Certainty of Terms - Contract Law Lecture Handout PDF

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Certainty of Terms - Contract Law Lecture Handout
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LA243 Contract Law Certainty Context and Objectives In this section, we will examine a further pre-condition to the enforceability of an agreement as a contract: the requirement of (sufficient) certainty. On completing this section, you should understand (i) why there is a requirement that agreements must be sufficiently certain; (ii) when and how a court might be able to complete an agreement to as to make it sufficiently certain; (iii) how the requirement of sufficient certainty is applied in the context of commercial dealings.

(1) Sufficient Certainty of Terms Unless the terms of the contract are sufficiently certain, it is impossible for the contract to be given effect to, as the nature of the parties’ obligations are unclear. The question to which the court will address itself when ascertaining whether the contract is sufficiently certain is whether or not the contract is capable of being given precise legal effect. Contracts will not be enforced where the terms which embody the fundamental obligations are missing, vague or unclear or even where the parties simply provide for these terms to be subsequently agreed. Similarly, agreements to agree or to negotiate are generally, although controversially regarded as unenforceable. Scammell v Ouston [1941] 1 All ER 14 – sale of a van “on hire purchase terms” Viscount Maugham: “in order to constitute a valid contract the parties must so express themselves that their meaning can be determined with a reasonable degree of certainty. It is plain that unless this can be done…consensus ad idem would be a matter of mere conjecture” “In commercial documents connected with dealings in a trade with which the parties are perfectly familiar the court is very willing, if satisfied that the parties thought that they had made a binding contract, to imply terms and in particular terms as to the method of carrying out the contract which it would be impossible to supply in other types of contract”.

May & Butcher v R (1929), [1934] 2 KB 17 - supply of surplus tentage, price undetermined Courtney Ltd v Tolaini Bros [1975] 1 All ER 716 – contract to negotiate not valid. Walford v Miles [1992] 1 All ER 543* – – lock-out agreement with no term stipulating duration ineffective

Questions: (1) What does “certainty” mean in the context of contract formation? (2) Are commercial agreements treated differently from non-commercial agreements?

(2) Legal solution in the absence of a concluded agreement: restitution

BSC v Cleveland Engineering Ltd [1984] 1 All ER 504 Whittle Movers Ltd v Hollywood Express Ltd [2009] EWCA Civ 1189 Waller LJ: "[15] a court should not strain to find a contract because a restitutionary remedy can solve most if not all the problems".

Questions: (1) Why did the courts in British Steel and Whittle Movers decide that the agreement was insufficiently certain, despite the fact that there had been performance? (2) How helpful is a remedy based on restitutionary principles?

(3) Certainty and ongoing negotiations in commercial dealings

Formation of sufficiently precise agreement is primarily responsibility of parties. As a result, the courts will not make/impose contract for the parties, not least as to do so would chafe against judicial reluctance to encourage litigation in respect of imprecise agreements. Furthermore, there is generally regarded to be little if any injustice or unfairness in not enforcing an incomplete agreement even if work has already commenced due, to the availability of a restitutionary claim in such cases. 2

British Steel v Cleveland Bridge and Engineering Ltd [1984] 1 All ER 504 not all terms agreed, agreement ‘subject to contract’ Percy Trentham v Archital Luxfer [1993] 1 Lloyd's Rep.25 - work commenced but many terms left undecided “The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as inessential.”

Pagnan SPA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601 - terms of ‘economic significance’ undecided but contract essentially functional. *RTS Flexible Systems Limited v Molkerei Alois Müller Gmbh & Company KG (UK Production) [2010] UKSC 14 “There is said to be a conflict between the approach of Steyn LJ in the Percy Trentham case and that of Robert Goff J in the British Steel case. We do not agree. Each case depends upon its own facts. We do not understand Steyn LJ to be saying that it follows from the fact that the work was performed that the parties must have entered into a contract. On the other hand, it is plainly a very relevant factor pointing in that direction. Whether the court will hold that a binding contract was made depends upon all the circumstances of the case, of which that is but one. The decision in the British Steel case was simply one on the other side of the line. Robert Goff J was struck by the likelihood that parties would agree detailed provisions for matters such as liability for defects and concluded on the facts that no binding agreement had been reached. By contrast, in Pagnan Bingham J and the Court of Appeal reached a different conclusion, albeit in a case of sale not construction.” Do all cases turn on their facts?

Questions: (1) Why did Lord Steyn think that it was easier to reject a claim that an agreement was insufficiently certain once the transaction has been performed? (2) Can British Steel be reconciled with Percy Trentham? (3) When would the fact that a transaction has been performed not be sufficient to uphold an agreement as sufficiently certain?

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4. Scope and limits of courts’ interventionist role

The courts are generally reluctant to fill any gaps so as to give effect to incomplete or apparently incomplete agreements. Generally, the greater the degree of incompleteness, the greater the reluctance to ‘intervene’. However, it is also important for a court to balance the reluctance to intervene with the need to facilitate commercial dealings. As a result, contracts which contain ambiguities that can be resolved by reference to: 

previous dealings between the parties;



agreed mechanisms within contracts designed to resolve ambiguity or



which has been proven to be viable by virtue of performance by the parties

will in some circumstances be given effect to and determined to be sufficiently precise. Hillas v Arcos [1932] All ER Rep 494 Lord Wright: “The document …cannot be regarded as other than inartistic, and may appear repellent to the trained sense of an equity draftsman. But it is clear that the parties both intended to make a contract and thought they had done so. Business men often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise… [This] does not mean that that Court is to make a contract for the parties, or to go outside the words they have used, except in so far as there are appropriate implications of law, as for instance, the implication of what is just and reasonable to be ascertained by the Court as matter of machinery where the contractual intention is clear but the contract is silent on some detail.” “Thus in contracts for future performance over a period, the parties may neither be able nor desire to specify many matters of detail, but leave them to be adjusted in the working out of the contract. Save for the legal implication I have mentioned, such contracts might well be incomplete or uncertain: with that implication in reserve they are neither incomplete nor uncertain.” Foley v Classique Coaches [1934] 2 KB 1 Queensland Electricity Board v New Hope Collieries [1989] 1 Lloyds Rep 205 *Baird Textile Holdings v Marks & Spencer [2001] EWCA Civ. 274 · no express agreement as to duration/termination of arrangements · court’s rejection of alleged implied contract since too imprecise

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Wells v Devani [2019] UKSC 4 Lord Briggs: “there are occasions, particularly in relation to contracts of a simple, frequently used type, such as contracts of sale, where the context in which the words are used, and the conduct of the parties at the time when the contract is made, tells you as much, or even more, about the essential terms of the bargain than do the words themselves. Take for example, the simple case of the door to door seller of (say) brooms. He rings the doorbell, proffers one of his brooms to the householder, and says “one pound 50”. The householder takes the broom, nods and reaches for his wallet. Plainly the parties have concluded a contract for the sale of the proffered broom, at a price of £1.50, immediately payable. But the subject matter of the sale, and the date of time at which payment is to be made, are not subject to terms expressed in words. All the essential terms other than price have been agreed by conduct, in the context of the encounter between the parties at the householder’s front door.”

Questions to think about: (1) How can the non-interventionist stance of English contract law be reconciled with its desire to facilitate commercial dealings when an agreement lacks certainty? (2) Should the courts intervene to “rescue” an agreement, and if so, when?

Reading: **Merkin and Saintier, Poole’s Textbook on Contract Law, 14 th ed, ch.3, section 3.1 ( pages 83-99)

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