All questions

Contract formation

In Ireland, there are four prerequisites that must be satisfied before a contract comes into being: offer, acceptance, consideration and an intention to create legal relations. Other factors that the courts will look at before enforcing a contract include the terms of the contract, the capacity and authority of the parties and whether the contract is illegal or contrary to public policy.

Generally, commercial contracts are in writing; however, the Irish courts also recognise oral contracts. In certain circumstances, statute requires contracts to be performed in a specific format: in the form of a deed in writing or evidenced in writing. By way of example, the Land and Conveyancing Law Reform Act 2009 requires commercial contracts transferring an interest or right in property to be executed as a deed. The introduction of the Electronic Commerce Act 2000 allows for contracts to be formed via email and also allows for e-signatures which, as a result of the disruptions caused by the covid-19 pandemic, have seen a significant increase in use.

i Offer

An offer to contract, whether oral or written, must be unequivocal, unconditional, and express all terms and conditions. An offer expires on acceptance, the making of a counter-offer or rejection.

ii Acceptance or intention to create legal relations

As acceptance of an offer constitutes the creation of legal relations, parties to commercial contracts often include expressions such as 'subject to contract', 'agreement in principal', 'provisional agreement' or 'non-binding heads of terms' during negotiations to distance themselves from this. In commercial contracts, it is presumed that the parties intend to create legally binding contracts unless otherwise stated.

An issue can arise in trading relations known as 'battle of the forms', with each party trying to incorporate its own terms and conditions into the contract. Disputes can arise as to whether the terms and conditions have been accepted by both parties or whether they constitute no more than a counter-offer.

In resolving disputes relating to battle of the forms, two approaches can be taken:

  1. there is no agreement between the parties as the offer has not been accepted; and
  2. there is an agreement whereby the terms of the last form apply.

The Supreme Court has held that a party cannot be bound by terms and conditions that are not contained in a signed contractual document or by terms and conditions that have not been provided to a party. Significantly, the Supreme Court also held that including a reference in a contractual document to terms and conditions being 'available on request' was not sufficient for such terms to be incorporated into the contract.

iii Consideration

Where an offer is accepted and sufficient consideration has passed between the parties, a contract will be deemed to be in existence. Consideration can take any form once it has legal value and is not illegal, vague or impossible to perform. However, consideration in commercial contracts generally takes the form of payment.

iv Proof

The creation of legal relations can be delayed or denied by the input of conditions precedent and conditions subsequent.

Conditions precedent suspend the coming into existence of a contract until a specific event has occurred. Examples include the renewal of leases, the production of documents or obtaining the relevant consents from a regulatory authority.

Conditions subsequent arise after a contract has been executed, but the contract is not enforceable until a specific event has occurred.

v Privity of contract

The effect of the doctrine of privity of contract is that only the parties to a contract can enforce its terms, even where a third party stands to benefit from the contract. Specifically, this means that:

  1. a person is unable to enforce any rights under a contract to which such a person is not a party;
  2. a person who is not a party to a contract will not have any contractual liabilities imposed on them; and
  3. contractual remedies are only available to compensate parties to a contract and not third parties.

Certain exceptions to the rule have developed over time, to include agency, collateral contracts and assignments.

In 2008, the Law Reform Commission published a final report recommending reform in this area with the introduction of the Contract Law (Privity of Contract and Third Party Rights) Bill 2008. The Bill is similar to the United Kingdom's Contract (Rights of Third Parties) Act 1999 and provides for three instances where a third party should be entitled to enforce a contract where:

  1. the intention of the parties was to give the third party a right to enforce;
  2. the contract expressly states that the third party has a right of enforcement; and
  3. the contract permits a third party to rely on exclusions or limitations on liability.

However, 11 years on from the Law Reform Commissions' recommendation, the Bill has yet to be proposed by the government.

vi Modifications to contracts

In certain circumstances, modifications to contracts are necessary (e.g., to extend the contract's duration or to change terms such as payment, delivery or receipt of the product). Commercial contracts normally contain a variation clause that restricts amendments to the contract unless it is in writing and signed by all parties. The English Court of Appeal had found that parties were free to agree to vary the terms of a contract orally or by conduct and not solely by writing as per the variation clause included in the contract. However, most recently the UK Supreme Court declined to give effect to an oral modification to a contract and held that any amendments should be agreed in accordance with the terms of the terms of the contract. It was unanimously accepted that there was a limit on enforcement of variation clauses in certain circumstances, albeit that 'something more' would be required than reliance on an informal, oral promise. While this ambiguity allows future courts to consider the matter on a case by case basis, it remains to be seen whether this decision will be followed by the Irish courts.