The need for certainty

Even if the parties appear to have made an agreement, it will not be a binding contract if they have
failed to reach agreement on all main point or if there is uncertainty as to the precise nature of what
has been agreed

However, if possible, where it is clear that the parties intended a binding contract, the Court will
usually try to find one possible, especially where the agreement is a business-to-business one

The parties’ intention is judged objectively

Note that there is sometimes difficulty reconciling cases (inconsistency); with some courts very strict
(agreement uncertain: no contract) and other courts more liberal in trying to find a contract and
perhaps “filling the gap”

Koo Ming Kwon v Next Media (2009)

D’s “offer” to pay half the advertising expenses to anyone who would “roar for democracy” was
decided by the court to be too vague. Trial judge Lok J said EVEN IF this was wrong & it was an offer
it could only be accepted by someone supporting the democracy cause (P was completely the
opposite & supported Govt).

If a significant term is missing or vaguely expressed there can be no contract

Kwan Siu Man v Yaacov Ozer (1999)

The CFA held that the completion date for a sale/purchase of land is crucial and its omission means
no contract

Consideration is always crucial so its omission may lead the court to conclude that the parties have
not reached final agreement. Again, the courts have not been entirely consistent

Scammell v Ouston (1941, HL)

the appellants (A’s) wanted to sell to respondents (R’s) a van (truck) which R’s agreed “on HP terms
over 2 years”. A’s claimed no binding contract & HL agreed because (at the time) there were no
standard HP terms so price was too vague. This vagueness led the Court to believe parties had not
completed negotiations.

Lack of a definite price might mean that there is automatically no contract but the words of the Sale
of Goods Ordinance (Cap 26) section 10 are relevant:

(1) The price in a contract of sale may be fixed by the contract, may be left to be fixed in a
manner thereby agreed, may be determined by the course of dealing between the parties
(2) Where the price is not determined as above the buyer must pay a reasonable price

May & Butcher v R (1934*, HL)

The parties agreed on the sale/purchase of “tentage”. Prices & payment dates: “shall be agreed
upon from time to time between (the parties) …all disputes… arising out of this agreement will be
submitted to arbitration.”
Held: No contract, too uncertain.“…an agreement between two parties to enter into an agreement in
which some critical part of the contract matter is to be left undetermined is no contract at all.” *Sale
of Goods Act held inapplicable
The Court drew a distinction between where parties are “silent” on price (then s8 may apply) and
where they have made clear that they still need to agree price themselves at a latter date (s8 then
inapplicable).
But the case is hard to reconcile with the next…

Hillas v Arcos (1932, HL)

Appellants agreed to buy from Respondents: “22,000 standards of softwood goods of fair
specification over the season 1930.” There was an option to make a further contract for 100,000
standards in 1931. A’s tried to exercise option but R’s said no & said no binding agreement. HL
disagreed.

HL stressed that parties were both experienced in the softwood trade* and had successfully
concluded the sale & delivery of the first 22,000. “Fair specification” may appear vague but the
parties had not had a problem with the first 22,000 agreement. The option was more than “an
agreement to agree”. **
Lord Thankerton: a “commercial” agreement which both parties had assumed was a concluded
contract.

May & Butcher has been academically criticised & in Hillas (CA) Scrutton LJ described May as out of
touch & the sort of case which pushed parties to ADR.

Foley v Classique Coaches (1934)

Follow Hillas approach

P agreed to sell land to D’s in return for their promise to buy all their petrol from him. There were 2
separate contracts but the land sale stated that it was “conditional” on the petrol agreement being
made and the petrol contract was “supplemental” to the land one. The price of the petrol was to be
agreed in writing “from time to time”. 3 years after the land was conveyed and the petrol had been
supplied, D’s repudiated the petrol agreement (they wanted to buy elsewhere) saying it was too
uncertain. P sued for damages and an injunction and succeeded, eventually in CA. A key factor was
the presence of a price arbitration clause which meant a consideration could be found.

“…the parties obviously believed they had a contract and they acted for 3 years as if they had; they
had an arbitration clause….as to the supply of petrol (which) applies to any failure to agree as to the
price.”

Clearly an important factor in Foley was that the agreement had been supported by performance for
3 years. In F & G Sykes (Wessex) Ltd v Fine Fare Ltd (1967) Lord Denning MR:
“In a commercial agreement the further the parties have gone on with their contract, the more
ready are the Courts to imply any reasonable term so as to give effect to their intentions. When much
has been done, the Courts will do their best not to destroy the bargain.”

Hong Kong courts have broadly taken the view that “commercial” agreements should be upheld if
possible. In Goodman Corporation v Mataichi (1959) Mills-Owen J said: “The inclination of the
courts should be to give legal efficacy to such commercial agreements so far as they can do so
without straining legal principles”

China Great Wall Finance Co v Wonderyouth Industries Ltd (2004) in CA Yuen JA said: “It is well
established law that the court should be reluctant to find an agreement void for uncertainty.”
Ma CJHC* in World Food Fair case: “…once essential terms have been agreed there will not be any
lack of certainty. And where there has been part performance, the Court ‘will strain to the utmost’ to
supply the want of certainty…”

BUT courts should not go too far in finding agreement where the parties actually seem NOT to have
a concluded agreement.

Chu Yu Tin v Lo Kwok Hung (1995)

Court of Appeal found NO concluded contract where parties had discussed a “premium” payment
but had not fixed the amount OR provided a mechanism for doing so

World Food Fair Ltd v HK Island Development Ltd (2005)

the CFA (overturning Ma CJHC’s CA) found NO contract (despite some part performance) where the
parties had not yet concluded a crucial term; the length of the “rent-free” period which was clearly
intended to be a term of the (eventual) contract.

Conclusion on price

The courts have held that if ALL other terms are fully agreed and there is the appearance of a
contract the price may be ascertained by course of dealings, reasonableness etc. HOWEVER, the
absence of an agreed price (because price is so important) may indicate that no final agreement has
been reached.

Irrelevant wordings

It may be that the contract appears uncertain merely because some pointless words/phrase has
been inserted. In this case it is possible simply to remove (“sever”) the meaningless words/phrase
and the remainder will be the contract. This is ONLY possible if the contract makes sense without the
words

Nicolene Ltd v Simonds (1953)

The plaintiff (P) offered to buy steel bars from defendant (D). D agreed & added: “I assume we are in
agreement that usual conditions of acceptance apply”. D’s then failed to deliver so argued no
contract since their reply a counter-offer.
Held: Contract, “usual conditions” meaningless & could simply be ignored.
“It would be strange indeed if a party could escape from every one of his obligations by inserting a
meaningless exception…you would find defaulters all scanning their contracts to find some
meaningless clause on which to ride free.”

NOTE the difference between the two cases: in Nicolene you can sever the meaningless words and
still have a good, sensible contract…in Scammell the meaning of the agreement is completely
changed if we sever the reference to HP.

“Severance” of irrelevant words was adopted by the HK courts in:

Sun Wah Oils v Gee Tai Trading Co Ltd (1993) which involved a contract for the sale of goods which
contained a meaningless “force majeure” clause which the court simply ignored.

Agreements to agree

An agreement to agree is not binding because it is too uncertain. What would the promisor be
promising? To make a contract, but on what terms?
Agreements to negotiate

Walford v Miles (1992)

M agreed in principle to sell to W for 2m. by telephone on March 17 it was further agreed that
subject to a “letter of comfort” from W’s bank by 20 th, M would not deal with any other party. The
letter of comfort was supplied and an agreement made “subject to contract”. M then decided to sell
to X. W sued, arguing an enforceable “lock-out” agreement to deal with no one else and a “lock-in”
agreement to deal with them. While accepting that the main contract could not be enforced since it
remained “subject to contract” M argued a “collateral contract” to negotiate “in good faith”. Or, at
least, a “lock-out” to prevent dealing with another.
the alleged collateral contract was rejected, “The reason why an agreement to negotiate, like an
agreement to agree, is unenforceable is simply because it lacks the necessary certainty. The same
does not apply to an agreement to use best endeavours.”
“…the concept of a duty to carry on negotiations in good faith is inherently repugnant to the
adversarial position of the parties when involved in negotiations.”
“How is the court to police such an agreement? A duty to negotiate in good faith is unworkable in
practice.”

Part of the unworkable argument relates to the problem of determining damages in the caes of
failure to negotiate in good faith
Courtney & Fairburn v Tolaini (1975)
Lord Denning: “No court could estimate the damages because no one can tell whether the
negotiations would be successful or would fall through…”

NB that while the concept of an enforceable “lock-in” (you must deal with me) was rejected, the idea
of an enforceable “lock-out”(you must not deal with anyone else) was approved provided that it is
sufficiently certain and of specific duration(unfortunately no time limit in Walford)