McKendrick Certainty Flashcards
What is the court’s official and traditional stance regarding the existence and interpretation of contracts?
(1) The court wants to give legal effect to the agreements and contracts that parties have freely negotiated.
(2) The court will not make contract for the parties, as the contract is negotiated by the parties and they have to express their agreement in a form that is sufficiently certain for courts to enforce it
(3) When contracts are uncertain, the courts do not want to make the contract by inserting terms, but also do not want to deny legal effect to the agreement
The uneasy uncertainty tripartite of cases, what are they? What were the outcomes?
Foley v Classique Coaches Ltd (1934)
May and Butcher Ltd v The King (1934)
Hillas and Co Ltd v Arcos Ltd (1932)
All three cases had a contentious clause that called into question if a valid greenest existed, since there was a failure to reach agreement on a particular point (usually about price, and using arbitration to solve the issue).
Foley and Hillas found that an agreement existed, whereas May and Butcher did not give legal effect to the agreement.
Foley v Classique Coaches Ltd (1934)
A clause in the initial contract did not conclude a fixed price. A dispute broke out, and called into question whether an agreement to supply petrol to the purchasers was valid since they failed to agree on the price to sell the petrol.
Purchasers said its not binding, vendor said it was since they had acted on this agreement for 3 years, and the agreement had an arbitration clause that covered the failure to agree the price.
Court of Appeal supported the vendors, held that agreement was valid and binding. Court IMPLIED that in the absence of an agreement of price - a reasonable price must be paid, otherwise arbitration.
May and Butcher Ltd v The King (1934)
Purchasers sought to buy tentage, with negotiations not indicating a fixed price, and that the agreement will be subject to arbitration if there are disputes. The supplier rejected a later proposal made by purchasers, and said that they were not bound to the agreement.
Court held that there was no agreement in the first place - the price clause was an “agreement to enter an agreement”, which is not a contract at all, since a critical part, i.e. the price was left undetermined.
If the clause had expressly indicated a definite agreement to buy at a reasonable price or that the price is subject to arbitration - there would be a contract.
However, the arbitration clause in the prior letters was relevant to “disputes arising out of this agreement” - but the courts did not recognise any agreement in the first place.
The judges also argued that the Sale of Goods Act, which implied that a “reasonable price” would be implied if price was not mentioned and settled in the contract - did not apply since their letters indicated that there was “an agreement to agree on the price” - the provision is that two parties will agree. There is no silence that would allow the Sale of Goods Act to imply something.
Hillas and Co Ltd v Arcos Ltd (1932) - note that this came after May and Butcher; the latter case is reported as 1934, but was decided in 1929.
There was a clause in the main agreement providing an option of entering into a contract for another purchase, that the purchaser had to exercise before a deadline.
The purchaser exercised the option, but the vendor had already agreed to sell the goods to a third party - argued that the clause was not an enforceable agreement because it did not contain a sufficient description of the goods, and it was only a contemplation of a future agreement.
Court said that the agreement was complete and binding in itself when the option was exercised. Said that the specification of the goods were clear to both parties, as well as the price, relying on the main agreement to provide some context.
How to reconcile the uneasy uncertainty tripartite of cases?
Can’t really. May and Butcher is criticised for adopting an unduly restrictive approach, and should be overruled.
Scrutton LJ, who heard both cases, dissented against both rulings (thereby contradicting himself) - acknowledged that commercial practice and legal judgments are getting wider apart.
Suggests that attempts to find “coherent principles” in the agreement to agree cases as “a fool’s errand” - in most commercial contracts, parties are unlikely to reach agreement on every single matter, court must look if there is sufficient evidence of agreement to find for a valid and binding contract. It is therefore very factual-matrix dependent, and in some sense, not very precise and certain, since it becomes a wider inquiry also looking into the intentions of the parties.
Another case that was found to be too vague or uncertain to be enforced?
Scammell and Nephew Ltd v Ouston (1941)
Viscount Maugham found that the agreement between the parties to purchase the van on hire-purchase terms was too vague and ambiguous, with the meaning of “hire-purchase terms” being able to be many different things - and even the counsel for the plaintiffs were unable to agree on the actual meaning.
Viscount Maugham also said that the courts are very willing to imply a term in commercial documents connected with dealings that they are very familiar with - for example, Hillas - the parties were both familiar with the timber trade.
Essentially, the courts in Scammell and May and Butcher could find no basis in the evidence that parties had reached an agreement, and there was no criteria or machinery agreed by parties that courts could employ to fill the gap in their alleged agreement.
So what are the methods the courts use to fill the uncertain gap in agreements?
(1) Use criteria or machinery that has been agreed by parties to resolve the uncertainty (Sudbrook)
(3) Severance (Nicolene)
(4) Implication of terms based on past dealings (Hillas, Foley)
Criteria or machinery that has been agreed by parties to fill the gap.
In May and Butcher, the courts said that if the clause had said that the price would be decided by the buyer, or expressly indicated that it would be subject to arbitration, then this would work.
Therefore, an arbitration clause seems to have much power in showing that an agreement is valid, because it also suggests that the parties had the intention to continue legal relations.
The problem with May and Butcher is that there was an arbitration clause, but the courts did not interpret it widely to apply to the price clause. In Foley v Classique Coaches, the arbitration clause was applied widely to account for determining a valid contract.
What if the machinery agreed fails/breaks down? I.e. in May and Butcher, their agreed machinery was arbitration - but this was found to be inapplicable and no agreement was reached.
Sudbrook Trading Estate Ltd v Eggleton provides a more flexible approach for the modern context.
The parties had agreed to appoint a valuer each to ascertain the price. However, one party chose not to appoint a valuer, claiming that this was an agreement to agree. Court said their machinery of choice was not essential to ascertain a fair and reasonable price, and failure of the machinery did not prevent the existence of a binding contract, and so the court would do the job of valuation. The court still seeks a fair way of administering justice.
IF the machinery is ESSENTIAL, then the court would find that there was no agreement.
Severance of an ambiguous clause
Nicolene Ltd v Simmonds (1953)
P sent an order, D accepted it with a letter that said there are in agreement with the “usual conditions of acceptance”. D later used this ambiguous clause to dispute that there was no concluded contract.
Denning LJ said this clause was unnecessary and meaningless, could be ignored, because the rest of the contract has all of its essential terms, and there was nothing left to be agreed between the parties during the negotiation process. Meaningless clauses should not be taken seriously for defaulters to take advantage of.
This is different from Scammell where “hire-purchase” was not severable, or cases where the price was not decided cannot simply be severed.
Agreement (not) to negotiate. What are the different types, which do the courts enforce? What are the relevant cases?
Agreement to negotiate (lock in agreements) - not enforceable
Agreement not to negotiate with other parties (lock out agreements) - enforceable if a time period is given
Relevant cases:
Walford v Miles
Pitt v PHH Asset Management
Petromec Inc v Petroleo Brasileiro SA Petrobas
Walford v Miles (1992) and its link to Pitt v PHH
Contained both lock-in and lock-out terms.
Court held that their lock-out term was enforceable, and M misrepresented to W when they agreed not to deal with third parties (but eventually sold business to a third party). Said that this lock-out agreement was enforceable only if a time period was given (Pitt v PHH Asset Management - there is consideration given for such a promise in the form of a time period)
They would not enforce a lock-in agreement as that would be implying a duty to negotiate in good faith, and would make a party liable if he chose not to deal anymore without good reason.
Why can’t there be a duty to negotiate in good faith?
(1) A contract is about self-interest. Negotiating parties are taken to be adversarial, for self-interest. Only misrepresentation is wrong.
(2) Difficult to determine if there has been a breach of duty to negotiate in good faith (if there was such a duty in the first place)
(3) Damages for this breach - impossible to quantify
Arguments FOR a duty to negotiate in good faith, and therefore, lock-in agreements
(1) Assumes that negotiations are adversarial. Negotiations could be cooperative, and there would be incentives for both parties to put together a proposal (under a time limit - consideration) that he can exclusively persuade the other party to contract.
(2) One can just follow the court’s tendency to reasonably ascertain if the party had good reason for breaching such a duty. Did the party reasonably endeavour to reach an agreement?
(3) Petromec Inc v Petroleo Brasileiro SA Petrobas (2005) has given criteria where negotiation in good faith may be permissible, under very narrow conditions. This means that
(a) agreement to negotiate in good faith must be contained in a legally enforceable agreement - not an agreement to agree (Walford was still subject to agreement)
(b) an express term
(c) related only to a particular “cost” that would be easy to ascertain if there were losses
(d) the duty to negotiation in good faith is breached by fraud - ended negotiations in bad faith, or misrepresented at the start
