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Shall-ow promises won’t impose an obligation

Finnuala Meaden-Torbitt

In PM Law v Motorplus, the Court of Appeal has found that despite the use of the word “shall” in a contract, no obligation was imposed by it.

PM Law, a law firm, and Motorplus, an insurance intermediary, entered into a contract in 2007 for the referral of personal injury claims. The parties had already been in a contractual relationship, but the evidence suggested that the contract entered into in 2007 was prompted by the then new Solicitors’ Code of Conduct and the need to comply with it.

At issue was clause 1 of the contract, which provided that, in consideration of the payment of referral fees by PM Law, Motorplus “shall refer a quantity of … claims” to PM Law. The Court of Appeal found that in spite of the word “shall”, this clause did not impose an obligation to refer claims, of whatever quantity. Instead, it merely amounted to “an expression of a present intention and the clause as a whole is a description of the intended referral relationship if and when claims are referred”.

The court’s reasoning included the following:

  1. The clause made no indication of the quantity to be referred, or a means of identifying it, even though it would have been easy to do so.
  2. Subsequent provisions provided for the payment of fees on an individual referral and acceptance basis, which was more consistent with a unilateral contract than a bilateral one under which Motorplus would be contractually obliged to refer at least some claims and PM Law would be obliged to handle them. No other provisions indicated an obligation to refer claims either (even non-solicitation and termination provisions, which were considered to serve a function without there being an obligation to refer claims).
  3. Given the entering into of the contract had been prompted by the new Solicitors’ Code of Conduct, that fact and the parties’ previous relationship needed to be taken into account as part of the factual matrix. Under the prior relationship (which had concerned claims of a similar nature, albeit from different sources), Motorplus did not guarantee the number of referrals and the number of accepted referrals had fluctuated.
  4. The contract made commercial sense even without an obligation to refer.
Comments published on Compact Contract do not necessarily reflect the views of Allen & Overy or its clients.

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