Drafting Contracts – Key Lessons From 2018

In this briefing we look at the lessons to be learnt from some of the English contract law cases of 2018. With the exception of the Supreme Court ruling on a case concerning variation clauses, the cases we cover do not involve a major change in the law. However, they are all useful illustrations of key points of contract law for those drafting and managing contracts.

1. Formation and certainty of terms

Contract disputes often involve questions around formation of contract - whether a binding contract exists between the parties and whether the terms of the contract are sufficiently certain to be enforceable. There were a number of cases in 2018 which considered these issues and they all highlight the importance of having a full and clearly documented agreement in place.

Openwork Limited v Forte [2018] EWCA Civ 783

Mr Forte, a financial adviser, entered into a franchise contract with Openwork for the sale of investment products. The contract contained a clawback clause entitling Openwork to claim back a percentage of the commission which Openwork paid to Mr Forte, when an investment was withdrawn within three years. The clawback clause did not contain a set percentage or a formula for calculating this. However, it stated that the commission would be calculated by reference to the amount invested, length of time invested and amount withdrawn. When Openwork tried to enforce this clause, Mr Forte claimed that it was void for uncertainty.

At first instance, the High Court found that the clawback clause was enforceable. This was upheld by the Court of Appeal, who emphasised that "the Court should strive to give some meaning to contractual clauses agreed by the parties if it is at all possible to do so." As the parties had clearly intended the clawback clause to have the effect of Mr Forte repaying some of his commission to Openwork, the courts had to attempt to enforce it. Otherwise, the intent of the clause would be defeated. While the clause did not contain a calculation formula, it did contain the necessary detail to enable the judges to determine that the amount to be repaid by Mr Forte was a percentage of the commission which decreased over time.

Arcadis Consulting (UK) Ltd v AMEC (BCS) Ltd [2018] EWCA Civ 2222

AMEC acted as the specialist concrete sub-contractor on two large projects and instructed Arcadis to carry out certain design works in connection with those projects in anticipation of a wider agreement between the parties that did not materialise. There were wide-ranging discussions and correspondence (not marked "subject to contract") between the parties over many months and three sets of terms and conditions were proposed. Each set of proposed terms and conditions included some sort of limitation of Arcadis's liability, but on "radically different terms".

It was later alleged that one of the projects was defective. Arcadis denied liability for the defects but argued that, if it were found to be liable for the defects, there was a contract in place in respect of its design works which included a cap on its liability.

At first instance the High Court held that there was a contract between the parties pursuant to which Arcadis would carry out design work and would be paid for that work by AMEC. This was evidenced by an initial letter of instruction and by Arcadis's conduct in undertaking the work. However, the...