FONTANA (GB) LTD v MR ANDREA FABIO [2002] UKEAT 140_01_0407

EMPLOYMENT APPEAL TRIBUNAL
BAILII case number: [2002] UKEAT 140_01_0407Case No Appeal No. EAT/140/01Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS
Between
FONTANA (GB) LTDAPPELLANTMR ANDREA FABIORESPONDENT
Before
Mr Justice Wall Mr P A L ParkerDate 4 July 2002
[1]APPEARANCES For the Appellant MS ANYA PROOPS (of Counsel) Instructed by: Messrs Wragge & Co Solicitors 55 Colmore Row Birmingham B3 2AS For the Respondent MS H GOWER (of Counsel) Instructed by: Messrs Cartwright & Lewis Solicitors 100 Hagley Road Edgbaston Birmingham B16 8TL MR JUSTICE WALL In this appeal, Fontana (GB) Limited (the Appellant) appeals against a reserved Decision of the Employment Tribunal held at Birmingham, promulgated on 4 December 2000 following a hearing on 23, 24 and 26 October 2000. The part of the unanimous Decision appealed is that which decided that the claimant before the Tribunal, Mr Andrea Fabio, was entitled to an award in respect of arrears of pension contributions, which the Tribunal calculated at £15,312.45. The facts[2]Mr Fabio was employed as the Appellant's General Manager from 15 October 1997 to 31 July 1999. The Appellant is a wholly owned subsidiary of Fontana Finanziaria S.R.I of Italy (Fontana), a substantial international group of companies engaged in the manufacture and sale of industrial fastenings.[3]Mr Fabio's appointment as the Appellant's General Manager followed a number of interviews culminating in a meeting in Italy on 25 September 1997. Present were Mr Fabio and Dr Donati representing Fontana. At that meeting, Mr Fabio undoubtedly signed an agreement between himself and the Appellant providing that the Appellant was to employ him as its General Manager on and subject to the terms and conditions specified in the agreement. The agreement is a lengthy document. However, only two clauses are material for our purposes. Firstly, clause 11 headed "Pension, death benefit and medical insurance arrangements" reads as follows:
"11.1 No provision of retirement or death in service benefits will be made by the Company for the General Manager. There is therefore no contracting-out certificate in force under the Pension Schemes Act 1993 in respect of the Employment."
Secondly, clause 18 of the agreement headed:
"Former Service Agreements" reads as follows: "18.1 This Agreement shall be in substitution for any previous letters of appointment, agreements or arrangements, whether written, oral or implied, relating to the employment of the General Manager."
[4]Mr Fabio had previously been employed by Lafarge, a French building materials company, and had been responsible for Lafarge's branch in Rome. Mr Fabio told the Tribunal that in that capacity he had been paid the equivalent of £45,000 per annum and in addition was provided with an apartment in Rome. Also, under the Italian social security system, Lafarge had paid pension contributions on his behalf equal to some 22.36% of his salary, whilst Mr. Fabio had contributed some 8.89% of his salary towards his pension. It was clear from this, the Tribunal found, that pension contributions had formed a significant part of Mr Fabio's remuneration package while he was employed by Lafarge.[5]Dr Donati told the Tribunal that it was the policy of Fontana Finanziaria SRI to pay pension contributions in accordance with the law of the country in which the employee was employed. In England therefore, only National Insurance contributions were paid by the Appellant. However, Dr Donati accepted that while he had been employed as General Manager of the Appellant, pension contributions for him had been paid in accordance with the Italian social security system. This also applied to his successor, Dr Elle, who was Mr Fabio's immediate predecessor, both of whom had been seconded from the Italian parent company,.[6]It was not disputed that the question of pension contributions was raised by Mr Fabio at the meeting held on 25 September 1997. However, in paragraph 8 of its Reasons, the Tribunal went on to make the following important finding of fact:- "We find, as a matter of fact, that at the meeting on 25 September 1997 a commitment was given by Fontana that pension contributions would be paid on behalf of [Mr Fabio] and it was not a question of "maybe" but of "how much"."[7]The Tribunal gave the following six reasons for making this finding. They were as follows:
"9.1 In this respect we prefer the evidence of the applicant to that of Dr Donati who told us that there had been no agreement in principle to pay pension contributions on behalf of the applicant; 9.2 If pension contributions were not to be paid the applicant would have been in receipt of a smaller remuneration package than when he had been employed by Lafarge; 9.3 In 1998 the applicant wrote to Dr Donati to the effect that "
When I was employed it was confirmed to me that the Company would contribute to the contribution for the pension ………I would like to know the level of the amount I can count on". Fontana did not reply to this to the effect that it had not agreed to pay pension contributions for the applicant; 9.4 In discussions relating to the 1999 budget for Fontana (GB) Ltd it was accepted that the question of the pension contributions to be paid for the applicant was discussed and that this was something which needed to be resolved; 9.5 The first draft of that budget contains, in a schedule of the employees, an asterisk against the name of the applicant and a note to the effect that his salary was exclusive of contributions which were to be calculated. In the final version of the budget this was amended to read "exclusive of pension contributions". On behalf of the respondent it was argued that this meant that no pension contributions were to be paid. To the contrary, we find that there is no logical explanation for the note being included if it were not to record the fact that it had been agreed that pension contributions would be paid but the amount had not yet been agreed or determined. If, as the respondent contends, no contributions were to be paid, there would have been no need for this to have been mentioned at all. 9.6 The applicant was asked why, if the respondent had agreed to pay pension contributions on his behalf he did not strike out or amend clause 11.1 in his Service Agreement. We accept the applicant's evidence that at that stage in his relationship with Fontana he felt it was neither appropriate nor necessary for him to do so; he was simply relying on their word."[8]The findings contained in particular at paragraphs 9.4 and 9.5 of the Tribunal's Reasons formed the basis for the first ground of the Appellant's appeal, namely that the decision of the Tribunal was perverse. We will return to deal with this argument in due course.[9]The second point taken by the Appellant before the Tribunal was that clauses 11.1 and 18.1 of the Agreement were "entire agreement" clauses which, in the vernacular, "trumped" or excluded any collateral agreement between the parties in relation to the payment of pension contributions. The Tribunal rejected this argument, taking the view that clauses 11.1 and 18.1 had to be read subject to what was agreed at the meeting on 25 September 1997, namely that Fontana would make pension contributions on behalf of Mr Fabio, and only the amount of those contributions remained only to be agreed.[10]The third point taken by the Appellant below was that the agreement to make pension contributions was void for uncertainty, being no more than "an agreement to agree". The Tribunal rejected this argument also, holding that an agreement was not incomplete merely because it called for some further agreement between the parties. In the Tribunal's view, even the parties' later failure to agree on the outstanding issue of the amount of the contributions did not vitiate the agreement that pension contributions were payable by the Appellant..[11]The Tribunal reached its decision on the amount of the disputed contribution in the following way:- "12 On behalf of Mr Fabio it was argued that in the event of a failure to agree, the amount payable by the employer under the Italian social security system, namely 22.36% should be payable. However, Mr Fabio in his evidence said that he did not expect the full amount to be paid and he would have accepted contributions of between 15 and 20% of his salary. In this case we have no doubt that had the Appellant been operating successfully, the Appellant would have agreed that it should pay pension contributions on behalf of the applicant of not less than 15% of his gross salary as being "reasonable" and we have calculated the amount due to the applicant in this respect accordingly. For the period Mr Fabio was employed (21.5 months plus 3 months notice period) his gross salary was £102.083.00 x 15% = £15,312.45"[12]The Tribunal's Decision not to hold the agreement void for uncertainty, and the calculation of 15% of salary as a contribution provide further grounds of the Appellant's appeal.[13]We turn, accordingly, to the three main heads of appeal, which were argued with clarity and force by Ms Anya Proops. We should make it clear that we were not concerned in this appeal with unfair dismissal, on which Mr Fabio succeeded on procedural grounds, and against which the Appellant does not appeal. The argument on perversity[14]Ms Proops' first ground of appeal was that the Tribunal erred when it concluded that the matters contained in paragraph 9.4 and 9.5 (set out in paragraph 7 above) were evidence that a concluded agreement had been reached between the parties on 25 September 1997. She submitted that no reasonable Tribunal properly directing itself in law could have concluded that discussions held with respect to the 1999 budget, which indicated only that the question of pension provision was unresolved, were evidence that a contract had been concluded by the parties in 1997.[15]Further or in the alternative, Ms Proops submitted that insofar as paragraph 9.4 of the Tribunal's Reasons was intended to mean that the Appellant accepted that, in the discussions relating to the 1999 budget, it had in principle agreed to make pension provision for Mr Fabio, the Tribunal's conclusion was perverse. No concession of this sort was ever made by the Appellant in the course of the hearing.[16]Ms Proops further submitted that no reasonable Tribunal properly directing itself in law could have concluded that the only logical explanation for the note placed against Mr Fabio's salary in the first draft of the 1999 budget was that there was a concluded pension agreement in 1997. This, she argued, was firstly because the document in question was a budget document which ought to have included details of all expenditure which Fontana anticipated would be incurred in the coming year. If pension provision had been agreed, one would have expected that agreement to be fully particularised in the draft budget. Secondly, she argued that no additional budget documentation was placed before the Tribunal which recorded any agreement as to pension contributions. Thirdly, she argued that the words "exclusive of pension" could just as easily refer to the fact that the parties were still in negotiations on the issue of pension provision as to the fact that it had been agreed.[17]We reject the submission that the finding of fact made in paragraph 8 of the Tribunal's Reasons (and set out at paragraph 6 of this judgment) was perverse. In our judgment, there was ample material from which the Tribunal could properly make such a finding. It heard both Mr Fabio and Dr Donati. There was a conflict of evidence as to whether there had been an agreement in 1997. In this context, we accept the point made by Ms Helen Gower for Mr Fabio that the 1999 budget discussions were plainly both relevant to the issue and consistent with the 1997 agreement. As Ms Gower puts it, those discussions could only have taken place in the context of an agreement that pension contributions would be paid. The finding of the Tribunal was not that the principle of pension provision was unresolved, but that the actual provision to be made needed to be resolved. Similar considerations apply to the first draft of the budget. The words "exclusive of pension contributions" in paragraph 9.5 are once again consistent with an agreement being reached in 1997. We accordingly reject the first ground of appeal. The "entire agreement" clause[18]The second head of appeal argued by Ms Proops was that clause 18.1 of the Agreement was an "entire agreement" clause. She argued, accordingly, that extrinsic evidence to prove terms other than those contained in the written contract was inadmissible, since the parties, by that clause, had expressed their intention that the document was to contain all the terms of their agreement.[19]Ms Proops relied on a number of authorities in support of this proposition. The first was Inntrepreneur Pub Co (GL) -v- East Crown Ltd [2000] 2 Lloyds Law Reports 611 , a decision of Lightman J. Inntrepreneur had let to the defendant (Crown) a public house known as The Prince Edward in North London for thirty years with effect from May 1996 at £27,000 per annum. The 1996 lease contained a beer tie under which Crown was obliged to purchase specific beer from Inntrepreneur's nominated supplier. Inntrepreneur sought by injunction to restrain Crown from buying beer outside the tie. Crown contended that in the course of various discussions between its director and representatives of Inntrepreneur, a collateral warranty was given whereby Inntrepreneur agreed to release the tie by 28 March 1998. Crown accordingly counterclaimed for a declaration that pursuant to the alleged collateral warranty, Crown had not been subject to the beer tie since 28 March 1998. The 1996 lease contained an entire agreement clause as follows:
"Any variations of this Agreement which are agreed in correspondence shall be incorporated in this Agreement where that correspondence makes express reference to this Clause and the parties acknowledge that this Agreement (with the incorporation of any such variations) constitutes the entire Agreement between the parties."
[20]Lightman J defined the purpose of an entire agreement clause in the following way:- "Entire agreement clause 7. The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need which may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that accordingly any promises or assurances made in the course of the negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence as is suggested in Chitty on Contract, 28 th ed vol 1, par 12 - 102: it is to denude what would otherwise constitute a collateral warranty of legal effect."[21]Because Inntrepreneur -v- East Crown was a test case, Lightman J decided to consider the effect of a collateral warranty on an entire agreement clause. He said:
"10 The relevant legal principles regarding the recognition of pre-contractual promises or assurances as collateral warranties may be stated as follows: (1) a pre-contractual statement will only be treated as having contractual effect if the evidence shows that parties intended this to be the case. Intention is a question of fact to be decided by looking at the totality of the evidence; (2) the test is the ordinary objective test for the formation of a contract: what is relevant is not the subjective thought of one party but what a reasonable outside observer would infer from all the circumstances; (3) in deciding the question of intention, one important consideration will be whether the statement is followed by further negotiations and a written contract not containing any term corresponding to the statement. In such a case, it will be harder to infer that the statement was intended to have contractual effect because the prima facie assumption will be that the written contract includes all the terms the parties wanted to be binding between them; (4) a further important factor will be the lapse of time between the statement and the making of the formal contract. The longer the interval, the greater the presumption must be that the parties did not intend the statement to have contractual effect in relation to a subsequent deal; (5) a representation of fact is much more likely intended to have contractual effect than a statement of future fact or a future forecast."
Ms Proops relied in particular on paragraph 10(4) of this passage in Lightman J's judgment.[22]Ms Proops then referred us to White -v- Bristol Rugby Club [2002] IRLR 204. Mr White was a professional rugby player, who signed a contract to play for Bristol Shoguns. £15,000 was paid to him on signing the contract as a advance, which was to be deducted from his first year's salary. This latter term was subsequently renegotiated to provide for the advance to be payable at the rate of £5000 per annum over three years. Mr White then had second thoughts about joining Bristol. His agent wrote to the club stating that he would not now be joining it and returning the £15,000. The letter contained an allegation that the club's chief executive had represented to Mr White that he could walk away from the agreement at any time on repayment of the £15,000, and that it was only in reliance on that representation that Mr White had agreed to sign the contract. The club, accordingly, returned the cheque, maintaining that no such representation had been made and that the contract was valid and binding.[23]Two particular clauses in the agreement were relied upon by the club. They read as follows:
" '15. Acknowledgement Each party to this agreement now acknowledge that this agreement and its schedules together with the documents referred to in this agreement contain the whole agreement between the parties and that they have not relied upon oral or written representations made to them by other persons, its employees or agents. 17. Previous agreement All previous agreements between the club and the player are hereby cancelled without prejudice to any rights or obligations which shall have accrued or become due between the parties prior to the date of termination of any previous agreements' "
[24]The circuit judge hearing the case, Judge Havelock-Allen QC, made the following findings in relation to these clauses: - "Mr Kerr says that these clauses, in particular clause 15, are designed to preclude any factual investigation into the pre-contract history. They are fatal to the contention that the contract here was part oral and part written. I agree that the purpose of an entire agreement clause, such as clause 15, is to defeat any argument that the contract is qualified or supplemented by any oral collateral warranty or oral term existing outside the four corners of the written document. However, I am not persuaded that a clause such as clause 17 has any bearing on oral terms alleged to have been agreed simultaneously with the written contract. In the end, Mr Kerr did not press his reliance on clause 17. He did not need to, in view of the plan terms of clause 15."[25]In our judgment, the distinction which Judge Havelock-Allen made between clauses 15 and 17 in White -v- Bristol Rugby Ltd is significant. The clause in the instant case upon which Ms Proops relies, clause 18.1 is, in our judgment, more analogous to clause 17 in the Bristol case than to clause 15. We will, however, return to this point when we have considered the remaining authorities.[26]Ms Proops accepted that exceptional situations could arise in which the written instrument was not conclusive evidence of the contract alleged to be embodied in it. Such a case was Fulton Motors Ltd -v- Toyota (GB) Ltd , an unreported decision of the Court of Appeal, EWCA CIV 1776 (6 July 1999) in a constitution comprising Peter Gibson, Pill and Laws LJJ. In that case, a written agreement, already in force between the parties, gave the claimant a right to only twelve months notice of termination. The defendant issued a further written agreement which:(a) contained an entire agreement clause, and(b) stipulated that the claimant would be entitled to twenty four months of termination. However, with that written agreement, the defendant also sent a covering letter in which it explicitly stipulated that the original, more limited provision as to notice would still apply. The claimant then followed the procedures for entering into the agreement set out in the letter, and the Court of Appeal held that the original twelve months notice provision remained in force because the covering letter was "intended to be and in the event was a contractual document of offer in terms providing for the overriding of the termination provisions of the printed form of agreement": - see the judgment of Peter Gibson LJ at page 7.[27]Ms Proops accepted, accordingly, that Fulton was not a case which could be relied upon in the instant case because here there is no written contractual document of offer purporting to vary the effects of another instrument which contains an entire agreement clause. At best, she submitted, there was merely an oral warranty which was entered into by the parties prior to Mr Fabio signing the written contract containing the entire agreement clause. The mere fact that there was an oral warranty, she submitted, was not in itself sufficient to warrant a disapplication of the general rule set out by Lightman J in Inntrepreneur Pub Co (GL) -v- East Crown Ltd and was further supported by the decision of Mr John Chadwick QC (as he then was) in McGrath -v- Shah (1989 57P & CR 452) .[28]For Mr Fabio, Ms Gower submitted that the effect of an "entire agreement" clause depended upon its precise wording. She submitted that clause 18 of the agreement was not a standard "entire agreement" clause. In particular, it did not provide that the written agreement was the entire agreement between the parties.[29]Ms Gower submitted that in construing the terms of a contract, the test which had to be applied was:
"the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract"
Ms Gower derived this proposition from the speech of Lord Hoffman in the decision of the House of Lords in Investors Compensation Scheme Ltd -v- West Bromwich Building Society [1998] 1 WLR 896 , 912. in which he summarised the principles by which contractual documents are nowadays construed. For present purposes it is, we think, sufficient to record that the proposition identified earlier in this paragraph is the first of the principles identified by Lord Hoffmann.[30]In summary, accordingly, Ms Gower submitted that clause 18(1) of the agreement between the Appellant and Mr Fabio was not "an entire agreement" clause. Its effect was to replace any pre-existing service agreement. Unlike an entire agreement clause, clause 18.1 did not express the proposition that the document contained all the terms of the agreement. Clause 18.1 did not, accordingly, exclude collateral warranties relating to this particular service agreement. Ms Gower relied, in particular, on the "previous agreement" clause in White -v- Bristol Rugby Ltd which, she submitted, was similar to clause 18.1. She invited us to agree with Judge Havelock-Allen QC that such a clause did not have any bearing on oral terms alleged to have been agreed simultaneously with the written contract.[31]It followed, in Ms Gower's submission, that the Tribunal had not erred in law in relying on the collateral agreement and in concluding that the written agreement had to be read subject to the oral agreement that the Appellant would make pension contributions on behalf of Mr Fabio.[32]On this part of the case, we prefer Ms Gower's submission. In our judgment, paragraph 8.1 of the agreement is not, on its true construction, an "entire agreement" clause. We think it more akin to the "previous agreement" clause in White -v- Bristol Rugby Ltd , and we are not satisfied that the Tribunal erred in law when it concluded that Mr Fabio's service agreement had to be read subject to what was agreed at the meeting on 25 September 1997, namely that Fontana would make pension contributions on behalf of Mr Fabio, and it remained only to agree what those contributions should be.[33]The proposition that Mr Fabio should be deprived of the collateral agreement by the virtually simultaneous execution of the contract containing clauses 11.1 and 18.1 is, in our judgment, profoundly unattractive. It would, in our view, require the plainest language, and in our judgment that language is not contained within paragraph 18.1. For all these reasons, the second head of appeal also fails. Uncertainty[34]In our judgment, Ms Proops is on much firmer ground here, and she was able to provide a formidable barrage of authority for the proposition that an agreement which is uncertain, in the sense that key terms have yet to be agreed by the parties at the time the agreement is entered into, cannot be enforced by either side. Ms Proops relied on a general statement of the law contained in the latest edition Chitty on Contracts, at paragraph 2-116:- "Even where the points outstanding are of relatively minor importance, there will be no contract if it appears from the words used or other circumstances that the parties did not intend to be bound until agreement on these points had been reached. A fortiori parties are not bound by a term requiring outstanding points to be agreed, if that term forms part of an agreement which is itself not binding because it was made without any intention of entering into contractual relations."[35]The locus classicus for the law relating to uncertainty in contracts is the case of May & Butcher Ltd -v- R [1934] 2KB 17 . These were proceedings by way of Petition of Right. May & Butcher Ltd, who were general contractors, alleged that there was an agreement between them and the Controller of the Disposals Board for the purchase of the whole of the tentage which might become available in the United Kingdom for disposal up to 31 March 1923. One of the terms of the agreement was that:
"The price or prices to be paid, and the date or dates on which payment is to be made by the purchasers to the Commission for such old tentage shall be agreed from time to time between the Commission and the purchasers as the quantities of the said old tentage become available for disposal, and are offered to the purchasers by the Commission."
[36]A point came at which the proposals made by May & Butcher Ltd for the purchase of tentage were not acceptable to the Controller, and the Disposals Board informed May & Butcher Ltd that they no longer considered themselves bound by the agreement. May & Butcher Ltd sought to restrain the Commission from disposing of the tentage elsewhere, and the Attorney General, on behalf of the Commission, argued that there was no sufficient and binding contract for the sale to May & Butcher Ltd of any tentage. That submission succeeded before the judge, and May & Butcher Ltd appealed. Giving the first judgment in the Court of Appeal, Lord Buckmaster said, at [1934] 2 KB20:- "In my opinion there never was a concluded contract between the parties. It has long been a well recognised 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. It is of course perfectly possible for two people to contract that they will sign a document which contains all the relevant terms, but it is not open to them to agree that they will in the future agree upon a matter which is vital to the arrangement between them and has not yet been determined. It has been argued that as the fixing of the price has broken down, a reasonable price must be assumed. That depends in part upon the terms of the Sale of Goods Act, which no doubt reproduces, and is known to have reproduced, the old law upon the matter. That provides in s.8 "the price in a contact of sale may be fixed by the contract, or may be left to be fixed in manner thereby agreed, or may be determined by the course of dealing between the parties. Where the price is not determined in accordance with the foregoing provisions the buyer must pay a reasonable price"; while, if the agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party, and such third party cannot or does not make such valuation, s 9 says that the agreement is avoided. I find myself quite unable to understand the distinction between an agreement to permit the price to be fixed by a third party and an agreement to permit the price to be fixed in the future by the two parties to the contract themselves. In principle it appears to me that they are one and the same thing".[37]Viscount Dunedin was of the same opinion. He said:- "This case arises upon a question of sale, but in my view the principles which we are applying are not confined to sale, but are the general principles of the law of contract. To be a good contract there must be a concluded bargain, and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties. Of course it may leave something which still has to be determined, but then that determination must be a determination which does not depend upon the agreement between the parties. In the system of law in which I was brought up, that was expressed by one of those brocards of which perhaps we have been too fond, but which often express very neatly what is wanted:
"certum est quod certum reddi potest"
. Therefore, you may very well agree that a certain part of the contract of sale, such as price, may be settled by some one else. As a matter of general law of contract all the essentials have to be settled. What are the essentials may vary according to the particular contract under consideration. We are here dealing with sale, and undoubtedly price is one of the essentials of sale, and if it is left still to be agreed between the parties, then there is no contract."[38]Most recently, in Mamidoil-Jetoil Greek Petroleum Company S.A -v- Okta Crude Oil Refinery AD [2001] 2 Lloyd's Law Reports, Rix LJ conducted a review of the authorities on the circumstances in which a contract will be void for uncertainty. He noted that in British Bank for Foreign Trade -v- Novinex [1949] 1 KB 623 the Court of Appeal had upheld an agreement to pay "an agreed commission on any other business transacted with your friends". The Court had approved this passage from the judgment of Mr Justice Denning at first instance:- "The principle to be deduced from the cases is that if there is an essential 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 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 an agreement, a reasonable sum is to be paid."[39]At [2001] 2 Lloyds Law Reports 89 , Rix LJ set out the following principles which could be deduced from the authorities:- "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: Each case must be decided on its own facts and on the construction of its own agreement. Subject to that: 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". 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. 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. Where a contract has come into existence, even the expression "to be agreed" in relation to future executory obligations is not necessarily fatal to its continued existence. 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. 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. 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".[40]Ms Proops took us through the leading cases on the point. The first in time was the decision of the House of Lords on Hillas & Co Ltd -v-Arcos Ltd . (1932) 147 LT 503 . This, she submitted, was one of the exceptional cases in which the general rule was disapplied. She argued that the disapplication usually arose where the circumstances of the case clearly demonstrated that the parties intended agreement to be binding notwithstanding its lack of completeness. In those exceptional circumstances, Ms Proops argued the Court will remedy any uncertainty in the context of particular terms by referring, for example, to custom and trade practices. Thus in Hillas & Co Ltd -v-Arcos Ltd the House of Lords held that a contract for the purchase of one hundred thousand standards of softwood "of fair specification for delivery during 1931" constituted a description of the goods which, if not immediately, was ultimately capable of being rendered certain. Lord Wright, in his speech at (1932) 147 LT 503 at 514 held that it was the duty of the Court to construe documents fairly and broadly, without being too astute or subtle in finding defects. However, the Court could not make a contract for the parties, or go outside words they have used, except insofar 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. Lord Wright added:- "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 contracts. 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."[41]Foley -v- Classique Coaches Ltd [1939] 2 KB 1 was, Ms Proops submitted, another example of the exception to the general rule. As a condition of the sale of a piece of land by the plaintiff to the defendant, the sale was made subject to the defendants entering into a second agreement to purchase from the plaintiff, who were motorcoach proprietors, all the petrol required for their business. "at a price to be agreed by the parties in writing and from time to time" and that the defendant would purchase no petrol from any other person so long as the plaintiff was able to supply them with sufficient quantities to satisfy their daily requirements. The contract contained an arbitration clause. The Court of Appeal held the agreement to be enforceable. At [1934] 2 KB 10, Scrutton LJ, whilst stating that each case must be decided on the construction of the particular document, went on to say that in the present case the parties obviously believed they had a contract and they acted for three years as if they had. They also had an arbitration clause which related to the subject matter of the agreement and which applied to any failure to agree as to the price. Accordingly, by analogy with the case of a tied house, Scrutton LJ implied into the contract a term that the petrol was to be supplied at a reasonable price and was to be of reasonable quality. There was, accordingly, an effective and enforceable contract, although as to the future no definite price had been agreed with regard to the petrol.[42]Ms Proops submitted that in the instant case there was no written agreement containing the parties' "agreement" as to pension provision; quite the contrary - there was a written agreement which provided that no pension provision was to be made. There was, she argued, no compelling evidence before the Tribunal to suggest that both parties believed there was a binding contract, and the evidence pointed towards the fact that the "agreement" had never been acted upon by the parties. Furthermore, she submitted, the oral "agreement" did not include any kind of arbitration provision and there was no reason to assume that the larger bargain entered into by the parties, the contract of employment, envisaged that pension provision would be made for Mr Fabio.[43]In these circumstances, she submitted that the Tribunal fell into error when it asserted that the collateral agreement in the instant case came within the exceptions to the rule in May & Butcher -v- R and when it held that the agreement in the instant case came within the category of an agreement which was not incomplete merely because it called for some further agreement between the parties. The Tribunal was further wrong, she argued, to accept that the parties' subsequent failure to agree on the matter left outstanding (in this case the amount of the pension provision) did not vitiate the contract because it did not make it unworkable or void for uncertainty.[44]Ms Proops was also critical of paragraph 12 of the Tribunal's reasoning, set out in paragraph 11 of this judgment, in which the Tribunal assessed the amount of pension provision it thought it was reasonable for the Appellant to pay. She argued that this passage demonstrated an impermissible attempt by the Tribunal to impose on to the contract an objectively reasonable standard which could apply to the uncertain term. She argued that it was not possible to identify such a standard in the instant case because:(1) there was no pensions "market" which would enable the Tribunal to identify the "going rate" for pension provision;(2) there was no trade, custom or trading practice which would assist the Tribunal in identifying the appropriate level of pension provision.[45]In the alternative, Ms Proops submitted that the Tribunal made an error of law when it decided that 15% of Mr Fabio's gross salary was "reasonable", since it relied upon Mr Fabio's evidence as to what he would have accepted. That, inevitably, was a subjective assessment of what was reasonable. Further, it relied upon what the Appellant "would have agreed" if it had been operating successfully. An assessment of what a party might have agreed in hypothetical circumstances could not, Ms Proops submitted, be properly incorporated into the agreement as an objective criterion for assessment of a "reasonable" level of pension.[46]In conclusion, Ms Proops submitted that an agreement which is prima facie uncertain as to the level of pension entitlement cannot be rendered certain by reference to what the parties would have agreed at the time the contract was entered into had they known about a particular state of affairs coming into existence after that time. Thus, even if the uncertainty in the agreement as to pension entitlement could be cured by reference to an objective standard of reasonableness, that standard could not be formulated on the basis of events which postdated the agreement, but had to be formulated on the basis of a recognition of a state of affairs which subsisted at the time the contract was entered into. Thus the Tribunal wrongly assumed that events postdating the conclusion of the oral agreement could be used as a basis for construing that agreement. For all these reasons, Ms Proops argued that the Tribunal's Decision on this point was wrong in law and could not stand.[47]For Mr. Fabio, Ms Gower disputed the proposition that circumstances needed to be "exceptional" in order to disapply the general rule that an incomplete contract was void for uncertainty. She submitted that it was generally appropriate to look for ways in which any uncertainty could be resolved. Thus in Brown -v- Gould and Others [1972] 1 Ch.53, a lease of business premises contained an option to renew the lease and provided for any such new lease:
"……..to be for a further term of 21 years at a rent to be fixed having regard to the market value of the premises at the time of exercising this option taking into account to the advantage of the tenant any increased value of such premises attributable to structural improvements made by the tenant ………"
Megarry J held that where an option was expressed to be exercisable at a price to be determined according to some stated formula, without any effective machinery being in terms provided for working out that formula, the Court had jurisdiction to determine it. The Court was reluctant to hold void for uncertainty any provision that was intended to have legal effect, and where it was accepted that the option was intended to have business efficacy.[48]Ms Gower pointed to Foley -v- Classique Coaches (supra) as an example of a case where the uncertainty could be resolved by implying a term in the agreement that the petrol should be sold at a "reasonable price". She argued that the key point of distinction identified by Scrutton LJ between May & Butcher v R on the one hand, and Hillas & Co v Arcos Ltd and Foley on the other was that the parties "believed they had a contract". All the judgments in Foley -v- Classique Coaches made it clear that the decision in each case would turn on the construction of the individual contract.[49]Ms Gower submitted that there were many examples of cases where the Courts had resolved uncertainty in an agreement by reference to the standard of reasonableness. She cited several examples. The first was Hackney LBC -v- Thompson [2001] L&TR 7 at page 69. In that case, a covenant in a lease required a transferee to pay "a due proportion" of management costs. The Court of Appeal held that this clause could be construed as meaning an "appropriate" or a "reasonable proportion" and although there might be difficulties in ascertaining what was the appropriate proportion, the covenant was not void for uncertainty.[50]Ms Gower also relied on Way -v- Latilla [1937] 3 ALL ER 759 . In that case the agreement sought to be enforced related to the Appellant obtaining and sending to the Respondent information relating to goldmines and concessions in West Africa. The agreement alleged was that the Appellant should introduce concessions for acquisition by the Respondent, and that the Respondent would protect the Appellant's interests in respect of concessions acquired, and give to the Appellant the customary, or a reasonable, share in the same, and should pay to the Appellant a reasonable sum in respect of information and reports. The Appellant claimed damages and other relief on the basis that the Respondent had failed to give the Appellant a share in respect of certain concessions obtained by the Appellant, the profits of the sale of which amounted to about £1,000,000. The Appellant also contended that if he was entitled to be paid by the Respondent only upon quantum meruit , the Court in ascertaining the amount to be paid was entitled and indeed bound to have regard to such matters as the parties themselves considered reasonable and usual namely what profit was in fact made on the sale. The Court was not limited to fixing a fee. The Respondent contended that there was no evidence of any contract, that there was no agreement sufficiently certain or definite to be enforceable, and that the amount of profit made on the re-sale was not a proper basis for ascertaining the amount due.[51]The House of Lords held that there was no concluded contract between the parties as to the amount of the share or interest that the Appellant was to receive, and it was impossible for the Court to complete the contract for them. However, there was a contract of employment between the parties which clearly indicated that the work was not to be done gratuituously, and the Appellant was therefore entitled to a reasonable remuneration on the implied contract to pay him a quantum meruit . On the evidence of the parties themselves, the basis of remuneration by fee should be rejected, but in fixing remuneration for services, the Court was entitled to pay regard to the previous conversation of the parties, and, in the circumstances, the Appellant was entitled to the sum of £5000 as a reasonable remuneration, calculated on the basis of some reasonable participation.[52]Ms Gower also relied on the statement of general principles by Rix LJ in Mamidoil -v- Okta [supra] and on various passages in Chitty on contracts. Whilst she acknowledged that the agreement was not acted upon by the parties, this, she submitted, did not preclude the implication of a term that the pension contribution should be reasonable. Similarly, she argued that the absence of an arbitration mechanism was not conclusive. Although there was a considerable lack of detail in the arrangements between the parties for pension contributions, this was not fatal to the existence of a contract.[53]Finally on the authorities, Ms Gower pointed to the decision of the Court of Appeal in Malcolm -v-Chancellor, Masters and Scholars of the University of Oxford , reported only briefly in The Times Law Reports for 19 December 1990. At first instance (1990) The Times Law Reports 240 Mr Gavin Lightman QC, sitting as a Deputy High Court Judge, had reluctantly come to the conclusion that no completed contract could be spelt out of what had passed between the parties. From the very brief report of the case, it appeared that in 1984 the Oxford University Press had invited Mr Malcolm to send them a first draft typescript of an original philosophical work entitled "Making Names". In February 1985, the Press outlined to Mr Malcolm anxieties which it had about the draft. Mr Malcolm responded by listing the revisions he proposed to make, but sought a firm commitment from the Press that the book would be published before he embarked on any further re-writing. In April the Press through one of its senior editors stated that the Press could not commit itself to accepting the results of a further attempt to re-organise the work, to which Mr Malcolm replied that he was not prepared to undertake further revision. However, in May, the senior editor again telephoned offering a commitment conditional only on Mr Malcom's revision "not making the work worse". It was common ground before the judge that Mr Malcolm's revisions had improved the work which was, however, turned down at an editorial meeting in July 1985 and was never even submitted for the approval of the delegates of the Press (the ultimate arbiters) at their next meeting. In addition, the managing director of the Academic and General Division of Press had given Mr Hardy a written warning under the disciplinary procedure for indicating to Mr Malcolm that his book would be published without going through the editorial process.[54]On the evidence, the judge was satisfied that the editor had given Mr Malcolm an absolute commitment, and since there was no plea by the Press to the effect that the editor exceeded his authority in doing so, Mr Malcolm succeeded on that issue. However, the judge had come to the conclusion that no completed contract could be spelt out of what had passed between the parties. He asked several rhetorical questions: how many copies were to be printed? In hardback or paperback? Or both? And yielding what royalty? He held that, in the instant case too much was missing and that it was not possible for the Court to supply reasonable terms. Whilst, accordingly, Mr Malcolm had been harshly and unfairly treated, and whilst the Press might feel under a strong moral obligation to make some amends, the judge found himself unable to hold that a legally binding contract had been entered into, upon which Mr Malcolm was entitled to sue in a Court of Law.[55]The Court of Appeal (Lord Mustill dissenting; Nourse and Leggatt LJJ) allowed Mr Malcolm's appeal. Once again, the headnote is very short, but the material part of the judgment appears in these words:- "Where there was a practice which, even in formal contracts, left matters such as print run to the discretion of the publisher, the failure to agree on such matters in an informal bargain that otherwise possessed the attributes of a binding contract did not entail that the contract did not exist for agreement would either later be made upon those matters or the publisher would decide."[56]Ms Gower, accordingly submitted that the mere fact that it may be difficult to determine the reasonable level of pension contributions in the instant case did not preclude the implication of a term that reasonable pension provisions would be paid. Reasonableness, she submitted was determined on the facts of the individual case and in the context of the agreement between the parties. To this extent, there was inevitably an element of subjectivity and guesswork as to what the parties might have agreed. However, to the extent that an objective standard was required, the Tribunal could properly have regard to its knowledge of the range of pension contributions to private pension schemes, taking into account its role as an industrial jury. Accordingly, in her submission, the Tribunal was acting within its powers in fixing 15% of Mr Fabio's gross salary as "reasonable".[57]Ms Gower further submitted that the Tribunal was entitled to take into account what Mr Fabio said he would have accepted and what they believed the Appellant would have agreed. She acknowledged that this introduced a subjective element, but argued that it was appropriate for the Tribunal to do so in the particular circumstances of the case. Ms Gower acknowledged, however, that the question of what was a "reasonable pension contribution" should have been assessed by the Tribunal at the time the parties entered into the agreement. She submitted, however, that the Appellant's poor or good performance was relevant to the extent that it may have affected what was a "reasonable" level of pension contribution for the Appellant to pay. It was not entirely clear, she argued, from the Tribunal's decision whether the Tribunal was considering the time the parties entered into the contract, and it was certainly not the case that the Tribunal was taking into account events which postdated the contract, because those events were a deterioration in the financial position of the Appellant which had not occurred at the time the agreement was made. Conclusion[58]We have, of course, considered the rival contentions ably advanced on both sides most carefully, and we are driven to the view that Ms Proops' submissions on this part of the case are to be preferred. In our judgment, the finding by the Tribunal that "at the meeting on 25 September 1997 a commitment was given by Fontana that pension contributions would be paid on behalf of the Applicant and it was not a question of 'maybe' but of 'how much' " is too uncertain to enable us imply into the contract of employment a term as to pension contributions which is legally enforceable. Accordingly, in our view, the agreement set out in paragraph 8 of the Reasons is void for uncertainty.[59]In reaching this conclusion, we have taken into account a number of factors. These are:(1) There is absolutely no definition by the parties of what the level of pension contributions should be.(2) Even if it were possible to infer into the agreement of 25 September 1997 an implied term that the level of pension contribution would be "reasonable" this does not, in our judgment, avoid the uncertainty. There are numerous pension schemes with many different levels of pension contribution and criteria for payment (some based on performance and length of service) all of which can described as reasonable.(3) At no point either on 25 September 1997 or afterwards did Mr Fabio attempt to define what he perceived to be a reasonable level of pension contributions. All he did, in 1998, was to ask the Appellant what they thought was a reasonable level, and in discussing the 1999 budget for the Appellant, Mr Fabio went no further than to point out that the level of his pension contributions was unascertained.(4) There is nothing in the contemporaneous documentation which provides a structure or yardstick by which any outside body could make an assessment of what was "reasonable".[60]In deciding that a contribution towards Mr Fabio's pension of 15% was an appropriate sum for the Appellant to make, the Tribunal was, in our view, wrong both to rely upon Mr Fabio's negotiating position and to speculate on what the Appellant might have been willing to pay had it been trading profitably. In our judgment, the Tribunal is here inappropriately asserting its concept of what is reasonable in the absence either of any agreement between the parties as to what was reasonable, or any mechanism agreed by the parties for deciding the issue.[61]It follows, in our judgment, that the Order made by the Tribunal for £15,312.45 by way of arrears for pension contributions was wrong in law and cannot stand. The appeal will, accordingly, be allowed and paragraph 2 of the Reserved Decision set aside.[62]We reach this conclusion with some reluctance, since, morally, we feel there was an obligation on the Appellant to negotiate and agree a pension package for Mr Fabio. Nonetheless, we remind ourselves that Mr Fabio was a Manager: he was in his forties, and not, accordingly, an inexperienced young worker entering on his first job. Whilst the Tribunal accepted his evidence that he thought it inappropriate to strike out clause 11.1 at an early stage in his relationship with the Appellant, we have to express some surprise that he was not more pro-active in seeking to settle the matter of his pension. Had he done so, and had the negotiations provided a framework within which the question of reasonable provision could have been decided, the Tribunal may well have had evidence upon which it could have resolved the question. As it is, the agreement of 25 September 1997 remains wholly uncertain, and in our view there is no basis upon which the Tribunal, properly directing itself in law, could substitute its view of what was reasonable for that which may or may not have been in the contemplation of the parties in September 1997. Permission to appeal[63]Because we were reserving our judgment, both counsel made protective applications for permission to appeal. In the event, we have disagreed with the Tribunal on the "uncertainty" point. Whilst we appreciate that the matter is of particular importance to Mr. Fabio, and that there is a point of law involved, we take the view that it is a matter for the Court of Appeal to decide, on an application for permission to appeal, whether or not Mr. Fabio has an arguable case. We take the view that the overwhelming weight of authority supports the proposition that the "agreement" in this case is too uncertain to be enforced, and that as a consequence Mr. Fabio would not stand a reasonable prospect of success in an appeal against our decision.[64]For these reasons, we refuse permission to appeal.