Introduction
Drafting stage
Case law
Comment


Introduction​

The Contracts Law (Cap 149) provides the legal framework for establishing legally valid and enforceable agreements in Cyprus. In real-life commercial situations – and especially with the advent of technology and the speed and manner in which transactions are effected – parties may not always achieve the certainty required to ensure that an agreement or contract term is valid and enforceable. The pressure associated with reaching an agreement often causes parties to defer important contract terms in order to close a deal at the expense of certainty and, ultimately, enforceability.

Drafting stage

At the drafting stage, parties carry the burden of transposing their intentions, safeguards and expectations into several pages to which they will be able to resort and hold the other contracting party accountable if something goes wrong somewhere along the line. Frequently, parties do not have all of the answers at the drafting stage or even a clear idea of how their cooperation will pan out, so they may opt to defer certain decisions by adopting more flexible and non-committal language for a specific contract term. The problem arises when one party has acted in reliance to a clause that the other party deems to be non-binding and thus unenforceable.

Case law

Cypriot courts that adopt English common law principles are, in general, reluctant to hold an agreement enforceable where it lacks certainty. For example, in Ismini Charalambous v Agamemnon Hadjigeorghiou ((1984) JSC 422), the Supreme Court stated that:

only agreements, the terms of which are certain are enforceable in law, in other words, if the terms of an agreement are so vague or indefinite that it cannot be ascertained with reasonable certainty what is the intention of the parties there is no contract enforceable at law, and notwithstanding that the parties may have though and acted on the basis that a contract existed between them, no consensus at idem will be held to exist and the contract is void.

Further, the courts will not intervene to flesh out a contract where none exists (Hillas & Co Ltd v Arcos [1932] ALL ER Rep 494).

According to the Supreme Court in Ismini, the "paramount consideration of the Court is to do justice between the parties". Where the enforceability of an agreement or contract term is under the courts' scrutiny for lack of certainty, they must employ the interpretation method to determine the parties' intentions at the time that the proposed agreement or contract term was drawn up.

In Leonidas Kyriakides v Antonis Kyriakides (1976 1 CLR 76) regarding the interpretation of the expression "lime industry" in an agreement, the court held that:

in construing a contract, a Court is not entitled to take into account in order to resolve an ambiguity or for any other purpose, the conduct of the parties subsequent to the execution of the contract as throwing light on the meaning to be given to it.

Moreover, the case reiterated that where there is doubt, a reasonable meaning will be preferred to an unreasonable one.

In Avaratzis v Melnyk (Civil appeal 371/2012, 13 November 2018), the Court of Appeal through Justice Pougiourou referred to case law evidencing the lack of an enforceable agreement – where, for example, the price and date of payment were to be determined from time to time (eg, May v R (1934) 2 KB 17) or the proposed agreement is vague, incomplete or clearly provides for additional steps before it can be completed (Mamidoil – Jet Oil Greek Petroleum Co SA v Okta, Crude Oil Refinery, AD (2001) AD 2 Lloyd's Rep 76) before concluding that the trial court had been presented with plenty of evidence to safely determine that an oral agreement had been reached.

More specifically, where the essential terms of an agreement are ascertainable by a reading of the contract as a whole, effect will be given to the agreement of the parties (Saab and Another v Holy Monastery of Ayios Neophytos, (1982) 1 CLR 499). Where the nucleus of a term is clear, the court will be ready to interpret and enforce it, irrespective of whether the interpretation and enforceability may be specially difficult (Polyviou, Contract Law Part B, p 533).

Comment

Parties negotiating contract terms should apply certainty while their contract is being drafted. It is important to engage experienced professionals who will assist in expressly setting out those terms which are material to a contract. For terms that cannot be agreed at the time the contract is entered into, a flexible approach may be adopted by:

  • incorporating terms that will apply objectively in case the parties cannot reach their agreement in the future (eg, determination by an objective third party such as an expert or arbitrator);
  • including a mechanism or a standard (reasonableness) that would allow a third party to objectively evaluate the outstanding contract term;
  • using language that denotes certainty of obligation such as 'shall' or 'best endeavours' ("being those steps which a prudent, determined and reasonable oblige acting in his own best interests and desiring to achieve that result would take" (IBM United Kingdom Limited v Rockware Glass Limited, 1980 FSR 335)); and
  • refraining from referring to phrases such as 'to be agreed' or 'option' where their intention is in fact to agree at the time the contract is entered into.

For further information on this topic please contact Stella Koukounis at Solsidus Law by telephone (+357 22 007700) or email ([email protected]). The Solsidus Law website can be accessed at www.solsiduslaw.com.