The High Court has dismissed the appeal of Caroline Gibbs against a decision of the county court that an email from respondent Lakeside Developments Ltd, purporting to accept her settlement offer but attaching a consent order specifying a different payment date, was not an acceptance but a counteroffer.(1) In arriving at this conclusion, Justice Arnold considered the relevance of the communications that took place between Gibbs and Lakeside subsequent to the purported acceptance.
Gibbs had filed a claim for damages against Lakeside, which was ultimately dismissed; she appealed the decision. Approximately one month before the date on which the appeal was due to be heard, the parties engaged in settlement negotiations. Gibbs, by a letter dated March 1 2016, offered to settle the case for £90,000, subject to the offer being accepted on or before 4:00pm on March 9 2016 and the sum being paid to her account before 4:00pm on March 16 2016.
Lakeside replied by email on March 8 2016 stating: "The claimant accepts your offer. I attach a draft consent order for your consideration and approval." However, the draft consent order deviated from the terms of Gibbs's offer by providing for payment of the settlement sum by April 8 2016, rather than March 16 2016.
A dispute arose as to whether the March 8 email was an acceptance of the March 1 offer (as submitted by Gibbs) or a counteroffer (as submitted by Lakeside). At first instance, the county court held that the March 8 email was a counteroffer and found for Lakeside.
Gibbs appealed, arguing that the March 8 email was a valid acceptance of the March 1 offer on the bases that:
- it purported to be so; and
- the attached consent order was merely a proposed formal document to give effect to the agreement, which – if it did not accurately reflect the agreement reached – could have been varied or rectified as necessary.
Counsel for Gibbs reinforced this argument by inviting the court to consider what the position would have been if the consent order had been sent after the email – for example, two days later.
Lakeside submitted that the March 8 communication must be considered as a whole, including the relevant term of the consent order. Considered in its totality, the communication was not an acceptance of all the terms of the March 1 offer and, as such, was a counteroffer.
The judge dismissed the appeal and upheld the first-instance decision, finding that the March 8 email was a counteroffer as it did not amount to an acceptance of the whole of the March 1 offer; the settlement amount and the date by which that sum had to be paid were "a package", and the latter had not been agreed.
The core reasoning of the case is a useful practical example illustrating some aspects of contractual formation and the pitfalls which can arise. However, of more interest are the ancillary comments that it contains regarding the legal relevance of the parties' communications subsequent to the March 8 email. The judge, despite agreeing with the first-instance decision's overall conclusion, did not agree with its approach to the parties' communications, citing the High Court decision in Newbury v Sun Microsystems.(2) The first-instance court had considered only the two communications in question and no subsequent communication between the parties.
The judge considered that this was wrong and that it was "well established" that, in considering whether an agreement has been concluded, the court is entitled to have regard to all communications between the parties, citing (in addition to passages from Chitty) Pagnan SPA v Feed Products Ltd(3) – in particular, the first principle: "In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole." However, in the case at hand the High Court omitted from its analysis the fact that the Newbury case relied on at first instance also quoted the same wording from Pagnan, but interpreted it differently.
The divergence in views between the judge in this case and the reasoning in Newbury appears to arise from the ambiguous wording used in Pagnan, which originates from Hussey v Horne-Payne.(4) Hussey states that in cases where you have to "find your contract" (ie, where there is a chain of correspondence negotiating the terms of an agreement, as opposed to a single definitive agreement), "[y]ou must take into consideration the whole of the correspondence which has passed". The wording continues: "You must not at one particular time draw a line and say, 'We will look at the letters up to this point and find in them a contract or not, but look at nothing beyond'."
In Newbury looking at "the correspondence as a whole" appears to be in order to identify within the correspondence the point at which the parties have to all outward appearances agreed in the same terms on the same subject matter. Having identified this point, it does not consider that any subsequent conduct is relevant to reaching a conclusion as to whether a binding agreement has been formed as at that point. In contrast, the judges approach in the case at hand takes an additional step and considers whether subsequent actions support or undermine the conclusion. It held that post-March 1 and 8 communications supported the view that acceptance had not occurred (Gibbs had in fact stated this explicitly on March 10 2016 and changed position on March 15 2016).
On balance, the Newbury analysis seems to arise more naturally from the original wording in Hussey, although it is sufficiently ambiguous to permit either interpretation. Regardless of which is correct, the decision provides an interesting case study in how even a "well-established" principle can be interpreted in different ways.
For further information on this topic please contact Chris Whitehouse at RPC by telephone (+44 20 3060 6000) or email (firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
(1) Gibbs v Lakeside Developments Ltd  EWHC 2203.
(2)  EWHC 2180 (QB).
(3)  2 Lloyd's Rep 601.
(4) (1879) 4 App Cas 311.
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