Durham Tees Valley Airport Ltd v Bmi Baby Ltd & Anor

Commercial contracts are construed objectively, by reading their words as a whole against the relevant factual background. The agreements required the airline to establish and operate two based aircraft from the airport for the contractual term. However, the court could not imply a further obligation that the aircraft be operated in a manner reasonable in all the circumstances. The proposed term lacked sufficiently precise content and no objective criteria existed for determining the required number of flights or passengers over a fluctuating ten-year period. Implying it would require the court to make a bargain for the parties. The claim therefore failed because breach and recoverable loss could not be established without the proposed implied term.

The claimant airport alleged that written agreements with the defendants required the airline to establish and operate two aircraft from the airport for ten years. The defendants accepted that the agreements had legal effect but contended that they created only a permissive right to operate from the airport, or alternatively that any continuing obligation was too uncertain to enforce.

The court determined the proper construction of the Base Agreement and the Novation and Variation Agreement, the effect of their route and clawback provisions, whether an implied term governed the manner of operation, and whether indirect airport income was foreseeable loss.

1. Construction. The agreements were to be construed objectively by reference to their language, read as a whole and in the relevant factual matrix. Subjective intentions and negotiations were not relevant to that exercise. The commercial context supported, but did not replace, the wording of the agreements.
2. Express obligation. The Base Agreement required a lead-in flying programme supporting a minimum two-aircraft base, operating exclusively from the airport, by summer 2004, for ten years from establishment. The Novation and Variation Agreement required the establishment by 30 April 2006 and thereafter the continued basing and operation of two aircraft until 30 April 2014. “Operating” included flying. The clawback provisions protected particular funding and did not convert the wider obligation into a permission or exclude general damages.
3. Agreement to agree. The provision requiring consultation to agree the summer 2006 flying programme did not render the whole agreement unenforceable. It was not a precondition to the contractual obligations and, when the later agreement was signed, the specified period for consultation had passed.
4. Implied term. The claimant’s proposed term requiring operation in a manner reasonable in all the circumstances was not implied. An implied term must be necessary and sufficiently precise to be enforceable. No objective yardstick determined the appropriate flight or passenger numbers over the ten-year term. The parties had differing commercial interests, and the court could not supply a reasonable bargain under the guise of implication. The principles in Hillas and Company Limited v Arcos Limited, Australian Blue Metal Limited v Hughes and Baird Textiles Holdings v Marks & Spencer plc supported that conclusion. The claimant’s reliance on Abrahams v Herbert Reiach Limited and Paula Lee Limited v Robert Zehil Limited was distinguishable.
5. The claim consequently failed, and judgment was entered for the defendants. The court rejected waiver of accrued claims under the novation. It accepted that loss of non-aviation income was foreseeable, but left questions concerning recoverability and assumed responsibility under The Achilleas to any assessment of damages.

First-instance decision. No earlier decision in the same proceedings is stated.