Contract formation

Good faith in negotiating

Is there an obligation to use good faith when negotiating a contract?

There is no generally recognised principle or obligation in English contract law to use good faith when negotiating a contract.

The English courts have rejected suggestions that an obligation to negotiate in good faith should be implied into a contract. It is a long-standing principle of English law that a negotiating party must be free to advance its own interest during a negotiation. Sometimes parties will include an express obligation to negotiate in good faith, but English courts usually view this as equivalent to an agreement to agree and therefore unenforceable for lack of certainty.

‘Battle of the forms’ disputes

How are ‘battle of the forms’ disputes resolved in your jurisdiction?

Under English law, the general legal rule is that the courts will conclude that, unless there is any contrary evidence, the last set of terms to be provided prior to the acceptance or performance of the contract will govern the contract, namely the ‘last shot’ doctrine. A supplier often wins the battle of the forms argument as the supplier can control the sale process by ensuring that it does not agree to supply any goods or services until the buyer agrees to its terms: the supplier fires the last shot.

A supplier dealing on standard terms may incorporate a provision which stipulates that the supplier’s contract terms prevail over any terms provided by the buyer, for example:

The acceptance by [Supplier] of your order is subject to [Supplier’s] terms and conditions of sale.

Using this type of language is not an absolute guarantee that the supplier’s terms will apply although it may discourage some buyers from responding with their own terms on the basis that they are unlikely to be accepted. Such a ‘prevail clause’ will not be effective where the supplier has subsequently agreed to accept the buyer’s terms, or if the buyer expressly refuses to accept the supplier’s terms.

Where parties do business together on the same terms on a regular basis over a period of time, there may be evidence of a ‘course of dealing’ as a result of which the terms normally used by the parties will be considered the terms of their contract. This may enable a supplier to argue that their terms should apply if a buyer subsequently attempts to introduce new terms of purchase.

Language requirements

Is there a legal requirement to draft the contract in the local language?

No. There is no legal requirement to draft a contract in the local language, although this is not generally an issue as the English language is often used for international contracts.

Signatures and other execution formalities

In what circumstances are signatures or any other formalities required to execute commercial contracts in your jurisdiction? Is it possible to agree a B2B contract online (eg, using a click-to-accept process)? Does the law recognise the validity of electronic and digital contract signatures? If so, how are they treated in comparison to wet-ink signatures?

The general rule under English law is that a commercial contract does not need to be in any particular form to be legally binding. As long as the basic elements of a contract exist – namely offer, acceptance, consideration, intention to create a legal relationship and certainty of terms – then it does not matter if a contract is made on paper or online. In addition, unless relevant legislation or contractual arrangements specify a form of signature, English common law adopts a pragmatic approach and does not prescribe any particular form or type of signature.

In determining whether the method of signature adopted demonstrates an intention to be bound by the document, the courts adopt an objective approach considering all of the surrounding circumstances. The common law provides that whether a mark that appears in a document amounts to a signature depends on whether it was inserted into the document in order to give, and with the intention of giving, authenticity to the document. The inclusion of the mark must have been intended by the signatory to be their signature. 

It is therefore possible to agree a B2B contract online. However, the key issue when making contracts online is to ensure that the terms are properly incorporated into the contract – namely, the party accepting the terms has an opportunity to read them before accepting the contract. This can be done by having a link to the terms and conditions with a tick box to show acceptance. If the link to the terms and conditions is not opened and a party does not bother to read them, it is at that party’s risk and the contract will still be binding.

E-signatures can be used to execute commercial contracts under English law, most frequently by:

  • a person typing their name into a contract or into an email containing the terms of a contract;
  • a person electronically pasting their signature (eg, in the form of an image) into an electronic (ie, soft copy) version of the contract in the appropriate place (eg, next to the relevant party's signature block);
  • a person accessing a contract through a web-based e-signature platform and clicking to have their name in a typed or handwriting font automatically inserted into the contract in the appropriate place (eg, next to the relevant party's signature block); or
  • a person using a finger, light pen or stylus and a touchscreen to write their name electronically in the appropriate place (eg, next to the relevant party's signature block) in the contract.

 

The above is the general approach for simple commercial contracts. For commercial contracts that are required to be executed as a deed, e-signatures may be used when execution is by two authorised signatories but there is a concern if execution is by a single director in the presence of a witness who attests the signature. It is best practice for the witness to be physically present when the signatory signs (rather than remote witnessing through some sort of electronic medium).