This case demonstrates the reluctance of the Courts to depart from the ordinary expectation that a contract which provides for execution by both parties will only become binding upon execution by all parties. It also illustrates the limits on the authority of accountants (and by inference, solicitors) to negotiate and conclude contracts on behalf of their clients, with the Court requiring such authority to have been given expressly or by necessary implication. Contracting parties should satisfy themselves that a contract has been completely executed before relying on it being binding.
This case arose out of a proposal that Mr Hopcroft and Mr Edwards would provide assistance in respect of some litigation that the respondents were involved in, in return for a percentage of the proceeds of the action and a shareholding and directorship of the respondent company. An agreement to this effect (Agreement) was prepared and signed by Mr Hopcroft and Mr Edwards but unbeknownst to them, it was never signed by the respondents. Following the success of the respondents in the litigation, Mr Hopcroft and Mr Edwards claimed money alleged to be due under the Agreement alleging that despite no execution by the respondents, a contract had been concluded.
In dismissing the appeal against the trial judge’s finding that a contract had not been concluded, the Court made the following observations and findings:
- the question of whether the parties intended that a binding contract come into existence on execution by Mr Hopcroft and Mr Edwards and return to the respondents’ accountant Mr Noonan (and without execution by the respondents) required an objective assessment of the circumstances between the parties at the relevant time and consideration of whether a reasonable person would have regarded the Agreement as being offered for execution on this basis;
- Mr Noonan did not have actual or ostensible authority to proffer the Agreement to Mr Hopcroft and Mr Edwards on the above basis. Instructions by the respondents to ‘do whatever [is] necessary’ did not extend to authority to decide the terms of the Agreement or to offer it for execution, without reference to the respondents. In this regard, the Court noted that any such authority must be given expressly or by necessary implication, neither of which was established in this case; and
- the evidence in this case was insufficient to displace the ordinary expectation that a contract which provides for execution by both parties would only become binding upon execution by both parties, rather it was the “manifest intention” of the parties not to be bound until formal execution.
The Court also stated that whether the conduct of the respondents in appointing Mr Hopcroft and Mr Edwards as shareholders and directors was to be understood as acceptance by the respondents of an offer by Mr Hopcroft and Mr Edwards was to be determined objectively by reference to what a reasonable person in the position of Mr Hopcroft and Mr Edwards would have understood. In finding that a reasonable bystander would not have concluded acceptance, the Court noted that:
- the ordinary expectation in relation to execution of the Agreement continued to apply at the time of the appointments;
- the lack of communication by the respondents about execution or the appointments, and the absence of enquiries by Mr Hopcroft and Mr Edwards as to whether execution had occurred, made a conclusion of acceptance unlikely;
- the respondents’ conduct was not referable only to the terms of the Agreement – it was equally consistent with the satisfaction of a pre-condition to Mr Hopcroft and Mr Edwards assisting with the litigation; and
- it was not reasonable for Mr Hopcroft and Mr Edwards to infer from the fact that the respondents were aware of the terms of the offer (ie the Agreement) and the absence of a response, that the offer had been accepted.
See the case.