The Decision in Baird Textiles v Marks & Spencer - Case Study Example

?The decision in Baird Textiles v Marks & Spencer [2001] CLC 999 demonstrates that the requirements of certainty in the formation of a contract are much too rigid. To what extent do you agree with above statement? Give reasons for your answer. Introduction The case Baird Textiles v Marks & Spencer1 involves the question of contractual terms to be implied by the parties’ conduct during the operation of a running contract. The plaintiff had been under the impression that by virtue of the particular buyer-relationship policy of the defendant, they would be given a reasonable notice of termination of a running contract they had with them. But the defendants terminated the contract with the plaintiff without giving a reasonable notice. The magnitude of the contract was such that notice of termination would be at least three years. The appeal court that decided for the defendant held that there could be no assumption of a contract for an indefinite period. The lower court had observed that in order for the contract to be enforceable, parties intention must be so certain without the court having to write a contract for them. And that in the instant case there had been no certainty as to the continuance of the contract for an indefinite period or a requirement of sufficient notice for termination of contract. It also stated that no implied contract to that effect could be inferred.2 Although the facts and circumstances of the case would appear to make it a deserving case for the plaintiff, they are denied of the relief for want of certainty which could be ascertained only by way of reducing the required terms to a written contract to that effect. This paper examines whether the requirement of certainty has to be much too rigid. Meaning of certainty The fact that the defendant had deliberately avoided making any such written commitment to the plaintiff as averred by the plaintiff themselves shows that they had been aware of uncertainty involved and that they had a forewarning that they should reduce such terms of notice period termination to writing. Their inaction proves to be fatal to the contract’s continuity. Thus, even after compliance with the rules of offer and acceptance and other elements essential for the formation of contract, a contract cannot be enforced by a court if it is marred by ‘vagueness and incompleteness’. In long-term contracts, parties may not be able to set a fixed price because of fluctuation in market conditions. A contract without a fixed price is not necessarily vague or incomplete. Therefore, The Sale of Goods Act 1979 makes a provision in section 8 for price to be agreed after the contract formation.3 As early as in 1932, the issue of vagueness and incompleteness was dealt with in Hillas & Co V Arcos Ltd. 4 The court in this case heavily relied on the formality so as to put the agreement strictly business-like unlike in social relationships. In this case, the seller Arcos contracted with the buyer Hillas for supply of Russian timber for one year 1930. The seller also agreed with the buyer for his option to purchase timber of ‘fair specification’ for the next year 1931 also. But the seller could not supply timber to the buyer for the next year as he had fully sold out his timber to another party. When sued by Hillas for breach of contract, it was argued that agreement for supply in 1931 was uncertain and hence void for uncertainty. House of Lords disagreed for the reason that the words ‘fair specification’ were sufficient to lend precision i.e certainty to make a binding contract. Lord Wright explains how certainty in law and flexibility in business could be aligned. He states that most of the business agreements are recorded in crude and summary fashion. The words that appear to the business community as sufficient and precise may appear to others as incomplete and imprecise. As such, the court is entrusted with the responsibility of interpreting documents fairly and broadly without being fault-finding. At the same time, it is not for the court to write contract for the parties by going far beyond the words spelt out. The parties may not be able to specify many matters in details in contract which is to be performed over a period and they leave such matters to be worked out such as prices, delivery schedule etc. to future.5 It is argued that the courts are at liberty to interpret certainty according to business practice. A conservative court is not in favour of court’s interpretation of matters that have been left unsettled in contracts by the parties to them. The approach should be the insistence of hard bargain that does not leave anything to be settled by further agreement. This was the guideline for the decision in May and Butcher Ltd v The King. 6 In this case, the contractual arrangement was for the disposal of old tentage by sale by the Government’s Disposals Board over a period of time at prices to be agreed from time to time and dispute in the determination of the price was to be settled by reference to arbitration. While May and Butcher argued that price should be either fixed by the court or by arbitration, the Government disposals board contended that there was no contract at all. The House of Lords agreed with Board for the reason that though it was permissible under Sale of Goods Act 1893 which provides for a reasonable price to be fixed if the contract was silent about it, the case of May and Butcher was not silent about the price but provided for a price to be fixed by a vague procedure. Hence there was no contract owing to vagueness i.e absence of certainty. Lord Dunedin’s view was that failure to be specific was fatal to the contract and that arbitration could not also be excluded because failure to agree could not be considered as a dispute. 7 But in Foley v Classique Coaches Ltd8, the contract was that Classique should buy petrol form Foley at a price to be agreed by parties from time to time. There was also an arbitration clause for intervention in case of failure to agree to a price. After three years, Classique decided to end the contract as it could buy petrol at a cheaper price from elsewhere. But the reason Classique gave for repudiation was the incompleteness of contract. The court found in favour of Foley as the both the parties had believed that there was contract between them for three years and there was a machinery in place to decide on a price in case of dispute. Thus instead of nullifying the contract, the court held that Foley should supply petrol at a reasonable price.9 Similarly in Kings Motors (Oxford) Ltd v Lax 10 , there was an option in the impugned lease contract to agree on extension of lease for further period at a rent as might be agreed upon between the parties but there was no arbitration clause. Hence it was held by the court that in the absence of an arbitration clause, such agreement as ‘as may be agreed on between the parties’ would render the contract void for uncertainty. Thus, the lease was terminated by the landlord even though the option had been duly exercised despite there being no arbitration clause. This serves as a loophole for an unwilling party to avoid a contract.11 In a recent case of 1983 in Sudbrook Trading Estate Ltd v Eagleton, 12 , a clause in the lease agreement provided for purchase of the leased land at a price to be agreed by the two valuers, nominated one each by each party. When the landlord failed to appoint a valuer, the court was inclined to intervene, since the agreement has been already partly performed and the hence court must fill the want of certainty. The instance case Baird v Marks & Spencer has been commented as the most interesting case for “certainty issues”. In spite of all the ingredients of a valid contract being available in this case, court decided that obligations of Marks and Spencer had been still uncertain and the facts of the case did not give objective criteria based on which a reasonable quantity or price could be assessed. Collins13 states that one should understand the political context in which judgments are made. He says “The normative complexity of legal doctrine invokes a broad-ranging ideological dispute conducted for the most part by an intellectual elite, which responds only indirectly to the changing currents and social forces in society. A better understanding of any transformation in the law of contract would have to analyse how alterations in economic institutions, variations in political theory, new emphases of public policy, and fresh rationalisations of the coherence of legal doctrine all combine to create a new character for the legal regulations of transactions “14 The facts and circumstances of the case of Baird’s decision lead one to believe that courts consider certainty as a rigid condition. Baird was had been under the false impression because of the empty relationship played by Marks and Spencer. The court could not come to the Baird’s rescue even though it had to lay off 4,000 staff and lost ? 54 million. The issue before the court was whether a substantial notice requirement was implied in long term contracts and whether what Baird had were series of seasonal contracts. What the court found was that there was a long term commercial relationship but not a long term contractual relationship.15 It may be relevant to point out here the issue of comfort letters exchanged between parties during the pre-contractual stage. The object of these letters is one of confidence building measure but does not carry intention to be bound by contracts. In the case of Kleinwort Benson Ltd v Malaysia Mining Corporation 16 , Malaysia Mining had informed Kleinwort that it would not guarantee’s its subsidiary’s debts but its comfort letter would suffice and also undertook not to reduce its stake in the subsidiary until the subsidiary’s loan was fully repaid. Kleinwort made a condition that it would apply a higher rate of interest in the alternative. When ultimately the market collapsed, its subsidiary went into liquidation and the Kleinwort sued Malaysia Mining for recovery of the loan amount on the basis of their comfort letter. The first instance court applied the test whether there was intent to create legal relations. But the Appeal Court sought to determine whether a promise was being made. The argument before the court by Malaysia Mining was that the comfort letter was only a policy statement and it did not form the basis of a contract with Kleinwort. Ralph Gibson LJ observed that the comfort letter only highlighted the moral responsibility of Malaysia Mining and did not make any contractual commitment to pay for its subsidiary’s debts. “The facts of this case do not sit easily with the presumption that business agreements are binding and raises interesting questions about the significance of reliance on the promise. If the Court of Appeal had ‘found’ a promise to pay, as the court of first instance did, it would at least have avoided criticism to the effect that its decision was commercially unrealistic” 17 Conclusion In view of the above cases discussed, the requirement of certainty need not be too rigid for the courts have attempted to apply principles of implied contract, promissory estoppel to substitute for certainty principle. Besides, as Collins’ comments of political context also plays a part to prevent rigidity. But the fact remains that Courts have still not relaxed the rigid requirement of certainty as was with the decision relating to comfort letters. Certainty requirement is almost akin to strict liability which does not look into the fact whether one had a guilt intention or not. Thus, if the contractual elements do not fit into the frame work of certainty, there are 90 percent chances that a contract would fail save the political context which includes public policy and implied terms and promissory estoppel. Bibliography Cases Baird Textile Holdings Limited v Marks & Spencer Plc [2001] CLC 999, EWCA Civ 274 [2002] 1 All ER (Comm) 737 Hillas & Co V Arcos Ltd (1932) 43 Ll L Rep. 359, [1932] All ER Rep 494 in Linda Mulcahy, Contract Law in Perspective (Routledge-Cavendish, Oxon, 2008) 74 Foley v Classique Coaches Ltd 2 KB 1, [1934] All ER Rep 88 in Linda Mulcahy, Contract Law in Perspective (Routledge-Cavendish, Oxon, 2008) 75 Kings Motors (Oxford) Ltd v Lax, [1969] 3 All ER 665, [1970] 1 WLR 426 in Linda Mulcahy, Contract Law in Perspective (Routledge-Cavendish, Oxon, 2008) 76 Kleinwort Benson Ltd v Malaysia Mining Corporation (1989) 1 All ER 785, [1989] 1 WLR 379 in Linda Mulcahy, Contract Law in Perspective (Routledge-Cavendish, Oxon, 2008) May and Butcher Ltd v The King (1934) 2 KB in Linda Mulcahy, Contract Law in Perspective (Routledge-Cavendish, Oxon, 2008) 75 Sudbrook Trading Estate Ltd v Eagleton [1983] 1 AC 444, [1982] 3 All ER 1, [1982] 3 WLR 315 .in Linda Mulcahy, Contract Law in Perspective (Routledge-Cavendish, Oxon, 2008) 76 Books Collins (2003) in Linda Mulcahy, Contract Law in Perspective (Routledge-Cavendish, Oxon, 2008) Mulcahy Linda, Contract Law in Perspective (Routledge-Cavendish, Oxon, 2008) Read More