Investing Ideas

Profiled: Professor Mark Watson-Gandy

We speak with Professor Mark Watson-Gandy about the finer points of English contract law, including the formalities required in drawing up a contract, what can make a contract invalid and possible ways to exit legally from a contract.

Why is English contract law the preferred options for both domestic and international businesses?

Primarily because English contract law is convenient, straightforward, and certain. Underpinning much of English judicial reasoning is an assumption that the businessman knows more about his business than any politician or judge. There is a deep-set aversion to interfering with parties’ freedom to contract. This gives businessmen both greater flexibility and a greater sense of certainty as to how their contract will be interpreted in court.

How does English contract law differ from its counterparts in other countries?

Continental contracts are much shorter but this is achieved by lifting set terms out of statutes and codes, which limits the flexibility of the contract. Moreover, few businessmen strike deals with a statute book on their knees so the contracts presuppose a pre-existing knowledge of the statutory references alluded to.

An English law contract may well be longer, but that is because parties are encouraged to set out all the terms they wanted to apply. If a dispute arises, they have a single handbook they can look to, to remind them what they agreed would happen should that eventuality arise. This allows greater flexibility in designing a deal that accurately fits their needs and managing the risk if things go wrong.

Are any particular formalities needed to make a contract? Do contracts have to be in writing?

As a general rule, most contracts don’t require any specific formality – they can be oral, in writing, or created by the way they conduct themselves. Some contracts, however, have to be in writing, such as hire purchase agreement, consumer credit agreements, promissory notes, and contracts relating to the disposition of an interest in land. Certain types of contract need to be in the form of a deed.

Are there any reasons why a contract might be invalid?

Much like a cake mix, to make a valid contract you need certain ingredients: an offer, acceptance of that offer, the passage of consideration, privity, capacity and intention to create legal relations.

What is Consideration?

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. Past consideration – something you have already given – is not valid consideration in English law.  And you can’t re-use as consideration something you are already legally obliged to do.

When should a business use a deed rather than a contract?

You have to use a deed for conveyances of land or leases of over three years’ length. Electing the extra-legal formality of using a deed as a wrapper for your contract has certain advantages. You don’t have to worry about consideration and the limitation period to sue for breaches of contract extends from six years to 12 years.

Can anyone enter a contract?

All adults of sound mind are assumed to have fully capacity to enter into a contract. There are three exceptions: minors (those under 18 years of age), patients (those who lack mental capacity), and those who are too drunk to appreciate what they are doing. Even then, they are obliged to pay a reasonable sum for necessaries.

Are there any ways one can get out of a contract? Are there any defences one might deploy?

Defences might include that you were inducted to enter into it by a misrepresentation, by duress or undue influence, or that the contract is illegal. Certain types of mistake will do.

How does your new book differ from other guides to English contract law?

My new book Simple Contract Law is an essential introduction to English contract law. It simply explains all the core concepts and what the most common terms and conditions actually do. It is also packed with the fascinating real-life stories that shaped our law and with witty illustrations by Gordon Collett. 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.

English contract law is one of the UK’s biggest exports. Is it likely that Brexit will have an impact on this in the future?

English law’s place underpinning international contracts looks reassuringly safe. Instead, we see increasing numbers of foreign lawyers training in English contract law so that they can offer that service to their clients.

As a barrister you no doubt see many contract disputes before the courts. Is there anything a businessman should look out for in particular?

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. It is not so surprising when you appreciate that the negotiations will often be taken up by lawyers whilst they draft the contract. You may end up with a subtly different contract than the bargain you thought you had struck with your opposite number.

Make sure the lawyers do a pre-signing read through with both you and the other side, to explain what they have written.

If issues are flagged, then it is always better and easier to fix them there and then whilst the parties still love each other rather than two years down the line in court when the parties no longer do.

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