Mamidoil-Jetoil Greek Petroleum Company SA v Respondent to Cross-Appeal [2001] EWCA Civ 406

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Mr Justice Thomas)
[2001] EWCA Civ 406Case No Case No: A3/2000/3337Venue Royal Courts of Justice, Strand, London, WC2A 2LL, Thursday 22nd March 2001
Between
Mamidoil-Jetoil Greek Petroleum Company SAAppellant/Respondent to Cross-AppealOkta Crude Oil Refinery ADRespondent/ CrossAppellant
Before
Lord Justice SchiemannLord Justice RixSir Ronald WaterhouseMichael Howard QC and Luke Parsons (instructed by Messrs Stephenson Harwood for the Appellant)Michael Briggs QC and Daniel Lightman (instructed by Messrs Bird & Bird for the Respondent/Cross-Appellant)Date 22 March 2001

LORD JUSTICE RIX:

There

[1]are before the court an appeal and a cross-appeal from the judgment of Thomas J reported at [2000] 1 Lloyd's Rep 554. Each of these appeals raises respectively a point of construction on the wording of a contract dated 5 March 1993. Under this contract, the claimant (Mamidoil-Jetoil Greek Petroleum SA or "Jetoil") contracted with the defendant (Okta Crude Oil Refinery AD or "the Refinery") concerning the "manipulation" (which I shall call the "handling") of crude oil brought in tankers to Jetoil's facilities at Salonica in north eastern Greece and put on rail for carriage to the Refinery at Skopje in Macedonia. The 1993 contract was operated successfully by its parties down to the end of 1999. There was then disagreement, engendered by the fact that in 1999 the Refinery came under the control of a consortium headed by the group, Hellenic Petroleum, which owned Jetoil's commercial rivals at Salonica, George Mamidakis & Co ("GM"). Hellenic Petroleum, and thus the Refinery, wished to switch their custom for crude oil handling at Salonica from Jetoil to GM. The 1993 contract[2]The contract, which for reasons which will become apparent I shall call the "1993 contract", provided as follows:
"Today 5.03.1993 in Athens between Skopje Refinery…referred to as "
Refinery" and Mamidoil-Jetoil…referred to as Jetoil, have agreed the following: 1. The Refinery wants and Jetoil accepts to manipulate via its Salonica Installations the quantities of not heated crude oil that the Refinery will buy and process for its own account in Skopje Refinery. 2. Manipulation under this agreement means receiving the Crude Oil from the vessel, storing in tanks and loading on Rail wagons supplied by the Refinery with destination Skopje Refinery. 3. The manipulation fee is fixed to U.S. $4.00 per MT for the period 1.11.1992 until 31.12.1994. If, however, in a particular calendar year i.e. 1993 or 1994 the min quantity of 500,000 MT stipulated in the "Three Parties" contract is covered, then for any quantity over the 500,000 MT manipulated through this agreement a discount of USD 0.50 per MT will be granted. Jetoil will invoice Refinery on the basis of Customs Protocol Quantity… 5. Both parties agree to elaborate all technical and other details and include them in an Annex which will constitute an integral part of this agreement… 6. Jetoil wishes and Refinery agrees to give to Jetoil first refusal for the purchases of the Crude Oil that the Refinery will make for its own account ... 7. This agreement is valid for 10 years starting from the date of the Signature."[3]The Annex referred to in clause 5 contained the following material provisions:
"1. The ten years initial contract term can be amended by mutual agreement for another ten years or for an indefinite period… 5. Any dispute arising under or in connection with this agreement and which cannot be amicably solved shall be referred to arbitration in London, English law will apply."
The two issues[4]The issue raised by the appeal (Jetoil's appeal) is as to the length of the 1993 contract. Thomas J held that the ten year term referred to in clause 7 was not binding. It was only a maximum period, and continued existence of the contract beyond 31 December 1994 (see clause 3) was dependent upon further agreement as to the handling fee for future years (at 561). Jetoil submits, on the contrary, that the contract has a fixed ten year term and that the handling fee for the period beyond 31 December 1994, in the absence of agreement, would have to be fixed as a reasonable fee by the Court. The Refinery submits that the Judge was right.[5]The issue raised by the cross-appeal (the Refinery's cross-appeal) is as to the quantities of crude oil which the Refinery was obliged to permit Jetoil to handle. This issue arises under clause 1 of the 1993 contract. The Refinery submits that the effect of clause 1 is that Jetoil agrees to handle as much or as little crude oil as the Refinery is prepared to allow it to handle. In other words the Refinery has an option to put oil into the Jetoil facility at Sarajevo, but not an obligation. Jetoil submits that on the contrary the Refinery is obliged to allow Jetoil to handle all the crude oil that the Refinery buys and processes for its own account, in other words that Jetoil has an exclusive contract for the handling at Sarajevo of the Refinery's entire own account crude oil purchases. On this issue Thomas J held in favour of Jetoil (at 560).[6]In the light of the new association in 1999 between the Refinery and GM, the importance of these two issues for the parties is obvious. If it legitimately can, the Refinery wishes to put an end to its relationship with Jetoil and to transfer its business at Salonica to its associated company, GM. If the 1993 contract is binding only for any period for which the parties to it have agreed a manipulation fee, then the contract ceased to bind as of end 1999. Moreover, if the contract gives the Refinery an option to place crude oil with Jetoil, but imposes no obligation upon it to do so, then again it ceases to bind the Refinery for the future.[7]In themselves these two issues are, or appear to be, relatively short points of construction. There is, however, something of a background to the relationships between the parties and it is necessary to say something about that. The background[8]The relationship between the Refinery and Jetoil went back to 1979. In that year, at a time when Yugoslavia was still a united country under a Communist regime, the Refinery entered into two parallel contracts with both Jetoil and GM for the handling of crude oil at their respective installations at Salonica. I shall call these the 1979 Jetoil contract and the 1979 GM contract. The Refinery at that time was called OHIS, a state enterprise of the federal republic of Yugoslavia. The importation of the crude oil was done by Jugopetrol, another Yugoslav state enterprise. The 1979 contracts were therefore tripartite agreements between Jetoil (or GM), the Refinery and Jugopetrol. The first stage of the contracts provided for a five year term during which a minimum quantity of 4 million tonnes would be handled, averaging to 0.8 million tonnes per year per contract. The contracts referred to the crude oil as being the Refinery's property (article 1), but Thomas J found on the evidence that that was not so, and that the oil in fact belonged to the state. Jugopetrol was named in the contracts as the importer (article 28). The handling fee was agreed at $1.75 per tonne; but if the 4 million tonnes minimum was not met, a default fee of $1.22 per tonne would be paid for each tonne below the minimum. The 1979 contracts, although initially for five years, also provided (by article 2) that their validity was to be prolonged automatically until a proposed pipeline was constructed and put into operation.[9]The initial five year terms of these contracts commenced with the first oil shipments handled at Salonica in September 1982. At that time, internal reorganisation within Yugoslavia meant that Jugopetrol was replaced in the contracts by Makpetrol, ie the regional oil company.[10]The 1979 contracts were subsequently amended. The amendments to the 1979 GM contract are not before the court, but they probably followed a similar pattern to the amendments to the 1979 Jetoil contract. At any rate on 6 June 1984 addendum no1 to the 1979 Jetoil contract stated that Jetoil's invoices would be paid by "the Refinery Skopje i.e. Makpetrol", an ambiguous provision, but in practice the invoices were paid by Makpetrol, not the Refinery. Thomas J referred to evidence before him that the fee had always been paid by first Jugopetrol and then by Makpetrol. He said (at 556):
"I accept that evidence as it is consistent with the invoices and also with other evidence to the effect that Jugopetrol and then Makpetrol were the state enterprises who made the importation."
[11]On 13 July 1984, addendum no 2 to the 1979 Jetoil contract extended the intitial five year term for a further two years down to September 1989. It was this addendum which formally novated the contract so as to replace Jugopetrol with Makpetrol. The handling fee was raised to $1.88 per tonne (as from 1 July 1984); the minimum throughput of oil was altered to an annual quantity of 600,000 tonnes, and the default fee rose to $1.32 per tonne.[12]On 4 March 1988, addendum no 3 provided that as from 1 January 1988 the handling fee was $2 per tonne; the default fee remained unchanged.[13]On 5 May 1990, after the after the initial seven year period had expired on 4 September 1989, the handling fee was raised by addendum no 4 as from 1 April 1990 to $2.35 per tonne. The new fee of $2.35 per tonne was said to be valid until 31 October 1992. The annual minimum of 600,000 tonnes per year appears to have been replaced by a new provision which stated that above a quantity of 600,000 tonnes per year a fee of only $1.52 per tonne was to be applied. No mention is made of any default fee, which is consistent with the absence of a minimum throughput quantity.[14]On 20 November 1992 Macedonia declared itself independent of Yugoslavia. The Judge found that in the new situation the Refinery decided to enter into competition with Makpetrol in the importation of crude oil and the distribution and sale of refined products. Following some form of interim arrangements, on 5 March 1993 Jetoil and the Refinery entered into the 1993 contract (see above) but also, on the same day, together with Makpetrol entered into a fifth addendum to the 1979 contract. Addendum no 5 to the 1979 contracts[15]This was, as before, a tripartite agreement between Jetoil, the Refinery and Makpetrol. It increased the handling fee to $4 per tonne, purported to lower the annual minimum to 500,000 ("instead of 600,000") tonnes per year, but made no mention of either a default fee or a discounted fee for throughput above the minimum. It stated that the new terms were effective as from 1 November 1992 (ie so as to follow on immediately from the expiry of addendum no 4) until 31 December 1994. The terms of addendum no 5 harked back to addendum no 2, so that it is possible that addendum no 2's default fee (of $1.32 per tonne) should be regarded as applying to the reduced minimum. It has to be said, however, that the progression of these terms through the various addenda is somewhat obscure.[16]An identical addendum was entered into as between GM, the Refinery and Makpetrol in connection with the 1979 GM contract, save that in its case the new fee operated from 19 October 1992. The GM contract addendum was dated 6 March 1993. Amendments to the 1993 contract[17]The 1993 contract operated without any relevant difficulty until the end of 1999. As stated above, the initial handling fee was fixed at $4 per tonne until the end of 1994. At the end of 1994 the contract ran on, and on 14 September 1995 clause 3 was amended to provide for the same terms to continue until the end of 1995. On 14 December 1995 a further addendum continued the $4 per tonne fee for a further year to the end of 1996. The discount of $0.50 per tonne for throughput of more than 500,000 tonnes was also continued, save that, whereas the 1993 contract and the September 1995 addendum had referred to the 500,000 tonnes minimum as being that stipulated in the 1979 contract (the "Three Parties" contract), the December 1995 addendum simply referred the discount to "any quantity over 500,000 MT".[18]By a further addendum dated 11 June 1997, the $4 per tonne fee and the $0.50 discount for any quantity over 500,000 tonnes was extended into the 1997 calendar year. Finally, by a further addendum dated 27 May 1998, the same terms were extended to the end of 1999.[19]It is to be noted, however, that no further amendments (or extensions) were agreed to the 1979 Jetoil contract after March 1993. Addendum no 5 of 5 March 1993 extended that contract to the end of 1994, but there was no further addendum. This is despite the fact that the September 1995 addendum to the 1993 contract still referred to the "min quantity of 500,000 MT stipulated in the "Three Parties" contract". The explanation for that, however, might simply be poor draftsmanship. The September 1995 addendum extended clause 3 of the 1993 contract from end 1994 to end 1995, and continued:
"If, however, during a particular year, i.e. 1993, 1994 or 1995 the min quantity of 500,000 MT stipulated in the "
Three Parties" contract is covered, then…" The reference to the 1979 contract made sense for 1993 and 1994, even if not for 1995. Fortunately, the court does not have to decide whether a minimum of 500,000 tonnes was guaranteed for 1995 under some ghost extension of the 1979 contract. Certainly, come the December 1995 addendum to the 1993 contract, all reference to a minimum of 500,000 tonnes or to the 1979 contract had disappeared, then and thereafter.. Further amendments to the 1979 GM contract[20]Similar pricing amendments were agreed in relation to the 1979 GM contract. That is to say, new protocols were made in 1995, 1996, 1997 and 1998 extending the $4 per tonne fee for another calendar year. Minimum quantities, the requirements of Macedonia and the capacity of the Refinery[21]It will have been observed that over the years from 1979 onwards, the minimum quantities guaranteed under the two 1979 contracts with Jetoil and GM had tended to fall. Starting off with an average over 5 years of 800,000 tonnes per year per contract, the figure fell already in 1984 to 600,000 tonnes per year per contract, and in 1993 fell again to 500,000 tonnes per year per contract. Indeed, Thomas J found that in 1993 the total requirement of Macedonia was only some 800,000 to 900,000 tonnes. However, the Refinery had been built with a capacity of up to some 2.5 million tonnes per year. Moreover, it had presumably been built with a view to supplying refined products over a greater extent of Yugoslavia than what had at one time been the province of Macedonia.[22]On 5 May 1993 Makpetrol entered into an agreement with the Refinery to refine 500,000 tonnes of crude oil in 1993, to be supplied through Salonica. This might suggest that this was to be the limit, or anticipated limit, of Makpetrol's importation through Salonica. The significance of the 1993 contract in its context[23]The 1993 contract was only concerned with crude oil which the Refinery was to purchase for its own account (clause 1). Such purchases were to be made in competition with Makpetrol's operations. The 1979 contract, however, had been operated solely in connection with crude oil imported by Makpetrol, and it was for that reason that Makpetrol was a party to that contract, referred to in clause 3 of the 1993 contract as the "Three Parties" contract.[24]On behalf of the Refinery, Mr Michael Briggs QC submitted that when on 5 March 1993 Jetoil and the Refinery made two further agreements, namely not only the 1993 contract but also, on the self-same day, the latest addendum, addendum no 5, to the 1979 contract (involving Makpetrol as well), that was clear support for the Refinery's argument that it was not committed to provide Jetoil with crude oil purchased for its own account, but had an option to do so. For these purposes Mr Briggs also relied on the amended renewal of the 1979 GM contract as of 6 March 1993. As I understand this submission, it proceeded somewhat as follows.(i) Macedonia only had a requirement of some 800,000 to 900,000 tonnes of crude oil per year.(ii) The 1993 amendments to the 1979 Jetoil and GM contracts already committed the Refinery/Makpetrol to the handling of a total of 1 million tonnes.(iii) In the circumstances, any crude oil purchased by the Refinery for its own account in competition with Makpetrol would be competing for a share of the limited Macedonian market requirement of 800,000 to 900,000 tonnes.(iv) It followed that purchases of own account crude oil by the Refinery had an uncertain status, and it was unlikely therefore either that the Refinery would want to commit itself to how such crude oil would be handled, or that Jetoil would regard the 1993 contract as of particular importance.(v) Consistently with this view of things, although Jetoil had submitted before Thomas J that the 1993 contract did contain a 500,000 tonnes contractual minimum, he had held, and there was no appeal from that holding, that the 500,000 tonnes minimum referred to in clause 3 was a reference to the 1979 contract minimum.(vi) The renewing of the 1979 contract for a further period down to end 1994, with its own minimum quantity of 500,000 tonnes, was Jetoil's real compensation for its continued relationship with the Refinery. Compared to that, anything further to be gained out of the 1993 "own account" contract was, as it were, icing on the cake.(vii) In any event, the real quid pro quo for Jetoil under the 1993 contract was (not any obligation on the Refinery's part to promise Jetoil the handling at Salonica of all the Refinery's own account purchases, but rather) the right of first refusal provided under clause 6 for the supply of such own account Refinery purchases.[25]This submission was addressed in support of an approach to the construction of clause 1 to which I shall come below.[26]The alternative argument put forward by Mr Michael Howard QC on behalf of Jetoil, however, was as follows. Whatever the wording of the March 1993 addendum to the 1979 Jetoil contract, matters were not intended to work like that, nor did they. In practice, following the March 1993 agreements, with rare and inconsequential exceptions, all Makpetrol importations of crude oil through Salonica were handled by GM under the extension of the 1979 GM contract, and all the Refinery's own account crude oil imports were handled by Jetoil. In these circumstances, unless the Refinery had promised Jetoil (under clause 1 of the 1993 contract) to give it the handling of all its own account imports, there would have been nothing in the contract for Jetoil: especially as, in accordance with the Judge's holding below, the 1993 contract contained no minimum quantity guarantee for Jetoil. The operation of the 1993 agreements[27]Thomas J found that following the making of the 1993 contract Jetoil only handled the Refinery's own account oil, save on two occasions when it handled shipments of crude oil purchased by Makpetrol. One of those occasions was in December 1993, and there was one later shipment. The reason for these exceptions was that Jetoil's help was sought because of operational difficulties (see at 558).[28]What light did this throw on the way in which the 1993 contract and the March 1993 addendum no 5 to the 1979 contract were intended to operate in relation to one another? Thomas J said this (at 559/560):
"I accept the greater part of Mr Kiriakos Mamadakis' evidence [on behalf of Jetoil]. I accept his evidence that it was generally intended that the oil to be imported by Makpetrol would be imported by G. Mamadakis and that the oil to be imported by Refinery Skopje would be imported by Jetoil; it seems clear that no oil was in fact manipulated under the 1979 Jetoil agreement or the 1993 addendum except in the circumstances to which I have referred. He gave his evidence impressively and did his best honestly to assist the Court. Moreover his evidence was supported by the documents made available after the hearing; he was the only witness who gave oral evidence as Okta did not call any oral evidence to contradict his evidence. However there is one part of his evidence I cannot accept. I do not accept that the addendum to the 1979 [contract] was only intended to regularize matters up to the time of execution; this is wholly inconsistent with the annual minimum quantity specified in the addendum and with the reference in the addendum to the 1993 agreement made in September, 1995 to the minimum quantity under the 1979 agreement for the 1993, 1994 and 1995 years. Although no oil was in fact shipped under the 1979 agreement or the addenda to that agreement, it was nonetheless anticipated in March, 1993 that oil might be shipped under that agreement if in the uncertain situation then pertaining in Macedonia that proved necessary in the event that Refinery Skopje did not import oil for its own account. I cannot see that there was any purpose in framing the addendum to the 1979 agreement in the terms it was made unless it was contemplated that it might be used."
[29]It would appear, therefore, that even the two exceptional occasions when Jetoil handled Makpetrol's oil were not viewed as having been performed under the 1979 contract.[30]Thomas J therefore concluded that as of 5 March 1993 the 1979 contract was not regarded as having been rendered entirely unnecessary, but that even so there had not in fact been any handling of oil under it after that date (or possibly that there had been only two exceptional occasions of such handling). Consistently with the Judge's analysis, it is tempting to see Makpetrol's contract with the Refinery for only 500,000 tonnes to be supplied through Salonica in 1993 as supportive of his conclusion that addendum no 5 was only intended to cover a fall-back situation and that it was anticipated that the Refinery's own account purchases would or might very well push out a substantial part of Makpetrol's purchases.[31]I would not for myself have placed much if any weight on the reference to the 1979 contract in the September 1995 addendum to the 1993 contract (see para 19 above under the heading "Amendments to the 1993 contract").[32]Moreover, if, as the Judge held, the 1979 contract had not been entirely superseded as of 5 March 1993, it seems to me that it had nevertheless been entirely superseded by the end of 1994: for there was no extension to it after the expiry of addendum no 5.[33]Despite the survival of the 1979 contract evidenced by its addendum no 5, I would be reluctant to find in it, in the circumstances related by Thomas J, strong support for any particular construction of the 1993 contract. While it is in general illegitimate to construe contracts by reference to post-contractual events (as Thomas J also reminded himself, see at 558 where he cited James Miller & Partners v. Whitworth Street Estates (Manchester) Ltd [1970] AC 572), the fact that there was no performance at all (or at most some wholly exceptional performance) under addendum no 5 to the 1979 contract is the very strongest evidence that that addendum cannot be read without reference to circumstances outside itself. Indeed, as I read the findings of Thomas J, he infers that it was the understanding of the parties as of 5 March 1993, indeed it may even be said that it was agreed by the parties as of that date, that only one contract was intended to go forward for performance: primarily, the intention was that the 1993 contract would be performed; it was only if the Refinery did not after all import oil for its own account that the parties were to fall back on addendum no 5. That would explain why, by September 1995, after the 1993 contract had been working satisfactorily for over 2 years, there was no need to extend the 1979 contract by any further addendum to it.[34]However, that it may not be legitimate so to regard this passage in Thomas J's judgment is indicated by a later passage (at 561) where he makes the following observations concerning Mr Kiriakos Mamidakis' evidence as to "the common intention of the parties":
"I consider his evidence largely to be evidence of the subjective intention of the parties and thus inadmissible. In so far as it may be admissible as to the continued effect of the 1979 agreement, his evidence is consistent with the conclusion I have reached on exclusivity."
[35]I am now in a position to address directly the two issues which arise on the appeal and cross-appeal. I will begin with the cross-appeal, as it is more fact specific. The issue on the cross-appeal: clause 1 of the 1993 contract[36]For convenience I will set out the terms of clause 1 again:
"1. The Refinery wants and Jetoil accepts to manipulate via its Salonica Installations the quantities of not heated crude oil that the Refinery will buy and process for its own account in Skopje Refinery."
[37]The contextual point which Mr Briggs on behalf of the Refinery makes is that recorded above at para 24. He deploys that argument in support of his submission on the construction of clause 1 below.[38]His textual point is as follows. He submits that the only language of agreement and thus of obligation in clause 1 is to be found in the word "accepts". That is language which binds Jetoil only. There is no obligation in clause 1 which binds the Refinery, let alone any language which binds the Refinery to make Jetoil the exclusive handler of own account oil. It is simply that "Jetoil [agrees] to provide the Refinery with a pre-agreed price at which the Refinery could put as much own account oil through Jetoil's installations as it wanted to have so manipulated" (to quote from Mr Briggs' skeleton argument). Or, to express his oral submission, clause 1 means that "Jetoil accepts [ie undertakes] to manipulate…the quantities of not heated crude oil which the Refinery offers to it up to the whole of the Refinery's own account purchases." The words "The Refinery wants…" which begin clause 1 are not in themselves words of obligation, but merely words of recital. They are in that respect just like the formula found at the beginning of clause 6, viz " Jetoil wishes and the Refinery agrees to give Jetoil first refusal…" (emphasis added). It will be recalled that in clause 6 the Refinery gives to Jetoil a right of first refusal to supply the Refinery's purchases of own account oil. That language again imposes no obligation on (in this case) Jetoil, only on the Refinery: the Refinery is obliged to give Jetoil a right of first refusal, but Jetoil is not obliged to make an offer for the supply of the oil. Once again the language "Jetoil wishes" is merely that of recital: ex hypothesi a right of first refusal does not involve any obligation on Jetoil.[39]Thomas J rejected the Refinery's construction of clause 1 in the following terms (at 560/1):
"I do not accept that argument. If the parties had intended that the 1993 [contract] would in effect provide an option to Refinery Skopje, then as a matter of language, they would have expressed themselves differently; they would have referred to quantities of oil that Refinery Skopje elected or decided to have manipulated by Jetoil. They would not simply have referred to "the quantities" of oil. In my view the wording chosen pointed to the obligation of Refinery Skopje being an exclusive one imposing an obligation upon Refinery Skopje to have the oil it bought for its own account manipulated by Jetoil. I also consider that the use of the words "the Refinery wants" points to an obligation being undertaken by Refinery Skopje and not merely to having an option. "
This view also accords with the commercial purpose of the agreement in the context of the surrounding circumstances. Refinery Skopje wanted to be sure that it would have in place the capability to have the oil it purchased for its own account manipulated at Salonica. It is consistent with the common understanding that Refinery Skopje would compete with Makpetrol. It seems to me inconceivable that Jetoil would have agreed to give Refinery Skopje the option to make use of its services where no minimum quantity was stipulated without Refinery Skopje being obliged to use its services when it purchased oil for its own account. This was the only agreement to which the Refinery was a party in respect of purchases for its own account."[40]Thomas J then went on to say that he had come to this conclusion without regard to Mr Mamidakis' evidence "that the common intention of the parties" was that Jetoil would handle the Refinery's own account purchases while GM would handle Makpetrol's imports, adding the comments which I have set out at para 34 above.[41]In my judgment, Mr Briggs' construction of clause 1 is linguistically very difficult and unlikely to be correct.(1) It involves the manipulation of the language of the clause, as both the formulations in his skeleton argument and in his oral submissions demonstrate.(2) Both formulations require the object of Jetoil's agreement to be not what is stated in the clause to be its object, namely "the quantities of not heated crude oil that the Refinery will buy and process for its own account", but something else, viz "as much own account oil…as [the Refinery] wanted to have so manipulated" or "the quantities which the Refinery offers to it…" Jetoil in fact agrees to handle all the Refinery's own account oil, not as much or as little of it as the Refinery wants.(3) It follows that the clause does contain language expressive of exclusivity in the words "the quantities…that the Refinery will buy". If therefore the clause contemplates that Jetoil will handle all the Refinery's own account oil, then it would be odd if the Refinery were to be permitted to give some of it, or even all of it, to another facility to handle.(4) Mr Briggs' explanation of this language, namely that it merely marks the upper limit of Jetoil's obligation, is unsatisfactory: because if the true agreement were to be that Jetoil was obliged to handle as much or as little own account oil as the Refinery offered to it, then it would stand to reason that Jetoil could not be obliged to handle more own account oil than the Refinery purchased. Thus Mr Briggs' construction has the oddity of concentrating on the unnecessary reference to the totality of the Refinery's own account purchases, whereas it ought, on his logic, to have been concentrating on emphasising that Jetoil's obligation was to handle as much or as little own account oil as the Refinery was prepared to put Jetoil's way – or even none at all.(5) Ultimately the question is whether clause 1 contains any obligation on the part of the Refinery. Mr Briggs submits that the opening words "The Refinery wants…" are merely words of recital. However, they come immediately after the words at the end of the opening paragraph of the 1993 contract "have agreed the following" and immediately before the words "and Jetoil accepts". In their context the words "The Refinery wants" are clearly expressive of agreement: they are the equivalent of "The Refinery offers…" or "The Refinery wants you, Jetoil, to accept…". If that offer is accepted or that agreement made, then the Refinery is obliged to permit Jetoil to do what it has been asked to agree to do, namely "to manipulate…the quantities" of the Refinery's own account crude oil.(6) The language of clause 6 does not assist. Clause 6 is expressly and clearly on its own language a term of "first refusal". It is in the inherent nature of an agreement of first refusal that the party who must be allowed to bid must also be allowed to refuse. Thus the mere fact that clause 6 opens with wording similar to that of clause 1 is of little help. In any event that wording is expressive of agreement (viz, "Jetoil wishes [to be given] and the Refinery agrees to give…"), but the agreement is – a right of first refusal.(7) Clause 6 highlights what would be the inadequacy of clause 1 if the parties had intended it to amount merely to an option to allow the Refinery to put own account crude oil through Jetoil's facility. Just as clause 6 is able to concentrate concisely on its bargain of first refusal , so clause 1 should, if Mr Briggs' construction had been what the parties intended, have been able to concentrate concisely on giving to the Refinery an option to put as much or as little own account crude oil through Jetoil's facility as the Refinery chose to do.[42]So much for the linguistic considerations. I have said above that such considerations make Mr Briggs' construction difficult and unlikely to be correct. I might have said, that they make his construction impossible, but I was reserving the possibility that a commercial and contextual analysis would have put such pressure on the language used as to require some other explanation. Let me therefore turn back to Mr Briggs' wider submission.[43]Now I agree that the express reference to the 1979 contract (the so-called "Three Parties" contract) in clause 3 of the 1993 contract entails that the 1979 contract has to be taken into account in construing the 1993 contract. Indeed, even without such an express reference, it would be necessary to have regard to the fact that addendum no 5 to the 1979 contract was made on the same day as the 1993 contract. This enables Mr Briggs to say that it was commercially unnecessary for the Refinery to promise Jetoil all its own account crude oil handling, since in any event Jetoil had the promise of a minimum 500,000 tonnes throughput under addendum no 5. The slightest addition of the Refinery's own account crude oil would be icing on the cake. So be it. But that is merely an answer to Jetoil's argument that it would be commercially unrealistic for it to agree to handle the Refinery's own account oil, without being assured of any throughput at all. The rejoinder is: Jetoil was assured of at least 500,000 tonnes. It is fair to say that Thomas J did not attach any weight to that rejoinder. On the contrary, he found support for his construction of clause 1 in the thought that it was inconceivable that Jetoil would have agreed to give the Refinery the option to make use of its services for own account oil "where no minimum quantity was stipulated" (see the citation from his judgment above).[44]I can see therefore a cogent argument that the Judge should not have found support in that consideration. Nevertheless, it seems to me that that particular argument is ultimately of little weight. It meets a submission as to commercial realities which has been advanced against the Refinery; but it does not begin to soften the difficulties of construction which the Refinery faces in terms of clause 1.[45]What Mr Briggs needs, therefore, is the full panoply of the submission which I have sought to sum up at para 24 above. It is fair to say that that submission does not appear to have been addressed in the judgment below: indeed the full argument may well not have been made to Thomas J, for I note that Mr Briggs did not appear below and I cannot, at any rate unaided, find it in the skeletons or transcripts of the proceedings before the Judge. Be that as it may, I am not satisfied that the argument has force. I would seek to put my conclusions in the following way.[46]If I ignore the Judge's findings as to Mr Mamidakis' evidence (see para 28 above), on the basis that they go only to subjective intentions (para 34 above) or post-contractual conduct, I am left with the situation that the parties' intentions, as derived from the contracts themselves, were that Jetoil should handle both Makpetrol's purchases (up to a minimum of 500,000 tonnes) and the Refinery's own account purchases, but in circumstances where Macedonia's consumption (but not necessarily the surrounding region's consumption) is limited and the Refinery will be in competition with Makpetrol, and it is nevertheless contemplated that Jetoil may handle more than 500,000 tonnes. I cannot see, however, why the Refinery should not in such circumstances have promised to give Jetoil the whole of its own account purchases. If there were no such purchases, cadit quaestio. If such purchases were limited, they would not make much difference. If they were substantial, they might have cut into Makpetrol's ability to import oil and thus prejudiced the ability to meet the minimum of 500,000 tonnes under addendum no 5. However, it was Mr Briggs' submission that the 500,000 tonnes could be met by imports of either kind – whether for Makpetrol's account under the 1979 contract or the Refinery's own account under the 1993 contract would make no difference. If that be the case, and I do not necessarily endorse it but it remains Mr Briggs' submission, why should it matter whether the Refinery's own account success cuts into Makpetrol's business? That would only matter, if the Refinery was so successful for its own account that its imports even went to prejudice Makpetrol's ability to make good the minimum under the GM contract. However, Mr Briggs did not address that possibility; and the fact is that addendum no 5 (and its GM equivalent) only lasted until end 1994, a matter of 21 months, and it is entirely speculative, on the material before Thomas J or this court, whether the parties saw any danger whatsoever that within that period there could be any prejudice to the workings of the handling agreements as a whole.[47]In such circumstances I cannot see in the factors prayed in aid by Mr Briggs any reason, one way or the other, why the Refinery, let alone the parties to the 1993 contract, should have wanted to limit agreement only to such quantities of the Refinery's own account purchases as the Refinery was prepared, from moment to moment, to allow to Jetoil. Of course, I would accept that, other things being equal, it may always suit one party to an agreement to retain maximum flexibility, which it can do by stipulating for an option and avoiding obligation; and by way of contrast it will usually suit the other side to the contract to stipulate for the security of his contract partner's obligation. However, where the natural interests of the parties to a contract may thus conflict, they will tend to give little guidance to questions of proper construction. Similarly, it does not assist Mr Briggs to submit that the true quid pro quo for the Refinery's clause 1 option is Jetoil's clause 6 first refusal (or vice versa) in circumstances where it is impossible to evaluate the value of either. It may at least as well be submitted on behalf of Jetoil that it would be unlikely to be prepared to agree to handle whatever quantities of oil the Refinery should choose to impose on it without at least a guarantee of a certain throughput.[48]For these reasons, even without taking into account the Judge's findings based on Mr Mamidakis' evidence, I would conclude that there is nothing in the surrounding circumstances to cause me to alter my view as to the natural and commercial meaning of the words to be found in clause 1.[49]Like Thomas J, however, I am by no means entirely clear that those findings are inadmissible. It is to be noted that they are findings as to "the common intention of the parties". They are therefore not necessarily subjective. A common intention is more likely to be objectively based. I have suggested (at para 33) above that, reading the Judge's findings at 560 by themselves, I would be inclined to see in them evidence of an agreement which is collateral to both of the 5 March 1993 agreements. Be that as it may, I would naturally defer to the trial Judge's primary view that such findings should be treated as inadmissible. On that basis, one is left to the language of the contracts in their commercial setting. I would nevertheless agree with Thomas J that clause 1 contains an obligation on the part of the Refinery to allow Jetoil to handle the total of the Refinery's own account purchases. The issue on the appeal: clauses 3 and 7 of the 1993 contract[50]Jetoil submits that the primary provision is clause 7, with its reference to a ten year term. Where a contract has without question come into existence in the first place, but a necessary term, such as price, has only been agreed for a specific period of a longer term contract, the courts will do what they can to uphold rather than destroy the bargain by implying the need for a reasonable price. The Refinery, on the other hand, submits that Thomas J was right to say that, beyond the end of 1994, the 1993 contract was a mere agreement to agree and thus unenforceable, indeed no contract.[51]Thomas J's essential reasoning is contained in the following paragraphs (at 561):
"Moreover the agreement leaves at large questions as to whether the rate is to be affected by the volume of oil manipulated or whether if the price is fixed for a longer period, whether the price should be higher or lower. If a price was to be fixed by an arbitrator in default of an agreement, some guidance would be expected as there would be no obvious market price for such work; for example, in long term pipeline contracts, provision is sometimes made for the price to be fixed by reference to the rate of return on the investment in the facility. "
In my view, when the parties provided for the agreement to be valid for 10 years, they fixed the maximum period for which it was to apply. They envisaged that the parties would, after the initial period for which the price was agreed, try and agree a new price and the period for which that subsisted; however, the continued subsistence of the agreement was dependent on that agreement being reached; they never envisaged the price payable to be a reasonable one, but a price to be reached by agreement. In other words there would be a series of agreements for which the document signed on Mar. 5, 1993 was the framework."[52]Although each case has ultimately to be decided on its own facts, there are some well known authorities which it is necessary to mention, for the sake of such principle as it is possible to extract from them, rather than for their decisions.[53]May and Butcher v. The King [1934] 2 KB 17 n is in one sense the leading case within the last century, decided in 1929, and is authority for the "well recognized principle of contract law that an agreement between two parties to enter into an agreement in which some critical part of the contract matter is left undetermined is no contract at all", or "the principle that you cannot agree to agree" (at 20 per Lord Buckmaster). The case concerned the sale of old tentage at prices as "shall be agreed from time to time" and at such delivery periods as should be similarly agreed. It was held that there was a mere agreement to agree and that no contract had ever come into existence. Lord Dunedin said (at 21) – "No doubt as to goods, the Sale of Goods Act, 1893, says that if the price is not mentioned and settled in the contract it is to be a reasonable price. The simple answer in this case is that the Sale of Goods Act provides for silence on the point and here there is no silence, because there is a provision that the two parties are to agree." Lord Warrington of Clyffe spoke to similar effect at 22.[54]The agreement contained an arbitration clause, but not one that amounted to an agreement that the price was to be settled by the arbitrator. The importance of an arbitration clause in the right terms appears to have been that an agreement for a sale whose price was to be settled by a third person could amount to a contract, since it would not involve a mere agreement to agree (at 21/22 per Lord Dunedin, at 22 per Lord Warrington, cf Lord Buckmaster at 20).[55]The very next case, however, also in the House of Lords, went the other way. In Hillas and Co Limited v. Arcos Limited [1932] 147 LT 503 the parties had agreed a contract for the sale of Russian timber. The contract was for "22,000 standards softwood goods of fair specification over the season 1930", with an option "of entering into a contract with sellers for the purchase of 100,000 standards for delivery during 1931". The 1930 season contract was performed and two problems arose in connection with the option for 1931, one as to the identity of the goods sold, the other as to whether the option merely contemplated a future bargain the terms of which remained to be settled. The first problem was solved(a) by implying into the option the term "of softwood goods of fair specification", and(b) by holding that the term "of fair specification" could be ascertained objectively in the absence of agreement by the parties. The second problem was solved by holding that there was an immediate contract for the stated option, on terms which were either sufficiently certain or could be made certain. The importance of the case lies in the reasoning and dicta of Lord Tomlin and Lord Wright. Lord Tomlin's speech was concurred in by Lord Warrington, Lord Macmillan and Lord Thankerton. But it is Lord Wright's speech which has had the greater influence on the law (save in one respect to which I will refer below).[56]Lord Tomlin observed as to the first point that if the words "of fair specification" could be given no sufficiently certain meaning, then the parties never made a contract even as to the 1930 season. He said (at 512):
"That may be the proper conclusion; 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."
He then held, in part as a pure matter of construction, but also "having regard to the admissible evidence as to the course of the trade", that "of fair specification" meant – "goods distributed over kinds, qualities, and sizes in the fair proportions having regard to the output of the season…That is something which if the parties fail to agree can be ascertained just as much as the fair value of a property" (at 512).[57]As to the second point, Lord Tomlin held that the language "the option of entering into a contract" merely emphasised that there was no contract until the option had been exercised. It was not a case of a mere agreement to agree, and May and Butcher v. The King was distinguished (at 512/3).[58]Lord Wright, in a number of paragraphs which I think express his point of view as well as it has ever been expressed, said this (at 514/7):
"The document of the 21 st 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 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. 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 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 shipments 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 … "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 apportionment 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 that 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. "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 subsequent 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, at p.487:
"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 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 illustrations 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."[59]As for May and Butcher v. The King and the principle that a mere agreement to agree is no contract, Lord Wright said this (at 517):
"No one would dispute such a rule, and its application to the instrument before the House in May and Butcher Limited v. The King 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."
[60]In one respect only, Lord Wright went further than future authorities would allow, and that was in his obiter view that even a mere agreement to agree could constitute a bargain to negotiate, if there be consideration (see at 515). That dictum was disapproved in Courtney & Fairbairn Ltd v. Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297 at 301/2 and in Walford v. Miles [1992] 2 AC 128.[61]In Foley v. Classique Coaches Limited [1934] KB 1 the sellers sold to the buyers a piece of land to use for the latter's business as coach proprietors, and also contracted with them to supply all the petrol required for that business "at a price to be agreed by the parties in writing and from time to time". There was an arbitration clause. The court of appeal said that a term was to be implied that in default of agreement the price of the petrol was to be a reasonable price: if that could not be agreed, it could be settled by arbitration. The fact that the contract had operated in the past, and was part of an overall transaction under which the land had been conveyed, as well as the utility of the arbitration clause, were all factors in the court's decision. It might have been said that the critical factor on the reasoning of May and Butcher v. The King was that the language of "to be agreed" had been used, thus ousting the possibility of implying a term for a reasonable price: but that was not the result. As Scrutton LJ said (at 10):
"In Hillas & Co v. Arcos the House of Lords said that they had not laid down any universal principles of construction in May & Butcher v. The King , and that each case must be decided on the construction of the particular contract…"
Maugham LJ said (at 13):
"I desire to say, first, that it is plain from the surrounding circumstances that the agreement as to the sale and purchase of the petrol was intended to be a binding contract and it formed part of the inducement for the sale of the land. Secondly, the agreement was duly stamped and bears all the signs of a legal contract, and was not, as in May & Butcher v. The King a mere informal letter."
[62]Foley v. Classique Coaches was approved by Lord Wright in G Scammell & Nephew Ltd v. Ouston [1941] AC 251, and in the same case Viscount Maugham said (at 255):
"In order to constitute a valid contract the parties must so express themselves that their meaning can be determined with a reasonable degree of certainty. It is plain that unless this can be done it would be impossible to hold that the contracting parties had the same intention; in other words the consensus ad idem would be a matter of mere conjecture. This general rule, however, applies somewhat differently in different cases. In commercial documents connected with dealings in a trade with which the parties are perfectly familiar the court is very willing, if satisfied that the parties thought that they made a binding contract, to imply terms and in particular terms as to the method of carrying out the contract which it would be impossible to supply in other kinds of contract: see Hillas & Co v. Arcos, Ld ."
[63]In British Bank for Foreign Trade v. Novinex [1949] 1 KB 623 the court of appeal upheld an agreement to pay "an agreed commission on any other business transacted with your friends". The court approved this passage from the judgment of Denning J at first instance (at 629/630):
"The principle to be deduced from the cases is that if there is an essential term which has yet to be agreed and there is no express or implied provision for its solution, the result in point of law is that there is no binding contract. In seeing whether there is an implied provision for its solution, however, there is a difference between an arrangement which is wholly executory on both sides, and one which has been executed on one side or the other. In the ordinary way, if there is an arrangement to supply goods at a price 'to be agreed,' or to perform services on terms 'to be agreed,' then although, while the matter is still executory, there may be no binding contract, nevertheless, if it is executed on one side, that is, if the one does his part without having come to an agreement as to the price or the terms, then the law will say that there is necessarily implied, from the conduct of the parties, a contract that, in default of agreement, a reasonable sum is to be paid."
[64]In F & G Sykes (Wessex) Ltd v. Fine Fare Ltd [1967] 1 Lloyd's Rep 53 chicken breeders entered into a five year agreement with a supermarket chain to provide a stipulated number of chicks in the first year and thereafter "such other figures as may be agreed". There was an arbitration clause. The essence of the decision is in the following passage from the judgment of Lord Denning MR (at 57/58):
"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. When nothing has been done, it is easier to say that there is no agreement between the parties because the essential terms have not been agreed. But when an agreement has been acted upon and the parties, as here, have been put to great expense in implementing it, we ought to imply all reasonable terms so as to avoid any uncertainties. In this case there is less difficulty than in others because there is an arbitration clause which, liberally construed, is sufficient to resolve any uncertainties which the parties have left…You can either imply a term that, in default of agreement, the number shall be a reasonable number, with a subsequent provision that in case of any dispute as to what is reasonable, it should be determined by arbitration: or, alternatively, run the two terms together and say "such reasonable figures as the arbitrator may determine"
. Whichever is adopted, it all comes to the same thing."[65]In Sudbrook Trading Estate Ltd v. Eggleton [1983] AC 444 four leases contained options to purchase "at such price…as may be agreed upon by two valuers…" The lessors refused to appoint a valuer and the agreed valuation mechanism therefore could not be carried out. The court of appeal held the options to be mere agreements to agree, but the House of Lords held that they were contracts for sale at a fair and reasonable price, and that on the breakdown of the agreed machinery for establishing that price there could be substituted for it the court, since the machinery was a subsidiary and non-essential part of the contract. The context was not that of a commercial contract and the particular difficulty of the case was that there existed earlier authority that the courts would not intervene to substitute themselves for the agreed valuation machinery where that had broken down. That authority, which bound the court of appeal, was overruled in the House of Lords (Lord Russell of Killowen dissenting). The House of Lords had no difficulty in construing the option, by implication, as one for sale at a fair and reasonable price. Lord Fraser cited with approval Lord Dunedin's invocation of the principle of certum est quod certum reddi potest in May and Butcher v. The King at 21.[66]The interest of Sudbrook Trading v. Eggleton for present purposes is that it may be said to demonstrate the difficulty for the parties of providing for a price when the event which requires the determination of the price will not happen until some time in the future: it is a price which, as under any long term contract, cannot be determined at the time of contract. There the device was used of referring the valuation to a panel of valuers. But, as Lord Fraser said (at 483F/G) – "In the ordinary case parties do not make any substantial distinction between an agreement to sell at a fair value, without specifying the mode of ascertaining the value, and an agreement to sell at a value to be ascertained by valuers appointed in the way provided in these leases. The true distinction is between those cases where the mode of ascertaining the price is an essential term of the contract, and those cases where the mode of ascertainment, though indicated in the contract, is subsidiary and non-essential."[67]There is, in my view, implicit support here for the doctrine that in a commercial contract, which, when dealing with the future and sometimes the long-term future of necessity leaves certain matters such as price to be worked out over time, an arbitration clause assists the court to find sufficient certainty by means of the implication of what is reasonable. Which is not to say, that the court will not itself provide the dispute resolution machinery, even in the absence of an arbitration clause.[68]In G Percy Trentham v. Archital Luxfer Ltd [1993] 1 Lloyd's Rep 25 the court of appeal was considering whether certain contracts had ever been concluded. The earlier of the disputed contracts had in fact been performed. Steyn LJ at 27 referred to British Bank for Foreign Trade v. Novinex at 630 where Denning J (see above) had spoken of the relevance of one sided performance. Steyn LJ continued:
"The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as inessential."
[69]In my judgment the following principles relevant to the present case can be deduced from these authorities, but this is intended to be in no way an exhaustive list: i) Each case must be decided on its own facts and on the construction of its own agreement. Subject to that, ii) Where no contract exists, the use of an expression such as "to be agreed" in relation to an essential term is likely to prevent any contract coming into existence, on the ground of uncertainty. This may be summed up by the principle that "you cannot agree to agree". iii) Similarly, where no contract exists, the absence of agreement on essential terms of the agreement may prevent any contract coming into existence, again on the ground of uncertainty. iv) However, particularly in commercial dealings between parties who are familiar with the trade in question, and particularly where the parties have acted in the belief that they had a binding contract, the courts are willing to imply terms, where that is possible, to enable the contract to be carried out. v) Where a contract has once come into existence, even the expression "to be agreed" in relation to future executory obligations is not necessarily fatal to its continued existence. vi) Particularly in the case of contracts for future performance over a period, where the parties may desire or need to leave matters to be adjusted in the working out of their contract, the courts will assist the parties to do so, so as to preserve rather than destroy bargains, on the basis that what can be made certain is itself certain. Certum est quod certum reddi potest . vii) This is particularly the case where one party has either already had the advantage of some performance which reflects the parties' agreement on a long term relationship, or has had to make an investment premised on that agreement. viii) For these purposes, an express stipulation for a reasonable or fair measure or price will be a sufficient criterion for the courts to act on. But even in the absence of express language, the courts are prepared to imply an obligation in terms of what is reasonable. ix) Such implications are reflected but not exhausted by the statutory provision for the implication of a reasonable price now to be found in section 8(2) of the Sale of Goods Act 1979 (and, in the case of services, in section 15(1) of the Supply of Goods and Services Act 1982). x) The presence of an arbitration clause may assist the courts to hold a contract to be sufficiently certain or to be capable of being rendered so, presumably as indicating a commercial and contractual mechanism, which can be operated with the assistance of experts in the field, by which the parties, in the absence of agreement, may resolve their dispute.[11]In the present case, the following factors are to be found. The 1993 contract is undoubtedly a contract, and that is not in dispute. The only question is whether it survives as a contract for longer than the period for which clause 3 provides an agreed handling fee. The contract stipulates a ten year period, even though clause 3 agreed a fee for less than the first two years (down to the end of 1994). The annex to the 1993 contract contemplates a relationship of even more than ten years. The context is commercial, and the parties have long familiarity both with each other and the commercial arrangements made between themselves. (For these purposes, I think that I can continue to disregard the changing persona of the legal ownership of the Refinery, which I have not previously highlighted, but which I have not left out of account.) Clause 3 does not contain the language "to be agreed", with which the courts have sometimes had difficulty. The contract contains an arbitration clause, even though the parties were content to leave their disputes, when they came, to the Commercial Court. The contract in fact survived until at least the end of 1999, with successive agreements over periods of one to two years as to the terms of clause 3. As far as is known, the parties had no difficulty in agreeing the fee for the purposes of clause 3 as the years passed: in fact it remained at $4 per tonne.[12]In these circumstances, Mr Howard on behalf of Jetoil submits that clear words would be necessary to override the express term as to the contract's ten year duration, and that none are available – on the contrary clause 1 of the annex contemplates further agreement to extend the contract at the end of the ten years. Thus the language of the contract is inconsistent with the Judge's concept of a limited contract until the end of 1994 within a framework of a ten year maximum. Moreover, in contracts of the present kind it is most unusual to specify a maximum as opposed to a minimum term. There seems no obvious point in specifying a maximum term and even less when the contract expressly provides for its extension by agreement. Furthermore,the limited term which the Judge derived from clause 3 is inconsistent with the ten year term for the right of first refusal to be derived from a combination of clauses 6 and 7. (Mr Howard pointed out that the strength of this argument remains even though in a subsequent judgment Thomas J held that it followed from the fact that the contract was limited to the end of 1994 that the right of first refusal was itself so limited as well.) The Judge erred in adopting an attitude to an existing contract which could be justified only, if at all, in connection with the different question of whether the parties had ever reached agreement on any contract. Any omission in agreement of the fee after the end of 1994 could be supplied by implication of a reasonable fee: see section 15(1) of the Supply of Goods and Services Act 1982. The Judge ought not to have supported his reasoning on the absence of guidance in the contract as to the finding of a reasonable fee or on the absence of a market price, since there was no evidence to the effect that the finding of a reasonable fee would present any difficulty at all. In practice it had not. What had prevented further agreement for the period after 1999 was the irrelevant factor that the Refinery and GM had come under the same group control. The implication of a reasonable fee was assisted, even if not by very much, by the presence of an arbitration clause.[13]On behalf of the Refinery, on the other hand, Mr Briggs submitted that the judgment below was to be supported for the reasons given by the Judge. The analysis that the 1993 contract was but a framework for a succession of interim agreements was supported by the subsequent history of events, but also by the terms of clause 3 itself which was wholly silent as to what was to happen after the end of 1994 failing further agreement. It was irrelevant that clause 7 "projected" an overall period of ten years. The arbitration clause was irrelevant too, if there was no contract after 1994 ( May and Butcher v. The King ). The present case was not like that in Foley v. Classique Coaches , where one party had already provided some unilateral and non-refundable benefit, or where the agreement had already been executed or partly executed on one side. The 1993 contract was to be regarded as a contract where, after 1994, the handling fee was "to be agreed", and as such there was no contract after 1994 in the absence of agreement. It was not as though there was any contractual mechanism or objective criterion for the determination of such a fee. There was no market place. The arrangement concerned "a unique manipulation" in an environment affected by serious economic and political volatility. It was difficult to see how an arbitrator could fix a reasonable fee. In any event, there was nothing to indicate for how long any particular price regime should last, or on the basis of what throughput, or what discount might be available at some indeterminable throughput level.[14]In my judgment, the 1993 contract should be viewed as a contract for a fixed period of at least ten years and a term should be implied that in the absence of agreement reasonable fees should be determined for the period after 1994. I would seek to put the matter in the following way. i) The context is that of a long term (ten year) commercial agreement between parties who have had long familiarity with the subject matter of agreement and with each other. ii) The agreement in question undoubtedly arises out of a contract, the 1993 contract. This is not, therefore, one of those cases where the initial issue is whether the parties have ever reached the stage of contractual relations. If the question is whether any contract has ever been arrived at, lack of certainty in essential terms may well make it difficult or impossible to say that the parties ever intended to have legal relations, or even if they did, whether they had reached sufficient certainty to enable a court to find a contract. If they never achieved a contract in the first place, then there is no assistance to be gained from agreement of an arbitration clause, or from statutory or any other implications. That is not to say, however, that the possibility of such implications or the presence of such an arbitration clause may not assist the court in the overall question of whether a contract can be found. However, once a contract exists, it not only needs to be construed for its terms, but the courts will seek to make it work, as the parties must have intended, in accordance with its terms, that it should. iii) The parties have provided that their 1993 contract is "valid for 10 years" as from signature (clause 7). This language is, to my mind, particularly strong. It is the language of legal effectiveness. It is not the language of mere projection. Nor is clause 7 talking about a ten year umbrella agreement which is separate from the terms of the 1993 contract as a whole. That is shown both by the fact that clause 7 begins " This agreement is valid for 10 years…" (emphasis added) and by its annex (see clause 5) which not only contemplates a longer term still, but distinguishes that longer term from "The ten years initial contract term…" That language fits with the strong language of clause 7. If the "initial contract term" is ten years, then I do not see how it can be said that the initial contract term is only until the end of 1994. iv) It follows that if the effect of clause 3 is to cut down the contract to a period ending with 1994, this cannot be so as a matter of construction, but because the agreement is incomplete or uncertain beyond that period. The authorities suggest, however, that at any rate in principle there is no difficulty in implying a term that the fee should be a reasonable one. v) The contract does not expressly state that the fee after the end of 1994 is "to be agreed". It is simply silent as to what is to happen in that period. Therefore, this case is simply not presented with the difficulties which arise, in the face of "to be agreed" language, where it is uncertain whether there is any contract at all. It cannot be said, as was said in May and Butcher v. The King , that the statutory implication of a reasonable price, or an implication that the fee should be such reasonable fee as the arbitrator may decide, is excluded by express agreement that the parties were to agree the figure. vi) There is no evidence that the resolution of a reasonable fee would cause any difficulty at all. On the contrary, the evidence is the other way. In practice, these parties, as well as Makpetrol and GM, had managed to agree a handling fee throughout the best part of 20 years up to 1999. When difficulty arose, it was because of something quite extraneous, namely the merger which brought the Refinery and GM into the same group. Although it is not possible to say that there was a market or list price for the handling service, nevertheless Jetoil was not a monopoly, nor, I would infer, was the Refinery the only customer of the facilities at Salonica. In the absence of evidence to the contrary, I would infer that it was perfectly possible to derive from the agreements of price and price increases over the years objective criteria for working out a reasonable fee. Thus, although it is true to say that the contract itself contained no mechanism or guidance (other than the arbitration clause) as to how a reasonable fee would be derived, I do not consider that the contract should fail on that ground. Contractually derived criteria or guidance may be of assistance in finding an implied term for a reasonable price: but the authorities indicate that the courts are well prepared to make the implication even in their absence. vii) I do not consider that the additional issues as to the length of any period of price revision, or as to quantity discounts, raise any different problems. In practice agreement was made for one or two years. I see no difficulty in an arbitral tribunal or court finding that that was a reasonable period for which to fix the fee. The discount for throughput above a certain figure is simply another factor of price. Again, it gave the parties no difficulty over the years. viii) The presence of an arbitration clause was not relied on as a particularly strong point by Mr Howard. But I do not think that it is without its effect. It is a contractual mechanism for resolving "Any dispute…which cannot be amicably resolved". It involves the parties' autonomous choice of their tribunal. It seems to me to be apposite to deal with a lacuna which, in common with other contracts which have to provide for future events, commercial practicalities lead parties to leave unresolved at the time of contract. ix) There was no evidence, or none that was brought to the court's attention, about investment by Jetoil at its Salonica facilities to deal with its contracts with the Refinery (and Makpetrol). It may be that any investment necessitated by the 1979 contract had already been financed by profits made under that contract. It is unknown to what extent the 1993 contract might have required further investment – perhaps none at all. Therefore, there is not much assistance here in support of Jetoil's construction. But certainly, there is nothing in this consideration to support the Refinery's construction. In principle, a ten year contract requires facilities such as Jetoil's to invest for the future, or to be wary about contracting their services elsewhere, in case they run out of capacity. Therefore, if anything, this factor also cuts in favour of the necessary and businesslike implication of a reasonable fee. "Whether, upon the failure of the parties to agree a price for manipulation services from and after 1 January 2000 pursuant to the agreement:(a) the agreement is to be treated as discharged;(b) whether any (and if so what) mechanism is available to fix such price." Conclusion SIR RONALD WATERHOUSE:

LORD JUSTICE SCHIEMANN:

ORDER

Appeal allowed; cross-appeal dismissed. Preliminary issues of costs below to be paid by the Defendants to the Claimants; Appeal costs to be paid by the Defendant to the Claimant; House of Lords application refused. (Order does not form part of approved Judgment)

Cited in 41 later judgments

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