Daunting as they might seem, contracts are all around us. Isn’t it time you knew what you signed up for? By Professor Mark Watson-Gandy
Whether verbally or in writing, we enter contracts on a daily basis, even for something as basic as buying chewing gum from a corner shop.
Both as consumers and as professionals, we all have to deal with contracts. It therefore makes sense that we should know how contracts work.
Much like a cake mix, to make a valid contract you need certain ingredients. An offer and acceptance, and an intention to create legal relations, may seem obvious enough but concepts like privity and consideration may be less so.
Even the rules about acceptance are not necessarily as straightforward as one might guess. Due to one quirky rule of English contract law, you may find you were bound by that offer you made the moment an acceptance letter was dropped into that red post box by the other side. And that is still the case, even though that letter may still be lost somewhere in the Christmas post, and you don’t yet know what it says.
You can escape a contract if someone induces you to enter into because of a misrepresentation. But there is no misrepresentation if what you are complaining about is because someone lied about what the law says. Why? Because English law assumes that we all know what the law says already.
Reassuringly for the festive season, you can escape a contract if you were too tipsy to realise what you were agreeing, and the other side ought to have realised this. But under English law, the outcome may still depend on what you agreed to buy. Thus, it may mean you can escape the hefty restaurant bill for your date but doesn’t mean you won’t have to pay for your own food. You might be able to renege on your purchase of fifteen fancy waistcoats but not from your now much-regretted purchase of a regimental uniform.
It, therefore, makes sense to get to grips with English contract law, whatever you do for a living and whatever your circumstances. Not understanding the rules, can leave you open to unintended and (if matters go to court, expensive) consequences.
Even if your business is strictly offshore, it is (perhaps surprisingly) no less important to have an understanding of English contract law.
Idiosyncratic as our contract law might seem, its impact on our economy cannot be underestimated.
English contract law enjoys a preferred status as the law of choice to govern commercial contracts between parties internationally. This preference for English contract law has already seen it dominate in sectors like international commercial contracts, banking, and financing, maritime and shipping, mergers and acquisitions, dispute resolution and international arbitration.
There is a significant economic benefit attached to this for the UK.
Legal services contributed nearly £60 billion to the UK economy in 2018, with UK legal services exports amounting to approximately £5 billion per annum. Five of the world’s ten largest law firms by revenues are headquartered in the UK, and three of the largest five Global 100 law firms, based on headcount in 2013, have their main base of operations in the UK.
Furthermore, 70% of London Commercial Court’s work emanates from businesses outside the UK – and involve disputes that do not concern property or events in the UK or disputes where the parties are based in this country.
No doubt the some of this can be put down to the expert legal services available in London, the mutual recognition (and thus ease of enforcement) English judgements enjoy in a very large number of other countries, the comparatively speedy procedures available in UK courts, and the independence and expertise of our judiciary.
However, a lot is to do with the predictability and convenience of English contract law.
Parties are given a greater degree of freedom to shape the contract to fit their needs with a light touch on judicial or legislative interference.
Whilst this means longer contracts, the parties can craft their own terms and are much freer to limit risks or set consequences for non-performance. Their contract becomes a handbook to look to remind them not only what they agreed but what would happen in any eventuality. They don’t have to dig into a statute book to find out what bargain they struck.
In practical terms this freedom has meant that English courts have been amenable to upholding exclusion causes, “knock for knock” indemnities, and “pay when paid” clauses in commercial contracts but not fixing parties with any implied overarching duty of good faith.
This is perhaps a small price to pay for not interfering with parties’ freedom to contract and certainty of outcome.
You would be excused for assuming that English contract law, would be deathly complex and dull to learn. The major texts make heavy reading and do little to disabuse one of this notion.
However, English contract law is anything but boring. It has evolved over the centuries from a fascinating and rich patina of stories and misadventures. These are real stories about real people and how the judges wrestled with trying to find a just outcome to the very real problems they found themselves in. Each case marks an occasion where the judges have solved the conundrum of balancing the parties’ competing interests by finding a new and sometimes ingenious way to stretch the rules just a little further to craft a fair solution to the difficult issue they faced.
I wanted to write “Simple Contract Law” to demystify the subject; so that any reader could see, in an afternoon, how the rules knit together and understand the fascinating principles that underlie our laws and share some of the stories that explain why and how those rules evolved. It is full of brilliant cartoons by Gordon Collett and there is a glossary of some of the most common boilerplate terms and conditions which explains what they mean and really do.
But most of all I wanted to write a book that everyone could enjoy and feel just a little more secure the next time they come to sign on that dotted line.
Simple Contract Law: A Brief Introduction to English Contract Law by Professor Mark Watson-Gandy is available on Amazon in paperback and eBook formats, priced £9.95/£7.75.
Professor Mark Watson-Gandy was called to the Bar of England and Wales in 1990, and since then has forged a distinguished career both within and outside of the legal profession.
Professor Mark Watson-Gandy is a practising barrister at Three Stone Chambers in London – one of the UK’s leading chancery and commercial barristers’ chambers. He is one of the Ministry of Justice’s pro bono “Legal Services Are Great” Champions, who promote the UK legal services offering.
Professor Watson-Gandy has served as counsel in a number of high-profile legal cases. He successfully defended the appeal over a US $1.5 billion recoupment claim in the Stanford International Bank liquidation in Antigua and before the Privy Council (the second largest Ponzi scheme in history). In the British Virgin Islands, he appeared as counsel for the amicus in the liquidation of Fairfield Sentry, the largest feeder fund for convicted fraudster, financier Bernie Madoff. He also successfully represented the administrators in the Cambridge Analytica administration case back in the UK.
Outside of his ‘day job’, Professor Watson-Gandy has become noted as an educator. He is a Visiting Professor at the University of Westminster, where he founded the university’s Corporate Finance Law LLM Master of Law degree. He is also the founder of Kids MBA, which teaches core business skills to children in 30 countries through its partnership with ABE UK.
Professor Watson-Gandy is also the Chair of the Home Office’s Biometrics & Forensic Ethics Group, a non-departmental public body advising Home Office ministers in the areas of forensics, biometrics and big data, and until September this year was the chair of Mental Health First Aid England (MHFAE), a spin out from the Department of Health charged with raising the nation’s mental health literacy.
He is the author of a number of books including most recently, “Simple Contract Law: A Brief Introduction to English Contract Law”.
We speak with Professor Mark Watson-Gandy about why we should all learn English contract law, and how he has aimed to make this easy and straightforward through his new book.
Q. Why is English contract law the most popular option for businesses?
A. English law is used for international contracts – even where there is no obvious connection – primarily because English contract law is convenient, straightforward, and certain. Much of English judicial reasoning is underpinned by an assumption that businesspeople know more about their business than any politician or judge. There is, therefore, a deep-set aversion to interfering with parties’ freedom to contract. This gives businesspeople both greater flexibility in the bargains that they can strike and a greater sense of certainty as to how their contract will be interpreted in court.
Q. Why do you think it is important for everyone to learn about contract law?
A. Contracts are central part of everyone’s day-to-day life, from buying the newspaper or your train ticket to purchasing your first home or insuring your car. People really should have a basis in the ground rules they are operating under. Ignorance of the law is, literally, no defence. Not least because English law presumes that every person already understands the law. That is why you can’t sue someone for misrepresenting what the law says.
Q. What were your aims when writing your book, and how did you make it accessible to all?
A. I wanted to create an antidote to stale traditional contract law textbooks and write something which could be read in an afternoon, cutting through the complexity, to give an accessible overview of the law and explain what the most common terms and conditions actually do. The book is packed with the amazing real-life stories that shaped our law and with witty illustrations by Gordon Collett.
Q. What are the most common mistakes people make when entering into contracts?
A. Most contracts can be entered into by word of mouth or by the shake of hands, but certain contracts require special formalities to be used to be valid. So, for example, contracts disposing of an interest in land need to be in writing and may, in certain circumstances, need to be in the form of a deed. People often get unstuck on consideration.
Q. What is consideration?
A. Consideration means price. Both sides have to give something or promise to do or give something. It can be anything – even a peppercorn will suffice. Where people get unstuck is that past consideration – something that has already been given – does not work as valid consideration in English law. Also, you can’t re-use as consideration something you are already legally obliged to do. You can get round this problem if you draft the contract in the form of a deed.
Q. So, is English contract law really quite complex?
A. Not at all…if you know the rules. It is just that if nobody tells you the rules, there can be a few unpleasant surprises.
Q. Do you think Brexit will have an impact on the relevance of English contract law internationally?
A. English contract law’s place underpinning international contracts looks reassuringly safe. I don’t think this is necessarily cause for complacency for the English legal profession, however, as we can already see increasing numbers of foreign lawyers training in English contract law so that they can offer that additional service to their clients.
Q. Your book is full of fascinating cases through the ages. Can you suggest a few examples that particularly caught your eye?
A. There are too many great stories. For example, Weeks v Tybald about the father who advertised that he would pay £100 to anyone who would marry his daughter. Or Jarvis v Swan Tours about the hapless solicitor, Mr Jarvis, who went on the holiday from hell but whom we have to thank for winning us all the chance to recover damages for our loss of enjoyment, if we are ever in the same boat.
Q. What’s the most unusual contract you’ve heard of?
A. I did happen across one contract which had been carefully drafted in what transpired to be lipstick. I felt it might be indiscreet to press as to what the “professional services” it alluded to might be.
Q. As a barrister you no doubt see many contract disputes before the courts. Is there anything a businessman should look out for in particular?
A. Often, I see people ending in court not because they intended to breach the contract but because they misunderstand what they have signed up to.
This is not as surprising as you might think. Often the lawyers you asked to formally record the bargain you struck will carry on the negotiations with their opposite numbers as they draft up the final perfected contract. In practice, this may mean you will end up with a subtly different contract to the bargain you thought you had struck.
Make sure the lawyers do a pre-signing read through with both you and the other side, to explain what they have written.
If there are issues, then it is always better and easier to fix them there and then whilst the parties are on good terms and anxious to get the deal done rather than two years down the line in court.
