4.01  The clearest way to prove that the parties have reached an agreement is for them to execute a written contract. Once that is done then that document will evidence the agreement and there is no need to look into earlier or later correspondence at least for the purposes of proving that an agreement has been reached.²

4.02  Where such a document does not exist, it is then necessary to prove an agreement has been reached by using the tools of offer and acceptance or by showing that an agreement has been reached by other conduct or communications. Where it is necessary to prove a contract by conduct, all the circumstances must be looked at to determine whether the parties intended to voluntarily assume legal obligations by assenting to be bound by some express or implied terms. Relevant factors will include whether during negotiations either party reserved the right not to be bound until execution of a written contract;³ whether there was partial performance;⁴ whether there is agreement on all essential terms;⁵ whether (p. 66) the agreement is of a type that is usually committed to writing.⁶ It is not sufficient that the conduct be consistent with a contract; it is necessary to show assent to the terms of a contract.⁷ This chapter is concerned with acceptance and discusses the various rules governing acceptance. In general terms, an acceptance involves the communication of an unequivocal assent to the terms of an offer.⁸ Such ‘assent’ requires a commitment to the terms of the offer and not an acknowledgement of the offer or an expression of interest in the offer.⁹

4.03  In addition to determining whether or not an agreement has been reached, acceptance is important for two other reasons. First, a contract will come into existence at that moment in time when acceptance takes effect.¹⁰ Subject to the terms of the contract,¹¹ and except where acceptance can and does occur by way of uncommunicated conduct,¹² this is when it is communicated or is otherwise taken to have reached the offeror.¹³ Second, under English law, a contract is formed at that place where it becomes effective as a contract. Generally, unless the offeror has waived the need to communicate an acceptance,¹⁴ or the postal acceptance rule applies,¹⁵ this will be the place where acceptance is communicated.¹⁶ For example, if an (p. 67) offer is accepted over the phone, the place of formation will be where the offeror hears that acceptance.¹⁷

4.04  The concept of acceptance is grounded in the objective theory of contract. In order to determine whether there has been an acceptance, it is necessary to interpret the relevant communication from the position of a reasonable person in the position of the offeror.¹⁸

4.05  As noted earlier, despite a reasonable person in the position of the offeror concluding that there was an acceptance, it is open to the offeree to prove that the offeror knew the offeree did not intend to accept. Such evidence generally must address the offeror’s state of mind at the alleged moment of formation, which means that a court generally will not take into account the statements or conduct of the offeree after the statement or act which is alleged to constitute acceptance.¹⁹ The offeree cannot confuse the issue with its action after it has put forward an alleged acceptance.²⁰ However, in order to determine the offeror’s state of mind, it is legitimate and often necessary to consider the conduct of the offeror after the alleged point of formation.²¹ It is at this point that the conduct of the offeree may be relevant, not for the purpose of accepting evidence of the offeree’s state of mind, but because the offeror’s conduct must be interpreted within context. It follows that as a general statement the conduct of the parties may be used to evidence that no agreement was reached at an earlier point in time.²² At the same time care must be exercised when considering such evidence, in some cases one view of the offeror’s conduct might suggest he or she was not of the view that the offeree intended to accept while another view of that same conduct might be that the offeror did understand that the offeree intended to accept the offer but that the offeror then signalled that he or she wished to renegotiate the terms of the contract.²³

(p. 68) 4.06  As regards the relevance of the offeree’s conduct after the alleged acceptance, one further scenario should be noted. If an offeree seeks to argue that it has accepted the offeror’s offer in circumstances where a reasonable person in the position of the offeror might conclude there was an acceptance, then, if the offeror seeks to challenge the acceptance by arguing the offeree did not subjectively intend to accept, then resort may be had to the offeree’s conduct before and after the alleged moment of acceptance to prove the transaction was still in the process of negotiation.²⁴

4.07  In determining whether any conduct or statement is an acceptance of the terms of an offer, it is necessary to look at all the circumstances.²⁵ A court is not limited to merely construing the terms of any written document or the manner of communications between the parties. For example, a document on its face may appear to introduce a new term not mentioned in a written offer but when read in context may be referring to an issue that was discussed and agreed upon prior to that written offer and which the offer can then be said to impliedly adopt. Similarly, an oral offer and acceptance, when seen in context, may include as part of the contract a written term introduced earlier.²⁶

4.08  Finally, to the extent to which the determination of whether a document is an acceptance is an issue of construction, then, if it purports to be an unequivocal acceptance, but is otherwise ambiguous as to its meaning and legal effect but is nevertheless capable of being construed as an acceptance, then a court will construe it as an acceptance.²⁷ However, as has been noted earlier, the process should not be seen as a pure matter of construction. The search is not for the meaning and legal effect of the terms of any document in so far as they relate to issues of performance but whether the parties intended to enter into a contract. The issue is essentially an issue of fact, to the extent it involves issues of ‘construction’ some have expressed it involving a question of mixed law and fact.²⁸

4.09  Generally, an acceptance may occur by words or conduct.²⁹ The key is that the offeree must be seen to be assenting to the terms of the offer. It follows that if the acceptance is by conduct, (p. 69) it will not be sufficient that the act is consistent with an intention to accept; it must be unequivocal and lead to no other conclusion than that of acceptance.³⁰ Ultimately, whether or not an offer calls for a return promise or the performance of an act depends on the terms of the offer or what is reasonable in the circumstances.³¹ If the terms of the offer are not clear and either method is possible, then a court will usually allow acceptance by either method.³² However, if the offer requires the parties to first agree the terms prior to performance then the offer cannot be immediately accepted by conduct, although such conduct may evidence a counter-offer which could be accepted.³³ More generally, the commencement of performance may amount to a promise to perform.³⁴

4.10  As a general rule, where an offeror prescribes a method of acceptance, then the offeree must comply with the terms for acceptance.³⁵ There are two aspects to this power of the offeror. First, the offeror can prescribe the form an acceptance must take. Second the offeror may prescribe the manner of acceptance.

4.11  If an offeror prescribes a form or manner of acceptance and that form or manner is construed to be exclusive, then that method must be followed.³⁶ If some other form or manner is used then it will not be effective as an acceptance and will either carry no legal significance³⁷ or, (p. 70) in some cases, it may amount to a counter-offer. The capacity for it to be a counter-offer is helped by virtue of the intention to contract inherent in it being an attempted acceptance.³⁸ A doctrinal difficulty that has been raised in treating such acceptances as counter-offers is that they are given with the intention of finalizing a transaction rather than being a counter-offer. They are not informed by an intention that they can be accepted.³⁹ However, if they are put forward as purported acceptances, it would generally appear to a reasonable person in the position of the original offeror that the other party intended to contract on those terms, which would be sufficient to render it a counter-offer.⁴⁰ It is then akin to a document provided in the negotiation process which sets out alternative terms and evidences an intention to contract on those terms if the other party accepts. Such a document is a clear counter-offer if it follows an offer. Similarly, if an ‘acceptance’ is put forward which contains additional or different terms with the intention that these must be agreed to before the ‘acceptance’ is effective, that will constitute a counter-offer.⁴¹ An ‘acceptance’ that is actually a conditional acceptance such as where the acceptance is subject to the approval of some third party may operate as a counter-offer.⁴² Moreover, where an offeree purports to accept an offer but has not carried out any prescribed conditions precedent to the offer then the acceptance will not be effective and may constitute a counter-offer.⁴³ Finally, where the manner of acceptance concerns the way in which acceptance is communicated or the place of communication, the courts are less likely to conclude that this is exclusive.⁴⁴

4.12  It is often said that an offeror can waive its requirements for acceptance so long as that does not adversely affect the offeree.⁴⁵ For example, in Manchester Diocesan Council for Education v (p. 71) Commercial and General Investments Ltd,⁴⁶ the plaintiff and defendant had negotiated for the sale of the plaintiff’s property through their respective surveyors. Those negotiations came to nothing and the plaintiff decided to call for tenders for the purchase of the property. The form of tender supplied provided that any acceptance by the plaintiff would be sent by letter to the address given in the tender. In due course, the plaintiff decided to accept the defendant’s offer. However, rather than send the acceptance to the address given in the tender, the plaintiff’s surveyor addressed a letter of acceptance to the defendant’s surveyor. Buckley J held that it nevertheless constituted an effective acceptance. Here, the condition was not an exclusive method of acceptance. More importantly for the purposes of this section, the form of tender was drafted by the plaintiff and the condition for acceptance was inserted for the benefit of the plaintiff, and the plaintiff could waive it so long as that did not adversely affect the defendant. Here the plaintiff could have used the proposed method, and acceptance would have occurred when it was sent; but this did not stop the plaintiff adopting another method whereby acceptance would only take effect when it was communicated and this is what occurred here.

4.13  This case can be contrasted with that of Financings Ltd v Stimson,⁴⁷ where an acceptance clause made for the benefit of one party operated against them on the facts. Here a finance company’s standard hire purchase form was handed to the defendant by a car dealer and the defendant signed it. The form, though drafted by the finance company, encapsulated an offer by the defendant to take a car on hire purchase and stated that the agreement would only become binding on the finance company when it had been signed by them. However, before any such signature, the defendant was permitted by the car dealer to take the car away. Later, the defendant returned the car to the dealer stating that he did not wish to proceed with the purchase. The Court of Appeal held that there was no contract binding on the defendant as the defendant had revoked the offer to purchase prior to acceptance. Allowing the defendant to take the car did not constitute acceptance by the plaintiff because of the stipulation as to signature.⁴⁸ The majority held that the dealer had ostensible authority to accept the revocation on behalf of the finance company.⁴⁹ The case is interesting because at the time the defendant returned the car the hirer was of the belief that the finance company had signed the form, and so the hirer’s intention was to rescind the contract and forfeit the deposit. However, the majority was of the view that the intention to no longer proceed with the contract was sufficient to revoke the offer.

4.14  The difficulty with the concept of waiver here is that, in doctrinal terms, a party can only waive a ‘right’ to have a condition performed. In the case of contract formation, the offeror would rarely have a right to the performance of a condition of acceptance.⁵⁰

(p. 72) 4.15  The offeror may prescribe a method of acceptance that is not exclusive.⁵¹ Whether or not a prescribed method of acceptance is exclusive is determined by reference to the presumed intention of the offeror and is generally said to be an issue of construction where it is in writing.⁵² This intention is determined from the perspective of a reasonable person in the position of the offeree.⁵³ A prescribed method of acceptance may appear on its face to be exclusive, but when read in context that apparent exclusivity is merely intended to achieve some purpose such as obtaining a prompt response or a reply that is in a form, or delivered in a manner, that is convenient to the offeror. Often these purposes can be achieved by using other methods. Where the method prescribed is not exclusive, then the offeree may accept using a different method as long as it is as efficient in fact or as convenient to the offeror as the one prescribed.⁵⁴ In practice, the issue that arises is more often that of communication of acceptance rather than the form of acceptance. The prescribed manner of acceptance is usually intended to achieve a response within a certain time. It necessarily follows that if the offeree used a faster method of communication, that will suffice. For example, in Tinn v Hoffmann and Co,⁵⁵ where the offeror was told to ‘reply by return of post’, it was held by the court that any reply which would reach its destination before a letter sent by post would constitute an effective acceptance. It is also the case that if the method chosen could be less efficient than that prescribed by the offeror but in fact does not operate less efficiently, then it will be effective.⁵⁶

4.16  The risk in adopting a different method is that if it does not achieve the purpose intended by the offeror for any reason then it will not be effective.⁵⁷ In Eliason v Henshaw,⁵⁸ the (p. 73) appellants who were in Harper’s Ferry offered in a letter delivered by a wagon to purchase flour from the respondent. The letter stated: ‘Please write by return of wagon whether you accept our offer.’ The wagon was at the time in the employ of the respondent and took flour from the respondent’s mill at Mill Creek to Harper’s Ferry. There was therefore a time frame for acceptance: it was the time it would take for a wagon to make the round trip; the appellants were put on notice by the wagoner who took the letter that he would probably not be returning. Instead of sending an acceptance by wagon, the respondent sent it by post to the plaintiff’s offices in Georgetown and later commenced an action against the appellant for refusing to accept tender of the flour. The United States Supreme Court held that there was no contract. The principal point of the court’s reasoning was that the offer required acceptance at a certain place, namely Harper’s Ferry, and this could not be unilaterally varied by the offeree. This was an improper departure from the terms of the offer which had not been waived.⁵⁹ However, the court did state:⁶⁰

4.17  An offeror may not prescribe any method of acceptance. In such a case, what constitutes a proper method of acceptance must be determined by reference to the presumed intention of the offeror. This will depend on a construction of the terms of the offer which will include a consideration of the circumstances surrounding the transaction. For example, the method by which the offer is communicated may imply an appropriate method of acceptance. Thus, it has been observed that an offer sent by telegram may indicate that the offeror requires a prompt reply, which may discount acceptance by some postal methods.⁶¹ Similarly, an offer sent by post may usually be accepted by post.⁶² As a general rule, where there is no prescribed manner of acceptance, the offeree may use any method that is reasonable in the circumstances.

4.18  As to what is reasonable, section 65 of the Restatement (2d) Contracts states: ‘Unless circumstances known to the offeree indicate otherwise, a medium of acceptance is reasonable if it is the one used by the offeror or one customary in similar transactions at the time and (p. 74) place the offer is received.’⁶³ The comments to this section make it clear that factors used in assessing reasonableness will also include the speed and reliability of the medium chosen and methods used in any prior course of dealing between the parties.⁶⁴ In the case of postal acceptance Comment c states that ‘Acceptance by mail is ordinarily reasonable where the parties are negotiating at a distance, unless there is some special reason for speed such as rapid price fluctuation’ and ‘Even though an offer is transmitted by telephone or telegraph, acceptance by mail may well be reasonable.’

4.19  It was noted above that acceptance can be by conduct. The ability to accept by conduct is well recognized.⁶⁵ Usually this is not a controversial aspect of a transaction because the offer will call for some conduct which may or may not require communication of acceptance. A typical example is where an offer to buy goods is accepted by sending the goods to the buyer.⁶⁶

4.20  In practice, there are two issues that tend to arise in the context of acceptance by conduct. The first concerns whether or not the acceptance is complete. This question in turn usually arises where the offeror has communicated a revocation of the offer while the offeree is attempting to carry out the act of acceptance. The rules governing the revocation of offers prior to or during performance of the act of acceptance are dealt with in Chapter 3. For the purposes of this chapter, it is important to note that, as a general rule, if the offer calls for acceptance by conduct, then in order for there to be acceptance the offeree must fully carry out the act of acceptance.⁶⁷ What that act of acceptance involves will be determined by construing the terms of the offer. In most cases, this is generally a straightforward issue. Interesting questions have arisen in the context of offers for rewards, particularly offers for information leading to the arrest and conviction of felons. Here there has been some acceptance that when a crime is committed, generally no one person will provide all the information needed to identify the felon or all the evidence needed for a conviction. Such information will usually be provided piecemeal by different people, and the offer of reward will be construed as providing a reward to be shared amongst those people who substantially comply with the terms of the offer and are links in the chain of information with amounts being apportioned by reference to the value of information provided.⁶⁸ Of course, (p. 75) where the same information is given by different people, then generally the reward must go to the person who first gave the information.⁶⁹

4.21  The second issue is where one or both parties have carried out some acts of performance but at some point one of the parties claims there was no formal acceptance of an offer and therefore no contract.⁷⁰ Here the fact the parties may have conducted themselves according to some agreed terms may evidence that a contract was entered into by conduct despite the fact that on its face the parties had not fully settled the terms of the agreement.⁷¹ For example, in Brogden v Metropolitan Railway Co,⁷² there was a long-standing relationship between the parties for the supply of coal and coke, although there was no formal agreement. It was suggested by the appellant supplier that a contract should be put in place. The appellant drafted a proposal and sent it to the respondent railway company. The respondent, on the basis of that proposal, drew up a formal contract adding some material terms. This was sent to the appellant who made a few minor changes. The appellant also added the name of an arbitrator. The appellant then wrote ‘approved’ on the agreement and signed the document. Lord Cairns noted that because of the addition of the name of the arbitrator it was not possible to say there was a contract at this point, as that term required the approval of the respondent.⁷³ The agreement was then sent back to the respondent who put it in a drawer and never formally executed it. Clearly, the parties had embarked on a course of conduct with a view to entering into a contract.⁷⁴ Moreover, for the majority of the House of Lords, the evidence (p. 76) showed that although the contract was never executed by the respondent, the parties conducted themselves on the basis of an agreement on those terms being in place by ordering, supplying, and accepting deliveries according to the terms of the agreement.⁷⁵ The course of conduct engaged in by each party clearly made the other aware that a contract had come into existence between them.⁷⁶ Of course, it is not possible to rely on some conduct as evidencing an acceptance if the offeree has expressly rejected the offer.⁷⁷ In such a case, it is necessary to either prove a separate contract entered into by conduct or pursue restitutionary remedies.

4.22  Finally, it should be noted that unless negated by the terms of the offer or the nature of the contract,⁷⁸ the conduct must be communicated to the offeror.⁷⁹

4.23  An acceptance must comply with any time set for acceptance in the terms of the offer.⁸⁰ Where no time is set, then acceptance must be within a reasonable time as the offer will be open for a reasonable time.⁸¹ What constitutes a reasonable time depends on the facts of the case.⁸² Important factors will often be the manner in which the offer is communicated and the circumstances of the case. Not only may the manner of communication impliedly dictate the manner of acceptance but also the time frame for acceptance. Thus, as already noted, an offer sent by a prompt means will often require a response by similar means and that response may also need to be prompt.⁸³ An oral offer may need to be accepted immediately.⁸⁴ The subject matter of the contract may also dictate the speed of acceptance. For example, if the subject is perishable goods or goods that are subject to sudden fluctuations in price, this will generally dictate that what is a reasonable time is shorter than when the dealing is in a more stable subject matter such as land.⁸⁵

(p. 77) 4.24  As a general rule, an acceptance sent out of time is not effective.⁸⁶ On one view, the offeror could waive the time limitation;⁸⁷ however, at a doctrinal level, if the offer has lapsed, it needs to be made again and a proper acceptance given. From a commercial standpoint, the better result is probably that if the acceptance is late, then although from the offeree’s perspective it must be considered ineffective, the offeror should have the ability to recognize the acceptance.⁸⁸ Perhaps one way the common law could give effect to such commercial considerations is to consider the acceptance a counter-offer allowing the original offeror to accept it as offeree.

4.25  The doctrinal basis of the position that an offer must be accepted within a reasonable time when no time is expressed in the terms of the offer remains unresolved. However, depending on the view adopted, this may impact on the evidence available to determine what constitutes a reasonable time. The leading statement remains that of Buckley J in Manchester Diocesan Council for Education v Commercial & General Investments Ltd⁸⁹ where it is stated:⁹⁰

4.26  As a general rule under offer and acceptance analysis a contract takes effect from the moment the acceptance is effective. However, it is necessary to emphasize a couple of points. First, the parties can execute a contract which is expressed to have an effective date prior to the date of execution. This will be given effect to.⁹¹ Even without such an express term it may be possible to imply a term to that effect. Moreover, an earlier effective date may be inferred where the parties conduct themselves on the understanding that if a contract is entered into in the future it will govern their initial relations or, more generally, if they conduct themselves according to some agreed terms and later execute a formal contract incorporating those terms; this is subject to any agreement expressing a different date.⁹²

4.27  For an offer to be capable of acceptance it must be communicated to the offeree either by the offeror or someone authorized to make the communication.⁹³ Once communicated, an offer may be accepted only by the offeree⁹⁴ or an agent appointed by the offeree but no one else.⁹⁵ There are two interrelated reasons for this. First, offers are personal to the offeree as a matter of intention; they are not choses in action and cannot be assigned.⁹⁶ Second, the law requires the parties to a contract to be certain.

4.28  In addition to being made to a particular person, an offer may be made to a group, and an offer can be made to the entire world.⁹⁷ Where an offer is made to a group of people, it is necessary to determine whether it is made to them jointly or severally. If jointly, then it will be necessary for all to accept the offer.⁹⁸ When made to the whole world, there may still be limits on acceptance. For example, offers of rewards can often only be accepted by the first person who provides the relevant information.⁹⁹ Offers made to the whole world to sell certain goods may be subject to an express or implied condition that the offer is only capable of acceptance ‘while goods last’.

(p. 79) 4.29  The identity of the offeree is determined by construing the offer; it is determined by reference to a reasonable person in the position of the offeree rather than the subjective state of mind of the offeror. This is usually a simple matter. However, in any given case it may involve difficult issues of construction and require a consideration of the subject matter of the contract, the nature of the obligations that are to be performed under the contract, and the circumstances surrounding the making and purpose of the offer.¹⁰⁰ The offeree’s subjective state of mind might also be relevant. For example, in McMahon v Gilberd and Co Ltd,¹⁰¹ a soft drink manufacturer retained title in its bottles taking a ‘deposit’ for the bottle at the point of sale. It advertised to refund the deposit upon the return of the bottle. Some of these advertisements made it clear that this offer was limited to ‘customers’ and some did not. The plaintiff who was a bottle and scrap dealer claimed this reward. It was held that, on construction, the offer was only made to ‘customers’, but in any case, even if the offer was to the whole world, the facts were such that the plaintiff had actual knowledge that the offer was not made to him.

4.30  Generally, in order to accept an offer, the offeree must have knowledge of the offer.¹⁰² However, it is not necessary that the offeree have knowledge of all the terms of the offer in order to accept.¹⁰³ What the law of contract requires for there to be a bargain is that ‘each party manifest assent with reference to the manifestation of the other’.¹⁰⁴ It follows that in the case of cross offers, such as where A writes to B offering to sell A’s car to B for £5,000 and at the same time B writes to A offering to purchase A’s car for £5,000 and the letters cross in the post, there is no contract until one of the parties formally accepts the other’s offer.¹⁰⁵

(p. 80) 4.31  This is an issue that does not often arise in the context of a bilateral contracts—at least not in those created by the exchange of express promises—but it has arisen in the context of unilateral contracts. For example, if an offer of a reward is made in return for a certain act, then if a person happens to carry out that act without knowledge of the offer, they cannot be said to have accepted the offer.¹⁰⁶

4.32  The knowledge requirement is made out if a person learns of an offer whilst carrying out the act of acceptance and then continues to complete the act of acceptance.¹⁰⁷ In such cases there is an assumption, rebuttable by evidence, that one reason for continuing the act was to accept the offer.¹⁰⁸ Difficulties arise where the offer contains a number of conditions, such as where an offer of reward is given in return for information leading to the ‘arrest and conviction’ of a person and, without knowledge of the offer, a person gives information leading to arrest. Here, arguably even if information is later given at trial leading to a conviction, it would be too late for the offeree to collect the reward, as one of the cumulative conditions of the offer was already made out by the time knowledge was gained, that is, the accused was already arrested and it is now impossible for the offeree to bring about that condition.¹⁰⁹

4.33  For there to be an acceptance, it is not enough for the offeree to signal that the offered terms are acceptable.¹¹⁰ For the requirement of consensus and an intention to contract to be made out an offeree must have an intention to accept, that is, the offeree must act in reliance on the offer.¹¹¹ This is an issue that rarely arises in the context of the formation of a bilateral contract created by an exchange of express promises; but it can arise in the unilateral contract context, especially where the terms of the offer are such that communication of acceptance is not required.

(p. 81) 4.34  Whether the offeree intended to accept is an issue of fact. Generally, in terms proof, where an offeree, with knowledge of the offer, carries out the act of acceptance, the court will infer the intention.¹¹² Such facts have been said to give rise to a prima facie case.¹¹³ It follows that, generally, it is for the offeror to prove that the offeree did not hold such an intention. Without an admission from the offeree, this is a heavy burden.¹¹⁴ However, the inference or presumption is a product of the objective theory of contract focusing on an outward appearance of agreement which may be rebutted by reliable evidence of subjective intent or understanding.¹¹⁵ Some limits to this inference were suggested by Glass JA (with whom Samuels agreed) in Dalgety Australia Ltd v Harris,¹¹⁶ viz:¹¹⁷

4.35  In R v Clarke,¹¹⁸ Starke J put the matter in the following terms:¹¹⁹

4.36  A further issue, which rarely arises, concerns the type of intention required. Generally, ‘the mind of the acceptor must go, not merely to the doing of the act but, in the appropriate way, to the offer’.¹²⁰ Thus, in the case of an offer for reward, the party seeking to collect the reward must provide the information with the intention that it be acted upon, it is not enough (even with knowledge of the offer) to simply mention it in conversation.¹²¹ It is usually enough for the offeree to show that the act was done in reliance of the offer. But that of itself does not deal with the issue of mixed motives and the extent to which an intention to accept can exist when other motives are involved. Some courts have expressed the view that motive is irrelevant. For example, in Smirnis v Toronto Sun Publishing Co,¹²² it was said:¹²³

4.37  The issue of mixed motives and intention was before the High Court of Australia in R v Clarke.¹²⁴ In this case the Western Australian government offered a reward for information leading to the arrest and conviction of persons involved in the murder of two police officers. Later Clarke was charged in connection with the murder of one of the police officers. Clarke had seen the offer of reward and he gave information and evidence which led to the arrest of one person and the conviction of two people for the murder of one of the officers. For the purposes of the appeal it was assumed this satisfied the terms of the offer.¹²⁵ However, Clarke admitted that he gave the evidence not for the purpose of accepting the offer but to avoid being charged with these crimes and to clear his name. There was also evidence that by the time he gave this information he had in fact forgotten about the offer. Higgins J held that Clarke had no right to the reward because he did not satisfy the knowledge requirement.¹²⁶ Others went further and said that Clarke was not entitled to the reward because his own evidence showed that he lacked the necessary intent, he had not acted in pursuance of the offer of reward.¹²⁷ On the evidence, that too seems a reasonable conclusion given the admission that he did not give the evidence to accept the reward.

(p. 83) 4.38  Clarke lost before the trial judge, but that decision was reversed by a majority on appeal. The majority based their decision on Williams v Carwardine,¹²⁸ which in their view had stood a long time and must therefore be regarded as accurate. When the matter came before the High Court of Australia it was therefore necessary to look at that decision. In investigating that decision, it is the judgment of Isaacs ACJ that has sparked the most controversy because he concluded that, on the evidence, Clarke had neither a legal or moral claim to the reward.¹²⁹

4.39  In Williams v Carwardine,¹³⁰ a woman with knowledge of an offer of reward for information ‘as might lead’ to the discovery of the murderer of Walter Carwardine, gave evidence so as to ease her guilty conscience. It was held that she was entitled to the reward. That is, with knowledge of the offer she carried out the act of acceptance. Isaacs J noted that the proceedings in the case had been reported in four different reports and they differed, so that it was not certain as to what the exact facts were in the case. Certainly, some reports suggest that it is sufficient if the offeree knows of the offer and carries out the required act.¹³¹ Indeed, the view is strongly held by some commentators that there is no legal requirement that the offeree act in reliance of the offer; the doing of the act with knowledge of the offer is sufficient, and that Williams v Carwadine is authority for this.¹³² Certainly, this would be sufficient to raise the presumption or inference, but if reliance is jettisoned at the level of contract theory it is difficult to see how the further requirement for contract formation, namely, the need for an intention to contract, could survive. In R v Clarke, Isaacs ACJ thought that the court in Williams v Carwadine had concluded that there was nothing in her motives for giving the information that was inconsistent with the prima facie inference that arose upon her carrying out the act with knowledge of the offer.¹³³ That is, there is a distinction between intention and motive, motive can indicate a state of mind but cannot usurp the ‘legal place of intention’.¹³⁴ He thought that if that was the correct understanding of Williams v Carwardine, then it was in line with accepted doctrine, but if it went further then it was to be disregarded.¹³⁵ Higgins J too said that the reports of the case show that ‘the informer knew of the offer when giving the information, and meant to accept the offer though she had also a motive in her guilty conscience’.¹³⁶ Thus, it is possible to have multiple motives for carrying out the act of acceptance. It is only necessary that one also has the intention to accept.¹³⁷ However, it would appear that Isaacs ACJ was of the view that some motives will be inconsistent with an intention to accept or, if they are held, are so all encompassing of thought that it is not possible to also entertain an intention to contract. In short, an intention to contract cannot (p. 84) co-exist with certain motives; and if such motives are admitted by the offeree or proven by the offeror, then the presumption of reliance will be rebutted.

4.40  For an acceptance to be effective it must correspond to the terms of the offer.¹³⁹ This is known as the ‘mirror image rule’.¹⁴⁰ To a certain extent this rule is strict, for there to be a contract upon communication of an acceptance that acceptance must assent to the terms of the offer.¹⁴¹ However, there is no rule that the acceptance must be in the form of ‘I accept your offer’ or that it exactly duplicate the terms of the offer. It may rephrase the terms. Therefore, ultimately, whether or not an offeree accepts an offer depends on intention. There is therefore an aspect of the ‘mirror image rule’ that is a ‘default rule’ in that where an offeree sends a communication to the offeror that does not correspond to the terms of the offer, then a reasonable person in the position of the offeror will usually conclude that the offeree does not intend to accept.¹⁴² However, ultimately, the result must depend on how the communication is to be interpreted by a reasonable person in the position of the offeror¹⁴³ and a ‘communication is sufficient which shows that the offeree is accepting the offer, and a communication of information showing that the offeree is treating the offer as accepted is sufficient’.¹⁴⁴

4.41  One aspect of the requirement of correspondence is that the offeree must accept all the terms of the offer. It is not possible to accept an offer in part.¹⁴⁵ For example, if an offeror offers to sell 100 tons of grain for £100 pounds, the buyer cannot purport to accept 50 tons at £50.¹⁴⁶ However, an offer may propose alternatives. For example, to sell or lease land or sell or hire goods.¹⁴⁷ It is also common for a seller of goods to offer varying quantities of goods at varying prices. In each of these examples the offeree can accept one of the alternatives on offer.¹⁴⁸ But neither example would constitute a partial acceptance. Whether or not an offer includes such alternatives is a question of construction.¹⁴⁹ Where the benefit of an offer is taken by conduct and the offer is not divisible, it will usually be inferred that the offeree is assenting (p. 85) to all the terms of the offer and agreeing to take on the burden of the contract which results in a true acceptance.¹⁵⁰

4.42  Another aspect of the correspondence requirement is that generally an acceptance must not add to, vary or seek to modify the terms of an offer.¹⁵¹ Such a communication may amount to a counter-offer where it evidences an intention to contract and is certain and complete.¹⁵² In determining whether an alleged acceptance adds to the terms of the offer all the circumstances must be looked at. Thus, the letter of acceptance must be looked at as a whole with each sentence read in context.¹⁵³ It is not possible to ignore sentences if they are not meaningless or made in error.¹⁵⁴ Nor can they be ignored if they are intended to have some effect and are not capable of severance from the terms of the acceptance. In some cases, it may be necessary to consider all the correspondence between the parties.¹⁵⁵ It may be that the acceptance refers to an issue agreed to by the parties prior to the issue of a formal offer and which does not appear in the offer expressly but is nevertheless implied by the circumstances.¹⁵⁶ It may be that what appears to be an additional term is no more than an intimation of the steps the offeree will take if there is a breach of a term of the agreement and so can be ignored.¹⁵⁷ It may be that what is additional is simply the provision of some information which does not seek to introduce a new term.¹⁵⁸ It may be that it puts forward an additional term for consideration but still expresses an intention to be bound even if that additional term is not accepted.¹⁵⁹ It may be that an acceptance restates the terms of the offer imprecisely, thereby adding a reference to a matter that has no real effect on the terms put forward in the offer or the meaning of the acceptance. Here too it may be possible to ignore certain words or sentences.¹⁶⁰ However, it is also possible that a series of communications on their face may objectively evidence an agreement which is then shown to be false according to the subjective understanding of the parties when other relevant communications are taken into account.¹⁶¹ (p. 86) When investigating relevant post acceptance conduct, it is important to determine whether that conduct evidences that the parties did not intend the apparent agreement to be effective or whether it evidences an attempt to renegotiate a contract.¹⁶² Finally, the terms of an acceptance may not have to correspond to those of the offer if, in the acceptance, the offeree introduces a term that is for the sole benefit of the offeror.¹⁶³

4.43  An acceptance that does not seek to vary or add to the terms of an offer but which does ‘not precisely match the words of the offer’, will still be effective if it evidences an intention to accept determined by reference to a reasonable person in the position of the offeror.¹⁶⁴ Acceptances of that sort are often explicable on the basis of mistake;¹⁶⁵ they are not intended to introduce new terms but rephrase the terms of the offer.¹⁶⁶ In such cases, the discrepancies can be ignored.¹⁶⁷ However, where a reasonable person in the position of the offeror would conclude that by reason of the discrepancy the offeree was not intending to accept the terms of the offer, then the mistake cannot be ignored.¹⁶⁸ There is a difference between a mere misstatement of a term and a re-statement of the terms that would indicate to a reasonable person in the position of the offeror a misunderstanding of the construction or operation of the contract¹⁶⁹ such as would amount to the introduction of a different (p. 87) term or otherwise evidence a lack of assent to the terms of the offer.¹⁷⁰ An offeree communicating such a misunderstanding of the terms of the offer in its acceptance—and then seeking to adopt those terms as set out by the offeree in its acceptance—is not accepting the offeror’s offer. However, where a reasonable person in the position of the offeror would conclude that the statement of the offeree is an acceptance then, if the offeree wishes to argue otherwise (in order to vitiate the offeree’s own consent), the offeree would generally need to prove an operative unilateral mistake.¹⁷¹ Instances of operative unilateral mistake would be rare if the offeree has merely attempted to restate the terms of the offer so that they do not precisely match the words of the offer. Moreover, if the discrepancy is significant enough to be an operative unilateral mistake, it would be most unlikely that it could be ignored under the objective test and so it would be a rare case that would ever need to resort to unilateral mistake.¹⁷²

4.44  In addition, the courts have generally been reluctant to rewrite the terms of an acceptance even where there is a high probability of knowing what was intended. For example, in United States v Braunstein,¹⁷³ a bid was made for a certain number of boxes of raisins for ‘10 cents per pound’. The acceptance read ‘10 cents per box’. It was held that there was no contract. In reply to a submission that the offeror knew in the circumstances what the offeree intended, it was said that the offeror knew that the offeree did not intend what was written in the ‘acceptance’ and that is sufficient to negate any alleged contract. It was not possible from this position to derive what the offeree might have intended and thereby create an agreement.¹⁷⁴ Medina J then said:¹⁷⁵

(p. 88) 4.45  Where clear words of acceptance are used but there are other ambiguous provisions in the ‘acceptance’, then, if possible, the court will lean towards a construction of the ambiguous provisions that is consistent with the clear words of acceptance.¹⁷⁶ There is a view that where an offeree uses very clear words of acceptance, such that the offeror would reasonably believe there to be an acceptance, but also seeks to change the terms of the offer, then the offeree comes under a duty to bring that variation to the attention of the offeror, and if they do not they should be bound by the terms of the offer.¹⁷⁷

4.46  The express statement of a term in an acceptance that did not appear in the offer but which would in any case be implied either in law or in fact does not vary or add to the terms.¹⁷⁸

4.47  An acceptance that suggests a variation or additional terms will be effective if, on construction, the acceptance expresses an intention to be immediately bound and is not conditional upon that term being agreed to by the offeror.¹⁷⁹ Here the suggested term is akin to an enquiry.¹⁸⁰ Whether a suggested term is put forward as conditioning the acceptance or not will depend on the facts of each case.¹⁸¹ This issue can often arise where the offer is silent on some point and the acceptance makes a suggestion to fill that gap but is not conditional upon the offeror agreeing to the suggestion. For example, if the offer is silent on a date for delivery of goods or for the handing over of possession in respect to land, an acceptance may suggest or request a time.¹⁸² This idea is adopted in the Uniform Commercial Code. Section 2-207(1) provides:

4.48  This is the primary rule of acceptance under Article 2. Previous Official Comments made the point that it is a rejection of the mirror image rule. However, no such express statement appears in the 2014–2015 Official Text and Comments and this provision has now been redrafted and moved from section 2-206(3) to section 2-207(1). The terms of a contract formed under this provision are dealt with in section 2-207(2) which provides:

4.49  The mirror image rule is a rule generally accepted within systems of contract law.¹⁸⁴ However, within the international arena there is softening of its strict approach. For example, Article 19(2) of the United Nations Convention on Contracts for the International Sale of Goods (CISG) (the ‘Vienna Convention’) relevantly provides:¹⁸⁵

4.50  If the offeror fails to object, then the additional or different terms will be incorporated into the contract.¹⁸⁶ In practice much will turn on whether or not any addition is ‘material’.¹⁸⁷ Article 19(3) provides some guidance stating:

4.51  Arguably, because the ‘mirror image rule’ is actually based on intention, the factual situation dealt with in these provisions could be accommodated within the common law. That is, being based on intention, it must be possible for a reply to an offer to contain a very clear expression of acceptance and yet add to the terms of the offer in a non-material way such as to not negate the clear intention to accept. If those terms are clearly brought to the notice of the offeror who then conducts him or herself as if there is a contract then arguably those terms will form the basis of the agreement between the parties. In the result it all depends on how a reasonable person in the position of the offeror would construe the communication. It should also be noted that despite what a reasonable person in the position of the offeror might conclude, if the offeror in fact knew the offeree did not intend to accept the offeror’s terms, the alleged acceptance will not be effective.¹⁸⁸

4.52  Overlapping to some extent with the mirror image rule is the requirement that the acceptance be unequivocal.¹⁸⁹ This goes to the language of the acceptance. It must be absolute and unconditional. However, the requirement that the language be unequivocal is merely a default rule.¹⁹⁰ Ultimately, the issue is one of intention, and generally, in order for an offeree to communicate an intention to accept and be bound by the terms of the offer, he or she must use unequivocal language.¹⁹¹ If that language is in evidence, the law then gives the communication the legal effect of an acceptance. For example, in National Cash Register Co v McCann,¹⁹² the defendant sent the plaintiff company an order which requested immediate shipment of a particular cash register. The plaintiff had sent the following reply: ‘This is to acknowledge receipt of your order dated 6-23-1911 for one of our No. 542 cash registers. We thank you for your order and assure you that it will have our best attention.’ The defendant then wrote to cancel his order. The company contended that the reply amounted to an acceptance which had resulted in a binding contract. However, the court refused to recognize a contract on the basis that the words ‘assure you that it will have our best attention’ meant ‘nothing more than the plaintiff will think about the offer—will consider it. It certainly [did] not mean that the plaintiff [had] thought about it, [had] considered it, and [agreed] to accept, abide by and comply with the terms of the offer.’¹⁹³

4.53  Whether or not a statement is sufficiently unequivocal is determined by reference to a reasonable person in the position of the offeror and is generally referred to as being a question of construction.¹⁹⁴ However, as the issue is one of contract formation, as noted elsewhere, the evidence available to determine the issue is wider than that available to determine the meaning of a term of a valid contract.¹⁹⁵ Where a communication is given that corresponds to the terms of an offer, it will generally be held to be an acceptance. Thus, a communication in the form of ‘I accept your offer’, assuming the offer is identifiable, will constitute an acceptance.¹⁹⁶ So too an acceptance that sets out exactly or otherwise precisely the terms of the (p. 91) offer and expressly agrees to those terms.¹⁹⁷ Moreover, if it is clear that the offeree intended to accept an offer according to its terms but simply misstated those terms, as opposed to expressing an erroneous understanding of those terms,¹⁹⁸ the acceptance will be sufficiently unequivocal and effective.¹⁹⁹ However, if a purported acceptance was given for some other purpose it will not constitute an unequivocal acceptance.²⁰⁰ It also follows that generally words of acceptance will not operate as an acceptance if they suggest a further formal step needs to be taken before the offeree intends to assume any legal obligation.²⁰¹ Thus, where a buyer communicates an acceptance to buy goods, but goes on to state that a formal order and terms follow, there would be no immediate acceptance.²⁰² Not only would the language in such a case not be unequivocal, the acceptance would be conditional.²⁰³ Similarly, if an acceptance is said to be contingent on the occurrence or non-occurrence of an event, it will not take immediate effect.²⁰⁴ Nevertheless, the construction of any purported acceptance will depend on the facts of each case. Therefore, words that might suggest future conduct such as ‘we intend to accept’ or ‘subject to contract’ may evidence an immediate intention to accept on the facts of the case.²⁰⁵

4.54  Generally, acceptance must be communicated for it to take effect.²⁰⁶ A contract does not come into effect merely because the offeree has subjectively decided to (p. 92) accept.²⁰⁷ Nor will the acceptance be effective if the offeree accepts by conduct and the fact of that conduct is not communicated to the offeror.²⁰⁸ Even the execution of a written contract will generally not take effect unless communicated to the other party,²⁰⁹ nor will a discussion over an aspect of the manner of performance necessarily communicate an acceptance.²¹⁰ It is therefore generally necessary for the offeree to notify the offeror of the conduct. However, despite the general rule that acceptance must be communicated to the offeror or an authorized person,²¹¹ it is arguable that it should be sufficient if the fact of such conduct comes to the attention of the offeror or would come to the attention of the offeror in the normal course of events.²¹²

4.55  The requirement of communication is related to the rule that silence is not acceptance which is discussed in more detail below.²¹³ In practice, the rule that silence is not acceptance tends to be referred to in situations where an offeror has sought to force a contract on an offeree. Any other position would inhibit the offeree’s freedom not to contract. Both these rules are predicted by the objective theory of contract which requires some outward expression of acceptance. Moreover, as that theory is informed by a reasonable person in the position of the parties, it can be seen that communication must generally be to the offeror. In addition, the basis of the communication rule has been said to be that of hardship in that it would cause hardship for an offeror to be bound without being on notice of this.²¹⁴ However, neither rule is necessarily dictated by the objective theory. An offeror cannot force a contract on the offeree by making silence acceptance but can, in theory, bind him or herself by making (p. 93) silence a method of acceptance.²¹⁵ Similarly, the offeror may allow for the offeree’s assent to be by way of an act the occurrence of which does not have to be communicated to the offeror. In short, if the communication rule protects the offeror from hardship and operates for the benefit of the offeror, then it is within the power of the offeror to waive it. Indeed, there is no doctrinal impediment to the courts creating exceptions to this rule to give effect to some overriding concern such as fairness, convenience, and practicality.²¹⁶ In the result, the requirement of communication is merely a default rule²¹⁷ that is applied unless a contrary intention is expressed in the terms of the offer, or by reason of the subject matter involved or the circumstances of the case.

4.56  As noted, the acceptance must be communicated to the offeror or someone authorized to receive it, rather than merely having authority to relay it to the offeror.²¹⁸ Similarly, the communication of acceptance must come from the offeree or someone authorized by the offeree to communicate the acceptance. The communication of an intention to accept by an unauthorized person, even if reflecting the subjective intention of the offeree, is not effective. The offeree retains the freedom to change his or her mind until there is an authorized communication.²¹⁹ In Powell v Lee,²²⁰ the managers of a school had passed a resolution appointing the plaintiff to the position of headmaster but had not formally communicated this to the plaintiff. However, one of the managers, acting in his individual capacity and without authority, had informed the plaintiff of the resolution. Subsequently, the resolution was rescinded, and the plaintiff was not appointed to the post. Although the plaintiff argued that acceptance had been communicated to him, the court held that since the manager was not authorized to communicate the decision, there had been no communicated acceptance.²²¹ Despite this, there is an argument for the view that the offeror should be bound so long as he or she hears of the acceptance from some reliable source or otherwise in the normal course of events.²²²

4.57  It is possible for the offeror to dispense with the need for communication of acceptance.²²³ In some cases, the nature of the transaction itself may dictate that communication is not required.²²⁴ Similarly, a course of dealing or trade practice may suggest this. However, generally, the issue is determined by reference to the terms of the offer and here very clear language or necessary implication is required to negate the requirement of communication.²²⁵ It is possible for communication of acceptance to be dispensed with in a bilateral contract where the offer requires the doing of an act that implies a counter-promise of acceptance.²²⁶ However, the typical scenario where the need for communication is negated is in those unilateral contracts which call for the performance of an act other than the communication of information to the offeror.²²⁷ Some may include within this group offers which do not negate the need for communication but call for communication of acceptance to be dealt with in a particular manner, and where the acceptance will be operable if that manner is complied with even if the communication is not actually received by the offeror, for example, where acceptance may be by post.²²⁸

4.58  The case that is usually cited as authority for the view that the need for communication of acceptance may be negated is Carlill v Carbolic Smoke Ball Co.²²⁹ Here the Carbolic Smoke Ball Company promised to pay £100 to anyone who caught the flu after using the smoke ball as instructed. Mrs Carlill followed the instructions but nevertheless contracted the flu and brought an action to recover the reward. It was held that the advertisement constituted (p. 95) an offer and that she had accepted that offer by using the smoke as instructed.²³⁰ One of the issues raised in the appeal was that of communication of acceptance. Mrs Carlill did not tell the Smoke Ball Company that she intended to carry out the act of acceptance or that she had carried out the act of acceptance. The first the Smoke Ball Company heard of her actions was when she claimed the reward which was refused by the Smoke Ball Company which then resulted in her commencing proceedings. Despite this lack of communication it was held that there was a contract. The clearest statement of the ability of the offeror to waive the need for communication was expressed by Bowen LJ. He said:²³¹

4.59  Similarly, Lindley LJ said:²³²

4.60  Lindley LJ’s reference to Brogden v Metropolitan Railway Company here clearly evidenced that he was of the view that the offeror may do away with the need for communication of acceptance. Thus, in this case, the contract was formed when the act of acceptance was performed. The Smoke Ball Company’s performance was then contingent upon the user catching the flu. Much of what Lindley LJ said in respect of notice was concerned with performance rather than formation. Clearly, if Mrs Carlill wanted to call on the Smoke Ball Company to perform, then she would need to inform them of her performance and of the occurrence of the contingency.

4.61  The distinction between formation and performance is dealt with under the Restatement (2d) Contracts in section 54. This provision recognizes that a contract may be formed by performance without communication of acceptance but then allows for the offeror’s obligations (p. 96) to be discharged in certain circumstances where the offeror has no notice of the performance. The provision recognizes and gives effect to the reality that it is a rare case where the need for notification is completely negated by the offeror.²³³ It provides:²³⁴

4.62  Generally, silence cannot constitute acceptance.²³⁵ This rule is predicted by the objective theory of contract which requires an external manifestation of assent.²³⁶ It is generally not possible to determine, from the position of a reasonable person in the position of the offeror, that there has been an assent to the terms of the offer when the offeree has remained silent throughout.²³⁷ Silence is equivocal; it does not communicate a clear decision.²³⁸ Usually, where a reasonable period of time elapses without communication of acceptance, it will be concluded that the offer is rejected.²³⁹

(p. 97) 4.63  The classic decision on this point is Felthouse v Bindley.²⁴⁰ In this case, an uncle heard that his nephew was intending to sell his farming stock at auction. The uncle had mistakenly thought that his nephew wanted £30 for a certain horse, when in fact his nephew wanted 30 guineas. Upon learning that the parties were at cross-purposes, the uncle wrote to his nephew offering to ‘split the difference’ and stating ‘if I hear no more about him, I consider the horse mine at £30 15s’. The nephew did not reply to this offer; however, upon receipt of the offer, he did inform the auctioneer that the horse had been sold and that it was to be taken out of the auction. By mistake, the auctioneer sold the horse at the auction to a third party. The uncle wished to sue the auctioneer in conversion, and to do that had to show that a contract of sale had been entered into with his nephew prior to the auction. The uncle’s action failed. Given the nephew’s action, there can be no doubt as to his subjective state of mind.²⁴¹ Moreover, there was an outward expression of that state of mind to the auctioneer, although the statement to the auctioneer was not of itself referable to any contract with the uncle. However, there had been no communication of acceptance to the uncle, and to hold otherwise would have allowed the uncle to force a contract on his nephew by making his silence an acceptance. An offeree cannot be made to take active steps in order to avoid being held to have accepted an offer or being held to have assented to a variation of terms such as when one party forwards further terms by way of confirmation of an oral contract.²⁴²

4.64  The decision in Felthouse v Bindley seems a harsh one given the facts of the case, even though it has doctrinal force. Whether or not silence can ever amount to acceptance has received more detailed analysis in a number of cases that have dealt with the abandonment of a contract. The particular context was in relation to arbitration proceedings; however, the discussion in these cases is of wider import. The particular question that arose and which is of concern here was whether an offer to abandon a contractual obligation to arbitrate disputes (assuming such an offer can be proven) can be accepted by silence or inactivity? The answer to that question is yes, but the principles to be applied are not clear in the case law to be discussed.

4.65  It can often happen that processes for arbitration proceedings are begun but not followed through. The court has no inherent power to dismiss such proceedings for delay.²⁴³ Yet one of the parties might need to know where it stands. That issue has now been dealt with by statute.²⁴⁴ Nevertheless, prior to the enactment of that legislation, a number of arguments were put forward to suggest that in such circumstances proceedings could not go on. Several of these arguments were based on general principles of contract law. The reason for that approach was that an agreement to arbitrate is a contract and therefore subject to the same (p. 98) rules as any other contract. One argument was that the claimant had made a fundamental breach of the contract to arbitrate by failing to carry the arbitration forward. This argument was rejected on the ground that each of the parties to an arbitration has an obligation to keep the proceedings moving. Neither party could rely on the other’s breach to terminate the agreement.²⁴⁵

4.66  Another argument was that the contract had been frustrated by the delay. The attraction of this argument was that the purpose of the arbitration agreement was to arrive at a fair resolution of the dispute, and if the delay was sufficiently long then such a resolution may be impossible. This approach was rejected by the House of Lords in Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal.²⁴⁶ The reasoning of the House of Lords was that since the obligation to move the arbitration proceedings forward fell equally on both parties, then, if a delay resulted in there being no possibility of a just resolution, this must be because of the default of both parties, and the doctrine of frustration only operates where there is no default. In short, any frustration was self-induced.

4.67  However, in this case, the House of Lords recognized that a third possibility (not available on the facts before them) was open, namely, that the parties may have entered into a contract to abandon the contract to arbitrate.²⁴⁷ The principal speech was given by Lord Brandon. The speeches of Lord Diplock, Lord Roskill, and Lord Brightman were to be read as ‘supplementary to and in amplification of’ Lord Brandon’s speech.²⁴⁸ It is necessary to set out parts of these speeches in some detail.

4.68  Lord Brandon stated that:²⁴⁹

(p. 99) 4.69  In the first method outlined in the above quote, Lord Brandon looks at the transaction from both sides, there being an offer and an acceptance. Both the offer and acceptance derive from conduct. The relevance of the subjective understanding of the parties lies in his reference to the importance of looking at how a party acts when confronted with the conduct of the other party. The conduct of one party must evidence to a reasonable person in the position of the other party that they intend to contract and the second party must believe that the first party so intends to contract. As noted earlier, the latter requirement exists in contract law because of the requirements of consensus and intention to contract.²⁵⁰ However, that knowledge is usually presumed. The onus is on the first party—if they wish to contest the contract—to prove the second party knew the first party did not intend to contract.

4.70  Lord Diplock after noting that the abandonment of a contract requires the formation of a contract of abandonment stated:²⁵¹

(p. 100) 4.71  Lord Diplock’s speech has proven to be the most controversial, and it is convenient to note a few points here before moving on.²⁵² First, it can be seen in the first and second paragraph that Lord Diplock acknowledges the concept of consensus in contract law discussed earlier.²⁵³ As noted in the previous paragraph, it is suggested that Lord Brandon made the same acknowledgement. However, Lord Diplock was very clear in his statement, pointing out that for there to be an offer, not only must a reasonable person in the position of the offeree be of the belief that the offeror is making an offer, but the offeree must positively believe that an offer is being made.²⁵⁴ He sets out the same requirements for a valid acceptance. Second, note that in this passage, when he deals with acceptance, he does not talk about any waiver of the need to communicate acceptance. The example he sets out involves a communication either by words or conduct; it is not silence itself that is acceptance but such conduct may communicate to the other party an offer or acceptance. Third, in his third paragraph he makes it clear that in interpreting a statement, the law is not concerned with the subjective beliefs of the party making the statement.²⁵⁵

4.72  Lord Brightman stated:²⁵⁶

The basis of ‘tacit abandonment by both parties’, to use the phraseology of the sellers’ case, is that the primary facts are such that it ought to be inferred that the contract to arbitrate the particular dispute was rescinded by the mutual agreement of the parties. To entitle the sellers to rely on abandonment, they must show that the buyers so conducted themselves as to entitle the sellers to assume, and that the sellers did assume, that the contract was agreed to be abandoned sub silentio. The evidence which is relevant to that inquiry will consist of or include: (1) What the buyers did or omitted to do to the knowledge of the sellers. Excluded from consideration will be the acts of the buyers of which the sellers were ignorant, because those acts will have signalled nothing to the sellers and cannot have founded or fortified any assumption on the part of the sellers; (2) What the sellers did or omitted to do, whether or not to the knowledge of the buyers. These facts evidence the state of mind of the sellers, and therefore the validity of the assertion by the sellers that they assumed that the contract was agreed to be abandoned. The state of mind of the buyers is irrelevant to a consideration of what the sellers were entitled to assume. The state of mind of the sellers is vital to what the sellers in fact assumed.

4.73  A couple of comments about this speech are warranted before the discussion that follows. It can be seen from this passage that Lord Brightman, like Lord Diplock, and Lord Brandon thought it relevant not only to require a reasonable person in the position of the offeree to conclude that an offer was made, but that the offeree believe that an offer was made. Again, this recognizes the requirements of consensus and intention to contract, and is not a replacement of the objective theory of contract with a subjective theory. Where these speeches differ is that Lord Brightman only looks at the position of one party. So if we assume it is the buyer making the offer to abandon, Lord Brightman’s test appears to result in an agreement to abandon if a reasonable person in the position of the seller believed an offer was being made and if the seller believed an offer was being made. He does not then consider the requirements for acceptance. One reason for this might be that he was (p. 101) thinking of a unilateral contract being an offer for an act where the act is silence and inaction on the part of the offeree. Another reason might be that he did not see it as necessary to break the situation down to one of offer and acceptance, and that such an analysis was not appropriate here. A further reason may simply be that the necessity of looking at the issue from both sides was implied.

4.74  It follows from what has been said above that the possibility of deducing abandonment by mutual inaction was clearly established. However, the cases that followed suggested some confusion as to what circumstances would allow a court to conclude that the inaction was of a kind which should be treated as constituting abandonment. There were numerous decisions. These cases included another visit to the House of Lords in Food Corporation of India v Antclizo Shipping Corp (The Antclizo),²⁵⁷ but the court did not think the case was appropriate for a review of the authorities.

4.75  A number of other cases should be discussed. The first is Andre et Compagnie SA v Marine Transocean Ltd, The Splendid Sun.²⁵⁸ As noted above, Lord Diplock approved this decision in Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal in so far as the court found the contract there had been abandoned.²⁵⁹ In this case, a vessel under charter grounded as she was berthing at the point of discharge in Venezuela in May 1969. The owners claimed that the charterers had ordered the vessel to discharge at an unsafe berth. The charterers claimed that the Captain was at fault and the owners were liable. The dispute was referred to arbitration in London and in September and October 1969 each side appointed an arbitrator. Nothing further had happened when in 1973 the charterers closed their file on the claim. In February 1975 the arbitrator appointed by the charterers died and no appointment was made to replace him. In December 1977 the owners wrote to the charterers enclosing their points of claim. This letter was received on 3 January 1978. The Court of Appeal held that the owners could be restrained from proceeding with the arbitration on the basis of abandonment.²⁶⁰ Lord Justice Fox said:²⁶¹

4.76  Although each case is dependent on its own facts, given the approval of this decision by the House of Lords, it must stand as an example of the circumstances where a successful claim of abandonment may be made. In terms of principle, perhaps the most important point is the reaffirmation that when determining how a statement or act is to be construed, you do not consider the subjective state of mind of the person who made the statement or engaged in the conduct.

4.77  An important case was the decision of the Court of Appeal in Allied Marine Transport Ltd v Vale Do Rio Doce Navegacao SA (The Leonidas D).²⁶² In this case, a dispute arose between the parties in 1976, and a notice of arbitration was given by the charterers following which two arbitrators were appointed, one by each party. Thereafter nothing happened until August 1981 when the charterers wrote to the owners asking for admission of liability. In November 1981 the charterers served their points of claim. In this case, the Court of Appeal held that the facts did not amount to a mutual abandonment of the agreement to arbitrate. Reversing the decision of Mustill J, Robert Goff LJ said:²⁶³

4.78  There can be no doubting the correctness of this statement. Silence generally is equivocal and for it to give rise to either an offer or an acceptance there must be facts that make that silence unequivocal in the circumstances.²⁶⁴ However, in reaching his conclusion, Robert Goff LJ referred to the three approaches to implied abandonment proffered (p. 103) by Lords Brandon, Diplock, and Brightman in Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal. He thought the three approaches were distinct. He singled out Lord Diplock as suggesting that there is a requirement that the actual intention of both parties coincide.²⁶⁵ He expressed a preference for the reasoning of Lord Brightman concluding:²⁶⁶

4.79  It can been seen from this passage that the speech of Lord Diplock, in Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal was seen as problematic with its emphasis on the subjective intention of both parties. Later, not only were further concerns about Lord Diplock’s speech raised but there were also concerns about the decision in The Leonidas D. The particular concern with The Leonidas D was reconciling that decision with The Splendid Sun. Perhaps the most important decision was Food Corp of India v Antclizo Shipping Corp (The Antclizo).²⁶⁷ Here Bingham LJ stated:²⁶⁸

4.80  Lord Nicholls stated:²⁶⁹

(p. 105) 4.81  With respect to these statements, there is nothing in Lord Diplock’s speech that would suggest there is no contract in the example given. It is suggested that there is little difference between the speeches of Lords Brandon, Diplock, and Brightman in Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal and that Lord Diplock’s merely sets out a fuller statement of the concept of consensus in the common law of contract.²⁷⁰ Lord Diplock made it clear that he was not concerned with the subjective intention of the party making an offer or acceptance; a person’s subjective state of mind is only relevant when determining the legal characterization of a statement or conduct directed to them.²⁷¹

4.82  In the result, it is suggested that, accepting that an offeror cannot dictate that silence is acceptance, if a reasonable person in the position of the offeree would conclude that an offer to abandon was made by conduct, and by its terms it could be accepted by silence, and if the offeree conducts itself in such a way that by its silence a reasonable person in the position of the offeror would conclude that there has been acceptance by silence, then a contract will result. Of course this would be a rare event as silence is usually equivocal.²⁷² Thus, when a party relies only on silence, the delay would have to be for a significant period of time so that the intention of the parties is unequivocal; when combined with other conduct the time period can be shortened.²⁷³ There are two provisos. First, despite what a reasonable person would conclude, if there is evidence that the offeree knew that the offeror did not intend to make such an offer then no acceptance can occur as there is no offer to accept. Second, despite what conclusion a reasonable person in the position of the offeror would arrive at, if the offeror knew that the offeree did not intend to accept then no contract will come into being. As noted earlier, it is not necessary for one party to prove they positively believed that the other party was making an offer or acceptance. However, in the rare case of A making a statement to B which a reasonable person in the position of B would not construe as an offer (or acceptance as the case may be), but which B knew A intended to be an offer (or acceptance), B can seek to prove that fact and the full statement of the consensus theory by Lords Brandon, Diplock, and Brightman allows for that.

4.83  Silence will not prevent a contract coming into existence if there is conduct that amounts to an acceptance.²⁷⁴ Generally, that conduct would have to be communicated to the offeror.²⁷⁵ Moreover, the conduct must be referable to the contract.²⁷⁶ Whether or not there is such (p. 106) conduct is an issue of fact.²⁷⁷ An important modern statement of where conduct will amount to acceptance, despite silence on the part of the offeree, is contained in the judgment of McHugh JA in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd²⁷⁸ where he said:²⁷⁹

4.84  In this case, the appellant, a property developer, asked the respondent, an architect, to undertake the role of project manager for a certain development. The architect had already done some of the planning work for this development as well as the design work. The respondent forwarded a contract to the appellant which was never executed by the appellant. Nevertheless, the appellant called on the respondent to carry out certain tasks which were done and accepted by the appellant. The respondent invoiced the appellant according to the terms of the written document. The appellant even made payments to the respondent in accordance with those terms. In the circumstances, it was held that despite the appellant’s silence, it had accepted the offer by conduct. Of course, a contract can be evidenced by conduct without the need to break down the facts to offer and acceptance, and the approach in Empirnall would apply.²⁸¹

(p. 107) 4.85  Despite the general need for conduct to be communicated, there are examples which are at odds with Felthouse v Bindley²⁸² where conduct that has not been communicated to the offeror is acceptance. The classic example is where a seller sends goods together with a statement which says that the seller will assume that the buyer has agreed to take the goods if he or she does not send them back.²⁸³ In such a case, although the offeree is not bound to do anything, if he or she does an act which evidences an agreement to purchase the goods, he or she will be bound even though the offeror may not be aware of that conduct.²⁸⁴ For example, on-selling the goods, consuming the goods, or giving them as a gift to a third party.²⁸⁵ This shows that although an offeror cannot force a contract on a person by making silence acceptance, they can make silence a method of acceptance which can then be adopted by the offeree. The uncle did just this in Felthouse v Bindley, and so there has always been a question mark over that case as to whether the contract would have been upheld if it was the nephew seeking to uphold the contract against the uncle.²⁸⁶ Admittedly, it is rare for an offeror to make it a term of the offer that silence can constitute acceptance. The most likely way for this to occur is where the offeree drafts the terms of the offer, and those terms state that the offeror can consider the offer accepted if it has not heard from the offeree by a certain date. A variation of those facts is provided by Re Selectmove Ltd²⁸⁷ which concerned an offer by a company to an Inland Revenue Collector to pay arrears of tax in instalments, the collector told the company that he would get back to them if the proposal was not acceptable to his superiors. The company heard nothing further. Peter Gibson LJ suggested, without expressing a concluded view, that there was no reason in principle why there should not be an exceptional case where it is the offeree who indicates that the offer will be taken as accepted if there is no indication to the contrary. In such circumstances, the offeree is clearly undertaking to speak if he or she does not want a concluded agreement and silence would then constitute acceptance. In this case, he held the tax collector has no authority to bind the revenue to an acceptance by silence. In addition, the course of dealings between the parties may be such that the offeror can reasonably believe that the silence of the offeree is acceptance.²⁸⁸ In Empirnall Holdings (p. 108) Pty Ltd v Machon Paull Partners Pty Ltd,²⁸⁹ Kirby P emphasized that a relevant factor would be the history of the parties, whether they had entered into similar transactions in the past.²⁹⁰

4.86  Finally, turning to the position in the United States, the general principle that silence is not acceptance is adopted under the Restatement (2d) Contracts.²⁹¹ However, section 69(1) of the Restatement recognizes that a contract may result from silence: (a) where that silence is linked with conduct evidencing acceptance; (b) where the terms of the offer allow silence to be a method of acceptance and the offeree intends to accept by such silence; and (c)²⁹² where the course of dealing between the parties is such that a reasonable offeree ‘should notify the offeror if he does not intend to accept’.²⁹³ In the Restatement itself it is said that the provision recognizes two classes of case where silence amounts to acceptance. First, where an ‘offeree silently takes offered benefits’ and, second, ‘where one party relies on the other party’s manifestation of intention that silence may operate as acceptance’.²⁹⁴

4.87  To fall within the exception in (a) there must be both a reasonable opportunity to reject the offered services and reason to know that the services were offered with the expectation of compensation.²⁹⁵ Many such cases would give rise to a restitutionary claim based on acceptance, but there can be little doubt that in Anglo-Australian law, if an offer is made, then such conduct would amount to an acceptance giving rise to a contract.²⁹⁶

4.88  Exception (b) is not intended to protect the offeror, an offeror cannot force a contract on an offeree by stating that silence is acceptance. But if an offeror introduces such a term into the offer then he or she may be bound by that term and the uncertainty it may give rise to. Thus, exception (b) would cover the situation which might have arisen on the facts of Felthouse v Bindley had the nephew been suing his uncle for failure to accept the horse and the uncle had contended that acceptance had not been communicated.²⁹⁷ Clearly, the uncle had given the nephew reason to understand that silence would constitute assent, the nephew intended to accept but relied on the uncle’s letter in not sending a response.²⁹⁸ The offeree, nephew, is ‘entitled to rely on such a statement if he chooses’.²⁹⁹ Moreover, this provision would cover the abandonment cases discussed above.³⁰⁰

4.89  Exception (c) refers to the fact that ‘usage of trade’ or a ‘course of dealing’ between the parties may give the offeror reason to understand that silence will constitute (p. 109) acceptance.³⁰¹ There is no reason to think an English court would not find that there is a contract is such circumstances.³⁰²

4.90  A similar set of exceptions exists under the Unidroit Principles of International Commercial Contracts (2010), Article 2.1.6(1). This provision states that silence or inactivity does not amount to acceptance. However, the aim of the provision is to prohibit an offeror forcing a contract on an offeree by stating, in the terms of the offer, that silence will constitute acceptance. The commentary explains this and states that ‘[t]‌he situation is different if the parties themselves agree that silence shall amount to acceptance, or if there exists a course of dealing or usage to that effect’.³⁰³

4.91  The general position under English law is that an acceptance must be communicated to the offeror in order for it to be effective.³⁰⁵ It is at that point in time that a contract is formed.³⁰⁶ Moreover, generally, a contract is formed at that place where the acceptance takes effect.³⁰⁷ Thus, in the case of instantaneous modes of communication this is where acceptance is communicated or received.³⁰⁸ Examples of instantaneous communications include face-to-face communications, telephone,³⁰⁹ fax,³¹⁰ and telex.³¹¹ Email and text messaging are forms of instantaneous communication.³¹²

(p. 110) 4.92  It is not difficult to envisage situations where the above position can become problematic.³¹³ The use of an instantaneous method of communication is no guarantee that the message being sent will get through. Phone lines can be cut or interrupted preventing an acceptance by word of mouth or a fax getting through. People dial or fax the wrong number.³¹⁴ Similarly, although not used much today, a telex message may be interrupted. Moreover, many instantaneous communications in business are not in fact immediately received or communicated to the offeror but by some office intermediary who must then follow an internal procedure for sending that message on to the offeror. Even in a face-to-face conversation, a sudden noise may result in one party not hearing another.

4.93  Despite many statements to the effect that a contract is complete ‘only’ when acceptance is ‘received’,³¹⁵ as it is only then that it can be said that there is a meeting of the minds,³¹⁶ as noted earlier, the objective theory of contract does not dictate that communication must occur.³¹⁷ The key to an enforceable contract lies in there being evidence of assent rather than there being a meeting of the minds. Therefore, exceptions to that general position can be made to bring about a fair and practical decision.³¹⁸ In Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH,³¹⁹ Lord Wilberforce said: ‘No universal rule can cover all such cases: they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgment where the risks should lie.’³²⁰ The cases appear to have adopted the position that if the offeree uses a permissible method of acceptance and does all that he or she can do to ensure that the acceptance is communicated then the risk that it is not communicated lies with the offeror and there will be a contract.

4.94  In many cases, the sender will be aware that the message has not been received. For example, a fax machine will notify the sender that the fax was not sent. Similarly, if there is a problem with an email address the sender will be told. Even in the case of a telephone conversation, the party in the position of the offeree will be aware as to whether his or her acceptance was heard by the offeror. Usually, he or she would expect some reply will be given by the offeror,³²¹ and if it is a case of the line going dead then the offeree will know this.

4.95  Where the fault lies at the other end, for example, the offeror did not read the communication or failed to check the paper in his or her fax machine and the message could not print, then the risk shifts to the offeror, and he or she will be estopped from asserting that the (p. 111) message was not received.³²² A choice though must be made as to whether the reason for shifting the risk to the offeror is grounded in fault or whether the perspective should be from the position of the offeree. The better view, it is suggested, is that in such a case the acceptance is effective because the offeree had used ‘a mode of transmission contemplated by the parties for the purpose [and] has done all he [or she] can to ensure communication to the offeror’.³²³ If this is adopted as the rationale, it can also be used to explain the postal acceptance rule discussed below. Finally, as noted earlier, if the method of acceptance is not exclusive and the offeree adopts a method of acceptance not contemplated by the offer, then any risk that the acceptance is not communicated or not communicated in time remains with the offeree.³²⁴

4.96  A common occurring situation is a communication sent outside office hours. On this the law would appear to be that the sender cannot reasonably assume that the message would be read until the following day.³²⁵ What then of a communication sent within business hours but not read until later, perhaps the following day? This could be because the offeror has not got around to it, or the internal communications were such that the offeror was not given the message until the following day. It appears from Tenax Steamship Co Ltd v The Brimnes (Owners) (The Brimmes),³²⁶ that in the case of communications to businesses which are sent and received by telex machines within normal office hours but not read until the following day, they will nevertheless be taken to be communicated and therefore effective when they appear on the machine. It would seem that this result is based on the perspective of the sender, such a sender could reasonably be expected to assume that messages received within normal office hours would be read and the sender would have done all he or she reasonably could do to get the message through that day.³²⁷ The legitimacy for the law focusing on receipt rather than actual communication in the sense of the message being read, lies in the fact that at that stage the offeree has done all he or she can reasonably do to communicate the acceptance.³²⁸ Presumably, this would also be the position with regard to communications by fax.

4.97  An interesting issue is the effect of an acceptance left on a telephone answering machine. Coote argues that the postal rule analogy should apply here, namely, that if the sender has no reason to believe that the recipient’s answering machine is not working correctly, the message is communicated when it is recorded by the machine since the sender has then done all he or she can to ensure communication to the recipient.³²⁹ The only problem is the fact that the sender would know from the machine being in operation that the message had not been communicated, although equally it probably would not indicate when the recipient would be present to receive the message. A similar situation arises where a written communication (p. 112) is delivered to a large corporation just prior to the close of business hours where it is reasonably likely it will have to pass through a number of hands before it reaches its destination within the company. But as a number of these ‘exceptions’ indicate, it is not communication that counts so much as receipt. Nevertheless, in the case of an answering machine, it is suggested the result will depend on the circumstances. If a message is left with a business during business hours, the views expressed by Coote may apply. But it may be different in a less commercial environment where a person accepts another’s offer by leaving a message on their answering machine at home.

4.98  The focus on receipt is adopted by the Vienna Convention³³⁰ and the Unidroit Principles of International Commercial Contracts (2010).³³¹ Under the Unidroit Principles, this is expressed to occur either when given orally to the relevant person or ‘delivered at that person’s place of business or mailing address’.³³² This has been argued to be the most practical approach since it is not easy to prove when a communication actually comes to someone’s attention.³³³ However, it has also been noted that there may be difficulties of proof with this approach such as where delivery is made to a place of business when the business is shut down for a holiday period.³³⁴

4.99  It is a general principle of English law that where the post may be used to accept an offer, then the acceptance is effective from the moment the acceptance is posted.³³⁵ Since the acceptance (p. 113) is effective at this point, the contract is taken to be formed at that time and made at that place where the acceptance is posted.³³⁶ It necessarily follows that the acceptance is effective even if the mail is delayed or is never delivered.³³⁷ It also follows that once the acceptance is posted, the offeror cannot revoke the offer.³³⁸ Moreover, if the acceptance is operative upon posting then it would be too late for the offeree to revoke its acceptance once posted.³³⁹

4.100  The classic authority for the postal acceptance rule is Adams v Lindsell.³⁴⁰ On 2 September the defendants had written to the plaintiffs offering to sell them wool and requiring an answer by post. However, the defendants had misdirected this letter of offer and it did not reach the plaintiffs until 5 September. The plaintiffs posted their acceptance on that date, and it reached the defendants on 9 September. Since they might have expected a reply by 7 September had the offer letter not been misdirected, on 8 September the defendants sold the wool in question to third parties. The court held that the acceptance was effective on 5 September when it was posted. Consequently, the defendants were in breach of contract.

4.101  The rule developed in Adams v Lindsell is often referred to as an exception to the general rule requiring communication of acceptance.³⁴¹ A couple of points need to be made in this regard. First, at the time Adams v Lindsell was decided there was no general rule requiring the communication of acceptances; this was the first case dealing with the issue. Therefore, the court may not have intended to make any ‘exception’.³⁴² The court was also clearly influenced by the fact that the delay was attributable to the defendants and ‘must be taken as against them’.³⁴³ Second, as noted earlier, under the objective theory of contract there is no requirement for a rule that dictates that communication of acceptances is necessary.³⁴⁴

4.102  Many explanations have been put forward in an attempt to justify this rule.³⁴⁵ Some explanations have emphasized the practical need for such a rule. In Adams v (p. 114) Lindsell³⁴⁶ itself, it was suggested that if the acceptance took effect from the moment it was received then the offeree ought not to be bound until it received notification of that receipt from the offeror who in turn could then expect a notification from the offeree and ‘so it might go on ad infinitum’.³⁴⁷ Other explanations have attempted a more doctrinal explanation. The best known is the argument that the postal service operates as the agent of both parties.³⁴⁸ That view is now discredited.³⁴⁹ Similarly, some have argued that it is based on control and the acceptance should take effect once the letter of acceptance is out of the effective control of the offeree.³⁵⁰

4.103  Clearly, as a matter of commercial convenience and expediency, it is necessary for the law to take a position as to when such an acceptance is to operate. It is this convenience and expediency that is adopted in most authorities as the true basis for the rule.³⁵¹ The issue then is where should the risk lie? Should the offeree be in the position that the offer could be revoked after he or she has sent the acceptance or should the offeror carry the risk that for a period of time he or she will not know whether the offer has been accepted. The effect of the rule is to protect the offeree from the risk mentioned.³⁵² Thus, in English law, rather than protecting the offeree in all cases by making offers generally irrevocable, a discrete rule applies for acceptances sent by post. The reason given for allocating the risk in this discrete way, although it is perhaps not a full explanation, is that it is the offeror who controls the terms of the offer and the method of acceptance. If the offeror allows the post to be used for acceptances, then he or she should carry the risk and this is the effect of the rule.³⁵³ It is suggested that although that reasoning remains relevant, the preferred (p. 115) focus in terms of legal principle is to determine whether the offeree has done all that is necessary, according to the terms of the offer, to communicate the acceptance.³⁵⁴ If the offer allows for an acceptance by post, then once the offeree has placed the acceptance in the post, then he or she has done all they can in law to bring the acceptance to the notice of the offeror.³⁵⁵

4.104  The postal acceptance rule will apply when ‘the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer’.³⁵⁶ This is determined by reference to a reasonable person in the position of the parties. Usually, where an offer is sent by post, it will be possible to accept that offer by post.³⁵⁷ Historically, it would also apply where the parties were dealing at a distance³⁵⁸ except where the market is volatile which may call for a quick response.³⁵⁹ Similarly, if the goods are of a wasting nature, the circumstances may be such that the offer cannot be accepted by mail, or, at least, the time frame for acceptance by mail would be short.³⁶⁰ It is not necessary for the parties to have in their contemplation the postal acceptance rule.³⁶¹ However, as the test above suggests, it is not enough for the parties to have in contemplation that the post may be used for communication, the test suggests they have in contemplation that the post may be used for communicating acceptance.³⁶²

(p. 116) 4.105  The postal acceptance rule does not apply to instantaneous modes of communication and will only apply to a form of communication that is analogous to mail. The only extension of the rule has been to telegrams.³⁶³

4.106  It is open to the offeror to exclude the application of the rule by the terms of the offer.³⁶⁴ Clearly, the most obvious way to do this is to state that acceptance will be effective only upon ‘receipt’.³⁶⁵ In Holwell Securities Ltd v Hughes,³⁶⁶ in order to exercise an option, there had to be ‘notice in writing to the intended vendor’. The Court of Appeal held that this form of wording required communication of the notice. Similarly, in the South African case of SA Yster en Staal Industriële Korporasie BPK v Koschade,³⁶⁷ in order to exercise an option it was necessary to ‘notify the owner to this effect in writing’ and a particular post office box address was given. This was interpreted as requiring arrival at the post office box address so that posting, which had occurred within the option period, was not sufficient.³⁶⁸ In addition, the nature of the transaction and the subject matter of the contract may prevent the rule from operating.³⁶⁹ It should also be noted that a negation of the postal acceptance rule does not necessarily mean the post may not be used to send an acceptance.³⁷⁰

(p. 117) 4.107  The postal acceptance rule will not apply if ‘its application would produce manifest inconvenience, and absurdity’.³⁷¹ For example, in the context of a contract for the sale of land, if the buyer was the offeree and could accept by post then there would be a period of time where the vendor would be a trustee without knowledge.³⁷² Perhaps for this reason the rule also does not apply if there is no regular postal service such as where it might be interrupted by war.³⁷³

4.108  The rule will not apply if the offeree has not properly addressed the letter and affixed the proper stamp.³⁷⁴ If, however, the reason for the incorrect address is that the offeror has supplied the wrong address, then the acceptance will take effect from the time it is posted. Where the fault is that of the offeree but the incorrectly addressed letter does end up being delivered to the offeror in due course, it is an open question as to whether it should take effect from the moment of receipt. It is possible on any given set of facts for that error to work in the offeree’s favour.³⁷⁵

4.109  Errors in the transmission of telegrams or telemessages raise slightly different problems as they may be caused by third parties. Henkel v Pape³⁷⁶concerned an error in the transmission of a telegraph offer/counter-offer rather than an acceptance. The telegraph clerk telegraphed the word ‘the’ instead of ‘three’ so that instead of reading ‘send three rifles’ the telegram read ‘send the rifles’. The plaintiffs sent 50 rifles which had been referred to in their earlier correspondence with the defendant. It was held that the defendant was not bound to accept more than three rifles since he was not responsible for the error in transmission. But what if the facts were that an offer is made to sell 50 rifles and the telemessage response which as dictated by the offeree should read ‘send the rifles’—which would be an acceptance complying with the terms of the offer—is actually transmitted in error by a third party as ‘send three rifles’? One considered view is that the offeror could not treat the response as a counter-offer and would be bound to treat it as an effective acceptance on the basis that the offeror should ‘take the risk of errors in the transmission of a message’ and the offeree will not know of the error.³⁷⁷

4.110  In the United States the postal acceptance or ‘mail box rule’ is adopted in section 63(a) of the Restatement (2d) Contracts.³⁷⁸ Therefore, as is the position in England, the rule will apply if (p. 118) the post is a reasonable medium of acceptance.³⁷⁹ A medium will be ‘reasonable if it is the one used by the offeror or one customary in similar transactions at the time and place the offer is received’.³⁸⁰ As in England, the rule can be excluded by the terms of the offer.³⁸¹ Similarly, the rule can be excluded by implication, for example, if the receipt of a notice of acceptance is necessary to enable the offeror to perform.³⁸² Further, as in England, the rule will not apply unless the acceptance is properly addressed, prepaid, and dispatched.³⁸³ The rule will not therefore apply unless the offeree ‘exercises reasonable diligence to notify the offeror’.³⁸⁴

4.111  Under both the Vienna Convention, Article 18(2) and the Unidroit Principles of International Commercial Contracts (2010), Article 2.1.6(2), an acceptance is effective when it ‘reaches’ the offeror.³⁸⁶ A notice ‘reaches’ a person for the purposes of CISG ‘when it is made orally to him or delivered by any other means to him personally, to his place of business or mailing address or, if he does not have a place of business or mailing address, to his habitual residence’³⁸⁷ and under Unidroit, ‘when given to that person orally or delivered at that person’s place of business or mailing address’.³⁸⁸ Both the CISG and Unidroit Principles contain an exception to the receipt rule where acceptance can be by performance without communication.³⁸⁹

4.112  This position is adopted as opposed to the dispatch rule on the basis that it is the offeree who makes the choice of what mode of acceptance is adopted and is in the best position to determine the risks and chances of delay.³⁹⁰ But is should also be noted under both the CISG and Unidroit the offeree is protected from having the offer revoked prior to acceptance because any revocation must arrive prior to the dispatch of acceptance.³⁹¹

4.113  The postal acceptance rule does not apply to revocations. A revocation of an acceptance must be received and is only operative if it is received prior to any acceptance becoming (p. 119) operative.³⁹³ Therefore, doctrinally, if an acceptance is effective from the moment it is put into the post so that a contract is formed at that point, then it is too late for the offeree to then forward, by any means, a revocation of that acceptance.³⁹⁴

4.114  There has been a long debate as to whether this should be the position or whether the law should allow the offeree to revoke the acceptance by delivering a revocation to the offeror prior to the offeror receiving the acceptance. However, the case support for allowing revocation is fairly thin. The Scottish case of Dunmore v Alexander³⁹⁵ appears to support the view that such revocation is possible. Here the acceptance and revocation were communicated to the offeror at the same time and the court placed a lot of weight on that fact. However, the facts of this case may be interpreted differently and may have involved the revocation of an offer. The case may have involved an offer made by a servant through her employer as agent to a future potential employer, which was accepted by that future employer by post to the agent followed by a revocation, with both the acceptance and revocation being actually communicated to the servant at the same time. Alternatively, it might have involved some initial enquiries by the future employer as to the availability of the servant followed by an authorization by the future employer of the servant’s employer to make an offer to the servant followed by a revocation of that authority and offer, which were both communicated to the servant at the same time prior to the servant communicating an acceptance.

4.115  At first instance in the South African case of A to Z Bazaars (Pty) Ltd v Minister of Agriculture,³⁹⁶ Van Heerden J was of the opinion that a letter of acceptance could not be overtaken by a revocation. In the Appellate Division,³⁹⁷ it was held that, on the facts, actual communication of acceptance was required so that the postal acceptance rule did not apply and therefore the telegram withdrawing acceptance was effective because it was received before the letter of acceptance. However, the court queried why a rule designed to protect the offeree should necessarily preclude the offeree from neutralizing the acceptance prior to its receipt.³⁹⁸

4.116  There is far more academic support for acknowledging the efficacy of a revocation. For example, if the postal acceptance rule is justified on the basis of the offeror assuming the risk ‘of delay and accident in the post, it would not seem to strain matters to say that he also assumes the risk of a letter being overtaken by a speedier means of communication’.³⁹⁹ Note should also be taken of the point made in A to Z Bazaars (Pty) Ltd v Minister of Agriculture that the doctrinal result referred to above should not be applied if the postal acceptance rule itself is no more than a rule of convenience. The argument usually put up against this is that (p. 120) after mailing an acceptance, the offeree should not be ‘permitted to speculate at the offeror’s expense during the time required for the letter to arrive’.⁴⁰⁰ More fundamentally, what these views fail to answer is that no matter what the basis for the rule, the rule itself results in a certain legal effect, namely that a contract is formed upon application of the rule. Any reason for allowing the offeree to revoke the acceptance after posting it must provide a basis for rescinding a contract.

4.117  Clearly, the doctrinal result would not apply if the model of contract was a reliance model as the offeror would not have acted in reliance on an acceptance put in the post which he or she does not yet know about. In addition, in any system that does not adopt the postal acceptance rule so that acceptances are only effective upon receipt, it would be possible to communicate a revocation prior to the acceptance being received and becoming effective.⁴⁰¹ It should be added that there are common law systems which adopt the postal acceptance rule but which nevertheless allow for a revocation to neutralize any acceptance sent by post.⁴⁰²

4.118  The issue should also be considered from the point of view of the offeror. In the majority of cases, the offeror would not be prejudiced if a revocation of acceptance is received before an acceptance.⁴⁰³ Indeed, to insist on the binding effect of the postal acceptance when a revocation has been received first may be prejudicial to the offeror as the offeror may have acted on the revocation. For example, the offeror may, in reliance on the revocation, sell the goods that were originally offered for sale to the offeree to a third party. If the postal rule were to be strictly applied, the offeree could change his or her mind again, rely on the postal rule and claim damages for breach of contract from the offeror. Two suggestions have been put forward to avoid this conclusion. It could either be argued that although a contract came into force it has been rescinded by mutual consent, namely the revocation of acceptance which the offeror acted upon,⁴⁰⁴ or, the revocation could be regarded as a repudiatory breach of contract which the offeror accepted by his or her acts of reliance.⁴⁰⁵

4.119  These suggestions are reflected in the Restatement (2d) Contracts. As in England, the position in the United States is that an offeree cannot revoke its acceptance once it has been posted.⁴⁰⁶ However, it is acknowledged that such a revocation may have some effect in that (p. 121) ‘it may amount to an offer to rescind the contract or to a repudiation of it, or it may bar the offeree by estoppel from enforcing it’.⁴⁰⁷

4.120  Another scenario concerns the offeree first mailing a rejection (or counter-offer) to the offeror and then changing his or her mind and mailing an acceptance which is posted before the rejection is communicated to the offeror. As a general rule, the rejection is not effective until it is communicated but the result of this conduct may be that the rejection is nevertheless received prior to the letter of acceptance and the offeror may act on that rejection. In such circumstances the offeror should be protected from the effect of the postal acceptance rule. In the Restatement (2d) Contracts, the issue is dealt with in section 40. This provides that the offer remains open for acceptance prior to the communication of the rejection or counter-offer; however, an acceptance sent after the rejection or counter-offer operates as a counter-offer unless it is received by the offeror prior to the rejection.⁴⁰⁸

4.121  Finally, where an offeree attempts to overtake an acceptance in order to correct a mistake, then since the contract will have become effective upon the posting of the acceptance then the offeree must rely on the doctrine of mistake to vitiate the contract or, if appropriate seek an order of rectification.⁴⁰⁹

4.122  It is common practice today for commercial entities to use standard form contracts. This obviously saves time and costs in negotiating each and every term of an individualized contract. Such contracts usually leave only those terms which vary from transaction to transaction to be negotiated. For example, in a standard form contract for the sale of goods, the face of the form will contain a number of blanks which are to be filled in with those essential terms which are negotiable, such as quality, quantity, price, payment, and delivery. Usually, on the back of such forms, there will be pre-printed general terms and conditions commonly referred to as ‘boilerplate clauses’. These clauses often favour the party who has drafted the document. This necessarily means that the standard terms drafted by, for example, a seller, will often conflict with those drafted by a buyer. Such conflicts can give rise to what has become known as a ‘battle of the forms’. This typically occurs when one party, for example, a seller, makes an offer based on the terms included in its own standard form, whilst the buyer purports to accept the offer on a document incorporating its own differing standard terms.⁴¹⁰ The battle may not end there as the seller might send the goods accompanied by its standard conditions and there is nothing to stop the buyer acknowledging receipt on its standard form (p. 122) while at the same time keeping the goods.⁴¹¹ Similarly, such a battle can occur where both parties send written confirmations of an earlier oral contract and which contain differing conditions. The various permutations that can arise when dealing with such standard forms are limitless. For example, in the case of a buyer purporting to accept the seller’s offer but doing so subject to its own standard terms, would it matter if the purported acceptance was not in fact on the buyer’s standard form such as where the purported unequivocal acceptance is contained in a covering letter with the buyer’s standard terms being sent in the same envelope as the covering letter but now less likely to be read by the seller. Would it matter if the seller’s offer stated that it only intended to contract on its terms and that those terms are to prevail over the buyer’s terms?⁴¹² Would it constitute an acceptance of the buyer’s terms if the seller sends the goods after receipt of the buyer’s acceptance on the buyer’s standard form but with a covering letter again reinforcing the sellers’ standard terms?⁴¹³ Can the buyer accept the goods but reject the seller’s terms? What if the goods and letter were sent separately and the goods were received by the buyer first?⁴¹⁴ In all these situations, the law must determine whether a concluded agreement has resulted between the parties, and, if so, on what terms. The two issues are intertwined.

4.123  There is no distinct set of rules governing standard form contracting in English law.⁴¹⁶ The general principles of contract formation apply. It is possible then to make some general observations.

4.124  First, the rules of offer and acceptance should be applied where appropriate. This was done by a majority of the Court of Appeal in the most famous ‘battle of forms’ case in English law, Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd.⁴¹⁷ That approach (p. 123) was confirmed more recently by the Court of Appeal in Tekdata Interconnections Ltd v Amphenol Ltd⁴¹⁸ where Longmore LJ said, ‘the traditional offer and acceptance analysis must be adopted unless the documents passing btween the parties and their conduct show their common intention was that some other terms were intended to prevail’.⁴¹⁹ The facts in Butler commence with an offer to sell a machine at a stated price with delivery in ten months’ time. The offer was made on 23 May 1969 and was on the seller’s standard terms. The buyer then ordered one of these machines using a purchase note incorporating the buyer’s standard terms and which made some changes to the seller’s quotation including changing the delivery date from 10 months to 10–11 months. The seller’s sales note contained a price variation clause allowing for an increase in price if there was an increase in costs at the time of delivery. In addition, the seller’s note contained a term stating that the seller’s terms were to prevail over any terms of the buyer’s order. The purchase note sent by the buyer made no provision for price variation. There was a tear-off acknowledgement slip at the foot of the buyer’s purchase note which stated: ‘We accept your order on the Terms and Conditions stated thereon.’ The sellers signed and returned this slip with a covering letter which stated that delivery was to be ‘in accordance with our revised quotation of May 23 for delivery in 10/11 months, ie, March/April …’.

4.125  The machine was not ready for delivery until September 1970. Because of this lateness, the buyers had to rearrange their schedule and were not able to accept delivery until November 1970. The sellers sought to rely on the price variation clause to increase the price between May 1969 and April 1970 when the machine should have been available for delivery. The buyer refused to pay any increase in the price which led to the sellers commencing an action against the buyers.

4.126  The Court of Appeal held that a contract had been concluded on the buyer’s terms which did not include a price variation clause.⁴²⁰ Both Lawton and Bridge LJJ adopted the traditional analysis and held that the buyer’s order amounted to a counter-offer which had been expressly accepted by the sellers when they signed and returned the acknowledgement slip.⁴²¹ In their view,⁴²² the terms of the covering letter were not sufficient to incorporate the seller’s terms and conditions and merely referred to the price as quoted and identified the machinery to be sold.⁴²³ This approach has become known as the last shot approach, meaning that the battle will be won by the party firing the last shot. For example, if a seller made an offer on its standard form, which is accepted by the buyer on its standard form and the goods are (p. 124) then sent by the seller, then the battle is won by the buyer, as the seller’s action of sending the goods is an acceptance of the buyer’s terms. However, if the seller in this example sent the goods with a further set of its terms and, unlike the position in the Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd case, it was clear the seller intended to contract only on those terms, then the acceptance of the goods by the buyer may be interpreted as an acceptance of the seller’s term. There can be no doubt that this ‘last shot’ approach may be appropriate on the facts of a particular case. However, it is important that it not lead to the taking of a superficial view of what constitutes an offer or an acceptance. As noted earlier, it is often necessary to look at all communications to determine whether there is an offer and an acceptance.⁴²⁴ Moreover, to say that the party firing the last shot wins focuses too much on formation and not enough on the incorporation of terms. As noted earlier, the two here are intertwined and to say that the party firing the last shot wins could only apply to those terms of which it can be said there has been sufficient notice.

4.127  Second, if the scenario is one where an oral contract is entered into with a later exchange of written confirmations, then, assuming the oral terms are sufficiently certain, then the parties would have already reached agreement on the essential terms and any additional terms on the written confirmation would be a request to renegotiate the contract.⁴²⁵ As such, these other terms are of no effect unless they are expressly or impliedly agreed to by words or conduct and supported by consideration.⁴²⁶ The written terms only replace the oral terms if according to the intention of the parties they are taken to represent the contract rather than merely evidence the contract.

4.128  To this point of principle it is necessary to keep in mind the technique of incorporating terms by a course of dealing. The basis of this technique is that where parties enter into a series of contracts over a period of time on the same terms then they are taken to have assented to those terms in future transactions unless expressly varied.⁴²⁷ There is no need for the parties to have actual knowledge of the terms.⁴²⁸ The terms in question may be the standard terms of one of the parties. In a transaction where it was the sellers who consistently introduced their standard terms to the transaction without any objection by the buyer, Lord Pearce expressed the operation of the principle in these terms:⁴²⁹

The question, therefore, is not what [the buyer itself] … thought or knew about the matter but what they should be taken as representing to [the seller] about it or leading [the seller] to believe. The only reasonable inference from the regular course of dealing over so long a period is that [the buyer was] … evincing an acceptance of, and a readiness to be bound by, the printed conditions of whose existence they were well aware although they had not troubled to read them. Thus the general conditions became part of the oral contract.

(p. 125) 4.129  A typical situation where this issue arises is where a buyer and seller agree a standard set of terms, say the seller’s terms, and use them over a period of time, then an occasion arises where the seller breaches the contract and on that particular occasion the parties did not expressly agree to the seller’s terms. The seller may wish to rely on an exclusion clause in those terms, and the buyer will deny that those terms were incorporated on that occasion.

4.130  This technique can also be used to resolve confirmation issues where a deal is made over the phone and after that call the seller sends a confirmation notice to the buyer which contains the seller’s standard terms and conditions.⁴³⁰ Usually in such a case it would be held that the terms contained in the confirmation came too late as they were introduced after formation. The fact that the other party did not object to the terms would not help as silence is not acceptance. However, the result may be different if there is a course of dealing.⁴³¹ In Henry Kendall & Sons v William Lillico & Sons,⁴³² the terms on a written confirmation note were held to be incorporated into a contract by means of a course of dealing. An oral contract for the sale of feeding stuff for poultry was followed by the sellers issuing a confirmation note prior to the delivery of the goods. This confirmation note had additional terms on the reverse, including a clause which stated that ‘the buyer takes responsibility for any latent defects’. One of the issues before the court was whether the terms of this sale note were incorporated into the contract. There was evidence that this procedure represented the normal course of dealing between the parties. They had made three or four such contracts a month over the preceding three-year period without objection to this term. The House of Lords held that the terms on the confirmation note were incorporated into the oral contract, since, in the light of this course of dealing, the buyer would expect to receive such a confirmation note and contracted on the basis that the sale agreement would be on the terms and conditions set out in the confirmation note. In Australia it has been held that the confirmation must be provided prior to the discharge of obligations by performance. Thus, in the case of a contract for the carriage of goods, the document cannot be handed over at the same time as the goods are delivered.⁴³³ With respect, this seems to be at odds with the principle upon which incorporation by course of dealing (p. 126) is based, namely that by virtue of the course of dealing the parties are taken to have assented to the terms. This does not introduce terms after formation because that assent existed at the time of formation due to the course of dealing existing prior to that point in time. It would therefore follow that the written terms can be communicated after formation⁴³⁴ and conceivably at the point of discharge. However, from an evidentiary perspectve, the later a document is produced in a relationship the more difficult it will be to prove that it was adopted by the parties as containing the terms that governed their relationship.⁴³⁵

4.131  It should also be noted that although terms may be produced after formation they may still form part of the contract if there is an assumption by the parties that they are to apply. This may occur when the parties operate in the same trade and the terms in question are standard in the trade. In British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd,⁴³⁶ an oral contract was entered into over the phone for the urgent delivery of a crane. On delivery, the defendants were sent a set of written conditions of hire which included a clause stating that the defendants were liable to indemnify the plaintiffs against all expense in connection with the use of the crane hired. The plaintiffs claimed that these conditions had been incorporated into the contract on the basis of the common understanding of the parties who were both operating in the same hire business. The court assumed that the defendants therefore knew that similar printed terms were in common use in the business.⁴³⁷

4.132  Third, as already discussed, the mirror image rule applies to acceptances.⁴³⁸ All the terms of the offer must be unconditionally accepted if a contract is to result. If the buyer alters or adds terms as was done in the Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd case, then the buyer would have made a counter-offer which in turn must be accepted by the seller to result in a contract.⁴³⁹ Even an ‘acknowledgement’ sent in reply to an order (offer) may constitute a counter-offer if it is given with the requisite intention.⁴⁴⁰

4.133  Fourth, since the issue before the court is one of contract formation, the court can generally take into account evidence of the conduct of the parties after the point of alleged formation.⁴⁴¹ That conduct may not only evidence that the parties considered themselves in agreement but also on what terms.⁴⁴² This may resolve a battle of the forms.⁴⁴³ Of course (p. 127) the parties’ conduct may be inconsistent with there being an agreement or, more generally, their conduct may be explicable on grounds other than there being a concluded contract. For example, in British Steel Corporation v Cleveland Bridge & Engineering Co Ltd (1981),⁴⁴⁴ after a number of discussions, the defendant sent a letter of intent to the plaintiff proposing to enter into a contract with the plaintiff under which the plaintiff would construct certain steel nodes. The letter of intent stated that the terms were to be on the defendant’s standard form and that the plaintiff should commence work immediately pending preparation of the formal agreement. As a consequence, the plaintiff carried out substantially all the work. However, during that period, negotiations continued between the parties on various essential terms. The plaintiff did not agree to the defendant’s standard terms, and the defendant did not agree to the plaintiff’s quotation. In these circumstances, Robert Goff J held that no contract existed between the parties. The plaintiff’s commencement of production was not held to constitute an acceptance of the defendant’s standard terms since it was quite clearly carried out pending a formal contract.

4.134  There has long been a concern among commentators that the ‘last shot’ approach referred to above simply encourages the parties to try and fire the last shot; frustrates the expectation of commercial parties because, in many cases, they clearly want a contract, albeit on their own terms;⁴⁴⁵ or allows one party to unjustifiably take advantage of the other.⁴⁴⁶ For example, in the case of a discrepancy between the terms of a seller’s note—which purports to accept a buyer’s order—and the terms of that buyer’s purchase note, if the market price of the goods increases, the seller could refuse to supply the goods at the agreed price on the grounds that no contract existed. Similarly, if the market price fell, the buyer could use the same argument in an action for non-acceptance despite the fact that there had been agreement as to price. Thus, it has been suggested that a strict application of contract law principles will result in businessmen enjoying ‘an unjustifiable locus poenitentiae’ in being able to use the ‘no contract’ argument at any stage, even where the other party has already substantially performed in the belief that there was a contract.⁴⁴⁷ One commentator concludes ‘where the reason for non-performance relates to terms on which the parties had agreed, the mirror image rule … may thus allow one party to take advantage of the other’.⁴⁴⁸

4.135  In Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd,⁴⁴⁹ the facts of which are discussed above,⁴⁵⁰ Lord Denning MR suggested what he considered to be a different approach. In fact he envisaged two additional approaches. He thought the traditional approach did not reflect commercial reality and the increasing use of standard forms. He made it very clear that he thought the issue before him was one of determining the terms of the contract as it was quite clear that the parties had reached a concluded contract.⁴⁵¹ His (p. 128) approach to such a case was then directed to trying to work out the terms of the bargain. This approach has been termed the ‘knock out’ approach. Such an approach is likely to arrive at a result which upholds the agreement, as it is less likely that an agreement today will fall for want to certainty or completeness.⁴⁵² He explained his approach and the basis for it in the following terms:⁴⁵³

4.136  It can be seen in this paragraph that in addition to the ‘knock out’ approach, Lord Denning MR also envisaged that in some cases the battle could be won by the party firing the first shot. He envisaged that could apply when a party purports to accept but attempts to incorporate its own terms, and those terms are so materially different that they would impact on the price. Perhaps his reference to those terms being ‘on the back’ of the acceptance alludes to a requirement of notice whereby if one party leads the other party to reasonably believe he or she is accepting but nevertheless includes additional terms in the acceptance which are presented in such a way that the offeror would not ordinarily take notice of them given the style and tenor of the purported acceptance then a court may simply give effect to the ‘acceptance’ and ignore the additional terms.⁴⁵⁴ This has become known as the ‘first blow’ approach.⁴⁵⁵ This approach is related to the concept of incorporation by notice requiring reasonable steps to be taken to bring terms to the attention of the other party if they are to be incorporated, and what is reasonable requires more steps to be taken if the document purports to be an acceptance on its face.

(p. 129) 4.137  In the result Lord Denning MR considered that in this case the crucial document was the acknowledgement slip sent by the seller to the buyer. Thus, he came to the same conclusion as the rest of the court and the buyer’s terms prevailed.

4.138  Given the decision of the Court of Appeal in Tekdata, it is clear that where it is possible to apply an offer and acceptance approach then this must be done. However, Tekdata also recognized the limits of this approach and that ‘there will be cases when one must glean from documents passing between the parties and from their conduct whether agreement has been reached’.⁴⁵⁶ Given this, what then may be made of Lord Denning MR’s approach of which there have been a number of criticisms. One alleged difficulty often attributed to his approach is that the parties cannot be sure of their position unless they go to court and receive a ruling. It has thus been criticized as ‘essentially arbitrary and liable to produce much litigation’ and inevitably would not stop attempts to fire the last shot.⁴⁵⁷

4.139  It is also important to note that Lord Denning MR applied his approach to formation in Gibson v Manchester City Council which was not a battle of the forms case.⁴⁵⁸ Later, in an appeal to the House of Lords, Lord Denning MR’s approach was rejected.⁴⁵⁹ Lord Diplock said:⁴⁶⁰

4.140  The criticism of Lord Denning MR’s judgment by Lord Diplock overlaps with another criticism that has been made and which directly calls into question the ‘knock out’ approach, (p. 130) namely that Lord Denning MR improperly separated the question of contract formation from the identification of terms seeing the issue as solely about the latter.⁴⁶¹ It is true that the offer and acceptance approach is intimately tied to the identification of terms as an offer must contain all the express and implied terms of the contract and those terms must be accepted by the offeree. You cannot conclude there is an agreement if you cannot determine the terms. The error in Lord Denning MR’s approach as identified by Lord Diplock is his willingness to consider all the communications between the parties and try to glean from them whether there was an agreement and what were the terms of any agreement. To that extent, the criticism is justified at least on a traditional analysis of agreement. There must be a process whereby each communication is considered on its own merits as that is how the transaction progressed. But it is also true that each communication must be read in context which requires the court to consider what went before it in order to discover the intention behind each communication and there is therefore a cumulative building up of correspondence to consider at each stage.⁴⁶² However, the pooling of information under Lord Denning MR’s approach suggests that a communication might be construed in light of what went after it. But that is not necessarily heresy as a contract can be formed through conduct outside of an offer and acceptance analysis.⁴⁶³ The importance of the conduct of the parties to a communication has already been noted.⁴⁶⁴ Such conduct may evidence how a communication was interpreted by the parties. For example, if one party seeks an acknowledgement from the other side which is not forthcoming and never chased up it should be difficult to then argue that the term forms part of the contract.⁴⁶⁵ Moreover, in practice, the process of considering the cumulative correspondence between the parties often results in a search for terms. Perhaps this was the point that Lord Denning MR was trying to get across, and if that is the case then some of the criticism of this aspect of his judgment is misplaced, as the search for terms is itself often a search for agreement. Therefore, he was not improperly separating the two issues. By first stating that the parties had reached an agreement he may have no more than suggested there was an intention to contract. It must be said that for many contract terms the ‘knock out’ approach reflects commercial reality. For example, if the parties’ standard terms are not in conflict then both may be able to stand together.⁴⁶⁶ Moreover, often only one set of terms will contain the technical specifications of the subject matter of the contract and it would be expected that these would form part of the contract.

4.141  However, there is also legitimacy in an approach that determines agreement first and terms second. Approaches to the battle of the forms problem elsewhere, which are discussed (p. 131) below, emphasize the legitimacy of establishing an agreement by reference to the overall conduct of the parties with a consequent settling of terms. Indeed, it is a legitimate tool of investigation to look at the conduct of the parties to see if an agreement has been reached if it is not possible to make a clear finding from the communications that flowed between the parties. The clearest example is often the commencement of performance by one of the parties when that is not accompanied by some other contradictory act such as where a seller sends the goods, but includes a covering letter that suggests the seller is not agreeing to the buyer’s terms.⁴⁶⁷ A very clear example of where it can be said that an agreement has been reached, but where there may be argument as to the terms of the contract, is where a seller makes an offer which is expressed to incorporate its standard terms, but those terms are not provided but will be provided upon request. In such a case, if the buyer communicates an acceptance, there will be a contract and it will be on the seller’s standard terms, but there may still be argument over whether or not this method of incorporation constituted the taking of reasonable steps to bring to the attention of the buyer some terms that might be particularly onerous.⁴⁶⁸

4.142  Usually, where the parties have not intended to assume legal obligations, this will be clear from the facts. The facts in British Steel Corporation v Cleveland Bridge & Engineering Co Ltd⁴⁶⁹ discussed above are an example of this. More often the parties will have expected their arrangements to give rise to some legal obligations,⁴⁷⁰ but are debating the actual terms of that arrangement.⁴⁷¹ Perhaps in many cases they might see the issue as a potential problem in the future but based on their experience believe it is one that is unlikely to arise or one that is otherwise manageable.⁴⁷² They therefore take a calculated risk.⁴⁷³ It is also for this reason that many try to have procedures that ensure that they fire the last shot in the flow (p. 132) of standard terms between the parties, that is, to sure up the terms and not the existence of the contract.⁴⁷⁴

4.143  Finally, much of this criticism of Lord Denning MR’s approach is informed by the offer and acceptance method of formation. That methodology is just a tool that aids analysis and which must not be used if it clearly contradicts the transaction process in question. If an offer and acceptance analysis is not applicable on any given facts, then it might be correct to determine that an agreement exists and then go onto to determine its terms. In GHSP Inc v AB Electronic Ltd,⁴⁷⁵ Burton J was able to conclude that the parties had reached an agreement in a battle of the forms case but that the terms of neither party formed the basis if the contract. However, the contract did not fail for uncertainty as all essential terms could be implied in law under the sale of goods legislation.⁴⁷⁶ However, in an important passage, McHugh JA in Integrated Computer Services Pty Ltd Digital Equipment Corp (Aust) Pty Ltd⁴⁷⁷ said of the dynamic commercial relationship:⁴⁷⁸

4.144  It follows from what has been said that a battle of the forms may be resolved in a number of different ways involving all the general contract law techniques referred to above together with the three approaches derived from the Butler Machine Tool Co case. Much depends on the circumstances and what approach best reflects the presumed intention of the parties on any given set of facts. For example, Ralph McKay Ltd v International Harvester Australia Ltd⁴⁷⁹ may be seen as involving aspects of the ‘knock out’ approach together with incorporation by course of dealing. Here an agricultural machinery components supplier had a long course of dealing with a buyer who either used the goods itself or on-sold them. The practice of the parties was that the buyer would give the seller a purchase order which in general terms set out the buyer’s requirements over a certain period. It set down some general conditions for the goods and incorporated certain standard terms and conditions. It included a modification clause that attempted to prevent any modification to these terms. A copy of this was signed by the seller and sent back. During the currency of that purchase order the purchaser (p. 133) would periodically call for the shipping of certain goods. A document would detail the exact goods required. This document included a price which was based on the seller’s pricing schedule which the seller had provided to the purchaser and which contained the seller’s terms and conditions. The seller would then deliver the goods and produce a delivery docket containing its standard terms and conditions; these dockets did not state a price. A few days later, the seller would follow this up with an invoice which contained a price and its standard terms and conditions. The dispute in question concerned whether a Romalpa clause in the seller’s terms and conditions was part of the contract between the parties. It was held that it was. In this case, Tadgell J thought that the terms and conditions of each party were not conflicting as they were in the Butler Machine Tool Co case and could be read together. To the extent there was any conflict, the course of dealing between the parties resulted in the buyer having accepted or not dissented from the seller’s terms and conditions.

4.145  The relevant section of the Uniform Commercial Code is § 2-207. In the last edition of this book the official text of this provision provided:⁴⁸⁰

4.146  Given the original approach this provision takes, it is worthwhile still discussing even though there is now a more recent amendment. It can be seen that the section does not deal with contract formation. The formation provisions of the Code were contained in sections 2-204 and 2-206. The concern of this section 2-207 is with identifying the terms of the contract.⁴⁸¹ It is also not solely concerned with resolving any battle of the forms but applies to all sale of goods contracts. As regards the battle of the forms, if the parties conduct themselves so as to recognize an agreement, then if they have exchanged conflicting or inconsistent records, subsection (a) results in the terms of the contract being those terms that appear in the records of both parties. There is no automatic recognition of a term in an acceptance that does not (p. 134) materially alter the terms of the offer. But there is still allowance for there to be agreement on a term or terms that might appear in the records of only one of the parties.⁴⁸²

A few other points about this section are worth noting here. First, the section does not give a preference to any document produced before or during performance. Thus, in a battle of the forms, no preference is given to either the first or last shot. Second, the provision does not give any operation to terms that insist on one party’s terms governing the agreement. It follows that the normal common law position will prevail. If one party insists on such a term as a condition of formation and the other party does not agree to it, there will be no contract under the formation provisions.⁴⁸³

4.147  It is necessary to set out the new provision in full even though parts of it have been referred to earlier in this chapter. The provision is contained in the 2014–2015 Official Text and Comments and provides:

The provision as drafted seeks to deal with two situations. The first is ‘the written confirmation, where agreement has been reached either orally or by informal correspondence between the parties and is followed by one or both of the parties sending formal memoranda embodying the terms so far agreed upon and adding terms not discussed’.⁴⁸⁵ The second is ‘offer and acceptance, in which a wire or letter expressed and intended as an acceptance or the (p. 135) closing of an agreement adds further minor suggestions or proposals … . Because the forms are oriented to the thinking of the respective drafting parties, the terms in them often do not correspond.’⁴⁸⁶ The provision now deals with aspects of formation by incorporating subsection (1) which used to appear in another provision. One can see that as between merchants subsection (2) could resolve a battle of the forms. Subsection (3) is the more general provision which operates when the conduct of the parties evidences a contract even though their writings do not. In that case the terms become ‘those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provision of this Act’. It recognizes that in many situations the issue is not so much about agreement but what are the terms of the agreement.

4.148  Article 19 of the Vienna Convention is not solely aimed at determining a battle of the forms but will in some cases have an impact on such a dispute.⁴⁸⁷ Although Article 19(1) states the general mirror-image rule, this is then qualified by Article 19(2) and (3). These provisions provide:⁴⁸⁸

1. (1)  A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer.

2. (2)  However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance.

3. (3)  Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.

4.149  A detailed discussion of this provision is beyond this text but a few points may be noted.⁴⁸⁹ It will be clear that subsection (1) is concerned with the formation of the contract and subsection (2) with both formation and the terms of the contract. As noted above, subsection (1) adopts the traditional mirror-image rule. It classifies as counter-offers only those replies (p. 136) that purport to be acceptances. A mere enquiry would not fall within that notion. Where there is a purported acceptance that does not materially alter the terms of the offer then that will constitute an acceptance under subsection (2) and any dispute about terms will be resolved under subsection (2).⁴⁹⁰ This is a modified version of the last shot rule.⁴⁹¹ The party firing the last shot will have its terms govern the relationship so long as they do not materially alter the terms of the offer (thus being a counter-offer under subsection (1)) and so long as the offeror did not object to these terms without undue delay. Usually, if the contract has been performed then no such objection would have been lodged. Subsection (3) provides a non-exhaustive list of matters that constitute a material alteration. This provision is perhaps the most problematic aspect of the article. Since it is not exhaustive, questions arise as to what else might fall within the concept of a ‘material alteration’. In addition, within the subsection itself concepts are used that could give rise to argument, for example, what clauses could be said to deal with the ‘extent of one party’s liability’ and what clauses could be said to deal with the ‘settlement of disputes’.⁴⁹²

4.150  The Unidroit Principles of International Commercial Contracts (2010) have, in Article 2.1.11, a provision that is in the same terms as Article 19(1) and (2) of the Vienna Convention. However, there is no description of what might constitute a ‘material’ alteration.⁴⁹³ The Unidroit Principles also attempt to deal with confirmations in Article 2.1.12. This provision seeks to deal with confirmations that are sent after a contract has been formed which contain all the essential terms.⁴⁹⁴ It therefore differs from Article 2.1.11 which deals with formation and where terms modifying an offer are contained in an acceptance. However, because in practice it is often difficult to distinguish these situations the terms of Article 2.1.12 are the same as those contained in Article 2.1.11(1). That is, the solution to any issue involving confirmations is the same as acceptances which contain additional or different terms to the offer.⁴⁹⁵

4.151  More importantly, in addition to these provisions Unidroit has specific provisions to deal with parties transacting on standard terms. In such cases, the general rules on formation (p. 137) apply subject to the rules contained in Articles 2.1.20–2.1.22.⁴⁹⁶ ‘Standard terms’ are defined as ‘provisions which are prepared in advance for general and repeated use by one party and which are actually used without negotiation with the other party’.⁴⁹⁷ The relevant provision dealing with a battle of the forms is Article 2.1.22 which provides:⁴⁹⁸

4.152  Usually in the situation envisaged by the Article, namely where both parties are putting forward their standard terms then no contract would eventuate as there is no offer and acceptance.⁴⁹⁹ The exception would be if they commenced performance and then the terms would often be those of the party who fired the last shot. However, this article adopts the ‘knock out’ approach calling for there first to be a conclusion that the parties have reached an agreement and then setting in place a rule to settle the terms of the agreement. If the parties have reached an agreement then notwithstanding the rules of offer and acceptance, a contract will come into effect and the terms of the contract will be those agreed and any standard terms that are common in substance. The reason for this approach is explained as follows:⁵⁰⁰

Where … the parties, as is very often the case in practice, refer to their standard terms more or less automatically, for example by exchanging printed order and acknowledgment of order forms with the respective terms on the reverse side, they will normally not even be aware of the conflict between their respective standard terms. There is in such cases no reason to allow the parties subsequently to question the very existence of the contract or, if performance has commenced, to insist on the application of the terms last sent or referred to.