Commercial contracts
Part 8 - setting up a business in the UK
What is required to create a legally enforceable commercial contract under English law?
Offer, acceptance, consideration, certainty and an intention to create legal relations are the 5 essentials required to create a legally enforceable contract under English law. Although it is best practice to set out an agreement in writing, there is no mandatory requirement for it to be written down. Commercial contracts can therefore come into existence orally, as a result of a consistent course of dealings over time or in some circumstances be implied by law. If there is a dispute relating to the contract, there is however a significant evidential disadvantage if the contract is not in writing.
Can the parties to a contract agree on any terms?
Under English law, contractual parties operate on the principle of freedom to contract. This means that subject to certain restrictions, parties to an English law contract are free to choose the terms that govern their relationship.
In principle, parties are free to include and exclude anything by contract. However, there are some overriding statutory and public policy restrictions that dictate a minimum level of conduct between the parties. For instance, statute prohibits the exclusion of liability for personal injury and/or death caused by negligence and clauses that limit a party’s liability generally have to be reasonable in order to be valid. In addition, liability for fraud or fraudulent misrepresentation can never be excluded or limited.
What terms are recommended for supplies in the UK?
Most suppliers will ensure they have a set of standard terms and conditions of supply which can be incorporated into their contracts which will deal with details, as a minimum , of the order process, delivery, inspection, warranty, transfer of title and risk and payment terms.
When deciding on whose standard terms are incorporated into a contract, the courts will apply the traditional offer and acceptance analysis, which holds that a contract is formed when an offer is made by one party, which is unequivocally accepted by another party, either in words or by conduct. Usually, the last set of terms dispatched before unequivocal acceptance or performance will prevail. The sending of this last set of terms is sometimes referred to as the "last shot" fired in a battle of the forms.
Duty of good faith in English commercial contracts?
The concept of good faith in commercial dealings exists in many civil law jurisdictions as well as in certain common law jurisdictions, most notably in the United States. Nevertheless, it has long been held that there is no general doctrine of good faith under English contract law. Over the last decade the English Courts have suggested that where parties enter into long term (“relational”) contract – for example a franchise agreement – an implied duty of good faith may arise between the parties. Since 2013 judicial decisions have swung back and forth on this point, and so whether there is a general implied duty of good faith in English contract law, and if there is precisely what that duty amounts to, is still a moot point.
Nevertheless, it is not unusual for parties to include an express to perform the terms of the contract in good faith. The courts will generally give effect to express good faith clauses, though there remains a question mark over what the obligation amounts to in practice.
There is no implied term imposing a duty to act in good faith with regard to the formation of a contract, and an express obligation to act in good faith with regard to the formation of a contract may be unenforceable as it may amount to an agreement to agree, which lacks the essential quality of legal certainty.
What does “force majeure” amount to under English law?
Unlike many civil law jurisdictions where the concept of force majeure (which confers relief on a party when it is unable to perform a contract for reasons beyond its reasonable control), English law has no general principle of force majeure. It is essential therefore, if the parties wish to take advantage of the concept of force majeure, that a carefully drafted express clause must be included in the contract. The English Courts will not imply a provision that gives relief if the parties have failed to include an express force majeure provision.
Meet our team
Philippa Dempster
Senior Partner & London Office Managing Partner
Lisa Gilligan
Leicester Office Managing Partner
Simon Barker
Partner & Head of Intellectual Property
Contact us today
Whatever your legal needs, our wide ranging expertise is here to support you and your business, so let’s start your legal journey today and get you in touch with the right lawyer to get you started.
Get in touch
For general enquiries, please complete this form and we will direct your message to the most appropriate person.