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Establishing a contract: subsequent negotiations and inconsistent intentions

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When determining whether parties had validly entered into a contract, the Court of Appeal held that it was wrong to disregard subsequent communications which were inconsistent with the existence of a contract: (1) Global Asset Capital Inc (2) Glenn Maud v (1) Aabar Block S.A.R.L. (2) Aabar Investments Pjs (3) Robert Tchenguiz [2017] EWCA Civ 37, 1 February 2017.

In September 2008, property investors Glenn Maud and Derek Quinlan entered into a series of loans to finance their acquisition of an interest in Santander Banking Group’s Spanish headquarters. This financing included personal loans to Mr Maud and Mr Quinlan, which were originally provided by RBS but the interests in which were later purchased by Aabar Block and others. Mr Maud and Mr Quinlan defaulted on payments under the loans and various judgments were obtained against them. Ultimately, when other attempts to settle the liabilities were thwarted, Mr Maud and Global Asset Capital (GAC), an American private equity fund, tried to purchase a package of rights and debt interests (the Aabar Rights) directly from Aabar Block and Aabar Investments (together, Aabar) (the Alleged Contract).

The Alleged Contract

Mr Maud stated that he sent Aabar a letter marked “WITHOUT PREJUDICE – SUBJECT TO CONTRACT” offering EUR 250 million in exchange for the Aabar Rights in April 2015 (the Offer Letter). On 6 May 2015, the CEO of Aabar Investments, Mohamed Al-Husseiny, telephoned Mr Maud in response to the Offer Letter. Mr Maud and GAC (together, Global) argued that it was during this conversation that the Alleged Contract was concluded, subject to two conditions: (i) Mr Maud resending the Offer Letter in “open and binding form”; and (ii) Mr Maud providing satisfactory evidence of his ability to fund the purchase.

On 9 May 2015, Mr Maud emailed Mr Al-Husseiny with two letters, described as “binding and committed letters of finance and offer”, and said that he looked forward to receiving Mr Al-Husseiny’s “confirmation of acceptance of [the] offer during the course of Sunday” so that they could “agree the mechanics of how to progress to completion”. The letter of offer reiterated some of the main terms of the Offer Letter, including the purchase price, but added various additional terms (the 9 May Letter). The letter of finance was from a real estate investment firm, and Global argued that this was evidence of its ability to fund the purchase. Global contended that the two relevant conditions to the Alleged Contract had therefore been met at this point. On 10 May 2015, Mr Al-Husseiny replied, stating that there was no contract.

On 8 June 2015, Global issued a claim against Aabar for a declaration that the Alleged Contract was valid and binding and for specific performance of its terms. A key issue in dispute was whether the court could consider events after the telephone conversation in deciding whether, during that conversation, a contract had been concluded.

Later conduct relevant to whether a contract has been formed

In the Court of Appeal, it was held that the parties’ communications immediately following the 6 May 2015 telephone call should have been taken into account when determining whether the Alleged Contract had been entered into on that date. A court will consider the whole course of negotiations when determining whether a contract has been made, irrespective of whether those negotiations are conducted in writing, orally or by conduct, or by any combination of these methods.

Although the meaning of words used in a contract cannot be interpreted by reference to subsequent events and further negotiations between two parties cannot negate an earlier contract without consent, both of these principles are irrelevant when considering whether a contract had actually been formed in the first place.

Factors inconsistent with the existence of a contract

The Court considered that certain factors in the communications pre-dating the Alleged Contract were inconsistent with the existence of a contract:

  • the use of “subject to contract” wording in the Offer Letter meant that the offer was not open for acceptance by Mr Al-Husseiny on the 6 May call and that any acceptance by Mr Al-Husseiny could only amount to an agreement to agree. The Court stated that it was “well established that dealing on [a “subject to contract”] basis negates contractual intention” and that any supposed waiving of the “subject to contract” status would need to have been unequivocally agreed by the parties; and
  • the fact that one of the conditions to the Alleged Contract was to resend the Offer Letter in “open and binding form”.

Subsequent events and particularly the following factors in the 9 May Letter were also inconsistent with a contract having been made:

  • the reference to the purchase as the “Proposed Transaction” and the fact that certain terms were prefaced with the phrase “Upon your agreement that you are willing to proceed […]”;
  • the inclusion of a term that the letter would expire unless accepted by Aabar within a certain period;
  • the inclusion of terms that were materially different from those terms set out in the Offer Letter; and
  • the inclusion of an exclusivity provision, in which both parties would agree not to pursue any alternative transaction regarding the Aabar Rights for a set period.

In particular, the exclusivity provision was held to be “significant” because it suggested that the parties would engage in negotiations about the terms of the proposed purchase during this period, the “obvious purpose” of which was to allow a contract to be made.

The Court rejected Global’s argument that the key commercial terms of its offer had already been accepted before Mr Maud’s 9 May email and that this email merely sought “confirmation” of acceptance for good order. The Court also rejected the argument that the additional terms in the 9 May Letter were just the “mechanics” of how to progress to completion and that any requirement for Aabar to agree to such terms did not affect the existing binding agreement to the key commercial terms.


This judgment highlights the holistic way in which a court will consider the formation of a contract, taking into account negotiations before and after an alleged contract notwithstanding whether such negotiations are conducted in writing, orally, by conduct or by any combination thereof. If a subsequent communication appears to be inconsistent with the contractual intentions, or indeed presumably if it appears to be consistent, this will be persuasive in determining whether a contract has been formed. Moreover, although the meaning of words in a contract cannot usually be interpreted by reference to later events, such later events can be referenced for the purpose of determining whether an alleged contract had initially been established.

The Court has also reiterated the power of “subject to contract” wording to refute contractual intentions; it is difficult for a party to argue that acceptance of a “subject to contract” offer could amount to the formation of a contract without clear agreement from both parties that this is what was intended. Further, the judgment indicates that the wording used in any offer letter or alleged contractual communication will be carefully considered by a court and that, for example, terms providing deadlines for acceptance of an offer or exclusivity periods in which negotiations with third parties are prohibited could be fatal to the argument that a contract has already been formed.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication. For more information please contact Amy Edwards, or tel +44 20 3088 3710.