2. Have we got a contract and when do we have to perform?
Presented by Steven Yip/James Yeung
20 June 2007

3. Topics Formation of contract Privity of Contract Offer Acceptance
Intention
Consideration
Privity of Contract

4. Offer
Expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the offeree.
Definite and unambiguous
Communication of offer to the offeree (eg. Letter, fax, newspaper, , conduct etc.)
Can be withdrawn before acceptance

5. Offer v Invitation to Treat
Invitation to treat is an indication of willingness to negotiate a contract
Not an offer
Objective test
Example: Display Goods
Invitation to Tender

6. Harvey v Facey [1983]
Harvey: “Will you sell us Bumper Hall pen? Telegraph lowest price.”
Facey: “Lowest cash price for Bumper Hall pen £900.”
Harvey: “We agree to buy Bumper Hall pen for the £900 asked by you.”
Held by Privy Council: No contract. Facey’s telegraph only
amounts to a statement of price. Offer to buy the pen was made by Harvey’s 2nd telegram.

7. Invitation to Tender
Not an offer binding the employer to accept the lowest tender UNLESS express the wordings are clear to turn the invitation to tender into an offer, eg. lowest tender made

8. Tender May amount to an offer
Normally stipulates a time within which the tender is to remain valid
If time is not stipulated, reasonable time to accept is to be implied
Costs of tender

9. Acceptance
A final and unqualified expression of assent to the terms of an offer
Definite and unambiguous
Must be unconditional
Must be communicated to offeror

10. Acceptance ‘Meeting of minds’/’Concurrence of will’? Objective test
Can only be accepted by the offeree
Silence cannot be construed as acceptance

11. Conditional Acceptance
Not an acceptance
Amount to counter-offer
No contract is formed until acceptance of counter-offer
‘Mirror image rule’ acceptance in its entirety →

12. Certainty of Terms Reasonable degree of certainty
Approach sensibly and reasonably
Custom and trade usage
Commercial reality

13. ‘Back to Back’ Contract
Usually in sub-contracts
Incorporating main contract terms into sub-contract
Difficulty to ascertain extent of incorporation
Eg. Scope of work, payment terms

14. ‘Pay when paid’ clause
‘In the absence of any clear express words to the contrary, those clauses merely provide for the time of payment and that the right to be paid is not dependent upon the party getting paid first?
Very high standard for those clauses to be held to be valid
‘Pay if paid’ is usually not enforceable

15. Contract Price Original contract price will invariably change
Variations, missing items etc.
Implied promise on the Employer to pay for the work/services on basis of reasonable charge (ie. quantum meruit)
Mechanism by which the price for the particular works or services to be rendered can be determined

16. Intention Intention to create legal relations between themselves
Objective test – how reasonable persons would perceive the words, conduct and circumstances
If reasonable persons would assume that there was no intention to create legal relation  no contract
Presumption that an intention to create legal relationship exists in commercial context
Presumption that NO intention to create legal relationship exists in social or family arrangements

17. Cable & Wireless (Hong Kong) Ltd Staff Association v Hong Kong Telecom International Ltd [2001]
The Court held that
Look at the terms of the agreement itself
If the terms show intention to create legal relationship  Contract
If the terms do not provide a clear answer, the Court would look at all the surrounding circumstances
Surrounding circumstances include background of entering into the agreement, relationships of parties, nature of the agreement etc

18. Intention Family arrangements Balfour v Balfour [1919]
Merritt v Merritt [1970]

19. Consideration Consideration is generally expressed as follows:
‘Consideration may be found in an exchange of mutual promises or in an exchange of a promise for an act or forbearance’
Consideration is important because
Make it an enforceable contract
The law will not enforce gratuitous promise (eg. gift)
Only the person who provides consideration can enforce

20. Types of Consideration
Consideration must be executory or executed
Executory – Promise to do something in the future is given for another promise to be done in the future
Example: Buying a house
Executed – When a promise is actually executed, in exchange for another promise to be executed in the future.
Example: Finding a dog.

21. Rules of Consideration
Consideration must be referable to the promise
Consideration must move from the promisee
Consideration must be sufficient, but need not be adequate
Consideration must be current
Performance of an existing obligation is not enough
Performance of public law duty is not consideration
Performance of a contractual obligation owed to a third party is good consideration

22. Referable to the Promise
Some kind of connection between the promise and the consideration
Inducement to enter into the promise

23. Move from the Promisee But not necessarily to the Promisor
Example: A promised to pay B $1000 if B clean C’s car.

24. Sufficient, not Adequate
Capable of expression in economic terms
Some legal value in the eyes of the law
No need to be adequate
Nominal value can be sufficient consideration
Example: $1 to buy a car

25. Ho Yuk Chu v Shun Hing Refrigerator Air-Conditioning Engineering [2001]
The procurement of an award of air-conditioning contract by way of introduction, recommendation and assistance in preparation of tender was found to be valid consideration to support an agreement to pay 7% of the contract sums

26. White v Bluett (1853)
Cessation of complaints are not sufficient consideration
No economic value
No contract was formed

27. Current, not Past Past consideration is not good consideration
Consideration that was provided before the promise was made = past consideration
Requires an exchange of current promises/consideration at the time of the contract

28. Current, not Past Eastwood v Kenyon (1840) Roscorla v Thomas (1842)
Exceptions in Pau On v Lau Yiu Long (1980)(Privy Council)
The consideration was at the request of the Promisor
Common understanding that the promisee will be rewarded for the performance
Consideration is legally enforceable

29. Not Existing Obligation
Performance of existing contractual duty is not good consideration
Stilk v Myrick (1809)
Exceptions in William v Roffey Bros & Nicholls [1991]
Will the promisor gain an advantage arising out of the continuing relationship with the promisee?
Example: Risk of Liquidated Damages

30. Williams v Roffey Bros & Nicholls
Exception
Roffey sub-contracted the carpentry work to Williams
Roffey doubted that Williams would perform his obligation under the contract
Roffey promised to pay Williams an extra amount in return (consideration) for a promise that Williams would fulfill his obligation under the contract
As a result, Roffey received benefit or avoided a detriment
Roffey did not make the promise to pay more under duress form Roffey

31. UBC (Construction) Limited v Sung Foo Kee Limited [1993]
In such circumstances that they were clearly incentives to both the main contractor and subcontractor to make a further arrangement in order to relieve the subcontractor of its financial difficulties and also to ensure that the subcontractor was in a position or was willing to continue with the subcontract works to a reasonable and timely completion

32. Not Public Law Duty
Performance of a public law duty is not good consideration
Promisee required to carry out the statutory duty anyway
Collins v Godefroy (1831)
Subpoena

33. Partial Satisfaction of Existing Liability
Generally not a good consideration
Exceptions
Changes to the original arrangement (eg. place, mode or time of repayment) to the convenience of the creditor
Settlement Agreement?

34. Settlement Agreement Usually partial satisfaction of debt
How to get around the ‘lack of good consideration’ hurdle?

35. Overcoming a Lack of Consideration
Nominal Consideration
Example: $1 to settle claims
Evidence of consideration
By Deed
No need for consideration in a deed
Deed of Settlement
Gratuitous assurance made without consideration is enforceable

36. Privity of Contract
Only the parties to a contract are bound by it and entitled to sue on it
A third party cannot enforce a promise made in a contract for its benefit if it is not party to the contract

37. Privity of Contract (Cond’t)
Relationship between privity and consideration:
some say consideration and privity are flip sides of the same coin
some say consideration and privity are distinct and separate principles
Law in Hong Kong is clear: ‘only a person who is a party to a contract can sue on it’ (see Dunlop Pneumatic Tyre Co Ltd endorsed in B+B Construction)

38. Construction Contracts
Employer
Main Contractor
Sub-Contractor
Privity of contract
No privity of contract
Privity of contract
A sub-contractor cannot sue the employer on the main contract obligations in relation to payment for the works
(See Morison, Son & Jones (Hong Kong) Ltd v Yiu Wing Construction Co Ltd [1989] and Shui On Construction Co Ltd v Moon Yik Co [1987])

39. Insurance Contract
Main Contractor
Sub-Contractor
Privity of contract
No privity of contract
Insurer
Privity of contract
The Main Contractor cannot enjoy privity of contract with the subcontractor’s insurers and cannot claim under the insurance policy (see Otis Elevator Company (HK) Limited v Wide Project Engineering & Construction Company Limited [1985])

40. Any Questions?