Sherrington v Berwin Leighton Paisner (a firm)

Whether correspondence creates a binding settlement depends on the objective construction of the documents, read together and in the light of admissible surrounding circumstances. Subjective understanding and intention are irrelevant to that issue. Where an earlier offer specifies one monetary sum and a later letter says that the offer remains open but states a different sum, the documents may be internally contradictory. The later figure cannot simply be treated as an alteration of the earlier offer while retaining the description that it remains open. If the contradiction cannot be resolved by construction, the recipient cannot accept the offer as it stands and no binding contract is formed. A new provision governing the duration of an offer may qualify its operation without changing its substance. Questions of mistake need not be decided where construction alone determines the appeal.

A firm of solicitors negotiated settlement of its unpaid fees with its former client. An earlier letter offered to accept £45,000, together with other terms. A later letter stated that the firm’s offer to accept £35,000 remained open, subject to the outcome of the client’s probate appeal. The client accepted the alleged £35,000 offer, while the firm maintained that £35,000 was a typographical error and that no new offer had been made.

The circuit judge rejected the claim that a binding agreement had been reached and granted permission to appeal because of uncertainty concerning mistake in contract law. The central issue before the Court of Appeal was whether the two letters objectively constituted a new offer to settle for £35,000 or an inaccurate reference to the existing £45,000 offer.

1. Appeal dismissed. Lloyd LJ gave the leading judgment. Arden LJ agreed on the interpretation of the offer, and Tuckey LJ agreed with Lloyd LJ’s reasons.
2. The question was one of objective construction. The letters had to be read together in the context of relevant and admissible surrounding circumstances. The subjective understanding or intention of either party was irrelevant. The interpretation of an offer could not be altered by the passage of time after its date, although relevant intervening correspondence could be considered.
3. The words remains open referred back to the earlier offer and indicated that its terms remained unchanged, subject to the new provision governing the period for acceptance. That provision qualified the duration of the offer but did not alter its substance. The reference to £35,000, however, contradicted the earlier specification of £45,000. If £35,000 was intended, it would have been a new offer which had not previously been open for acceptance. The documents therefore contained an unresolved contradiction equivalent to an internally inconsistent single document. They could not be accepted as they stood, and no binding contract arose.
4. The Court declined to determine questions concerning mistake. The respondent did not seek to enforce a £45,000 agreement, and the appellant did not rely on such an agreement as a fallback. Arden LJ expressed tentative views about any duty to seek clarification and the effect of fundamental mistake, but stated that those questions did not arise for decision. The judge below had reached the correct result, although the Court of Appeal did not adopt all his reasoning.

1. Court of Appeal (Civil Division) — On 17 October 2006, dismissed the appeal. The court held that the correspondence did not create a binding contract.
2. Mayor’s and City of London Court — His Honour Judge Marr-Johnson rejected the claim that the parties had reached a binding agreement concerning the solicitor’s fees and granted permission to appeal.