Case Facts
The claimant, Entores Ltd, was an English company with a registered office in London. The defendant, Miles Far East Corporation, was an American corporation with headquarters in New York, which conducted business through agents worldwide, including a Dutch company based in Amsterdam. Both the claimant's London office and the defendant's Amsterdam agents were equipped with Telex Service machinery, which allowed messages typed on a teleprinter in one country to be received and printed almost instantaneously in another.
The dispute arose out of a contract for the purchase of copper cathodes. In September 1954, the parties negotiated the contract through a series of telex communications. The material communications were a counter-offer made by the claimants on 8 September 1954, and an acceptance of that counter-offer sent by the defendant's Dutch agents in Amsterdam, which was received by the claimants on their telex machine in London on 10 September 1954.
A dispute subsequently arose, and the claimants sought to bring proceedings against the defendant corporation. The critical procedural question was whether the English court had jurisdiction. Leave had been granted by Donovan J at first instance to serve notice of a writ out of the jurisdiction on the defendant's headquarters in New York, on the ground that the contract had been made within the jurisdiction — that is, in London, England. The defendant appealed against that decision. The central legal question was therefore whether, where parties negotiate a contract by instantaneous means of communication such as telex or telephone, the contract is formed at the place and time of dispatch of the acceptance (as under the postal rule) or at the place and time of receipt of the acceptance by the offeror.
Held
The Court of Appeal dismissed the appeal and affirmed the decision of Donovan J. The court held that where parties contract by instantaneous means of communication — including telephone and telex — the contract is formed only when and where the acceptance is received by the offeror, not when it is dispatched by the offeree. Because the acceptance in this case was received by the claimants on their telex machine in London, the contract was made in London. Accordingly, the English court had jurisdiction to permit service of the writ out of the jurisdiction on the defendant in New York.
Ratio Decidendi
The ratio of this case rests on two interconnected principles concerning the moment and place of contractual acceptance.
First, the general rule of English contract law is that acceptance must be communicated to, and actually received by, the offeror before a binding contract is formed. This principle was confirmed to apply fully to all instantaneous means of communication. When a person communicates acceptance by telephone or telex, the acceptance is complete only at the moment the offeror receives it — the contract comes into existence at that point and at that place.
Second, the postal rule — by which acceptance is complete upon the act of posting, before the letter reaches the offeror — was distinguished and confined to its established domain: postal and telegraphic communications. The postal rule has long been settled law since Adams v Lindsell (1818), affirmed in cases such as Household Fire v Grant (1879). The same rule has been applied to telegrams. However, the justification for that rule — namely that once a letter is posted the sender has done everything within their power and the matter passes out of their hands — does not apply where communication is instantaneous. With instantaneous communication, the offeree knows immediately (or can know immediately) whether the acceptance has in fact been received. There is therefore no principled basis on which to treat dispatch as the moment of formation.
Applying these principles, the contract for the purchase of copper cathodes was concluded in London, England, being the place where the claimants received the acceptance by telex from the defendant's Amsterdam agents on 10 September 1954. The place where acceptance is received by the offeror is therefore the place where the contract is made for the purposes of instantaneous communication.
Obiter Dicta
Denning LJ offered several instructive illustrations to demonstrate the scope and limits of the receipt rule in the context of instantaneous communication, which, whilst not forming part of the ratio, provide important guidance.
The first scenario concerns failed communication through the fault of neither party. Where, for example, noise on a telephone line prevents the offeror from hearing the acceptance, no contract is formed. The offeror is aware that the communication has failed or been interrupted, and is under an obligation to indicate as much and ask the offeree to repeat their acceptance. If the offeree does not do so such that the acceptance is actually received, there is no contract. The offeree cannot rely on a dispatch that was never received.
The second scenario concerns a situation where the failure of instantaneous communication is attributable to the fault of the offeror. Where an offeree sends their acceptance by telex in good faith but the offeror's machine is switched off or is not functioning, and this is due to the offeror's own fault or neglect, the offeror may be estopped from asserting that no contract was formed. In such circumstances, the offeree has done all that could reasonably be required of them, and it would be unconscionable to allow the offeror to take advantage of a failure caused by their own conduct.
These scenarios collectively underscore the underlying policy rationale of the receipt rule: that the risk of failed instantaneous communication should generally fall upon the party who is best placed to know whether the message has been received, with an exception in favour of the offeree where the failure is attributable to the offeror's own fault. This case was subsequently applied and extended to other forms of near-instantaneous communication in Brinkibon v Stahag [1983], in which the House of Lords confirmed the receipt rule for telex messages but acknowledged that the position may differ where communications are not received during ordinary business hours.