Module 3 - Formation - Lecture Version.pptx

APPLIED CONTRACT LAW Module 3 Formation  “An agreement is not a binding contract unless the parties have agreed upon such terms as are in the circumstances legally necessary to constitute a contract.” Australian Broadcasting Corporation v XIVth...

APPLIED CONTRACT LAW Module 3 Formation  “An agreement is not a binding contract unless the parties have agreed upon such terms as are in the circumstances legally necessary to constitute a contract.” Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548 CONTEXT How do we make contracts? This Photo by Unknown Author is licensed under CC BY  01 NEGOTIATING VERBALLY 02 NEGOTIATING WITH SETS OF TERMS Module 3 03 PRELIMINARY AGREEMENTS LEARNING 04 TENDERING OUTCOMES 05 RULE OF SIGNATURE AND FORM 06 CONCLUSIONS & FURTHER READING READINGS AND KEY CASES Readings Chapter 2 2-060 to 2-110: Sets of Terms 2-180, 2-210: Tendering Chapter 3 3-390 to 3-410: Preliminary Agreements 3-580 to 3-630: Form Chapter 4 4-080: Rule of Signature Key Cases Butler Machine Tool v Ex-Cell-O Spencer v Harding Harvela Investments v Royal Trust Hughes Aircraft Systems v Airservices Australia IN REAL LIFE PRACTICAL IMPLICATIONS This entire module is reflective of how parties negotiate in real life and the rules or conventions that apply CC BY-NC This Photo by Unknown Author is licensed under 1. NEGOTIATING None VERBALLY Verbal Negotiations What is the difficulty with verbal negotiations? Representations v Terms Context Handbury v Nolan (1977) 13 ALR 339 (not in text) Timing of statements Stressed importance Skill or knowledge of the statement maker We will explore this area further later in the unit This Photo by Unknown Author is licensed under CC BY 01 2. NEGOTIATING WITH SETS OF 2-060 to 2- TERMS 110 Negotiating With Documents / Sets Of Terms Very common Battle of the forms Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd 1 All ER 965 [2-070] ‘Last accepted set wins’ What if there is no clear last accepted set of terms? This is really a set of counter offers What is the effect of these? http://www.englisheditorialservices.com/index.php?q=en/totd&trydate=19-Jul-2017 What if one party tries to make their terms prevail? 01 02 2. NEGOTIATING WITH SETS OF 2-060 to 2- TERMS 110 Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd 1 All ER 965 [2.320] Denning MR at 967: said that the traditional analysis of offer and counter-offer is so out of date, and that a better way would, quoting Lord Wilberforce in NZ Shipping v Satherwaite, be to ‘look at all the documents passing between the parties and glean from them, or from the conduct of the parties, whether they have reached agreement on all material points, even though there may be differences between the forms and the conditions…’ Conflict v Synthesis approach… Meeting of the minds 01 02 3. PRELIMINARY 3-390 to 4- AGREEMENTS 410 Types of Preliminary Agreements Term Sheet Bullet-point type document setting out the material terms of a proposed contract Not binding but provides a basis for counsel to then draft (or negotiate further) a binding contract Usually brief points that can be expanded upon in a contract Heads of Agreement / Letter of Intent / Memorandum of Understanding Names often used interchangeably Letter of intent is more like a letter for use with 3rd parties MOU and HOA are draft agreements or non-binding agreements Why use these? Often have political or moral force rather than binding nature 01 02 03 3. PRELIMINARY 3-390 to 4- AGREEMENTS 410 Types of Preliminary Agreements Framework Agreements Common in complex transactions Forrest v ASIC; Fortescue Metals Group v ASIC (2012) 247 CLR 48 [3-390] This document represents an agreement in itself, and it is recognised a fuller and more detailed agreement not different in intent from this agreement will be developed later.” Letters of Comfort This is GENERALLY a non-contractual document like a reference) Usually given by a 3rd party e.g. bank credit reference or parent entity reference for a subsidiary Avoids the giving of a formal guarantee or deeds of cross-guarantee Whether or not these are binding depends upon the wording (primarily) and the circumstances 01 02 03 Remember the definition of an offer? 3. PRELIMINARY 3-390 to 4- AGREEMENTS 410 Types of Preliminary Agreements Letters of Comfort / Support Gate Gourmet Australia Pty Ltd (in liquidation) v Gate Gourmet Holding AG NSWSC 149 (not in text) “This is to confirm that the parent entity, GGH AG, will provide the financial support that may be necessary to enable GGH Pty Ltd to meet its financial commitments as and when they fall due.” “This Letter of Support will not be withdrawn before GGH Pty Ltd has sufficient means to meet their obligations without the support of the parent entity” Kleinwort Benson Ltd v Malaysia Mining Corp Bhd 1 All ER 785 [3-410] “It is our policy to ensure that the business of the subsidiary is at all times in a position to meet its liabilities to you under the above arrangements” https://www.aircraftinteriorsinternational.com/news/catering-onboard/8721.h Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21 NSWLR 502 [3-410] 01 02 03 4. TENDERING 2-180, 2-210 What is tendering? Requests for tenders are invitations to treat Spencer v Harding (1870) LR 5 CP 561 [2-180] https://en.wikipedia.org/wiki/Spencer_v_Harding But where a call for tenders is promissory, it could be seen as an offer Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd AC 207 [2-180] https://en.wikipedia.org/wiki/Harvela_Investments_Ltd_v_Royal_Trust_of_Canad a_(CI)_Ltd Giving a tender (quote) is an offer For complex tenders we use Conditions of Tender (‘Tender Process Contracts’) Breach of these conditions could lead to claims for tendering costs 01 Hughes Aircraft 02 Services03 International v Airservices Australia (1997) 76 4. TENDERING 2-180, 2-210 Tendering Can a tender be withdrawn? Can offers be withdrawn generally? Payne v Cave (1789) 3 TR 148 (not in text) But what if you have promised to keep the tender ‘open’? How does consideration affect such a promise? Can you give consideration for such a promise? E.g. Options Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674 [2-210] How do we see this in ‘real life’? Issues? Consideration and value This Photo by Unknown Author is licensed under Consideration and pre-existing duty (Stilk v Mrick) CC BY-SA 01 02 03 6. RULE OF SIGNATURE & 4-080 FORM RULE OF SIGNATURE Read, Understood and Agreed (regardless) L’Estrange v F Graucob Ltd 2 KB 394 [4- 080] Exceptions Non- contractual document Non Est Factum Capacity / authority issues Vitiaiting factors (later in the unit) What is a signature? See also s10 Electronic Transactions Act 2011 (WA) http://classic.austlii.edu.au/au/legis/wa/consol_act/eta2011256/s1 0.html 01 02 6. RULE OF SIGNATURE & 3-580 to 3- FORM 630 FORM / FORMALITIY Some contracts are required by law to be in writing Where a contract is required to be in writing by law, it can only be varied in writing But it can be terminated orally A ‘Deed’ is a contract that is in writing, signed by the parties and witnessed by a 3rd party This Photo by Unknown Author is licensed under CC BY-SA 01 02  7. CONCLUSIONS Contracts are negotiated in many ways. Often they are negotiated verbally In a business context it is usually by exchange of terms, documents, preliminary agreements and tenders. More complex agreements often use a tendering process where there are also conditions of tendering and some regulation to be adhered to. Whatever the means, the key is to establish if and when a binding agreement has occurred (i.e. that the offer and the acceptance have been made). Sometimes parties may wish to withdraw from negotiations but this is difficult if they have promised not to or have already formed a contract. Often this is evidenced by a written contract (mandatory in some circumstances) and by signatures.  THANKYOU You have now completed this lecture