[1934] 2 KB 1
Court of Appeal
On 11 April 1930 Classique Coaches entered into a written agreement with Foley by which they agreed to buy petrol and/or oil exclusively from Foley. Clause 1 of the agreement stated
'The vendor shall sell to the company and the company shall purchase from the vendor all petrol which shall be required by the company for the running of their said business at a price to be agreed by the parties in writing and from time to time.'
Clause 8 stated
'If any dispute or difference shall arise on the subject matter or construction of this agreement the same shall be submitted to arbitration in the usual way in accordance with the provisions of the Arbitration Act, 1889.'
For the next three years Classique Coaches bought petrol from Foley without any problems. Disputes then arose which resulted in Classique Coaches declaring that they were not bound by the agreement of 11 April 1930.
The issue before the court was whether the agreement of 11 April 1930 constituted a concluded contract or was void for uncertainty.
Scrutton LJ
A good deal of the case turns upon the effect of two decisions of the House of Lords which are not easy to fit in with each other. The first of these cases is May & Butcher v The King, which related to a claim in respect of a purchase of surplus stores from a Government department. In the Court of Appeal two members of the Court took the view that inasmuch as there was a provision that the price of the stores which were to be offered from time to time was to be agreed there was no binding contract because an agreement to make an agreement does not constitute a contract, and that the language of clause 10 that any dispute as to the construction of the agreement was to be submitted to arbitration was irrelevant, because there was not an agreement, although the parties thought there was. In the second case, Hillas & Co v Arcos, there was an agreement between Hillas & Co and the Russian authorities under which Hillas & Co were to take in one year 22,000 standards of Russian timber, and in the same agreement they had an option to take in the next year 100,000 standards, with no particulars as to the kind of timber or as to the terms of shipment or any of the other matters one expects to find dealt with on a sale of a large quantity of Russian timber over a period. The Court of Appeal, which included Greer LJ and myself, both having a very large experience in these timber cases, came to the conclusion that as the House of Lords in May & Butcher v The King considered that where a detail had to be agreed upon there was no agreement until that detail was agreed, we were bound to follow the decision in May & Butcher v The King and hold that there was no effective agreement in respect of the option, because the terms had not been agreed. It was, however, held by the House of Lords in Hillas & Co v Arcos that we were wrong in so deciding and that we had misunderstood the decision in May & Butcher v The King. The House took this line: it is quite true that there seems to be considerable vagueness about the agreement but the parties contrived to get through it on the contract for 22,000 standards, and so the House thought there was an agreement as to the option which the parties would be able to get through also despite the absence of details. It is true that in the first year the parties got through quite satisfactorily; that was because during that year the great bulk of English buyers were boycotting the Russian sellers. In the second year the position was different. The English buyers had changed their view and were buying large quantities of Russian timber, so that different conditions were then prevailing. In Hillas v Arcos the House of Lords said that they had not laid down universal principles of construction in May & Butcher v The King and that each case must be decided on the construction of the particular document, while in Hillas & Co v Arcos they found that the parties believed they had a contract. In the present case the parties obviously believed they had a contract and they acted for three years as if they had; they had an arbitration clause which relates to the subject matter of the agreement as to the supply of petrol, and it seems to me that this arbitration clause applies to any failure to agree as to the price. By analogy to the case of a tied house there is to be implied in this contract a term that the petrol shall be supplied at a reasonable price and shall be of reasonable quality. For these reasons I think the Lord Chief Justice was right in holding that there was an effective and enforceable contract, although as to the future no definite price had been agreed with regard to the petrol.