Contract formation certainty of terms

Cooper v Dnata Catering Services Ltd [2022] EWHC 2216 (Comm)

The question

Will there be a binding and enforceable contract where the contract price has not been agreed or where it has been agreed that the price to be paid is a “reasonable sum”? 

The key takeaway

The court confirmed that there will not be a valid contract where there is uncertainty of a fundamental term such as price. At the very least, parties must be able to rely on a formula for fixing the price in the contract. 

The background

The claimant, Ms Cooper, was the founder of En Route International (En Route), an in-flight catering supply business. Cooper issued proceedings against Dnata Catering Services (Dnata), claiming that their conduct as the majority shareholder in En Route, was prejudicial to her. A key element of Cooper’s complaint related to an agreement for En Route to supply an economy class in-flight snack box to an airline owned within the same group as Dnata. 

Cooper supplied the airline with a first tranche of snack boxes from 2010 until October 2012. She was then invited to submit a formal proposal for a second tranche. In the formal proposal, Cooper explained that the price would be based on “achieving global leverage on components, packaging, assembly and logistic costs” and depended on the routes they would be sold on.

Cooper claimed that the airline and En Route agreed a three year contract for En Route to supply their snack box from 1 April 2014 until 31 March 2017. The contract was evidenced in various emails but a price per box was not agreed. 

Before the alleged end date of the contract in 2017, the airline stopped purchasing the snack boxes. The key issues to consider were whether a contract existed, and if so, what the terms of such a contract were, and whether Dnata had unfairly terminated it. 

The decision

The court found that there was no contract between En Route and the airline due to uncertainty of terms. In particular, the court stated that the price to be paid for each of the snack boxes was a “fundamental element” of the agreement that had not yet been agreed.

Although there had been discussions in emails about the various “pricing principles” that the parties would use to reach a conclusion on price, no formula had been agreed and the principles were not quantified at the time the contract was alleged to have been entered into. When a price was eventually agreed in 2014, it was only in relation to a short period of supply and did not span the entire contract period. As such Dnata was entitled to stop purchasing the snack boxes—there was no minimum term as there was no contract in place. 
The court also declined to imply a term into the contract that the price to be paid was to be a “reasonable” sum. Under the Sale of Goods Act

1979, s8(1), if the parties’ agreement is silent as to the ascertainment of the price the buyer must pay a “reasonable price”. However, if the parties have agreed a formula for the price which is not sufficiently certain, there is no implied term and no contract is created. 

Why is this important?

Courts accept that, in the course of business, deals can be completed in an informal way and some commercial documents are drafted without the benefit of professional advice. Courts will therefore try, often generously, to give a contract meaning. However, courts won’t draft the contract at the end of legal proceedings—they will look to the contract and at the words used. Therefore, the terms of a contract must be expressed in a way that is sufficiently clear to allow the meaning of those terms to be ascertained. 

Any practical tips?

It is best to contract on the basis of clear, written terms. To ensure that a contract has been formed and that its terms are enforceable, agreements should include specific provisions on key elements including price. 

Where the price of goods is not fixed in the contract, include a clear formula to fix price. In the absence of this, the price and other key terms may be determined by the course of dealing between the parties or how these terms are notified. If that is not available either, parties risk that no contract has been concluded given uncertainty as to the key terms.

Winter 2022