16 November 2013

Barratt & Ors v Treatt PLC: Analysis

This case analysis uses a recent case to outline some principles in contract law. In Barratt v Treatt the parties disputed the finalisation of a contract: the buyer claimed they had complied with everything necessary to complete a contract for shares; and the seller disputed this on two grounds. The case is about the construction of a contract.

High Court
Chancery Division

[2013] UKHC 3561 (Ch)

15 November 2013

Barratt & Others = Claimants (C)
Treatt PLC = Defendant (D)

Mr Justice Morgan

1. Basic Contract Law

A contract requires an offer, acceptance, and consideration. Acceptance must be communicated. Consideration is 'money', 'money's worth', or 'value'. None of this is problematic until deviations occur (sorry to be trite).

Millions of contracts everyday comply with this format without any problems: a simple example is paying 50p for a Mars Bar at your corner shop; the three requirements are satisfied whether consciously or by habit.

When contractual parties are not in the closed environment of a shop, communicating acceptance can occur by post, a phone call, or email--whatever the parties agree to. There is an overarching idea: the offeror is largely free to stipulate what valid acceptance entails. A sale and Purchase agreement (SPA) can also be written to stipulate how to communicate a later-determined consideration. That is what happened here.

2. The Seller's Requirement and the Problem

In Barratt v Treatt the seller included a notice-provision in the SPA: the buyer must post a notice of a consideration by a certain date. Both parties agreed to these conditions. The buyer attempted to comply. The buyer sent a notice letter to further the contract by post before the deadline. The posting made the notice sufficient, whether received or not.

Two things happened next. The letter never arrived. And the letter that would have arrived had it not disappeared was written in a contentious format. The judge kept these issues separate and asked two questions, raised by the sellers.

3. Two Questions

'Notice', here, simply refers to a communicated price determined with reference to year-end accounts and subject to later (independent) review. There were time-requirements, too. The notice never arrived, so the seller was unable to meet the relevant deadlines.

3.1 Question One: Was the notice ever sent to the seller?

This question was factual. The buyer presented sufficient evidence to suggest the notice was posted before the relevant deadline. Therefore the letter's disappearance is irrelevant.

The following sentence may be tricky, but it is accurate: If the (factually) posted notice was not valid, then a valid notice was not posted, and if a valid notice was not posted, the sellers would not be bound by whatever was posted.

A condition allowed an independent party to resolve the price if no notice were served at all--which would be good for the seller. The buyer claimed the notice served was valid and unalterable--which was good for the buyer. The sellers therefore, after learning that something was posted to them before the deadline, argued that what was posted did not conform with the SPA's criteria. This evoked the second question.

3.2 Question Two: Was the notice valid?

This question is more complex. Both parties presented an answer. Each answer concerned the SPA's construction. The judge agreed with the seller's argument. This is discussed next.

4. The Argument

4.1 The Buyer's Claim

The buyer argued the SPA's section about the notice's content was only guidance, which allows some departure from the SPA's exact wording to still result in valid notice, regardless of its substance (at [34]).

4.2 Judicial Determination

In response, the judge implied the relevant SPA clause was so broad that 'notice's' definition would always inform its validity--to suggest the desiderata in the requirements-for-notice were merely 'directory' is nonsensical (at [34], [38]). That is, the SPA clause asked the buyer to write the notice 'in reasonable detail' (at [38]). 'Reasonable detail' is impossible if the notice is not first defined because without that definition, what is reasonable is unknown. 'Reasonable' must include what is 'permitted by the definition (…)' (at [42]).

The judge constructed the SPA in a certain order. Contrary to the buyer's submissions, the judge decided it was more important that the notice derive its figures from 'audited accounts' than 'management accounts' because the SPA defined the notice as a document concerning those 'audited accounts'. As the buyer disregarded the definition and relied on the 'management accounts', the notice was not valid. The deadline that was detrimental to the seller had therefore not passed and the price (the consideration) remained open to determination by an independent arbitrator.

5. Conclusion

This case demonstrates the reasoning needed adequately to favour one construction of a contract rather than another. Although the 'acceptance' principle is irrelevant, some of its underlying ideas are examined due to the nature of 'consideration' in this case. Either way, the judgment shows how two persuasive contractual interpretations may be judicially dealt with: students may use this case as an example of the sort of rigour that should be employed in statutory interpretation.

The case refers to the Companies Act 1985 s 258. Be warned that this section is repealed by the Companies Act 2006 s 1295.

Created: 16 November 2013. Version 1.0.

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