[1962] 3 All ER 1035
Queen's Bench
Trollope and APC (Atomic Power Constructions Ltd) collaborated in the preparation of a tender by the APC with the intention that if the tender was accepted APC would be the main contractors and Trollope would be sub-contractors for the civil engineering part of the work. On 14 February 1959 Trollope submitted a tender to APC for their part of the work. Their tender concluded 'Unless and until a formal agreement is prepared and executed this tender, together with your written acceptance thereof, shall constitute a binding contract between us.' No formal agreement was entered into. The two parties then continued to negotiate about changes in the work Trollope was to carry out for APC. Then on 23 June 1959, by a 'letter of intent' APC stated their intention to enter into a contract agreement for the civil engineering work with Trollope as soon as outstanding maters between the parties were settled, and requested Trollope in the meantime to proceed with the necessary work. Trollope began work on the project. On 11 April 1960 Trollope and APC finally agreed the conditions and entered into a contract.
The issue before the Court was whether the contract of 11 April 1960 governed the parties rights since 23 June 1959, in other words did the contract of 11 April 1960 have retrospective effect?
Megaw J
... But, so far as I am aware, there is no principle of English law which provides that a contract cannot in any circumstances have retrospective effect, or that, if it purports to have, in fact, retrospective effect, it is in law a nullity. If, indeed, there were such a principle, there would be many important mercantile contracts which would, no doubt to the consternation of the parties, be nullities. Frequently, in large transactions a written contract is expressed to have retrospective effect, sometimes lengthy retrospective effect: and this in cases where the negotiations on some of the terms have continued up to almost, if not quite, the date of the signature of the contract. The parties have meanwhile been conducting their transactions with one another, it may be for many months, on the assumption that a contract would ultimately be agreed on lines known to both the parties, though with the final form of various constituent terms of the proposed contract still under discussion. The parties have assumed that when the contract is made -- when all the terms have been agreed in their final form -- the contract will apply retrospectively to the preceding transactions. Often, as I say, the ultimate contract expressly so provides. I can see no reason why, if the parties so intend and agree, such a stipulation should be denied legal effect. Take, as an example, a simple case. Suppose that a contract for the sale of goods is under negotiation. The offeror has said: 'I will sell you one thousand tons of coal on such and such terms'. While the detailed terms of sale are still under negotiation, the offeree asks for the delivery of five hundred tons and the offeror makes delivery, both parties intending and anticipating that this delivery will count against the contract quantity if and when the contract is made, or perhaps believing wrongly that the contract has already been made. The final terms are then agreed, the offer is accepted, and the contract is made. Even if, in the actual acceptance by the offeree, no express reference is made to the antecedent delivery of the five hundred tons, I should have thought that there would be little room for doubt that the contract was intended to govern, and in law did govern, that antecedent delivery; and that neither party could successfully assert that there was no contract, or that the five hundred tons was delivered on a quantum meruit basis; or that the whole one thousand tons still fell to be delivered after the contract. Of course, the position would be different if no contract were ultimately made, as, for example, by the offeror's withdrawal of the offer before acceptance. So here. If a contract was made on 11 April 1960, and if the contract expressly provided, or should in law be assumed to have provided, that its terms as then agreed were to apply retrospectively to previous acts of the parties done since the date of the tender in anticipation of the making of such a contract at a later date, I see no reason why, in law, effect should not be given to such a provision...
In the present case, so far, as I have seen, a retrospective effect is nowhere expressly stated or stipulated. Is it to be implied into the contract of 11 April 1960, if contract there was? That, I conceive, is the crucial question on this issue.
It has been said on many occasions that terms are not to be implied merely because they are desirable, or merely because the parties, if they had considered the question, would probably or as reasonable men have agreed such terms. Terms can only be implied where, to use the common phrase, they are necessary in order to give 'business efficacy' to the contract. In the present case, in one sense at least, this term of retrospectivity is necessary to give business efficacy to the contract, if contract there was. The submission of counsel for the plaintiffs is in my view right to this extent, that, in the absence of retrospective effect to the variations clauses, an agreement made on 11 April 1960, would not only be devoid of business efficacy but also would not be capable of being a contract at all, because it would pre-suppose a state of affairs (the original specifications and price) which had long since ceased to be realistic or practicable or within the true intentions of either party in relation to the work to be done under an agreement. On the other hand, I do not think that a term such as this can be implied simply for the purpose of upholding the existence of a contract, unless it can clearly be seen that it conforms with what the parties truly intended and with what they both would have accepted as a matter of course had the question been raised in the course of the negotiations or at the moment of the making of the suppose contract. But if those factors are present, in my judgment it is right and necessary that such a term should be treated as being implied.
I am satisfied from all the circumstances that both parties, in all that they did in the course of the negotiations, in the defendants' requests or instructions to the plaintiffs to carry out the work as varied, and in the plaintiffs' acceptance of those instructions, were doing so on the understanding and in the anticipation that, if a contract were made, and whenever it was made, that contract would apply to and govern what was meanwhile being done by the parties. I am satisfied that if, on 11 April 1960... the question had been raised, both parties would have said, as a matter of course: 'This contract is to be treated as applying, not only to our future relations, but also to what has been done by us in the past since the date of the tender in the anticipation of the making of this contract'.