Droit de l'energie et des mines

What offer?

It is important to remember that it is not the subjective intentions of the parties that determine the legal effect of their words or actions but the reasonable inference that they would support. This is the so called ‘objective’ theory of agreement associated with Smith v Hughes (1871) and more recently summarised in the Supreme Court by Lord Clarke (RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh & Co KG [2010] UKSC 14 at [45]. This approach was applied in Centrovincial Estates v Merchant Investors Assurance Co [1983] Com LR 158 where the claimants had bought commercial premises let to the defendants for a rent of £68,320 pa subject to review. When the claimants mistakenly proposed a new rent of £65k pa instead of the £126k pa they intended to propose, the defendants predictably ‘accepted’ the mistaken offer. The claimants argued that no reasonable tenant would have expected the rent to be reduced; the defendants responded that this was a reasonable expectation in light of their communicated dissatisfaction with the previous letting. The Court of Appeal accepted the defendants’ arguments that it was at least arguable that an offer to let premises for £65k pa meant exactly that. Subsequent cases have made explicit that in a so called B2B contract (i.e. between two businesses) the interpretation of an offer upon which the offeree is entitled to rely is that of a hypothetical and reasonable businessman in the position of the offeree (Dhanani v Crasnianski [2011] All ER (Comm) 799). It should be noted, however, that there is one circumstance when the courts will depart from the usual objective approach and take account of the actual subjective knowledge of the offeree. Under this approach, sometimes known as the ‘snapping up’ doctrine, an offeree is not allowed to accept an offer which he knows is mistaken as to its terms (Hartog v Collins and Shields [1939] 3 All ER 566). This last factor is important and is what limits the scope of this disapplication of the usual objective approach. It is not enough to come within this exception that the offeree was aware that the offeror had made a mistake; the exception will only apply where the offeree is aware that the offeror is mistaken as to the terms he intended to offer (Statoil ASA v Louis Dreyfus Energy Services LP (The ‘Harriette N’) [2008] EWHC 2257 (Comm)). The doctrine will apply both where, as in Hartog, the offeree is aware of the offeror’s mistake as to the terms he is offering but also where, as in Scriven Bros v Hindley [1913] 3 KB 564, the offeree should know that the offeror is mistaken as to the terms he has offered perhaps because, as in Scriven, the offeree induced that mistake by his own carelessness.

Offers and invitations to treat

An offer is an expression of willingness to contract on certain terms. It must be made with the intention that it will become binding upon acceptance. There must be no further negotiations or discussions required. The nature of an offer is illustrated and encapsulated by two cases involving the same defendant, Manchester City Council. Whether there is a binding contract between the parties and, if so, upon what terms depends… not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they… had agreed upon all the terms which they regarded…as essential. page 22 University of London International Programmes

The Council decided to sell houses that it owned to sitting tenants. In two cases, the claimants entered into agreements with the Council. The Council then resolved not to sell housing unless it was contractually bound to do so. In these two cases the question arose as to whether or not the Council had entered into a contract. In one case, Storer v Manchester City Council [1974] 3 All ER 824, the Court of Appeal found that there was a binding contract. The Council had sent Storer a communication that they intended would be binding upon his acceptance. All Storer had to do to bind himself to the later sale was to sign the document and return it. In contrast, however, in Gibson v Manchester City Council [1979] 1 All ER 972, the Council sent Gibson a document which asked him to make a formal invitation to buy and stated that the Council ‘may be prepared to sell’ the house to him. Gibson signed the document and returned it. The House of Lords held that a contract had not been concluded because the Council had not made an offer capable of being accepted. Lord Diplock stated:

A key distinction between the two cases is that in Storer’s case there was an agreement as to price, but in Gibson’s case there was not. In Gibson’s case, important terms still needed to be determined.

It is very important to realise from the outset that not all communications will be offers. They will lack the requisite intention to be bound upon acceptance. If they are not offers, what are they? At this point, we will distinguish an offer from other steps in the negotiation process. Other steps in the negotiation process might include a statement of intention, a supply of information or an invitation to treat. We will examine these in turn.

A statement of intention

In this instance, one party states that he intends to do something. This differs from an offer in that he is not stating that he will do something. The case of Harris v Nickerson [1873] 37 JP 536 illustrates this point. The auctioneer’s advertisement was a statement that he intended to sell certain items; it was not an offer that he would sell the items.

A supply of information

An invitation to treat

In this instance, one party provides information to another party. He supplies the information to enlighten the other party. The statement is not intended to be acted upon. See Harvey v Facey (1893) where one party telegraphed, in response to the query of the other, what the lowest price was that he would accept for his property, if he were to sell it. This alone did not imply an assurance that he would sell at this price.

This is a puzzling term. An invitation to treat is an indication of a willingness to do business. It is an invitation to make an offer or to commence negotiations. Courts have considered whether or not a communication was an offer or an invitation to treat in a wide variety of circumstances. You should examine the following instances where courts have found that the communication was not an offer but an invitation to treat.

a.     A display of goods is generally an invitation to treat. See Pharmaceutical Society v Boots [1953] 1 QB 401 (note the rationale behind treating the display as an invitation to treat rather than as an offer) and Fisher v Bell [1961] 1 QB 394. In contrast, where the display is made by a machine, the display will probably be an offer (Thornton v Shoe Lane Parking [1971] 2 QB 163).

Activity.1

Your local grocery shop places a leaflet through your letterbox. On the leaflet is printed ‘Tomorrow only, oranges are at a special low, low price of 9p/kilo’.

Has the grocery shop made you an offer? If you visit the shop, must they sell you oranges at this price?

b.     An advertisement is an invitation to treat where a bilateral contract is anticipated.

See Partridge v Crittenden [1968] 2 All ER 421 – the advertisement of a bilateral contract. Where, as in Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256, a unilateral contract is contemplated the advertisement may be an offer.

By way of background you should be aware that the broader law of consumer protection prohibits misleading advertisements. In particular, the Unfair Trading Regulations 2008/1277, Part 2, prohibits misleading advertisements aimed atconsumers. The European Court of Justice has said that it would be a breach of European consumer protection law if in a shop a consumer was refused a product under the advertised terms (Trento Svilippo srl v Autorita Garante della Concorrenza e del Mercato [2014] 1 All ER (Comm) 113).

c.      A request for tenders is an invitation to treat and the tender is the offer. See Harvela Investments Ltd v Royal Trust Co of Canada Ltd [1985] Ch 103.

Note, however, that the invitation to treat may contain an implied undertaking to consider all conforming tenders, as in Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 3 All ER 25.

d.     An auctioneer’s request for bids is an invitation to treat.

The bid is an offer; when the auctioneer brings his hammer down he has accepted

the offer. In the case of auctions without a reserve price, the auctioneer enters into

a collateral (or separate) contract. The nature of the collateral contract is that the

auctioneer will accept the highest bid. See Warlow v Harrison [1859] 1 E&E 309 and

Barry v Davies [2000] 1 WLR 1962.