In the case of Pretoria Energy Company (Chittering) Ltd v Blankney Estates Ltd , the claimant brought a claim for damages of almost six million pounds against the defendant for breach of a contract to enter into a twenty five year lease, allegedly created between the parties in a document entitled “Heads of Terms of Proposed Agreement”.
The parties had been negotiating for the grant of a lease of land on which the claimant intended to build a recycling plant. Following initial discussions, the claimant sent the defendant a draft document entitled “Heads of Terms of Proposed Agreement between Blankney Estates, Lincolnshire and Pretoria Energy Company Limited Subject to Full Planning Approval and appropriate consents and easements”. There were three revisions of the document before it was signed in 2013. The document also had an exclusivity period, which ended on 31 July 2014. No further documentation had been concluded by that date.
The defendant had then let the land to someone else. The claimant alleged that it had entered into a binding agreement for lease, whilst the defendant’s case was that there was never a binding agreement, except in respect of the exclusivity period.
At trial, the claimant lost and subsequently appealed to the Court of Appeal, which upheld the first instance judgment and provided guidance for identifying whether a binding agreement has been reached:
- Whether communication between the parties lead to the objective conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded, or the law requires, as essential for the formation of legally binding relations;
- even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement;
- the more vague and uncertain an agreement is, the less likely it is that the parties intended it to be legally binding, but it is for the parties to choose which terms they regard as essential for the formation of legally binding relations. They can agree to be bound contractually, even if there are further terms to be agreed between them;
- there is a heavy burden on the party to prove that there was a lack of intention to create legal relations;
- parties may expressly negative contractual intention, which they often do by using the phrase “subject to contract” but the use of such words is not essential and nor is the label “heads of terms” conclusive: a document referred to as “heads of terms” may be intended to be a non-binding record of the broad principles of an agreement to be made in formal written documents subsequently negotiated, or may be intended, in whole or part, to be a binding contract governing the parties’ relations until a more detailed agreement is drawn up;
- where parties intend to be contractually bound, the courts are reluctant to find an agreement is too vague to be enforced. The court may be able to imply terms to fill apparent gaps, particularly in commercial dealings between parties familiar with the trade in question or where the parties have acted in the belief that they have a binding contract; and
- given that contracts relating to land are subject to particular formalities, even an intention to be bound, without the requisite statutory requirements may lead to an unenforceable agreement.
Once again, this case Pretoria Energy Company (Chittering) Ltd v Blankney Estates Ltd , illustrates the need for parties to be clear, and make unambiguous their intentions on whether or not they intend their actions to have legal consequences.
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