INTM262230 - Non-residents trading in the UK: Is there a charge under domestic legislation: Trading in the UK: Making a contract

Place of contract and how contracts are made

If the question of where a contract is made becomes contentious and a legal opinion is required, a submission should be made to CSTD Business, Assets & International (BAI).

In most cases you are likely to be within the scope of English contract law and that is the basis on which the following guidance is framed. Where it is asserted that some other system of contract law applies you should seek advice from BAI.

Contract law is complex and it is not always easy to know where a contract is made. A contract consists of offer and acceptance. Contrary to what most people may assume, the offer is made by the buyer and the acceptance is made by the seller.

The place of contract is the same as the buyer’s location when they receive the seller’s acceptance. The place of contract will therefore be obvious where a transaction is agreed between the seller and buyer in person, whether by invoice, verbally or even by a handshake. All other forms of instantaneous communication such as acceptance by telephone, email or fax follow the same principle and the location of the buyer when they receive the acceptance from the seller is the place of contract.

Where acceptance by the seller is communicated by letter under UK law it is regarded as received at the place of posting rather than at the place of actual receipt. This is because, once a letter has been posted, the Post Office holds it on behalf of the addressee. Similarly, telegrams like letters are regarded as received when put into the hands of the Post Office.

Delivery

It is quite common to find that there is no formal acceptance of the offer by the person supplying the goods and, in that situation, delivery itself will normally constitute acceptance; and then it would be important to look at the place of delivery, the place where the lawful property in the goods passes from seller to buyer. Similarly, in the context of a service trade, actual performance of the services normally constitutes acceptance.

One possibility to bear in mind is that there could be a contract made in the UK, but this may not in fact amount to the exercise of a trade in the UK for the purposes of the non-resident. For example, if a non-resident trader advertises goods for sale in a UK trade magazine and a customer responds by telephone to the non-resident during which agreement is reached or there is an exchange of emails, the contract would technically be made in the UK. But the non- resident’s actions would not amount to trading in the UK if there is no profit making activity in the UK (see INTM262220).

Price lists

The mere sending out of price lists and advertisements does not constitute an offer, it is rather an open invitation for offers to be made. But it is not impossible for a price list to amount to an offer, as long as the list details the price, the quantity and gives a definite description of the goods concerned. If in such circumstances the buyer were to put in some amendment not contained in the original offer, then what the buyer does becomes a fresh offer and one which has to be unconditionally accepted before there can be said to be a binding contract. And there may be a series of communications between customer and supplier so that it is a matter of chance as to who makes and who accepts the final offer.

E-commerce

A website proffering goods for sale amounts to an ‘invitation to treat’ in relation to those goods.

When a customer places an order for a particular item on the website, this will constitute an ‘offer’ to purchase the item.

The question is how, when and where the acceptance of the customer’s offer is to be regarded as having crystallised.

In JSC Zestafoni Nikoladze Ferroalloy Plant v Ronly Holdings Ltd [2004] Colman J held that an acceptance by fax constituted an “instantaneous communication”. The fax took effect on receipt as the sender’s machine would generally indicate whether the message had been received “effectively” (as opposed to having been received only in part). Accordingly it would seem that an e-mail acceptance should also be regarded as an instantaneous communication.

An offer can be accepted not only by a written acceptance, but also by conduct. (See Chitty on Contracts Vol.1 (29th ed.) para. 2-028) Ordinarily, accepting payment for goods is a classic example of acceptance of an offer to purchase the goods.

The order acknowledgment web-page would seem to be a communication of the vendor’s acceptance of the customer’s offer to purchase. The contract is probably, therefore, concluded in the UK once the customer there sees this web-page.

The very latest time when the contract can be concluded is when the vendor issues an e-mail confirming the order. An e-mail acceptance should be regarded as an instantaneous communication, in the same way that a fax communication is regarded as instantaneous, i.e. it is effective upon receipt by the offeror.

In effect the sale is concluded when the payment is accepted, when the order is acknowledged on-screen, or when the purchaser receives the order confirmation e-mail. The contract is concluded in the UK at that time, and the postal rule does not apply.

This is not affected by any terms on the vendor’s web-site reserving the right to refuse to supply for any reason. Such terms are not binding until a binding contract is formed between the parties. The right to refuse to supply (insofar as it is reasonable) and the right to cancel only make sense if the vendor is under an obligation to deliver. If there is no contract and the vendor is under no obligation to deliver, there is nothing to cancel and no useful purpose to the right to refuse to deliver.

The above points are clearly a legal approach to concluding contracts, however, we need to bear in mind that place of contract may not be decisive in determining where a trade is carried on. See INTM262220.