BAILII [Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

United Kingdom House of Lords Decisions


You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> WN Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2 (05 July 1932)
URL: http://www.bailii.org/uk/cases/UKHL/1932/2.html
Cite as: [1932] UKHL 2, (1932) 147 LT 503

[New search] [Printable version] [Help]


JISCBAILII_CASE_CONTRACT

    Parliamentary Archives,
    HL/PO/JU/4/3/871

    Die Martis, 5° Julii, 1932.

    After hearing Counsel, as well on Tuesday the
    3d as on Thursday the 5th and Friday the 6th,
    days of May last, upon the Petition and Appeal
    of W. N Hillas and Company, Limited, whose
    Registered Office is situate at Mail Buildings,
    Jameson Street, Hull, praying, That the matter of
    the Order set forth in the Schedule thereto, namely
    an Order of His Majesty's Court of Appeal, of the
    28th of July 1931, might be reviewed before His
    Majesty the King, in His Court of Parliament,
    ami that the said Order might be reversed,
    varied, or altered, or that the Petitioners might
    have such other relief in the premises as to His
    Majesty the King, in His Court of Parliament,
    might seem meet; as also upon the printed Case
    of Arcos, Limited, lodged in answer to the said
    Appeal; and due consideration had this day of
    what was offered on either side in this Cause :

    It is Ordered and Adjudged, by the Lords
    Spiritual and Temporal in the Court of Parlia-
    ment of His Majesty the King assembled, That
    the said Order of His Majesty's Court of Appeal,
    of the 28th day of July 1931, complained of in
    the said Appeal, be, and the same is hereby,
    Reversed, and that the Judgment of the Honour-
    able Mr. Justice MacKinnon, of the 12th day of
    June 1931, thereby set aside, be, and the same is
    hereby, Restored : And it is further Ordered,
    That the Respondents do pay, or cause to be paid,
    to the said Appellants the Costs incurred by them
    in the Court of Appeal, and also the Costs in-
    curred by them in respect of the said Appeal to
    this House, the amount of such last-mentioned
    Costs to be certified by the Clerk of the Parlia-
    ment And it is also further Ordered, That the
    Cause be, and the same is hereby, remitted back
    to the King's Bench Division of the High Court
    of justice. to do therein as shall be just and con-
    sistent with this Judgment.

    W. N. Hillas and Company,Limited v. Arcos, Limited.

    (6/32) (15760r-44) Wt. 120-27 30 7/32 P..St. G.311

    Lord Tomlin
    Lord War-rigton of Clyffe
    Lord Thankerton.
    Lord Macmillan
    Lord Wright

    W. N. HILLAS & CO., LTD.

    v.
    ARCOS, LTD.

    Lord Tomlin.

    My Lords,

    On the 28th July, 1931, the Court of Appeal ordered a judg-
    ment in the Appellants' favour against the Respondents for
    £30,000 damages with costs to be set aside and directed judgment
    to be entered for the Respondents.

    The action was one in which the Appellants sought to make
    the Respondents liable in damages for breach of a contract for the
    sale and purchase of Russian softwood timber for delivery in 1931
    alleged to have been constituted by a document in writing signed
    by the representatives of the parties on the 21st May, 1930, and
    a letter dated the 22nd December, 1930, written by the Appellants
    to the Respondents and purporting to exercise an option expressed
    to be conferred by Clause 9 of such document.

    The writ was issued on the 30th January, 1931. The
    case was set down in the Commercial List. The breach alleged
    in the heads of claim was that the Respondents had on the 20th
    December, 1930, contracted to sell to a third party the whole of
    the softwood timber which the Respondents should import into the
    United Kingdom during the Russian timber season of 1931 and by
    letter dated the 24th December, 1931, had repudiated the option.

    The only defence set up by the Points of Defence was that
    the agreement contained in the document of the 21st May, 1930, had
    been cancelled by mutual consent in the month of July, 1930, and
    that there was therefore no option open to the Appellants when the
    letter of the 24th December, 1931, was written.

    The action was tried in May, 1931, by Mr. Justice Roche with
    a City of London special jury. The question left to the jury was
    whether the option contained in Clause 9 of the document of the
    21st May, 1930, was subsisting in the month of December, 1930,
    or whether it had been cancelled. The jury found for the
    Appellants.

    It was agreed that the question of the amount of the damages
    should be left to be determined by Mr. Justice Mackinnon at a
    future date as Mr. Justice Roche was about to go on circuit, and
    after hearing argument on some points of law not material for the
    present purpose Mr. Justice Roche gave judgment for the Appel-
    lants for an amount to be assessed with costs and directed that if
    the Respondents desired to appeal their time should be extended
    until one month after the amount of damages had been ascertained
    and the judgment containing the amount so ascertained drawn up.
    The jury was then discharged.

    No formal judgment embodying the conclusions of Mr. Justice
    Roche was drawn up.

    In June, 1931, the matter was proceeded with before Mr. Justice
    MacKinnon for the purpose of having the damages assessed.

    At this hearing before Mr. Justice MacKinnon the Respondents
    for the first time raised the point that there was no contract at all,
    contending that the document of the 21st May, 1930, did not con-
    tain a sufficient description of the goods to be sold to enable them

    2 [2]

    to be identified, and that it in fact contemplated in the future
    some further agreement upon essential terms. No amendment
    was made in the pleadings putting the plea into a definite form.

    The Appellants objected that it was too late for the Respondents
    to take the point and that in any case the point was not good.

    The learned Judge held that the point was not well founded
    and that therefore it was not necessary to consider whether the
    Respondents were too late in taking it. He further assessed the
    damages at £30,000 and gave judgment for the Appellants for
    that amount with costs. A formal judgment was drawn up, the
    preamble of which stated that the hearing of the action had been
    resumed before Mr. Justice MacKinnon for assessment of
    damages.

    The Respondents appealed. The Appellants cross-appealed
    upon the amount of the damages, which they regarded as insuffi-
    cient. This cross-appeal was dismissed by the Court of Appeal and
    in that dismissal the Appellants have acquiesced.

    The Respondents' appeal succeeded before the Court of Appeal,
    the Court being unanimously of opinion that there was no con-
    tract and that the Respondents were not too late in taking the
    point. Accordingly, by the formal order of the Court of Appeal,
    the judgment in the Appellants' favour was set aside and judg-
    ment was directed to be entered for the Respondents with costs,
    other than the costs of the issue of cancellation, which were given
    to the Appellants.

    It is of this order that the Appellants complain before your
    Lordships' House.

    Before examining the relevant documents it will be convenient to
    explain the respective positions of the parties and the circumstances
    of the Russian softwood timber trade as appearing from the
    evidence.

    The Appellants are an English company carrying on in this
    country the business of timber merchants, the governing director
    being Mr. William Newland Hillas.

    The Respondents are an English limited company through which
    the Russian Soviet Government conducts its trading operations in
    this country.

    Russian softwood timber is of at least two kinds, viz., whitewood
    and redwood. Of these kinds there are various qualities. Quality
    is to some extent dependent upon the districts in which the timber is
    grown.

    Some timber is sold sorted into qualities, other timber is sold
    unsorted.

    Again, the timber is prepared for market in a great number of
    different sizes.

    The kinds, qualities and sizes which a purchaser requires must
    to some extent determine the port from which any consignment to
    him is shipped.

    The timber is cut in the winter for the following season, and in
    January the Respondents first prepare stock notes giving estimates
    of the quantities which will be available at the various ports of
    shipment of the different kinds, qualities and sizes of timber. From
    time to time supplementary stock notes are prepared during the
    season as further or better information becomes available.

    The shipments begin as soon as there is open water at the ports
    of shipment, that is about May from Leningrad and about June
    from the White Sea. The shipments continue through the season.
    The first open water shipments are generally the most sought
    after.

    In each year prior to 1931 an official price list was issued by the
    Respondents showing the prices for the different kinds, qualities
    and sizes of Russian softwood timber for the current season.

    [3] 3

    As, however, on November 20th, 1930, the Respondents sold the
    whole of the output of the 1931 season to the Central Softwood
    Buying Corporation the only list issued for 1931 was the list (re-
    ferred to in the proceedings as the yellow list) of the c.i.f. prices
    at which the Central Softwood Buying Corporation as sole selling
    agents were free to sell the 1931 output to the public.

    The document of the 21st May, 1930, is in the following
    terms :—

    " Heads for the Purchase of Russian Goods.

    We agree to buy 22,000 standards of Softwood Goods of
    fair specification over the season 1930 under the following
    conditions:—

    (1) On all purchases made under this present contract
    buyers to receive a bonus of 7 per cent. on the f.o.b. value,
    and a similar allowance on all previous contracts made by
    buyers for 1930 shipment.

    If, however, buyers increase their purchase up to
    30,000 standards the bonus to be 7
    ½ per cent. on the f.o.b.
    value.

    (2) All 1930 purchases to be invoiced as per new re-
    vised schedule on the usual c.i.f. terms, less 2
    ½ per cent.
    discount for cash, or four months acceptances, at buyers
    option; except 50 per cent. of the purchases prior to 20th
    May, 1930, on which buyers are only entitled to a 70 per
    cent. reduction between the old official prices and the new
    revised prices.

    (3) No extras to be charged on account of size of
    steamer for goods ordered to ports where 900 standard
    steamers can be shipped if ordered before 15th September.

    Goods to be shipped together with goods for other
    receivers. Small outports usual extras.

    1. Payment: Buyers undertake to pay on the usual
      trade terms, viz., 2
      ½ per cent. discount for cash, or four
      months bills, at buyers' option.

    2. If buyers should be unable to meet all the bills
      drawn as per the foregoing paragraph, or part of them,
      for a proportion of the unsold goods, sellers agree to renew
      such bills but not for a period of more than three months.

    3. Buyers to arrange shipping dates and loading in-
      structions according to the readiness of the goods pur-
      chased.

    4. Buyers shall have the option of increasing this
      contract up to 50,000 standards under the same terms for
      shipment during the season, subject to the goods being
      unsold.

    5. Should sellers at any time during 1930 reduce
      their new scale prices, or give any advantage to any one
      buyer, which in effect constitutes a general reduction in
      cost prices, such reduction shall be made applicable to all
      purchases which buyers have made during the year.

    This shall also particularly apply to any reduction
    that may be made by sale later in the season to the existing
    Syndicate, or sucessors, or their nominees.

    (9) Buyers shall also have the option of entering into
    a Contract with sellers for the purchase of 100,000 Stds.
    for delivery during 1931. Such contract to stipulate that
    whatever the conditions are, buyers shall obtain the goods
    on conditions and at prices which show to them a reduction
    of 5 per cent. on the f.o.b. value of the official price list
    at any time ruling during 1931. Such option to be
    declared before the 1st January, 1931.

    4 4]

    1. A clause to be drawn up later regarding the
      question of consignment of up to 25,000 standards.

    2. This agreement cancels all previous agree-
      ments."

    On the 22nd December, 1930, the Appellants, being at that
    time aware of the contract of the 20th November, 1930, wrote to
    the Respondent a letter containing the following passage :-

    '' We beg to give you formal notice that we hereby exercise
    " the option conferred upon us under our agreement with you
    " for the purchase of 100,000 standards of soft wood of fair
    " specification for delivery during 1931. The terms of this
    " option are set out in Clause 9 of this contract of which one
    " part still bears date 21st May, 1930."

    Now, the plea of cancellation having been negatived by the
    verdict of the jury, it is plain that the letter of the 22nd December,
    1930, together with the earlier document of the 21st May, 1930,
    constituted a binding contract unless upon the true construction
    of these documents the essentials of a contract were absent or there
    was nothing more than what has been called an agreement to make
    an agreement, that is, something which in law is no agreement at all.

    Commercial documents prepared by business men in connection
    with dealings in a trade with the workings of which the framers
    are familiar often by reason of their inartificial forms confront the
    lawyer with delicate problems.

    The governing principles of construction recognised by the law
    are applicable to every document and yet none would gainsay that
    the effect of their application is to some extent governed by the
    nature of the document.

    On the one hand the conveyance of real estate presenting an
    artificial form grown up through the centuries and embodying
    terms of art whose meanings and effect have long since been deter-
    mined by the courts, and on the other hand the formless document
    the product of the minds of men seeking to record a complex trade
    bargain intended to be carried out both fall to be construed by
    the same legal principles and the problem for a Court of Construc-
    tion must always be so to balance matters, that without violation
    of essential principle the dealings of men may as far as possible
    be treated as effective and that the law may not incur the reproach
    of being the destroyer of bargains.

    The principles are not in dispute. It is in the application of
    them to the facts of a particular case that the difficulty arises and
    the difficulty is of such a kind as often to afford room for much
    legitimate difference of opinion and to present a problem the
    solution of which is not as a rule to be found by examining
    authorities.

    In the present case one or two preliminary observations fall
    to be made.

    First, the parties were both intimately acquainted with the
    course of business in the Russian Softwood timber trade and had
    without difficulty carried out the sale and purchase of 22,000
    standards under the first part of the document of the 21st May, 1930.
    Secondly, although the question here is whether clause 9 of the
    document of the 21st May, 1930, with the letter of the 22nd
    December, 1930, constitutes a contract the validity of the whole of
    the document of the 21st May, 1930, is really in question so far
    as the matter depends upon the meaning of the phrase " of fair

    specification."

    Thirdly it is indisputable having regard to Clause 11, which
    provides that "this agreement cancels all previous agreements"
    that the parties intended by the document of the 21st May, 1930,
    to make and believed that they had made some concluded bargain.
    The case against the appellants is put on two grounds.

    [5] 5

    First it is said that there is in clause 9 no sufficient description
    of the goods to be sold and

    Secondly it is said that clause 9 contemplates a future bargain
    the terms of which remain to be settled.

    As to the first point it is plain that something must necessarily
    be implied in clause 9. The words " 100,000 standards " without
    more do not even indicate that timber is the subject matter of
    the clause. The implication at the least of the words '' of softwood
    " goods" is in my opinion inevitable and if this is so I see no
    reason to separate the words "of fair specification" from the
    words "of softwood goods." In my opinion there is a necessary
    implication of the words "of softwood goods of fair specification"
    after the words "100,000 standards" in clause 9.

    What then is the meaning of "100,000 standards of softwood
    "goods of fair specification, for delivery during 1931 "?

    If the words "of fair specification" have no meaning which is
    certain or capable of being made certain then not only can there
    be no contract under clause 9 but there cannot have been a contract
    with regard to the 22,000 standards mentioned at the beginning
    of the document of the 21st May, 1930. This may be the proper con-
    clusion but before it is reached it is I think necessary to exclude
    as impossible all reasonable meanings which would give certainty
    to the words. In my opinion this cannot be done.

    The parties undoubtedly attributed to the words in connection
    with the 22,000 standards, some meaning which was precise or
    capable of being made precise. Lord Justice Scrutton laid stress
    upon the evidence of Mr. Hillas as indicating a different view on,
    the part of the parties. I am unable to think that upon a question
    of construction such evidence if directed to the intention of the
    parties was admissible at all. In fact, I think Mr. Hillas' evidence
    was misunderstood. It really amounted in my opinion to nothing
    more than a statement as to how the parties would in the first in-
    stance proceed just as on a purchase of property at its fair value
    the parties would no doubt first endeavour to reach agreement as
    to the fair value.

    Reading the document of the 21st May, 1930, as a whole and
    having regard to the admissible evidence as to the course of the
    trade, I think that upon their true construction the words "of fair
    " specification over the season, 1930," used in connection with the
    22,000 standards, mean that the 22,000 standards are to be satis-
    fied in goods distributed over kinds, qualities and sizes in the fair
    proportions having regard to the output of the season 1930, and the
    classifications of that output in respect of kinds, qualities and
    sizes. That is something which if the parties fail to agree can
    be ascertained just as much as the fair value of a property.

    I have already expressed the view that Clause 9 must be read
    as " 100,000 standards of fair specification for delivery during
    " 1931 " and these words I think have the same meaning, mutatis
    mutandis
    as the words relating to the 22,000 standards. Thus,
    there is a description of the goods which if not immediately yet
    ultimately is capable of being rendered certain.

    The second point upon Clause 9 that it contemplates a future
    agreement remains to be considered.

    The form of the phrases ' the option of entering into a
    "contract" and "such contract to stipulate that" upon
    which stress has been laid by the Respondents seems to me
    unimportant. These phrases are but an inartificial way of
    indicating that there is no contract till the option is exercised.
    The sentence that such contract is to stipulate that whatever the

    6 [6]

    conditions are the buyers are to obtain the goods at a certain reduc-
    tion is more difficult. The words " whatever the conditions are "
    being governed by the word " that " which follows the words " to
    " stipulate " must be intended to be part of the contract. If so
    the word conditions cannot mean terms of the contract, but must
    connote some extrinsic condition of affairs and the condition of
    affairs referred to is I think the conditions as to supply and demand
    which may prevail during 1931.

    Upon this view of the matter it cannot I think be said that
    there is nothing more than an agreement to make an agreement.

    It was also urged as a minor point that there was no provision
    as to shipment and that this was an essential of such a contract.

    I am not prepared without further consideration to accept the
    view that in the absence of a provision in relation to shipment
    there can be no contract in law in such a case as the present.

    In my opinion, however, the point does not arise here. Clause
    9 is one of the clauses containing the conditions upon which the
    sale of the 22,000 standards is made. This fact together with the
    presence of the word "also" in Clause 9 satisfies me that upon
    the true construction of the document the sale conditions in relation
    to the 22,000 standards are so far as applicable imported into
    the option for the sale of the 100,000 standards and in particular
    that Clause 6 relating to shipping dates and loading instructions
    is so imported.

    Reference was made in the course of the arguments before your
    Lordships and in the judgments in the Court of Appeal to the un-
    reported case before your Lordships' House of May & Butcher
    Limited
    v. the King.

    In the agreement there under consideration there was an express
    provision that the price of the goods to be sold should be subse-
    quently fixed between the parties. Your Lordships' House reached
    the conclusion that there was no contract, rejecting the Appellants'
    contention that the agreement should be construed as an agreement
    to sell at the fair or reasonable price or alternatively at a price to
    be fixed under the arbitration clause contained in the agreement.

    That case does not in my opinion afford any assistance in deter-
    mining the present case the result of which must depend upon the
    meaning placed upon the language employed.

    My Lords, it is only after anxious consideration that I recom-
    mend to your Lordships a conclusion upon the construction of the
    relevant documents contrary to that unanimously reached by the
    Court of Appeal. This is my justification for having stated my
    reasons at some length.

    This conclusion renders it unnecessary to determine whether the
    point as to there being no contract in law was open to the Respon-
    dents when they first took it, but as the matter was dealt with by
    the Court of Appeal and was argued before your Lordships I
    desire to say that herein I agree with the conclusion of the Court
    of Appeal, though I should not be prepared without further con-
    sideration to accept all that was said in that Court with reference
    to what need or need not be pleaded. I may add that in my opinion
    whenever an amendment in the pleadings is allowed in the course of
    an action, the appropriate alteration in the formal pleadings should
    always be insisted upon.

    It was further urged on behalf of the respondents before your
    Lordships that if there was a contract still it was one upon which
    only nominal damages should have been awarded, first, because the
    Respondents were free to give to other customers an equal or greater
    reduction in price, and, secondly, because there was no adequate
    material upon which the damages could be assessed.

    Neither of these grounds appears to me to be well founded.

    With regard to the first ground I think the phrase " the official
    " price list at any time ruling during 1931 " makes plain that the

    [7] 7

    reduction given is from the general operative price and not from
    a merely nominal price which is not being adhered to in actual
    practice.

    With regard to the second ground the absence of material was
    due in part to the fact that the Respondents had broken their
    contract and had not therefore issued an official list for 1931 in
    the same form as in earlier years, and in part to the fact that they
    abstained from placing before the Judge the stock notes for 1931
    or other information which they alone could furnish as to the output
    for 1931. The learned judge did the best he could with the material
    before him and I cannot think that those to whose default the
    deficiency of material was due can complain of the result on the
    ground of such deficiency.

    I do not think that the learned judge made any error in prin-
    ciple in assessing the amount of the damages.

    In the result therefore I am of opinion that the appeal should be
    allowed and that the judgment of the Court of Appeal should be
    reversed and that of the Court of first instance should be restored
    with costs here and below.

    I beg to move your Lordships accordingly.

    [8]

    W. N. HILLAS & COMPANY LIMITED

    v.

    ARCOS LIMITED.

    Lord Thankerton.

    My Lords,

    Lord
    Tomlin.

    Lord
    Warring-
    ton of
    Clyffe.

    Lord
    Thanker-
    ton.

    Lord
    Macmillan,

    Lord
    Wright.

    I have had the privilege of considering the opinion which has
    been delivered by my noble and learned friend on the Woolsack,
    and in which he has fully narrated the material facts of this case
    and the terms of the document of 21st May, 1930.

    Subject to some doubts that I have felt as to the proper construc-
    tion of the words " of fair specification " and as to which I desire
    to add some observations, I find myself in entire agreement with the
    construction which my noble and learned friend has put upon the
    document of 21st May, 1930, and I also agree with his conclusion
    that it is open to the Respondents to maintain that there was no
    concluded agreement.

    The question on which I have had doubt is whether the words
    " of fair specification," on their proper construction, will enable
    the subject to be identified by the Court. In other words, do they
    provide a standard by which the Court is enabled to ascertain the
    subject matter of the contract, or do they involve an adjustment
    between the conflicting interests of the parties, which the parties
    have left unsettled and on which the Court is not entitled to
    adjudicate.

    Does the phrase mean a specification which is fair as between
    the interests, on the one hand, of the seller in respect of the stock of
    wood, comprising various kinds of wood and various qualities and
    sizes, available for sale in the season of 1931, and, on the other
    hand, the interests of the buyer in respect of the requirements of
    his trade during that season ? Or does the phrase mean a fair
    selection from the seller's stock of wood available for sale in that
    season? If the former construction be the proper one, I would be
    of opinion that the Court would not be entitled to adjudicate
    between the opposing interests of the two parties. If the latter
    construction be the proper one, the ascertainment of a fair selection
    from the seller's available stock is within the province of the Court;
    in that case the Court is applying a standard which is provided by
    the contract, and is thereby merely identifying the subject matter
    of the contract.

    While I have had considerable doubt on this question of con-
    struction, I am affected by the consideration that the contract is a
    commercial one and that the parties undoubtedly thought that they
    had concluded a contract, and I have come to the conclusion, in
    agreement with the noble Lord, that the second alternative con-
    struction above stated is the proper one and that there was here a
    concluded contract. I therefore concur in the motion proposed.

    [9]

    W. N. HILLAS & CO., LTD.

    v.

    ARCOS.

    Lord Wright.

    Lord

    Tomlin.
    Lord War-
    rington of

    Clyffe.

    Lord
    Thanker-

    ton.

    Lord

    Macmillan.

    Lord
    Wright.

    My Lords,

    The determination of this case turns on the true construction of
    the document of the 21st May, 1930, the full terms of which are
    already before your Lordships, or, to state the problem more pre-
    cisely, the true construction of a part of that document, namely,
    Condition 9. This is a question of law on which evidence is not
    relevant, except to the extent clearly stated by Lord Dunedin in
    Charrington v. Wooder, 1914 A.C. at p. 82, where the words " fair
    " market price " were to be construed.

    '' Now, in order to construe a contract the Court is always
    " entitled to be so far instructed by evidence as to be able to
    " place itself in thought in the same position as the parties to
    " the contract were placed, in fact, when they made it—or, as
    " it is sometimes phrased, to be informed as to the surrounding
    " circumstances. As Lord Davey says in the case of Bank of
    " New Zealand v. Simpson (2), quoting from a decision of
    " Lord Blackburn's, ' The general rule seems to be that all
    " ' facts are admissible (to proof) which tend to show the sense
    " ' the words bear with reference to the surrounding circum-
    " ' stances of and concerning which the words were used.' ''

    The effect in the present case of that class of evidence, which
    was not very precisely given, may thus be summarised. The
    Appellants, who were plaintiffs in the action, are a company carry-
    ing on business as timber merchants and importers on a large scale
    in this country: the Respondents are an English limited company,
    who handle in the British Islands as agents for Exportles of Moscow
    the timber exported from Russia for these islands. This timber is
    flipped from a number of ports, in particular amongst others
    Leningrad and the White Sea ports : the timber is manufactured at
    various mills in the different districts in Russia and is of various
    kinds, in particular white wood and red wood, and varies to some
    extent according to the district where it was grown : it is sawn up
    at the mills in various lengths and in various scantlings of each
    length, so that a very complex range of descriptions is involved.
    The programme of the year's manufacture is prepared early in the
    year in the form of stock notes, which contain specifications of the
    different descriptions, lengths, scantling, intended to be produced,
    distinguished according to regions, mills and shipping ports. The
    actual sawing proceeds principally in the spring and summer, and
    shipment is made during the season, that is the period over which
    shipment is possible by reason of the ports being ice free; shipment
    begins at what is called first open water or F.O.W., which is at
    Leningrad about May in each year, and, in the White Sea, about
    June, and no doubt there is competition among buyers for early
    shipments. Shipping ends with the close of navigation at
    Leningrad about January and, in the White Sea, about November.
    Each year the shippers, or the Respondents, have published an

    2 [10]

    official price list specifying prices for each description and
    scantling, with the various ports of shipment and on a c.i.f. basis
    for destinations primarily of a range of East Coast ports, but
    subject to variation in respect of freight if buyers designate other
    British Ports. As goods are ready, or becoming ready, for ship-
    ment, stock notes are prepared and notice of readiness may be given
    to buyers so that they can give final shipping instructions.

    By letter dated the 22nd December, 1931, the Appellants claimed
    to exercise the option under Condition 9 of the agreement of the
    21st May, 1930, but the Respondents repudiated their right on the
    ground that the agreement, including the option, had been can-
    celled. The Respondents had in fact by a contract made on the
    20th November, 1930, with the Central Softwoods Corporation
    Limited, sold to that company their entire production for the
    British Islands for the 1931 season, minimum 500,000, maximum
    600,000 standards, and had bound themselves not to ship during
    that season to the British Islands otherwise than under the contract.
    The question now to be considered was not raised by the
    Respondents until the hearing as to damages before MacKinnon. J.,
    who continued the trial of the action after a Special Jury directed
    by Roche J. had decided against the Respondents' contention that
    the agreement of the 21st May, 1930, had been cancelled : until then
    it had been neither pleaded nor submitted by the Respondents that
    the agreement was not binding. That contention, however, which
    was rejected by MacKinnon J., who entered judgment for the
    Appellants for £30,000 and costs, found favour on appeal with the
    Court of Appeal, who ordered judgment to be entered for the
    Respondents. From that decision the matter now comes before your
    Lordships' House.

    The document of the 21st 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.
    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. 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 matter of machinery where the con-
    tractual 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. As obvious
    illustrations I may refer to such matters as prices or times of
    delivery in contracts for the sale of goods, or times for loading or
    discharging in a contract of sea carriage. Furthermore, even if the
    construction of the words used may be difficult, that is not a reason
    for holding them too ambiguous or uncertain to be enforced, if the
    fair meaning of the parties can be extracted.

    The document in question is expressed to be " Heads for the
    " Purchase of Russian Goods." Clause 11, the final clause, is--
    " This agreement cancels all previous agreements." It is signed
    by R. N. Hillas and J. Axenoff, who are admittedly in fact agents

    [11] 3

    for the Appellants and Respondents respectively : it does not other-
    wise define the parties, but there can be no doubt on a fair construc-
    tion who the parties are. The first paragraph runs : " We (that is,
    " the Appellants) agree to buy 22,000 standards of softwood goods
    " of fair specification over the season 1930, under the following
    " conditions:" the conditions then follow in Clauses 1 to 11. The
    first six conditions deal primarily with the purchase of 22,000
    standards. Clauses 1, 2 and 3 deal with price, which is to be
    according to the new revised schedule for 1930 purchases, subject to
    certain, bonuses and discounts: the parties were in fact referring to
    the Schedule issued by the Respondents. Clauses 4 and 5 deal with
    terms of and other matters relating to payments: Clause 6 deals
    with shipping dates in these general terms— ' Buyers to arrange
    " shipping dates and loading instructions according to the readiness
    " of the goods purchased." The contract is clearly an instalment
    contract " over the season 1930," since the whole quantity could not
    be delivered in one shipment; it is obvious that the parties either
    cannot or do not desire to fix precise dates for the plurality of ship-
    ments which is contemplated; hence they leave the apportionment
    of these shipments over the period to be determined as circumstances
    require, first, by the readiness of the goods, including no doubt ports
    of shipment, which will depend on the position of the Respondents,
    who accordingly will have to declare it from time to time, and
    secondly, on the action of the Appellants, who on receiving these
    declarations will be entitled to a reasonable time on each occasion
    in which to give the necessary shipping instructions in accordance
    with which the Respondents will have to provide tonnage, because
    it is a c.i.f. contract. Such matters may require, as the
    performance of the contract proceeds, some consultation and
    even concessions between the sellers and the buyers, but there is
    no uncertainty involved because, if there eventually emerge
    differences between the parties, the standard of what is reasonable
    can, in the last resort, be applied by the law, which thus
    by ascertaining exact dates makes precise what the parties
    in the contract have deliberately left undefined. Hence in
    view of this legal machinery id certum est quod certum reddi potest.
    It is easy to find parallels in the authorities where even greater
    vagueness or elasticity appears in the contract, thus, in Jackson v.
    Rotax Motor & Cycle Co.,
    1910, 2 K.B. 937, there was a contract
    for the sale of a large quantity of motor horns, delivery as required :
    the Court of Appeal found no difficulty in '' reading this as a
    " contract in which deliveries are to be made as and when required
    " by the purchasers." In the Dominion Coal Co. v. Dominion Iron
    & Steel Co.,
    1909, A.C. 293, the Privy Council found no difficulty in
    construing a contract as being for the sale by the coal company of
    coal reasonably suitable in quality to the extent that the same could
    be obtained by the reasonable and proper working of the designated
    mines over a period of many years and directing an assessment
    of damages. As to price, that is specifically fixed in this
    contract by the clauses which have reference to the Respondents'
    new revised schedule supplemented by a further provision in
    Clause 8 that the Appellants were to have the advantage
    of any beneficial terms granted to any other buyers which directly
    or in effect reduced the price paid or consideration given for the
    goods in 1930. Clause 7 gave an option to the Appellants of
    increasing the contract quantity to 50,000 for shipment during the
    (sc. 1930) season under the same terms. That option was, in fact,
    exercised up to 40,000 standards. Clause 10 has reference to a
    prospective consignment to the Appellants as agents for sale on
    commission: but as that scheme did not eventuate, it may be
    disregarded.

    I have, so far, said nothing about the words " of fair specifica-
    tion " : the only relevant question is whether these words were
    too vague or uncertain to give effect to the contractual intention of


    4 [12]


    the parties, and I merely observe here that no one has suggested
    that any difficulty was experienced in 1930 in applying these words
    to the actual delivery from time to time of the different instalments
    that made up the 40,000 standards. I shall discuss these words
    more fully when I turn, as I now do, to consider Condition 9, which
    is the crux of this case.

    That condition must not be construed as if it stood by itself : it
    is an integral part of the whole agreement: the option under it is
    given as one of the conditions under which the Appellants agree to
    buy the 22,000 standards, and is part of the consideration for their
    agreeing to do so. It is accordingly a binding offer, which the
    Appellants are entitled, by accepting before the 1st January, 1931,
    to turn into a contract if other objections do not prevail. Some
    confusion has been imported, as I think, into the question by dwell-
    ing on the exact words—" the option of entering into a contract,"
    and it is said that this is merely a contract to enter into a contract,
    whereas in law there cannot be a contract to enter into a contract.
    The phrase is epigrammatic, but may be either meaningless or mis-
    leading. A contract de praesenti to enter into what, in law, is an
    enforceable contract, is simply that enforceable contract, and no
    more and no less : and if what may not very accurately be called
    the second contract is not to take effect till some future date but is
    otherwise an enforceable contract, the position is as in the preceding
    illustration, save that the operation of the contract is postponed.
    But in each case there is eo instanti a complete obligation. If,
    however, what is meant is that the parties agree to negotiate in the
    hope of effecting a valid contract, the position is different. There
    is then no bargain except to negotiate, and negotiations may be
    fruitless and end without any contract ensuing : yet even then, in
    strict theory, there is a contract (if there is good consideration) to
    negotiate, though in the event of repudiation by one party the
    damages may be nominal, unless a "jury think that the opportunity
    to negotiate was of some appreciable value to the injured party.
    However, I think the words of Condition 9 in this case simply mean
    that the Appellants had the option of accepting an offer in the terms
    of Condition 9, so that when it was exercised a contract at once
    came into existence, unless indeed the terms of the option embodied
    in the clause were not sufficiently certain and complete : before con-
    sidering this matter I ought to deal with a further contention based
    on a construction of the second paragraph of Clause 9, which is in
    these terms :

    " such contract to stipulate that, whatever the conditions
    " are, buyers shall obtain the goods on conditions and at prices
    " which show to them a reduction of 5 per cent. on the f.o.b.
    " value of the official price list at any time ruling during 1931."

    It is argued that these words read with the preceding paragraph
    confirm the view that the option was merely for the preparation and
    agreeing of a formal contract, because the words " whatever the
    " conditions are " mean " whatever the conditions of the contract
    " are." Such an argument involves adding the words "of the
    " contract," which are not expressed, and on other grounds
    I do not think that it is correct. I think the word " conditions "
    refers to conditions affecting other people in the trade, primarily
    as regards price, and such analogous advantages as are dealt with
    in Condition 8 in connection with the 1930 season. What the
    Appellants are stipulating is that they are to have, throughout the
    year 1931, such conditions of this character and such prices as will
    secure to them in any event a clear 5 per cent. advantage over other
    buyers who might compete. On a fair reading of the words, I think
    the contract is clear and complete in its stipulations as to price.
    It was contended that no official price list might be issued in 1931,
    so that the contract price was in that way uncertain and contingent.

    [13] 5

    But in past years in the conduct of this business it had been an
    invariable practice of the Respondents to issue such a list: the
    evidence and finding in the present case are that an official price list
    was issued in 1931; indeed it is difficult to see how the Respondents
    could carry on the business unless it was issued. I think that as
    regards the definition of the machinery for fixing the price there is
    sufficient certainty here for a business transaction: the issue in
    1931 of the official price list is not a mere contingency but a practical
    certainty: it is unnecessary to consider what would have been- the
    legal position if the Respondents had ceased to carry on business or
    had been dispossessed by war or revolution. Such considerations are
    not relevant to determining whether there is a good contract or not,
    but relate to such questions as frustration or breach of the contract.
    The descrption of the goods offered to be sold in 1931, in
    Clause 9, is also in my judgment sufficient in law. I so hold simply
    as a matter of construction, having regard to the context.
    " 100,000 standards," divorced from the rest of the agreement, no
    doubt would be too uncertain : abstractly they might be incapable
    of any definite meaning. But the definition comes from the context:
    the agreement is headed as being for the purchase of Russian goods
    which to this extent must define the 100,000 standards; the words
    50,000 standards in Clause 7 have clearly to be read as embodying
    the same description as in the first paragraph of the agreement,
    that is, standards of softwood goods of fair specification and, in my
    judgment, the same description must apply to the 100,000 standards
    in Clause 9, not as a matter of implication but of construction.
    Hence the 100,000 standards are to be of Russian softwood goods
    of fair specification. In practice, under such a description, the
    parties will work out the necessary adjustments by a process of give
    and take in order to arrive at an equitable or reasonable apportion-
    ment on the basis of the Respondents' actual available output,
    according to kinds, qualities, sizes and scantlings; but, if they fail
    to do so, the law can be invoked to determine what is reasonable in
    the way of specification, and thus the machinery is always available
    to give the necessary certainty. As a matter of strict procedure, the
    sellers would make a tender as being of fair specification, the buyers
    would reject it and the Court or an arbitrator decide whether it was
    or was not a good tender. It is, however, said that in the present
    case the contract quantity is too large, and the range of
    variety in descriptions, qualities, and sizes, is too complicated to
    admit of this being done. But I see no reason in principle
    to think such an operation is beyond the powers of an expert
    tribunal, or of a judge of fact assisted by expert witnesses.
    I cannot find in the Record any evidence to justify this contention
    of the Respondents even if such evidence be at all competent. On
    the contrary it seems that a prospective specification for the
    500,000 or 600,000 standards which formed the subject of the con-
    tract of the 20th November, 1930, between the Respondents and the
    Central Softwood Corporation, Limited, was agreed between these
    parties at Moscow in a few days, which appears to confirm that the
    ascertainment of a fair specification of Russian softwood goods,
    even for a very large quantity and over a whole season, is not of
    insuperable difficulty to experts. Accordingly I see no reason to
    think that, as regards the quality and description of the goods, the
    contract is either uncertain or incomplete. Nor can it justly be
    objected that, though a fair and reasonable specification
    may not be impossible of ascertainment, the reasonable specifi-
    cation is impossible. The law, in determining what is reason-
    able, is not concerned with ideal truth, but with something much
    less ambitious, though more practical.

    There still remains the question of shipping dates or times or
    ports of delivery. I think here again, as matter of construction,
    Clause 9 is to be read as embodying Clause 6, which therefore I

    6 [14]

    think applies equally to the 100,000 standards as to the 40,000
    standards. I have explained my view of the operation and effect
    of that clause. If I were wrong in that, I should still regard the
    matter as sufficiently dealt with by the term which the law would
    imply in such a case, viz., that the deliveries are to be at reason-
    able times: Section 29 (2) of the Sale of Goods Act, 1893, applies,
    I think, to a contract such as this where delivery is to be by instal-
    ments, equally with a contract under which there is only to be a
    single delivery, and imports the standard of reasonable time, which
    by Section 56 of the same Act is a question of fact, no doubt to be
    determined in view of all the relevant circumstances, however
    complicated. In my judgment the contract is neither uncertain
    nor incomplete as regards times of delivery or shipment.

    In the result I arrive at the same conclusion as MacKinnon J.,
    viz., that the contract is valid and enforceable and that the
    Appellants are entitled to recover damages from the Respondents
    for its repudiation. The judgment of the Court of Appeal was
    otherwise. Apart from their conclusion that Condition 9 was no
    more than an arrangement to negotiate in the future terms of a new
    contract for 1931, they held that in any view Condition 9 was un-
    certain and incomplete. Scrutton L.J. held that " Considering the
    " number of things left undetermined, kinds, sizes and quantities of
    " goods, times and ports and manner of shipment .... which had
    " in this case to be determined by agreement after negotiation,"
    the option clause was not an enforceable agreement. With respect
    to the learned Lord Justice, and for the reasons I have already
    explained, I cannot agree with that conclusion. He seems to base
    his conclusion in part at least on the evidence of Mr. Hillas as to
    how in working out the contract in practice there would be mutual
    concessions and arrangements. I do not question that, as I have
    already explained, this would be so, but I prefer the statement of the
    Learned Lord Justice at another part of his judgment that witnesses
    " were not entitled to construe the agreement or give their opinion as
    " to how it could or ought to be worked." The conclusion of
    Scrutton L.J. would in very many cases exclude in law the possi-
    bility of business men making big forward contracts for future
    goods over a period, because in general in such contracts it must be
    impossible, as I have already indicated, to specify in advance all
    the details of a complicated performance. Indeed, Greer L.J. ex-
    pressly states the view that such contracts are impossible in law,
    though he regrets the conclusion. He holds " that if there are any
    " essential terms of a contract of sale undetermined, and therefore
    " to be determined by a subsequent contract, there is no enforceable
    " contract "; he adds that the Courts have not power to make for
    parties a contract which in its view it is probable they would have
    made if there had been further negotiation to deal with matters not
    already decided. This latter proposition stated in general terms
    may be correct, but I have already explained why, in my judgment,
    this contract was complete and enforceable without further negotia-
    tion. It must always be a matter of construction of the particular
    contract whether any essential terms are left to be determined by
    a subsequent contract.

    When the Learned Lord Justice speaks of essential terms not
    being precisely determined, i.e., by express terms of the contract, he
    is, I venture with respect to think, wrong in deducing as a matter of
    law that they must therefore be determined by a subse-
    quent contract; he is ignoring, as it seems to me, the
    legal implication in contracts of what is reasonable, which
    runs throughout the whole of modern English law in relation
    to business contracts. To take only one instance, in Hoadly v.
    M'Laine, 10 Bing. 482, Tindal C.J. (after quoting older authority)
    said : '' What is implied by law is as strong to bind the parties as
    " if it were under their hand. This is a contract in which the

    [15] 7

    " parties are silent as to price and therefore leave it to the law
    " to ascertain what the commodity contracted for is reasonably
    " worth." It is unnecessary in my judgment to multiply illus-
    trations of this principle, which goes far beyond matters of price.
    After all the parties being business men ought to be left to decide
    what degree of precision it is essential to express in their contracts
    if no legal principle is violated. The learned Lords Justices (for
    Romer L.J. took the same view) relied, I think, mainly in
    regard to this aspect of the case on an unreported decision of this
    House in the appeal of May and Butcher against the King, which
    Scrutton L.J. thought compelled him to decide as he did. There
    was there a contract for the sale of certain goods, somewhat in-
    elegantly called " tentage, " with an option to buy further
    quantities at prices to be agreed upon between the parties
    when the material was ready for sale. Scrutton L.J. had taken
    the view in the Court of Appeal that there was an effective
    intention to contract to sell and buy, on the terms that if
    the parties did not agree the price it was by implication to be a
    reasonable price; but he was in a minority in the Court of Appeal
    and this House held that there was no binding contract there till
    prices had been agreed. A somewhat similar decision on another
    contract was given in the Court of Appeal in the case of Loftus v.
    Roberts, 18 T.L.R. 532, where the rule was summed up as being
    " Promissory expressions reserving an option as to performance do
    " not create a contract." No one would dispute such a rule, and its
    application to the instrument then before the House, has been finally
    determined in that case, but in my judgment the Court of Appeal
    were not justified in thinking that this House intended to lay down
    universal principles of construction or to negative the rule that
    it must be in each case a question of the true construction
    of the particular instrument. In my judgment the parties here
    did intend to enter into, and did enter into, a complete and binding
    agreement, not dependent on any future agreement for its validity.
    But in any event the cases cited by the Court of Appeal do not,
    in my judgment, apply here, because this contract contains no such
    terms as were considered in those cases; it is not stipulated in the
    contract now in question that such matters as prices or times or
    quantities were to be agreed. I should certainly share the regret
    of the Lords Justices if I were compelled to think such important
    forward contracts as the present could have no legal effect and were
    mere " gentlemen's agreements " or honourable obligations. But
    for the reasons given I feel constrained to dissent from their con-
    clusions. I have only with great diffidence arrived at this conclusion,
    but I am supported by reflecting that I am in agreement with a
    learned Judge very experienced in these questions.

    I need only refer shortly to two further matters. It was con-
    tended on behalf of the Respondents that in any event MacKinnon J.
    has arrived at his award of damage on a wrong principle, and that
    there was no evidence on which he could find other than nominal
    damages. The Appellants put before the Judge a specification
    based on the deliveries of the 40,000 standards in 1930, multiplied
    by 2
    ½ times. The Respondents, though they at that time had in
    their possession the specification for their programme for 1931, did
    not lay that before the Judge, who, doing his best with the material
    before him, awarded damages on the Appellants' figures of specifica-
    tion—taking on matters of price the Respondents' official price list
    for 1931, but subject to a considerable abatement for contingencies
    of the market. As the Respondents did not give him such help as
    was in their power, with the full knowledge they possessed, they
    cannot in my judgment complain of his decision.

    8 [16]

    One other point, viz., that with reference to the pleadings, now
    calls for only a passing notice here. The Respondents in their
    defence pleaded that the agreement was cancelled; they did not
    raise the plea of there being no agreement enforceable in law until
    the enquiry as to damages and then did not amend. The Court of
    Appeal thought no amendment was necessary. I think that under
    the Rules the Respondents were bound, if they desired to deny either
    the agreement in fact or its sufficiency in law, to plead so expressly
    in the alternative to their plea that it was cancelled. But the issue
    has now been discussed without amendment, and I think no further
    evidence of fact was involved in the new plea. In any case I think
    this House would have had full discretion to amend.

    The Appeal should, in my judgment, be allowed with costs in
    this House and in the Courts below and the Judgment of
    MacKinnon J. restored and the case remitted to the King's Bench
    Division.

    (5/32) (15749r-44) Wt. 120-27 14 7/32 P. St. G. 311


BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII
URL: http://www.bailii.org/uk/cases/UKHL/1932/2.html