The Commercial Court considered the principles on agreements to agree in the leading Court of Appeal authorities of Mamidoil-Jetoil Greek Petroleum and B J Aviation. A key principle arising from these decisions is that, if on a true construction of the contract, the parties have left an essential matter (such as price in a contract for the sale of goods or supply of services) to be agreed in the future, then the contract is likely to be unenforceable due to uncertainty. The decisions are also authority for the proposition that, where the court is satisfied that the parties intended that their bargain be enforceable, it should strive to give effect to that intention by construction or by the implication of a term. However, the implied term cannot be inconsistent with the court’s construction of the express terms of the contract.
The Commercial Court accepted the Claimant’s argument that the parties had intended to enter into a binding contract and therefore it should strive to give effect to the option agreement. It noted, among other matters, that the option agreement was part of a ‘package’ of contracts and the consideration for the Defendant to grant the options included the Claimant’s subsidiaries entering into the shipbuilding contracts.
The court then turned to the implied terms issue. It considered the leading authorities on implied terms, including Marks and Spencer, where the Supreme Court confirmed that an implied term should (to a reasonable reader at the time the contract was made) be so obvious as to go without saying, or to be necessary for business efficacy. The court held that, despite ‘striving to its utmost’, it was unable to imply either term. It held that the first, the ‘offer date’ implied term, would operate as a ‘unilateral’ contract scheme, i.e. the Claimant would be required to accept any delivery date that the Defendant was able to offer using its best efforts. This scheme would be inconsistent with the provision of the option agreement which provided for delivery dates to be mutually agreed. It held that the second, the ‘reasonable date’ implied term, would be inconsistent with the Defendant’s obligation to “make best efforts” to deliver within 2016 or 2017.
The court noted the distinction between on the one hand, an agreement to use best efforts to achieve a particular result and on the other hand, an agreement to use best efforts to reach agreement on an essential term in a contract. It held that the option agreement fell into the latter category. It also briefly commented on the nature of an ‘essential matter’. In the case of MRI Trading a shipping schedule had been left to be agreed between the parties; the Court of Appeal upheld an implied term that the shipping schedule would be reasonable. The Commercial Court distinguished this case on the basis that a shipping schedule was a ‘matter of routine’, and also that in MRI Trading, shipping schedules had been agreed in each of the previous two years (i.e. were readily assessable). It held that in contrast, in this case, delivery dates were an essential matter and not readily assessable, as no criteria had been specified and there were many relevant considerations to agreeing a delivery date.
Accordingly, the Commercial Court held that although the parties intended the option agreement to be binding, it was not enforceable owing to uncertainty, as an essential matter, delivery dates, were not agreed and left for future agreement between the parties. The court also held that, had it not reached this finding, it would have found that the Defendant’s conduct amounted to a renunciation of the contract and that it was liable to the Claimant.