have been made.
This article was written by Nick Cook, Senior Solicitor, Dispute Resolution, and Alasdair McKenzie, Trainee Solicitor.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.