W. N. Hillas & Co Ltd v Arcos Ltd

A commercial agreement is enforceable if its essential meaning can be ascertained from its language, context, trade background and terms implied by law. Courts should construe business documents fairly and broadly, giving effect to the parties’ apparent bargain where essential principle permits.

A term requiring goods of a fair specification may provide an objective standard. If the parties cannot agree the detail, a court or expert tribunal may determine what is reasonable. A contract is not incomplete merely because practical details of future performance require adjustment. Terms such as reasonable delivery times may be implied where the contractual intention is clear. An express reservation of essential terms for future agreement is different and may prevent a binding contract.

The appellants, timber merchants, agreed to purchase Russian softwood from the respondents. Clause 9 of their written agreement gave the appellants an option to purchase 100,000 standards for delivery during 1931 at a stated reduction from the official price list. The appellants exercised that option before the specified deadline. The respondents repudiated it after selling their 1931 output to another buyer.

A jury rejected the respondents’ pleaded case that the agreement had been cancelled. MacKinnon J subsequently rejected their new contention that clause 9 was too uncertain, assessed damages at £30,000 and entered judgment for the appellants. The Court of Appeal unanimously held that no contract had been concluded and entered judgment for the respondents.

The central issue before the House was whether the option, read with the agreement as a whole, created an enforceable contract despite the absence of an express detailed specification and fixed shipping arrangements.

1. Disposition. The House allowed the appeal, reversed the Court of Appeal and restored MacKinnon J’s judgment for £30,000. The respondents were ordered to pay the appellants’ costs in the Court of Appeal and the House, and the cause was remitted to the King’s Bench Division.
2. Construction and commercial certainty. Lord Tomlin held that the agreement and timely exercise of the option constituted a binding contract. The words concerning 100,000 standards necessarily took their content from the agreement as a whole and referred to Russian softwood goods of fair specification. The specification comprised fair proportions of the available kinds, qualities and sizes. It could be ascertained objectively if the parties failed to agree.
3. Lord Thankerton concurred. A specification balancing undefined competing interests would have required a further bargain. On the proper commercial construction, however, the clause required a fair selection from the seller’s available stock. The court could apply that contractual standard and identify the subject matter.
4. Reasonable terms and future performance. Lord Wright held that commercial documents should be construed fairly and broadly so that the transaction takes effect where their meaning can reasonably be found. A court cannot make a contract for the parties. It may, however, apply implications of law concerning what is just and reasonable when the contractual intention is clear but details of future performance remain to be adjusted. Difficulty of construction does not itself establish uncertainty.
5. Lord Wright held that the option was a binding offer which became a contract upon timely acceptance. The language about entering into a contract did not reserve essential matters for later negotiation. The stipulated price machinery was sufficiently certain. The requirement of a fair specification supplied an objective standard which a court or expert tribunal could apply.
6. Lord Tomlin and Lord Wright also construed the shipping provisions governing the original purchase as applicable to the option. Lord Wright added that reasonable delivery times would in any event be implied under section 29(2) of the Sale of Goods Act 1893, with reasonableness determined as a question of fact under section 56.
7. Damages and procedure. Lord Tomlin and Lord Wright found no error of principle in the £30,000 assessment. The respondents could not rely on deficiencies in evidence which their breach and failure to disclose relevant information had helped create. Although the respondents should have pleaded their alternative case that no enforceable agreement existed, that procedural issue did not affect the disposition.

1. House of Lords: The appeal was allowed. The Court of Appeal’s order was reversed, MacKinnon J’s judgment was restored, and the cause was remitted to the King’s Bench Division.
2. Court of Appeal: The respondents’ appeal was allowed unanimously. The judgment for the appellants was set aside and judgment was entered for the respondents. The appellants’ cross-appeal concerning the amount of damages was dismissed.
3. King’s Bench Division: Following a jury finding that the option had not been cancelled, MacKinnon J held that the agreement was enforceable, assessed damages at £30,000 and entered judgment for the appellants.