Certainty, Finality And Completeness

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FINALITY, COMPLETENESS AND CERTAINTY

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For an agreement to be legally binding the parties must be in agreement and there must be a consensus. The parties must have defined the obligations under the contract. The courts have to deal with agreements that are not complete or precise and this is when negotiations have been carried out or relevant matters not decided or decided in the future. The question is: Are such agreements enforceable as contracts? Something is certain provided it can be rendered certain: Certum est quod certum redid potest.

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Introduction – the requirement of certainty

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***Electricity Corporation of NZ v Fletcher Challenge Energy Ltd***
Facts: The parties were negotiating large scale and long term supply of natural gas contract and created a Heads of Agreement document w/ matters were marked as still to be agreed, not agreed or agreed. The parties signed the agreement and above signatures wrote agreed etc.
Held: CA held (majority) said the agreement was not binding. The whole thing couldn’t be shown to have contractual force and the legally essential matters had not yet been determined.
The CA said must ask
1. Have the parties intended to become legally bound?
2. Whether the terms of the agreement are sufficiently certain as to the essential matters or the matters the parties themselves considered essential?

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Look at Contract

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Look at
1. Starting point: terms of the contract
2. Matrix of facts
Court: no presumption either way and view objectively of what parties intended unless they find in the intention to be bound in which case they become upholders of an agreement or find a way to make it work

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Verissimo v Walker

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The court said that where sales of land are concerned parties are taken to have intended that they won’t be bound until there is a formal signed agreement at the end.
1. Parties intend to be bound?
2. Have they made an agreement which is sufficient to be enforceable?
If not may be void from uncertainty, but if there is enough there for an agreement with the intention it is binding and there are some minor matters to be spelled out it may be that the agreement has enough structure.

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Marxen v Smith

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Lease agreement said the seller would sell all the chattels as inspected and not clear what the phrase chattels “as inspected” meant. Tipping J said the court is not to confuse “difficulties of proof with uncertainty.” and although there were elements which were not spelled out the court could give effect to the contract to make it work. Courts can imply terms.

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Matters remaining to be agreed

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The general rule is the Courts will not accept a contract to make a contract or to “negotiate” a later agreement as a valid contract.

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***Walford v Miles***

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Parties discussed sale of property and agreed they wouldn’t sell to anyone else and only negotiate with each other. The vendor sold to a 3rd party. The court held an agreement to negotiate is just the same as an agreement to make a contract. It is not enforceable and too uncertain. Also, negotiating a contract in good faith doesn’t make sense because party to a contract will only consider their own interests and not the interests of the other (not required to nurse the interests of the other party).

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Barrett v IBC International Ltd

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Parties agreed that the date of settlement (when money paid and land transferred) would be mutually agreed. A dispute arose as to whether this was enforceable. The court held that there wasn’t a concluded contract and couldn’t read into the contract to contradict what the parties have expressly agreed.

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Aotearoa International Ltd v Scancarriers A/S

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Courts have to be careful when implying terms not to create a contract for the parties. Their role is to fill small gaps and imply terms that are necessary. Court cannot make a contract.

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***Wellington City Council v Body Corporate 51702 (Wellington)***

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Council owned properties and agreed to negotiate in good faith with tenants for the possible sale of council’s property. A tenant claimed the council was in breach of obligation to negotiate in good faith for a “process contract”. Court held the agreement to negotiate can’t be enforced, good faith was a subjective and meaningless term.

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Gaps and meaningless or ambiguous terms

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Where the parties use expressions the courts cannot make sense of then the contract may fail for uncertainty.

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Scammell v Ouston

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Agreement to purchase a motor van on "hire purchase terms" which the court said a vague expression and was unenforceable b/c many ways to arrange hire purchase.

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Nicolene Ltd v Simmonds

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In the end a party wrote “the usual conditions of acceptance apply”but there were no usual conditions of acceptance and the words were meaningless surplus and could be ignored.

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Van Der Hulst v Tainui Corporation

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There was an exchange of correspondence for the sale of land. One Sale of land where the party’s solicitor sent a document containing terms of contract and other party inserted the words that a “deposit had to be paid”. The court held that was a counter offer. It is a rare case where added words simply mean nothing.

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Using contractual machinery

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In cases where the parties’ intention to contract is clear, a Court may often be able to determine some term which is essential to the contract provided the parties have provided some procedure or machinery which will operate in the place of agreement between the parties or after a failure by the parties to agree.

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Robertson Enterprises Ltd v Cope

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(Agreement to sell hotel) It may be possible to have a valid contract where the parties have agreed that the terms of the bargain are to be set out by one party alone. This may occur where one party’s agent uses terms which are common or usual in that area or trade or profession. The held the agreement was binding b/c the parties established how long the lease was and set up a means of reference to be used if a dispute arose and the court could examine evidence in the practice (ascertainable).

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Machinery

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A machinery provision such as the submission of a dispute to arbitration can be used to resolve matters which the parties had left undecided. If the parties agree in the contract that they would use arbitration they will be bound to it.

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Enforcement of agreements involving “objective” criteria:

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***Attorney-General v Barker Bros***

The renewal of airstrip lease said, “The terms and conditions of any such renewed lease shall be as agreed upon by the parties at the time, but the rent shall not be less that the amount payable thereunder”. If any dispute arose then it would be decided by arbitration. It was a process contract (machinery) by which a matter can be determined and was a well worded arbitration clause which could fill a gap. The principle is the courts should give effect to agreement.

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Attorney-General v Barker Bros

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Richmond P drew on the three principles from English cases on certainty:
1. If it appears the parties intended not to enter into a binding contract until certain terms are settled by agreement, no contract can come into existence until those matters are agreed.
2. If the Court is satisfied that the real intention of the parties was to enter into an immediate and binding agreement, the Court will do its best to give effect to that intention; and
3. An apparent lack of certainty will be cured if some means or standard can be found to render certain what has been left uncertain.

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Cases arise where the machinery is defective and then the courts will try to replace the defective machinery provisions provided the contract can be interpreted so the court gives effect to it:

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***Sudbrook Trading Estates Ltd v Eggleton***
Dispute over a purchase and the parties agreed that each one would appoint its own valuer. The court said this agreement had been clear and it imposed machinery provisions in accordance with what the parties intended. The court held it could intervene to fix the machinery if the machinery was really subsidiary. Here there was no valuer named and the court said the whole concept of appointing a valuer is to ascertain values that would show the parties intended a fair/reasonable price to be paid. The court read the agreement as indicating the parties’ intention was the appointment of valuer and that the agreement was binding and a fair reasonable price to be paid.

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There might be gaps in the machinery itself:

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***Money v Ven-Lu-Ree Ltd***
The parties agreed each would get a valuation from his own accountant provided the rate for valuation agreed but accountants disagreed. PC said it is well established an agreement to sell at valuation is capable of being a binding contract even if the machinery established by the parties fails for some reasons. In this case, the court filled the gaps.

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The limits of the machinery approach.

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If the parties make it clear that it is their own subjective agreement that will decide the matter then the court cannot substitute machinery that contradicts the contract.

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Willetts v Ryan

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Court can’t imply terms because parties said we would “mutually” agree

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Hinterleitner v Heenan

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Friend sold friend property and agreed seller would sell land below its market price but if the friend wanted to get rid of the land in 10 years they would have to sell back to friend (seller) with something added because it was sold at undervalue. Held the terms were not spelled out and not like Sudbrook b/c couldn’t be rendered certain. It was an agreement to agree.

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Where particular machinery essential to parties the courts cannot substitute or rectify a defect:

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Nelson v Cooks McWilliams Wines
Purchase of grape to be determined by the parties in course of negotiation or in failing agreement then two named committees but committees never came to be established. The courts said it was essential to the parties that the committees with expertise would be the ones to make the decision. When that machinery failed, the essential process to the parties failed as well, and the courts couldn’t assign a reasonable price for the grapes. The terms of the contract are against the possibility of the court filling the gap (agree to agree).

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If an effective machinery exists and is clear there is no room for courts to intervene:

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Northern Regional Health Authority v Derek Crouch Construction Co Ltd

This concerned a contract to build a hospital and contract allowed parties to vary contract. Here the role of the court was to determine and enforce contractual rights and obligations and not substitute its own discretion or beliefs. The machinery was perfectly workable and an arbitrator appointed by parties so if clear that is the end of the matter.

When people agree to agree the general intention is to buy some time or freeze position to ensure other party won’t sell to someone else.

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Options

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An option may be regarded as an offer coupled with a contract not to revoke the offer, or as a contract not conditional on the grantee of the option exercising the option so as to bind the grantee of the option exercising the option to the terms of the agreement.Courts prefer the former. This is a device where one party buys the right to acquire the other to enter the contract later.

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Alexander v Tse

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The commonly accepted theory is an option is an offer to sell coupled with a contract not to revoke the offer. The person offering to sell the property is promising to keep the offer to sell open. Since the contract is a promise not to revoke then it requires consideration. To force the offer to be kept open then something must be paid (peppercorn).

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If one person wants to exercise option it must be taken up on the same terms it was made:

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Gulf Corporation Ltd v Gulf Harbor Investments Ltd
Option to purchase car: The offeree sent a notice saying it wanted to exercise the option and wanted to buy but it included terms not in the original notice (no meeting of the minds and there was no contract).

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Rights of preemption

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A contracts with B that if A decided to sell in the future A will give B the first opportunity to buy. It is not the same as an option but is a right of pre-emption which consists of a contractual agreement between two or more parties to the effect that if, at some future time, one of the parties wishes to engage in contractual dealings in respect of some matter or thing, the other party or parties to have the first opportunity to enter into a binding form of contract in relation to the matter or thing.

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Smith v Morgan

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The case concerned an agreement that if the vendor wanted to sell then she would give the purchaser the 1st option. The court held that these contracts are enforceable because the vendor had bound herself to sell to 1st party (fair reasonable sale in good faith). Such a contractual right of pre-emption will be valid even if there are no provisions relating to the terms of the future agreement as the Courts will imply a term that the grantor of the right must offer to the holder of the right of pre-emption.

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Adaras Developments v Marcona Corporation

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An option is a one step process. With a right of pre-emption all the seller says is if I agree to sell then I will sell to you (two step).

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MacMillan v Covic

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The burden of proof is on the seller to show a fair and reasonable offer had been made.

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"Lock-out" provisions:

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An agreement between A and B that A shall for a period of time give up the freedom to negotiate for a particular main contract with anyone A chooses and instead undertake that if any such negotiations are undertaken by A within the period they will be with B only.

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Walford v Miles

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Court said a lockout agreement is no more than an agreement to negotiate and negotiations can be broken off at any time. It is a negative agreement that the property owner won’t negotiate with someone else.

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Other lesser obligations:

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Rothmans of Pall Mall (NZ) Ltd v Attorney-General
(Tobacco comp and gov agreement) The court said this would have been a binding agreement to consult if there had been some consideration for it. There can’t be a contract to fetter powers of Parliament.
In a case where consideration is given there could be an obligation to allow the party to consult. Court said that if there had been such consideration there would have been a valid duty of consultation.
Promise needs to be bought out by some form of consideration.