contract law - should the courts be more or less willing to enforce contracts with uncertain and...

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Examination No: 1000366 Words: 3,551

Contract Law Assignment

I. Certainty, completeness and the intention to create legal relations

In order for a contract to be valid the parties must have expressed themselves such that terms of the contract

can be determined with a reasonable degree of certainty and such that there is agreement on all the essential

terms. However, this is not absolutely true but is more of a general guiding principle. For example, the idea

that all essential terms must be agreed upon does not amount to the claim that every possible eventuality

must be catered for in the contract, rather, it indicates that there must be agreement between the parties with

respect to those terms agreed to be essential by the parties prior to contracting.1 However, a less flexible

approach is apparent in May & Butcher Ltd v R2 where Viscount Dunedin held that

a concluded contract is one which settles everything that is necessary to be settled and leaves nothing

to be settled by agreement between the parties ... As a matter of the general law of contract all the

essentials have to be settled. What are the essentials may vary according to the particular contract with

which you are dealing.3

In terms of the notion of a reasonable degree of certainty, Viscount Maugham explains in Scammell v Ouston4

that

In order to constitute a valid contract, the parties must so express that their meaning can be

determined with a reasonable degree of certainty. It is plain that unless this can be done it would be

impossible to hold that the contracting parties had the same intention in other words the consensus ad

idem would be a matter of mere conjecture.5

The differing levels of expectation ought to be noted here for in Scammell the threshold is not an ‘all’ or

‘absolute’ but “reasonable certainty”. In addition, Viscount Maugham goes on to explain that this is no more

than the general rule and, as such, it may be applied differently under different circumstances. Taken together

these two statements reflect similar principles which may be expressed as follows: (i) if the language of a

contract is so opaque as to render the extraction of a definitive meaning with a reasonable degree of certainty

then the courts cannot attribute an intention to create legal relations and cannot, as a result, enforce the

contract; (ii) if the parties have not agreed on all of the essential terms of the agreement the contract will be

unenforceable irrespective of the certainty of the language used. From these two principles flow a third which

ought to be mentioned at the outset as it mitigates to a certain degree the rather stringent sounding

1 We see this principle at work in Supermacs Ireland Ltd & McDonagh v. Katesan Ltd & Sweeney [2000] 4 IR 273 where the debate revolves around the issue of whether or not a deposit is essential.2 [1929] All ER Rep 679.3May & Butcher Ltd v R; at p.683-4 (or p.5-6)4 [1941] All ER 14.5 Scammell v Ouston; at p.16. Lord Diplock repeats this principle with regard to the consensus ad idem in The Hannah Blumenthal [1983] 1 All ER 34; at p.48. Kenny J in Dore v. Stephenson [1981] WJSC-HC 472A (at p.473-4) quoted this passage as an accurate statement of the law, this case will be discussed in Section II.

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provisions of the first two, that is, (iii) if an intention to create legal relations is deemed to be present by the

court it will be loath to void the contract. Lord Russell in Scammell v Ouston succinctly points out that

The object of the court is to do justice between the parties, and the court will do its best, if satisfied

that there was an ascertainable and determinate intention to contract, to give effect to that intention.6

This principle has been expressed more recently in Brown v Gould7 where Megarry J held that “only if the court

is driven to it will it be held that a provision is void for uncertainty”8 and again in Greater London Council v.

Connolly9 Lord Denning pronounced that “[t]he courts are always loath to hold a condition bad for

uncertainty. They will give it a reasonable interpretation whenever possible”.10

This, however, does not mean that the courts are willing “to make a contact for the parties, or go

outside the words they have used,”11 indeed, the courts seem to have adopted a principle of proportionality in

this regard with the levels of certainty and incompleteness being inversely proportional to the courts

willingness to conclude that there are contractual intentions on behalf of the parties.12 In stricter terms, the

basic rules to which the courts have recourse in ascertaining the intentions of the parties are threefold where

the courts will examine (i) the language used, (ii) the circumstances in which it is used13 and (iii) the aim or

object of the contract. Furthermore, this test is an objective rather than a subjective one relying on the words

and conduct of the contracting parties rather than on any private intentions or objectives.14

II. Uncertainty

(a) Ambiguous and vague terms

An ambiguous or vague term is one which permits of multiple meanings within a single context thereby

opening up the possibility of manifold contractual interpretations which thus givie rise to contractual

uncertainty. In Scammell v. Ouston Lord Russell, in discussing the meaning of “on hire-purchase,” observed the

existence of a “five-fold” choice of meaning which he deemed “embarrassing but eloquent”. He went on to

note that

6 Scammell v Ouston; at p.25. Lord Wright gives expression to the similar notion “verba ita sunt intelligenda ut res magis valeat quam pereat” in Hillas v. Arcos Ltd [1932] All ER 494; at p.503.7 [1972] Ch 53 [emphasis added].8 Brown v Gould; at p.6.9 [1972] 1 All ER 870.10 Greater London Council v. Connolly; at p.6. This statement echoes a similar one made by Megarry J in Brown v. Gould at p.56 which was reiterated again in RTS Flexible Systems Ltd v. Molkerei Alois Müller GmbH & Co KG [2010] UKSC 14; at p.14, paragraph 45.11 Hillas v. Arcos [1932] All ER 494; p.503. See also Fitzsimons v. O’Hanlon [1999] 2 ILRM 551 per Budd J.12 See, for example, Edwards J in Bohemian Football Club Ltd v. Albion Properties Ltd & Conroy [2008] IEHC 447; at p.115.13 In Nicolene v. Simmonds [1953] 1 All ER 822, the court examined the circumstances, in particular the prior course of dealing between the parties, and found the phrase “the usual conditions of acceptance” to be ambiguous as no such usual conditions existed.14 This view was upheld by the Supreme Court in Emo Oil Ltd v. Sun Alliance and London Insurance Plc [2009] IESC 2; p.14.

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An alleged contract which appeals for its meaning to so many skilled minds in so many different ways in

undoubtedly open to suspicion. For myself I feel no doubt that no contract existed between the parties

at all; notwithstanding that they may have thought otherwise.15

The leading case on ambiguity in Ireland is ESB v. Newman16 where the issue was an indemnity in respect of

the electricity accounts of one Mrs Waddington. In this case the defendant had executed a contract of

indemnity "discharging the accounts for electricity supplied to her for a period not exceeding nine months at

any time." However, as it turned out electricity was being supplied to Mrs Waddington in no less than four

different premises and thus the question as to the extent of the indemnity provided by Mr Newman came to

the fore, i.e. did the phrase “the accounts” refer to one or all of these accounts? Inspite of this ambiguity the

courts attempted to extract the intention and proper meaning of the parties and, upon hearing the evidence

Davitt J upheld the contract with the qualification that it was intended to apply only to the premises

mentioned in the contract rather than all the premises at which Mrs Waddington was receiving electricity. By

examining the contract through the lens of the intention of the contracting parties it was possible for Davitt J

to uphold the contract in spite of the ambiguity and vagueness surrounding the term “the accounts”. Note

however that Davitt J arrived at this conclusion without imputing any terms into the existing contract or re-

writing the contract in order to fit a purported intention.

The rule that the courts will not re-write a contract for the parties is also evident from the more

recent case of Mackey v. Wilde.17 In this case the plaintiff and the defendant were the owners of a fishery the

rights of which, in terms of the regulation and operation of the fishery, had been drawn up in 1920. The main

issue with regard to ambiguity and vagueness arose from the wording of a letter sent by the plaintiff to the

defendant in 1987 in which he describes the “legal agreement between the two houses” the terms of which

amounted to “the arrangement of 25 annual tickets per side, with a few day tickets to cover people arriving

and looking for fishing”.18 The dispute in this case revolves around the meaning of the term “a few” and,

similar to Scammell, the courts appeared to have many meanings open to them. Before offering his conclusion

Barron J examines cases of uncertainty where the courts have salvaged the contract

There have been many cases in which the full terms of the contract are not set out precisely, but which

have been found to be valid binding agreements. Examples are where a terms is implied, where there is a

formula for determining the apparent uncertainty with precision or where the term is to be determined

upon the basis of what is reasonable, or by reference to custom or trade usage [or] where the court is

satisfied that the term which is still to be settled is a subsidiary one and the parties intended to be bound

in any event by the main agreement …

In the instant case, the agreement was not capable of being saved by any means available to the court

to which I have referred … there can be no certainty here. The learned trial judge held that ten day tickets

15 Scammell v. Ouston; at p.20.16 [1933] 67 ILTR 124.17 [1998] 2 IR 578.18 Mackey v. Wilde; p.581 [emphasis added].

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would be reasonable. But equally any other number between two and ten would have been said to also

to have been reasonable.19

These words of Barron J in the Supreme Court puts paid to the principle that the courts are “loath” to find a

contract void for uncertainty and will pursue all avenues open to them. However, Barron J’s comments make it

quite clear that although the measures that the court has recourse to in attempting to enforce a contract are

manifold the threshold is set at piecing together a replacement contract for the parties. It might be noted here

that Friel, in his commentary on the case, offers the further possibility of severing a term which is too vague

although he cautions that “severance cannot operate where it would lead to a substantially different contract

from that envisaged.”20

The case of O'Mullane v. Riordan21 provides an example of a contract that was saved even though

there were problems with vagueness and ambiguity. The plaintiff entered into a contract to buy some acres of

land from the defendant. The contract provided for the sale of the land at £1,500 per acre but further provided

that in the event of planning permission being obtained, the purchaser might pay a higher price, at his own

discretion. Although this discretionary measure rendered the price quite ambiguous it was held that because

there was a minimum price stipulated in the contract the court would not sever the phrase. Enright notes that

“the purchaser would definitely pay £1,500 per acre. There was no suggestion that he retained discretion as to

whether he would pay at all … the point here is not the discretion but the level of uncertainty that the

discretion breeds”.22

(b) Illusory Terms

In contrast to an ambiguous term which may possess many meanings an illusory terms is one which is devoid

of any real meaning or amounts to an empty promise. The Australian case of MacRobertson Miller Airline

Services v Commissioner of State Taxation23 is an good illustration of the latter. In contracting for the flight of

its passengers the airline reserved the right, for example, to refuse to carry any passenger or to abandon any

flight or to cancel any ticket or booking and so on, without assigning any reason theretofore. In the High Court

Chief Justice Barwick held that it was “clear that the issuing airline operator does not by the terms of the ticket

assume or offer to assume any obligation to carry the intending passenger … The exemption of the ticket in

this case fully occupies the whole area of possible obligation, leaving no room for the existence of a contract of

carriage”.24 Thus the promise was held to be an empty one as the airline could at its own behest absolve the

contract.

In Ireland the problem of illusory terms arose in the case of Provincial Bank of Ireland Ltd. v. Donnell25

where the defendant's husband was overdrawn and the defendant undertook to pay the premiums “in

consideration of advances heretofore made or that might hereafter be made from time to time by the 19 Ibid; p.583.20 Friel; p.84.21 [1978] ILRM 73.22 Enright; p.57.23 [1975] 133 CLR 125.24 MacRobertson Miller Airline Services v Commissioner of State Taxation; at p.133.25 [1932] 67 ILTR 142.

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plaintiffs to her husband”. In this case the courts also held the promise to be an empty one as the agreement

on advances amounted to no more than an “indication on the part of the plaintiffs” which ultimately afforded

the bank absolute discretion in terms of any such advances which ,in fact, they had no intention to provide.

In the case of Bula Ltd v. Tara Mines26 where the two parties had met in order “to try to achieve a

position where the two companies might co-exist with less and if possible no friction”.27 After the

meeting one of the parties reduced their agreement to writing and, in subsequent meeting, offered the written

agreement to the other party who accepted its provisions which, for example, promised that since “[g]ood

relations between Bula and Tara are desirable and both companies will strive to establish such relations”.28

Although the plaintiff claimed that such written statements constituted a “binding and enforceable agreement

or alternatively a representation on which he and his colleagues and Bula acted”29 Mr Justice Lynch was of the

contrary opinion that “the whole thing is so utterly vague as to amount to no more than a pious aspiration to

get on better in the future and in this regard it was a shining failure”30 and ultimately dismissed the claims.

III. Incompleteness

In terms of incompleteness the notion of the essentials of the contract return to the forefront of the discussion

for even where the parties possess a written agreement which is certain in its terms if that agreement omits

certain essential terms it may be void on grounds of incompleteness. In Central Meat Products v. Carney31

where there was a purported agreement to “supply as many cattle as possible to the plaintiffs, and a

guarantee not to supply meat to any firm of canners other than the plaintiffs” which subsequently came into

operation. However, the defendant began supplying meat to another firm without the consent of the plaintiffs,

at which point the plaintiff brought proceedings against the defendant claiming breach of contract. However,

Overend J held that no enforceable contract existed as the essentials such as the number, quality and price of

the cattle had not been agreed upon.32 Corbin’s explanation qualifies to a certain extent the reasoning of May

& Butcher:

Communications that include mutual expressions of agreement may fail to consummate a contract for

the reason that they are not complete, some essential terms not having been included … As long as the

parties know there is an essential term not agreed upon, there is no contract.33

In Dore v. Stephenson34 a contract for the sale of a café failed for incompleteness as some essential

terms, such as “the nature of the rights in the foyer ”35 had not been agreed upon. In reaching his conclusion

26 [1997] IEHC 202.27 Bula Ltd v Tara Mines; at p.380.28 Bula Ltd v. Tara Mines; at p.381.29 Ibid; at p.382.30 Ibid.31 [1944] 10 Ir Jur Rep 34.32 See: McDermott; at p.66-7 and Enright; at p.58.33 Corbin; at p.66 [emphasis added]; see also: Enright; at p.58.34 [1981] WJSC-HC 472A.35 Dore v. Stephenson; p.477.

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Kenny J reiterates to a certain extent the abovementioned Scammell and May & Butcher principles with regard

to consensus and essentials:

When two or more parties make a contract for the sale of an interest in land, there may be features

about the property which make it essential that they should agree on terms in relation to them … This

type of case is … to be regarded as a case where there was never a consensus and so no enforceable

contract results. This is the rule even if all the parties, particularly when acting without the benefit of

legal advice, believed that they had made a contract. It is particularly necessary that there should be

agreement about any exceptional features.36

(c) Essential terms

In McGill Construction Ltd v. McKeon and Ors37 where the plaintiff alleged that there was a concluded

agreement for the sale of the entire issued share capital of construction company. The purported agreement

was held to have been negotiated through several meetings and concluded in one particular phone call where

the plaintiff director allegedly said “Ok €3.6 it is. We have a deal at €3.6.”38 On this verbal agreement Finnegan

P stated that:

I am satisfied that if agreement was reached at this meeting … it was an agreement on price only. There

were many other matters yet to be agreed and resolved before a concluded agreement could exist … All

these matters suggest to me that there was no concluded agreement … Indeed on the basis that all that

was agreed was the price … I am satisfied no intention at that time to create a contractual relationship

on either part.39

Thus, although Enright is correct in claiming that “[p]rice is always an essential term of a contract”40 it is not

the stand alone essential factor which, once agreed upon, eliminates the need to settle other essential terms

which could then be excluded and settled at latter date. However, Furmston notes that “[i]t is possible for the

parties to enter into a legally enforceable contract with an express or implied intention that further terms are

still to be agreed”.41 In McGill what was left out was substantial. Finnegan P pointed to a lack of discussion or

agreement with relation to deposits, tax liabilities, closing dates and in relation to the show apartment.42 Thus,

the question arises as to the threshold for enforceability?

The modern Irish approach and also the test to be applied can be found in Supermacs Ireland Ltd v.

Katesan Ltd.43 In this case the plaintiffs ran a restaurant franchising business operating fast food restaurants

36 Ibid; p.472-3.37 [2004] IEHC 88.38 This case is similar on its facts to Jordan Grand Prix Ltd v. Vodafone Group plc [2003] EWHC 1956 (Comm) where Vodafone’s global brand director was alleged to have told Eddie Jordon during a sales pitch for £230m sponsorship deal which was occurring over the phone “Eddie, stop, stop, you’ve got the deal” (at p.869) when the sponsorship went to Ferrari Jordan subsequently sued for breach of contract.39 McGill Construction Ltd v. McKeon and Ors; at p.101 (7901).40 Enright; p.59.41 Furmston; p.326. Furmston points to Global Container Lines Ltd v Black Sea Shipping Co [1999] 1 Lloyds Rep 127; p.155-7.42 McGill Construction Ltd v. McKeon and Ors; at p.101 (7901).43 [2000] 4 IR 273.

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under the name “Supermacs” of which the defendant had a number of premises. The plaintiffs alleged that

they had an agreement with the defendants in relation to the purchase of their premises for the amount of

£4m. The defendants sought to have the claim struck out on the grounds that, inter alia, an essential term, the

deposit, had not been agreed upon.44 Geoghegan J held that the correct approach was that “[t]here cannot be

a concluded agreement unless everything intended to be covered by the agreement has been either expressly

or impliedly agreed”45 and found that “neither of [the parties] attached any importance to the matter of the

payment of a deposit or as to its amount”.46 Furthermore, both Hardman and Geoghegan JJ held that failure to

agree a completion date47 was not fatal to the plaintiff’s claim of specific performance with Geoghegan J

holding the same with regard to failure to agree on vacant possession.48 This decision was subsequently

applied in Bohemian Football Club Ltd v. Albion Properties Ltd & Conroy49 where Edwards J argued that the test

has a “much wider application”50 and concluded that, in terms of the threshold on essential terms, a test of

inverse proportionality was appropriate

The more numerous and significant the areas in respect of which the parties have failed to reach

agreement, the slower a court will be to conclude that they had the requisite contractual intention.51

IV. Conclusion

It is now possible to attend to the question as to whether the courts should be more or less willing to enforce

an uncertain or incomplete contract.

1. Essentials: The initial proposal from Scammell was that the essentials were determined

circumstantially and that all the essential terms ought to be agreed upon in order to find a concluded

contract. This was upheld by Kenny J in Dore v. Stephenson but qualified by the claim that the parties

must be aware of such an essential term. The relation between essential terms and the intention to

contract was highlighted in McGill Construction where Finnegan P found that where only one of a

myriad of essentials had been agreed on there was no intention to contract. This finding was further

qualified by the fact that not all essentials must be agreed upon in order for the parties to enter into a

legally binding contract. The test was then proffered in Supermacs and applied in Bohemians where

Edwards J also supplied a threshold test for essential terms.

Conclusion: the courts ought to uphold a contract in cases where all the essentials have not been agreed upon

(i) if the parties were unaware of those essentials, (ii) if the essentials, where not expressly, were impliedly

agreed, and (iii) where the inverse proportionality test does not fail (as it would have in McGill Construction).

Thus it may also be concluded that Professor McLaughlan’s adage that “agreements which clearly were

44 The authority on deposits being an essential terms was submitted as Boyle v. Lee [1992] 1 IR 555.45 Supermacs Ireland Ltd v. Katesan Ltd; at p.288.46 Ibid; at p.289.47 Ibid; at p.291.48 Ibid.49 [2008] IEHC 447.50 Bohemian Football Club Ltd v. Albion Properties Ltd & Conroy; at p.103.51 Ibid; p.110.

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intended to be legally binding … ought never to be rejected simply on the ground that a material term has

been deferred for future agreement between the parties” is sound.52

2. Certainty: Scammell held that the requirement for certainty was reasonable rather than absolute and

that there is a relation between reasonable certainty, consensus ad idem and the existence of a

contract notwithstanding the intention of the parties. The Newman and Riordan cases demonstrated

that if there is a base from which reasonableness criteria can be applied then the contract ought to be

upheld, whereas Mackey v. Wilde demonstrated that where no base exists within the contract the

contract may be void.

Conclusion: The courts ought to uphold a contract if the terms are certain enough to give rise to the

presumption of a consensus and they ought to do this irrespective of the purported intention of the parties.

Furthermore, a base should be sought by the courts in order that the reasonableness test can be applied.

Finally, it is submitted that if a term which is reasonable in the circumstances can be supplied by the court it

ought to be supplied.53

3. Illusoriness: The MacRobertson case demonstrated that if the central and basic promise existing

within a contract is found to be an empty one the contract can be considered never to have existed.

This notion was upheld in Ireland in Donnell and again in Bula Ltd v. Tara Mines.

Conclusion: The Courts ought not to uphold a contract, irrespective of the intentions of the contracting parties,

if the central and basic promise is an empty one.

52 McLaughlan; p.97.53 This suggestion was proposed by Professor McLaughlan in his article ‘Rethinking Agreements to Agree’.

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Bibliography

Cases:Bohemian Football Club Ltd v. Albion Properties Ltd & Conroy [2008] IEHC 447.

Boyle v. Lee [1992] 1 IR 555.

Bula Ltd v. Tara Mines [1997] IEHC 202.

Dore v. Stephenson [1981] WJSC-HC 472A.

Emo Oil Ltd v. Sun Alliance and London Insurance Plc [2009] IESC 2.

ESB v. Newman [1933] 67 ILTR 124.

Fitzsimons v. O’Hanlon [1999] 2 ILRM 551.

Global Container Lines Ltd v Black Sea Shipping Co [1999] 1 Lloyds Rep 127.

Greater London Council v. Connolly [1972] 1 All ER 870.

Hillas v. Arcos Ltd [1932] All ER 494.

Jordan Grand Prix Ltd v. Vodafone Group plc [2003] EWHC 1956 (Comm).

MacRobertson Miller Airline Services v Commissioner of State Taxation [1975] 133 CLR 125.

Mackey v. Wilde [1998] 2 IR 578.

May & Butcher Ltd v R [1929] All ER Rep 679.

McGill Construction Ltd v. McKeon & Ors [2004] IEHC 88.

Nicolene v. Simmonds [1953] 1 All ER 822.

Provincial Bank of Ireland Ltd. v. Donnell [1932] 67 ILTR 142.

RTS Flexible Systems Ltd v. Molkerei Alois Müller GmbH & Co KG [2010] UKSC 14.

Scammell v Ouston [1941] All ER 14.

Supermacs Ireland Ltd & McDonagh v. Katesan Ltd & Sweeney [2000] 4 IR 273.

Books and Articles:Corbin, A. L.. (1950) Corbin on Contracts. West Publishing Company (New York).

Enright, M. (2007) Principles of Irish Contract Law. Clarius Press (Dublin).

Friel, R. J. (2000) The Law of Contract. Roundhall Press.

Furmston, M. & Tolhurst, G. J. (2010) Contract Formation: Law and Practice. Oxford University Press (Oxford).

Haigh, S. P. (2001) Contract Law in an E-Commerce Age. Round Hall (Dublin).

McDermott, P. A. (2001) Contract Law. Butterworths (Dublin).

McLaughlan, D. W. (1998) ‘Agreements to Agree’. 18 NZULR 77.

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