Contract

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HK_99313_2.ppt
Have we got a contract and when do we

have to perform?
Presented by Steven Yip/James Yeung

20 June 2007
Topics
Formation of contract
Offer
Acceptance
Intention
Consideration
Privity of Contract
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HK_99313_2.ppt
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, email, conduct etc.)

Can be withdrawn before acceptance
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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
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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. Faceys telegraph

only
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amounts to a statement of
price. Offer to buy the pen was
made by Harveys 2nd
telegram.
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
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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
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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
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Acceptance
Meeting of minds/Concurrence of will?
Objective test
Can only be accepted by the offeree
Silence cannot be construed as acceptance
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Conditional Acceptance
Not an acceptance
Amount to counter-offer
No contract is formed until acceptance of counteroffer
Mirror image rule

acceptance in its entirety
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Certainty of Terms
Reasonable degree of certainty
Approach sensibly and reasonably
Custom and trade usage
Commercial reality
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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
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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
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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 merit)
Mechanism by which the price for the particular works
or services to be rendered can be determined
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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
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Cable & Wireless (Hong Kong) Ltd Staff

Association v Hong Kong Telecom
International
The Court held Ltd
that [2001]
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
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Intention
Family arrangements
Balfour v Balfour [1919]
Merritt v Merritt [1970]
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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
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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.
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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
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Referable to the Promise

Some kind of connection between the promise and
the consideration
Inducement to enter into the promise
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Move from the Promisee

But not necessarily to the Promisor
Example: A promised to pay B $1000 if B clean Cs
car.
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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
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Ho Yuk Chu v Shun Hing Refrigerator AirConditioning 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
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White v Bluett (1853)

Cessation of complaints are not sufficient
consideration
No economic value
No contract was formed
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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
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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
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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
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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
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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
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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
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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?
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Settlement Agreement
Usually partial satisfaction of debt
How to get around the lack of good consideration
hurdle?
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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
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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
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Privity of Contract (Condt)

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)
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HK_99313_2.ppt
Construction Contracts
Employer
Privity of
contract
Privity of
contract
Main Contractor
No privity of
contract
Sub-Contractor
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])
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Insurance Contract
Main Contractor
Privity of
contract
No privity of contract
Sub-Contractor
Insurer
Privity of
contract
The Main Contractor cannot enjoy privity of contract

with the subcontractors insurers and cannot claim
under the insurance policy (see Otis Elevator
Company (HK) Limited & Wide Project Engineering
& Construction Company Limited [1985])
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Any Questions?
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1

Have we got a contract and when do we

Presented by Steven Yip/James Yeung

newspaper, email, conduct etc.)

Offer v Invitation to Treat

Harvey v Facey [1983]

Lowest cash price for Bumper Hall pen 900.

Harvey: We agree to buy Bumper Hall pen for the

Held by Privy Council: No contract. Faceys telegraph

Mirror image rule

Back to Back Contract

Pay when paid clause

Cable & Wireless (Hong Kong) Ltd Staff

Consideration is important because

Executed When a promise is actually executed, in

Referable to the Promise

Move from the Promisee

Sufficient, not Adequate

Ho Yuk Chu v Shun Hing Refrigerator AirConditioning Engineering [2001]

White v Bluett (1853)

Current, not Past

Current, not Past

Not Existing Obligation

Williams v Roffey Bros & Nicholls

UBC (Construction) Limited v Sung Foo

Not Public Law Duty

Partial Satisfaction of Existing Liability

Overcoming a Lack of Consideration

Privity of Contract (Condt)

Law in Hong Kong is clear: only a person who is a

A sub-contractor cannot sue the employer on the main

The Main Contractor cannot enjoy privity of contract

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