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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Durham Tees Valley Airport Ltd v Bmibaby Ltd & Anor [2010] EWCA Civ 485 (05 May 2010) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2010/485.html Cite as: [2010] EWCA Civ 485, [2011] 1 Lloyd's Rep 68, [2011] All ER (Comm) 732 |
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ON APPEAL FROM THE HIGH COURT
The Hon Mr Justice Davis
C08C00806
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE TOULSON
and
LORD JUSTICE PATTEN
____________________
DURHAM TEES VALLEY AIRPORT LIMITED |
Appellant |
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- and - |
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BMIBABY LIMITED & ANOR |
Respondent |
____________________
Michael Crane QC and Akhil Shah (instructed by DLA Piper UK LLP) for the Respondent
Hearing dates : 26th and 27th January 2010
____________________
Crown Copyright ©
Lord Justice Patten :
Introduction
"In the event that Peel Airports Limited ("Peel") acquires a shareholding in Teesside International Airport Limited ("TIAL") or otherwise acquires operational control of Teesside International Airport ("the Airport"), then in consideration of British Midland Regional Limited trading as bmibaby ("bmibaby") entering into an agreement with TIAL for the operation of services by bmibaby from the Airport no later than 31 October 2003 in the form annexed to this letter (or with such further amendments as are agreed by us), Peel agrees and undertakes as follows:-
1. Peel will pay to bmibaby the sum of £500,000 in the form of 9 monthly instalments to commence on or before 7 April 2003, or if later, within 7 days of acquisition of such shareholding or control as a contribution to route support and costs associated with bmibaby setting up its operation at the Airport. The first instalment will be £100,000 followed by 8 monthly payments of £50,000 over the period from May to December 2003.
In the event, however, that bmibaby fails to commence based operations in accordance with the contract with TIAL or alternatively, withdraws services from the Airport within twelve months of the date of commencement of services, then in either scenario, Peel shall be entitled to recover such monies paid to bmibaby under this letter (as shall not have been spent on marketing and launch costs by bmibaby) should bmibaby fail to prove the use of reasonable commercial endeavours in the development of the base operation at the Airport. Additionally, if such withdrawal occurs prior to all payments having been made, then for the avoidance of doubt, no further payments remain due and owing from Peel to bmibaby."
"24. The Base Agreement, self-evidently, is not what one might style a lawyers' agreement (I was told that it was drafted by the business people concerned, albeit reviewed by in-house legal departments). It is nevertheless detailed and, on its face, a formal contract. The named parties are TIAL and British Midland Regional Limited. Somewhat inconveniently it has no numbered clauses.
25. The opening provisions are these:-
"Date: 23 April 2003
Airline: British Midland Regional Limited trading as bmibaby
Operation: Initial 'lead-in' flying programme (to an agreed number of destinations) to commence no later than 31 October 2003 to support the establishment of a minimum x 2 based aircraft operation (initially B737) operating exclusively from TIAL by Summer 2004.
Capacity: Capacity will be determined by the relevant route network delivered in consultation with TIAL.
Duration: 10 years from the establishment of the based aircraft operation as defined above. …"
26. There are then further provisions, including some quite technical details on charging structure. The charging structure, geared to load factor, involved low passenger charges in the early years, rising thereafter steadily up to year 7, with increases thereafter to year 10 to reflect the Retail Price Index. Under the heading "Marketing: Base Establishment – Initial 2 based aircraft operation" this was provided:-
"TIAL will pay to bmibaby the sum of £850k in the form of marketing support on the condition that bmibaby establish a 2 based aircraft operation at TIAL by Summer 2004. Delivery of this funding will be made via the Airport as a payment to bmibaby in the form of a contribution towards an approved Marketing Plan supplied by the airline, designed to promote the region. For a winter 2003 launch of services by bmibaby, this funding will be delivered 50% by 14 May 2003 and 50% by 31 July 2003.
In the event that bmibaby fail to commence operations or withdraw from TIAL within 12 months of launch, then TIAL reserves the right to clawback all such funding as shall not have been spent on marketing and launch costs by bmibaby should bmibaby fail to prove the use of best endeavours in the development of the base operation.
In addition to the above sum in the event that Peel Airports Limited or another investor acquire a shareholding in TIAL or control of the airport, £500k will be paid to bmibaby by Peel (as a contribution towards route support and costs associated with bmibaby setting up its operations at the airport) or such other investor in the form of 9 monthly instalments from, on or before 30 April 2003 to 1 December 2003 inclusive.
In the event, however, that bmibaby fails to commence based operations in accordance with the contract with TIAL or alternatively, withdraws services from the Airport within twelve months of the date of commencement of services, then in either scenario, Peel shall be entitled to recover such monies paid to bmibaby (as shall not have been spent on marketing and launch costs by bmibaby) should bmibaby fail to prove the use of reasonable commercial endeavours in the development of the base operation at the Airport. Additionally, if such withdrawal occurs prior to all payments having been made, then for the avoidance of doubt, no further payments remain due and owing from Peel to bmibaby. …"
It is not disputed that the sums payable by TIAL would primarily derive from external local government funding.
27. There were then various other provisions. By way of Tourist Board Funding, TIAL agreed to pay to bmibaby the sum of £100,000 on the terms specified, including payment in two tranches for "a winter 2003 launch of services". Route Development support was agreed to be provided in the form of a cash payment by TIAL per destination as follows:- Year 1 £50,000, Year 2 £25,000, on certain expressed assumptions, including an assured minimum of five frequencies a week to any destination and full consultation with TIAL on the route planning process. It was also provided that "this structure of route development support will be paid to bmibaby for each and every new destination that the airline introduces from TIAL during the term of the deal."
28. Under the heading "Training" it was provided that TIAL would pay to bmibaby the sum of £5,000 at the commencement of each bmibaby job created; and, prior to commencement of a base operation, a further £200,000 of training funds. Other provisions related to payment for aircraft parking; a fuel rebate "during the term of this deal"; a provision whereby TIAL would provide bmibaby with a package of advertising sites at the airport to a current market value of "no less that £100,000 in year 1" with contributions to advertising requirements "from year 2 onwards at a rate to be agreed"; free staff car parking and security passes (to a maximum number) for bmibaby staff "for a period of two years from the establishment of a base operation".
29. After various other provisions, this was provided under the heading "Development":-
"bmibaby has identified to TIAL certain potential destinations and cities it may wish to serve during the term of this agreement (see list attached at Schedule 1). TIAL confirms that it will not actively pursue further development of any specific scheduled destination, (as defined in Schedule 1), currently being operated, to any bmibaby base during the term of this deal.
From time to time, should TIAL be approached by another airline to operate to any destination within the existing bmibaby network at that time, then TIAL will discuss with bmibaby whether it has any plans to operate the route from TIAL within a 12 month period from that date. If declined then TIAL may proceed with negotiations outwith the terms of this agreement, but not on more favourable terms than those offered to bmibaby.
Similarly, (but save where TIAL is already bound by existing agreements with incumbent operators), TIAL will not offer more favourable discounts or incentives to another carrier on those routes operated by bmibaby from TIAL, nor offer a more favourable charging structure to any other carrier at the Airport.
For the avoidance of doubt, all existing route networks with incumbent operators at TIAL at the date of this agreement are specifically excluded and TIAL reserves the right to agree any such future terms as deemed appropriate with these operators on such existing routes from time to time."
The appended schedule contained a lengthy list of destinations: it was common ground before me that, by aviation industry standards, it was an unusually lengthy list for such a purpose and whereby DTVA was (if the routes were operated by bmibaby) restricted in its dealings with other airlines.
30. I should say something about the word "exclusively" as used in the "Operation" designation in the Base Agreement (and, subsequently in Clause 2 of the Novation and Variation Agreement). This, as the expert witnesses agreed, was a well understood meaning in the aviation industry. It connotes that a based aircraft will always fly from and return to its base. It is possible and quite common (in the absence of agreement to the contrary) for an aircraft, for example, to fly, taking the airport base as A, a route pattern of A ? B ? C ? B ? A (called a "W" pattern in the industry). But an exclusive pattern generally is A ? B ? A ? B ? A: all flights are thus either into or out of the airport. That of course increases the number of flights ("rotations") into and out of the base airport: and so has attractions for an airport. In addition, as I was told, it has also efficiency and financial advantages for the airline, if volume is there, because it exposes the airport to more passengers.
31. A different concept is "exclusivity". Under aviation law, putting it very generally, an airport cannot grant a monopoly on any route to an airline: another licensed airline cannot, generally speaking, be prevented, assuming slots are available, from operating such a route from that airport. Exclusivity, which commonly includes an agreement by an airport not to solicit other airlines thus connotes that a particular airline has a favoured deal in terms of passenger rates charged: another airline seeking to fly that route may be charged the full published rates by the airport. That concept is reflected in the terms of the "Development" clause in the Base Agreement and, in due course, in Clause 5, headed "Development and Exclusivity", of the Novation and Variation Agreement."
"1. Novation
1.1 In consideration of the covenants and conditions contained in this Novation and Variation Agreement and with effect from the date of this Novation and Variation Agreement ("the Novation Date"):
(a) bmibaby agrees with DTVAL to assume all the obligations of BMRL to DTVAL under or arising from the original Agreement from the Novation Date except to the extent that such obligations have been fully and properly discharged prior to the Novation Date;
(b) DTVAL releases and discharges BMRL from all its obligations and liability to DTVAL under the original Agreement and from all (if any) liability to DTVAL (whether in contract or in tort or otherwise) arising from any act or omission of BMRL in the discharge or purported discharge of all or any of BMRL's obligations to DTVAL under the original Agreement; and
(c) DTVAL agrees with bmibaby to be bound by its obligations under the original Agreement (to the extent that they have not been fully and properly discharged prior to the Novation Date) in every way as if bmibaby had been a party to the original Agreement in place of BMRL and agrees that bmibaby shall enjoy the rights of BMRL in respect of the original Agreement in every way as if bmibaby had been a party to the original Agreement in place of BMRL.
1.2 The parties acknowledge and agree that:
(a) any obligations of BMRL owed to DTVAL pursuant to the terms of the original Agreement which remain undischarged at the Novation Date shall not be deemed to be waived by DTVAL by virtue of the novation of the original Agreement pursuant to the terms of this Novation and Variation Agreement, but shall be performed by bmibaby in accordance with clause 1.1(a);
(b) any obligations of DTVAL pursuant to the terms of the original Agreement which remain undischarged at the Novation Date shall not be deemed to be waived by bmibaby by virtue of the novation of the original Agreement pursuant to the terms of this Novation and Variation Agreement, but shall be performed by DTVAL in accordance with clause 1.1(c); and
(c) the novation of the original Agreement pursuant to the terms of this Novation and Variation Agreement shall be without prejudice to any rights accrued prior to the date of this Novation and Variation Agreement with the intent that such rights shall be enforceable by or against (as the case may be) bmibaby in place of BMRL.
(d) each party shall (at its own cost) execute such further deeds and documents and do all such things as the other parties reasonably require to give effect to the novation contained in this Novation and Variation Agreement.
2. Operation
bmibaby agrees to the establishment of a second based aircraft operation (initially B737) operating exclusively from Durham Tees Valley Airport ("DTVA") by Spring 2006 (to commence no later than 30 April 2006). For the avoidance of doubt, therefore, from Spring 2006 bmibaby will support a x2 based aircraft operation operating exclusively from DTVA.
3. Commercial
For the avoidance of doubt:
(a) the terms and charging structure will remain as set out in the original Agreement; and
(b) the term of the original Agreement shall expire on 30 April 2014.
4. Marketing
4.1 Base establishment/Tourist Board funding of £475,000 will be delivered from DTVAL to bmibaby within 7 days following the launch of the second based aircraft. Delivery of this funding will be made as a payment to bmibaby in the form of a contribution towards an approved Marketing Plan supplied by bmibaby, designed to promote the region. The clawback provision referred to in the original Agreement will continue to apply in relation to this funding (but for avoidance of doubt clawback does not apply to any funding paid in relation to the first based aircraft).
4.2 DTVAL will procure that Peel Airports Limited will contribute the sum of £100,000 to bmibaby's development funding such payment to be made within 7 days following the establishment of the second based aircraft. Again, the clawback provision will continue to apply in relation to this funding provision in respect of the second based aircraft only.
4.3 Route Development Support being £50,000 in year 1 and £25,000 in year 2 for each new destination shall continue to apply as set out in the original Agreement.
4.4 DTVAL will pay to bmibaby the sum of £5,000 at commencement of each bmibaby direct job created and the parties will continue to co-operate on facilitating any application by DTVAL to recover some or all of such payments from third party sources of funding.
4.5 DTVAL will use all reasonable endeavours to obtain and pay to bmibaby a further £100,000 for training funds from the Learning and Skills Council or such other organisation as may provide such funding on behalf of bmibaby such provision to replace the existing provision in the original agreement. However the parties acknowledge that they must liaise closely to ensure that any application criteria are strictly adhered to in order to seek to obtain such funding.
5. Development and Exclusivity
5.1 In relation to the destinations referred to at Schedule 1 of the original Agreement bmibaby only now accepts exclusivity in relation to those destination airports operated by it as specified below and not any of the other destinations referred to in that schedule.
Malaga, Alicante, Palma, London Gatwick, Paris-Charles de Gaulle, Jersey, Cork, Newquay, Knock, Bordeaux
For the avoidance of doubt such route exclusivity is agreed based on a minimum of 3 rotations per week to such defined destination airports.
5.2 The parties agree to liaise and consult diligently in order for them to agree the summer 2006 flying programmes to be operated by bmibaby from DTVA to reach agreement on the extent of destinations to be served by bmibaby for this period by the end of November 2005.
5.3 Excluding the destinations as defined in 4.1 [sic] DTVAL is entitled to pursue all other route development opportunities with other carriers as it considers appropriate.
5.4 For the avoidance of doubt the parties confirm that all terms of the original Agreement remain in full force and effect save as varied by the terms set out in this Novation and Variation Agreement."
The claim
"… to use its best endeavours to ensure that its operations from the Airport in respect of the 2 aircraft based there exclusively were performed to the maximum capacity in respect of the number of flights and the number of passengers per flight and that the maximum number of flights capable of being achieved were achieved and that the maximum number of passengers capable of being secured to fly on its aircraft and use of its services were secured."
This was pleaded both as an express and as an implied term.
The judgment
(A) Construction
(B) Certainty
"82. Thus I conclude that on the terms of the Novation and Variation Agreement bmibaby was obliged to establish by 30 April 2006, and thereafter to continue to base and to operate two aircraft: and this obligation was for the term of the contract, defined by Clause 3(b) as expiring on 30 April 2014. Such a conclusion is, in my view, consistent moreover with the factual matrix and also gives rise to (objectively viewed) a commercially sensible result."
"I was referred also to the Privy Council case of Australian Blue Metal Limited v Hughes [1963] AC 74. That was a case concerning a permission to extract minerals from an area of land. The case was, of course, one decided on its own circumstances. But it is relevant that, in delivering the judgment of the Board, Lord Devlin also said this at p.94:-
"The second feature is that no express obligation was imposed on the appellants to do any mining at all, and in their Lordships' opinion none can be implied. The only practicable way of framing such an obligation with sufficient precision to make it enforceable is to do what was done by the parties in the 1942 agreement and specify a minimum quantity of material that has to be won in a given period. Their Lordships were referred to Hillas & Co Ltd v Arcos Ltd, a case in which the House of Lords was able to use the implication of reasonableness to fill the gaps left by the parties. But in the present case there are no criteria which would enable a court of law to determine what would be a reasonable quantity. There would be too many uncertain factors to be taken into account, such as the profitability of mining in the future … ."
Mr Shah says that is likewise so in the present case: even granted that here is an express obligation to base and fly aircraft (as I have concluded there was) the obligation is insufficiently imprecise, there is no requirement for a minimum number of flights or passengers, there are too many uncertain factors as between parties with competing interests and the defect cannot be met by an implication of reasonableness. There is, in my view, obvious force in these submissions."
"90. Mr Brealey's starting point was beguilingly simple. The express obligation on bmibaby, contained in the contracts, was to establish and operate two based aircraft at DTVA and to continue to do so for the 10 year period. In November 2006 bmibaby conclusively breached the contracts by withdrawing the two based aircraft from DTVA. Therefore, he says, liability is established: and the matter simply becomes one of quantifying the damages: albeit he accepted that "difficult issues", as he put it, of quantification could arise.
91. But such an approach only operates to defer to another forum a decision which has to be made in any event and is appropriately made at this stage. For the question still has to be asked: what is it that, contractually, bmibaby was obliged to do? Until that is established, an assessment of whether there is a breach causative of loss cannot be made. And to assert that bmibaby was obliged to base and operate two aircraft from DTVA over 10 years immediately raises the question of the nature and extent of its obligations: how many flights? how many passengers? and so on.
92. Mr Brealey accepted that this had to be decided. Indeed the point was pleaded at the outset fully in the Particulars of Claim, no doubt just because it was appreciated that it was an essential element of the claim….".
"The document of 21 May 1930, 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. Businessmen 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. It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects, but, on the contrary, the court should seek to apply the old maxim of English law verba ita sunt intelligenda ut res magis valeat quam pereat. That maxim, however, does not mean that the 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 a 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 . . . ."
"In my judgment, however, these conclusions were erroneous. In the first place, as a matter of fact, it was not impossible to implement the parties' agreement. The surveyors, Mr West and Mr Pollard, in fact did so implement it. Although I am content to assume that the surveyors' agreement on the pegging out of the boundary line did not bind the parties (although I can see a strong argument for saying that there was a collateral agreement between the parties that it should do so) and that therefore the parties were entitled to dispute the surveyors' solution, nevertheless it is simply a non sequitur to argue from a disagreement about the meaning and effect of a contract to its legal uncertainty. Parties are always disagreeing about the contracts which they make. They take those arguments, if necessary, to the courts, or to arbitration, for their resolution: and sometimes the resolution is very difficult indeed to arrive at. That is equally true of disputes as to the meaning of contracts and of disputes as to the application of contracts to the facts and of disputes as to the proper understanding of the facts. None of that makes a contract uncertain. For that to occur – and it very rarely occurs – it has to be legally or practically impossible to give to the parties' agreement any sensible content."
Damages
"This contract only imposes one obligation upon the appellants namely, to publish. The question is what will satisfy that obligation? The appellants have a wide discretion; the time of publication, the number of copies to be printed, the price at which they are to be offered, and the form the book is to take are all left to their judgment. That however does not dispose of the case, because they have repudiated their obligation altogether, and the difficult question we have to decide is in what position the respondents would have stood if the appellants had performed their obligation. To answer this question the Court must come to some conclusion on matters on which there is no evidence; how the appellants would have exercised their discretion; what number of copies they would have published; how many editions would be reasonable."
67. Scrutton LJ (at page 481) took a rather narrow view:-
"Mr. Jowitt contended that if one copy was published that would satisfy the appellant's obligation. That cannot be laid down as a proposition of law. I think the appellants were bound to make such a publication as could be considered reasonable in the circumstances. Having done that they are not bound to do anything further. Provided that they make a reasonable publication the number and price of the copies are left to them. They broke their contract, and now what is the measure of damages? There are two principles which may seem to clash. One of these is stated by Lord Selborne in Wilson v. Northampton and Banbury Junction Ry. Co. (1) "In the case of damages, as it appears to me, the plaintiff will be entitled to the benefit of such presumptions as, according to the rules of law, are made in Courts both of law and equity against persons who are wrongdoers in the sense of refusing to perform, and not performing, their agreements. We know it to be an established maxim, that in assessing damages every reasonable presumption may be made as to the benefit which the other parties might have obtained by the bona fide performance of the agreement." I am not inclined to be strict in limiting the damages recoverable against wrongdoers, but if their obligation is left so much to their discretion that there are several ways of performing it, I have always understood that the Court assesses damages on the basis that "if the contract could have been performed by the performance of the alternative least beneficial to the plaintiff, the measure of damages would be regulated by the loss occasioned by non-performance of that alternative": Deverill v. Burnell, per Bovill C.J. The simple reason for this is that a defendant is not liable in damages for not doing that which he is not bound to do. In assessing the damages in this case I try first to ascertain what edition of the book would have been a performance of this contract; I do not forget that the respondents cannot recover more than they would have suffered if they themselves acted reasonably; I bear in mind also that the appellants are wrongdoers; and acting on these lines I do not dissent from an assessment of 100l., though I think myself the plaintiffs might have got considerably less."
"If a merchant makes a contract to deliver goods to a shipowner to be carried by him for reward, and the merchant fails to provide the goods, the Court must first find what is the contract which has been broken; and if it was to carry the goods to one of two alternative ports at different distances from the port of loading at rates of freight differing according to the distance, the only contract on which the shipowner can sue is a contract for carriage to the nearer port. The plaintiff cannot prove a contract for performance of the more onerous obligation. This explains why in cases of this kind the Court regards only the lesser of two alternative obligations. But in the present case there are no alternatives, and to adjust the rights of the parties the only method is to form a reasonable estimate of the amount the respondents would be in pocket if the appellant had kept his promise. Everything likely to affect the amount of the profit must be considered; the nature and popularity of the subject matter, the reputation of the authors, the cost of producing a book on that subject, the price at which it would command a sale, the business capacity of the publishers and the chances of earning a profit by the sale of the book. On the other hand the publishers are not bound to run risks contrary to their judgment; they would naturally and properly allow for fluctuation in the public taste for literature of this kind. An analogous calculation has to be made when a man having engaged to take another into his service for a time and to pay him a share in the profit of his business, refuses to employ him at all. In assessing the damages for the breach of this contract the question is not how the employer could carry on his business so as to make the least possible profit and so involve himself in the least possible obligation towards the plaintiff. Apart from his contract, he need not carry on business at all. The proper method of assessment is quite different; it is to make a reasonable computation of the amount the respondents would have received had the contract been fulfilled."
"The general rule as stated by Scrutton L.J. in Abrahams v. Reiach (Herbert) Ltd., that in an action for breach of contract a defendant is not liable for not doing that which he is not bound to do, has been generally accepted as correct, and in my experience at the Bar and on the Bench has been repeatedly applied in subsequent cases. The law is concerned with legal obligations only and the law of contract only with legal obligations created by mutual agreement between contractors - not with the expectations, however reasonable, of one contractor that the other will do something that he has assumed no legal obligation to do. And so if the contract is broken or wrongly repudiated, the first task of the assessor of damages is to estimate as best he can what the plaintiff would have gained in money or money's worth if the defendant had fulfilled his legal obligations and had done no more.
Where there is an anticipatory breach by wrongful repudiation, this can at best be an estimate, whatever the date of the hearing. It involves assuming that what has not occurred and never will occur has occurred or will occur, i.e., that the defendant has since the breach performed his legal obligations under the contract, and if the estimate is made before the contract would otherwise have come to an end, that he will continue to perform his legal obligations thereunder until the due date of its termination. But the assumption to be made is that the defendant has performed or will perform his legal obligations under his contract with the plaintiff and nothing more. What these legal obligations are and what is their value to the plaintiff may depend upon the occurrence of events extraneous to the contract itself and, where this is so, the probability of their occurrence is relevant to the estimate.
…
The events extraneous to the contract, upon the occurrence of which the legal obligations of the defendant to the plaintiff thereunder are dependent, may include events which are within the control of the defendant: for instance, his continuing to carry on business even though he has not assumed by his contract a direct legal obligation to the plaintiff to do so. Where this is so, one must not assume that he will cut off his nose to spite his face and so control these events as to reduce his legal obligations to the plaintiff by incurring greater loss in other respects. That would not be the mode of performing the contract which is "the least burthensome to the defendant."
"A plaintiff in an action for damages for wrongful dismissal can rely only on the fact that the defendant was obliged to carry out the contract sued upon. His prospects in terms of money or money's worth resulting from the carrying out of the contract may be conditioned by the estimated impact of external events on the results of the carrying out. But it has never been held that the plaintiff can claim any sum on the ground that the defendant might after the repudiation date have voluntarily subjected himself to an additional contractual obligation in favour of the plaintiff."
"[48] The judge was correct to find that application of the principle in Lavarack v Woods provided no rule of thumb applicable to discretionary bonus cases for reasons which I have already made clear. In that case the claimant was never party to the putative agreement in respect of which he claimed damages and the court reserved its position in respect of the outcome if the claim had been made for loss of bonus under the scheme applicable to the claimant during his employment, had it continued (see paras 31-35 above). Nothing was said in Lavarack v Woods to suggest that, in respect of a claim for damages put upon the basis that the claimant would have received payments under a discretionary bonus scheme of which he was already a potential beneficiary, the court should assume that the employer's discretion would be exercised against him in a case where such a decision would be irrational or arbitrary or one which no reasonable employer would make. The broad principle that a defendant in an action for breach of contract is not liable for doing that which he is not bound to do will not be applicable willy-nilly in a case where the employer is contractually obliged to exercise his discretion rationally and in good faith in awarding or withholding a benefit provided for under the contract of employment. Where the employer fails to do so, the employee is entitled to be compensated in respect of such failure: cf the observations of Timothy Walker J in Clark v BET plc quoted at para 36 above."
"From this it appears to me that whatever he may have said earlier he was in truth applying the ordinary principle and seeking to find what was the minimum obligation so that damages might be assessed by reference to that obligation.
He was not therefore considering what the defendants would probably have done but what would be the minimum which they could have been obliged to do had the contract continued."
"Neither case is inconsistent with the general principle. In each the defendants were held to have, not an unfettered choice or option as to how they would perform their obligation, but a duty to perform it in a reasonable manner. Once the contracts were thus construed, the damages had to be calculated on the basis of such performance. Indeed the Paula Lee case reinforces the general principle instead of contradicting it, for Mr. Justice Mustill held that many different selections of garments might be reasonable, and that within that range the damage must be based on the selection which would have been least profitable for the plaintiffs.
The Abrahams and Paula Lee doctrine cannot be applied here. It is well established that a shipper of goods may use all the laytime in loading if he pleases, even though he could easily have loaded more rapidly. He is under no obligation to act reasonably in that respect: Margaronis Navigation Agency Ltd v Henry W. Peabody Ltd [1964] 1 Lloyd's Rep. 173; [1965] 1 QB 300, Nolisement (Owners) v Bunge & Born [1917] 1 KB 160."
"To accept the buyers' contention would in my judgment be making the sellers pay damages for failing to do that which they were not obliged to do. For the assumed breach damages would no doubt have been recoverable if loading had taken longer than the end of the period of laytime allowed by the contract if the vessel had berthed on June 26, but it did not.
The truth of the matter is that by their assumed breach the sellers had in effect deprived themselves of the ability, if they were to escape a liability to pay damages to load only at the minimum rate prescribed, and put on themselves the necessity of loading at a higher rate in order to prevent such a liability occurring.
Before leaving this aspect of the case I should mention that although I agree that the assumed obligation and breach was single the sellers were left, in effect, with the option of alternative modes of performing their obligation. They could load when berthed at the minimum rate prescribed by the formula, in which case damages would occur, or they could load at whatever minimum rate was necessary in order just to use up the laytime available under the formula but no more, or they could, as in fact they did, load at such a rate that the vessel was free before the time when they would have been obliged to make her available had there been no breach. In the second and third case no damage is suffered."
Conclusion
Lord Justice Toulson :
1. Did the parties intend the base agreement and the novation agreement to impose an obligation on the respondent (the airline) to carry on the operation referred to in the opening provisions of the base agreement, and in clause 2 of the novation agreement, for the duration of the agreement?
2. If so, was that obligation void for uncertainty?
3. If the respondent (the airport) is right on the first and second issues, how should the court approach the question of damages for breach of the obligation?
4. Ought the judge to have found that it was an implied term of each agreement that the airline would operate the two aircraft based at the airport in a manner which was reasonable in all the circumstances?
Issue 1: Did the parties intend the base agreement and the novation agreement to impose an obligation on the airline to carry on the operation referred to in each agreement for the duration of the agreement?
"…For the avoidance of doubt…from Spring 2006 bmibaby will support a x2 based operation operating exclusively from DTVA."
Issue 2: Was the obligation void for uncertainty?
Issue 3: How should the court approach the question of damages for breach of the obligation?
1. The contract requires the defendant to do X or Y.2. The contract requires the defendant, if he has not done X, to do Y.
3. The contract requires D to do X and the claimant has a reasonable expectation that he will do Y.
4. The contract requires the defendant to do X and allows him a discretion how he performs the obligation.
"…in ordinary cases, every wrongdoer is bound to put the party injured, so far as the nature of the case allows, in the same situation in which he would have stood if the wrong had not been done.
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Where a man is bound by covenants to do one of two things, and does neither, there in an action by the covenantee, the measure of damage is in general the loss arising by reason of the covenantor having failed to do that which is least, not that which is most, beneficial to the convenantee: and the same principle may be applied by analogy to the case of a trustee failing to invest in either of the two modes equally lawful by the terms of the trust.
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The trustee is answerable for not having done what he was bound to do, and the measure of his responsibility should be what the cestui que trust must have been entitled to, in whatever mode that duty was performed."
"In an action for not supplying a cargo under a charter party, according to the terms of which different articles of freight are to be paid for at different rates by weight, and the freighter is at liberty to supply which articles he pleases, an average value of freight, calculated upon the various rates of freight in the proportion of different articles usually carried on such a voyage, is the proper measure of damages."
"Where a ship is chartered to bring home a cargo of enumerated articles at rates of freight specified for each, which articles are not provided by the charterer, the freight must be paid upon average quantities of all of the articles, whether the ship return empty or laden with a cargo of articles different from those enumerated."
"Generally speaking, where there are several ways in which the contract might be performed, that mode is adopted which is the least profitable to the plaintiff, and the least burthensome to the defendant."
"If the contract…is simply in the alternative, to do one of two things, it would be satisfied by the performance of either, and the damages would be the loss occasioned by non-performance of that alternative which would be least beneficial to the plaintiff. If the true construction be that of the two things to be done one depended upon the non-performance of the other, that is, if the defendant did not return the bills, then he should pay the amount of them, the damages would be the non-payment of that amount. The rule of law is clear, that, in the case of alternative contracts, the person who has to perform the contract has the right to elect which branch of the alternative he will perform. On the other hand, it is equally clear, if the contract is to do a thing, and if not to pay a sum of money, then the damages for not doing the thing are the sum of money."
"The law is concerned with legal obligations only and the law of contract only with legal obligations created by mutual agreement between contractors - not with the expectations, however reasonable, of one contractor that the other will do something that he has assumed no legal obligation to do."
"I know of no principle on which he could claim as damages for breach of one service agreement compensation for remuneration which might have become due under some imaginary future agreement which the defendants did not make with him but might have done if they wished."
"The broad principle that a defendant in an action for breach of contract is not liable for doing that which he is not bound to do will not be applicable willy-nilly in a case where the employer is contractually obliged to exercise his discretion rationally and in good faith in awarding or withholding a benefit provided for under the contract of employment. Where the employer fails to do so, the employee is entitled to be compensated in respect of such failure."
"Everything likely to affect the amount of the profit must be considered; the nature and popularity of the subject matter, the reputation of the authors, the cost of producing a book on that subject, the price at which it would command a sale, the business capacity of the publishers and the chances of earning a profit by the sale of the book. On the other hand the publishers are not bound to run risks contrary to their judgment; they would naturally and properly allow for fluctuation in the public taste for literature of this kind."
"The obligation broken, assuming breach to be established, was a single discrete obligation to procure the appropriate loading documents. No question of alternative obligations arises. No question of rendering the sellers liable for not doing that which they were not bound to do arises. The question is not: what was the least burdensome method of performing the obligation which the sellers failed to perform?...When assessing damages, the board should not have proceeded on the premise that, had the vessel berthed promptly, the sellers would have berthed so slowly that they would have used all the available lay time. The board's task was to ask how long loading would have taken, had World Navigator berthed promptly without losing her place in the queue. If the sellers were in a position to influence the loading rate, then the board should have considered how they would have done so. That question fell to be answered, not by assuming that the sellers would have loaded at the slowest permissible rate, but by considering all the factors that would have been likely to influence their conduct."
"The truth of the matter is that by their assumed breach the sellers had in effect deprived themselves of the ability, if they were to escape their liability to pay damages, to load only at the minimum rate prescribed, and put on themselves the necessity of loading at a higher rate in order to prevent such a liability occurring."
Issue 4: Ought the judge to have found that it was an implied term of each agreement that the airline would operate the two aircraft based at the airport in a manner which was reasonable in all the circumstances?
Conclusion
Lord Justice Mummery :
150. I agree with both judgments.