Certainty of contractual terms: Cooper v Dnata Catering Services (2022)
Will there be a binding and enforceable contract where the contract price has not been agreed with certainty?
In the case of Cooper v Dnata Catering Services Ltd (2022) EWHC 2216 (Comm), the court confirmed that there cannot be a legally binding contract where there is uncertainty over a fundamental term of the contract such as price.
The claimant, Ms Cooper, was the founder of En Route International (“En Route”), a business supplying in-flight catering to airlines. Ms Cooper commenced proceedings against Dnata Catering Services (“Dnata”), a majority shareholder in En Route, in relation to a contract to supply economy class snack boxes to an airline owned within the same group as Dnata.
Ms Cooper, having provided snack boxes to the airline before, was invited to submit a formal proposal to provide a second batch of the boxes. As part of the proposal, the price was stated as being based on “achieving global leverage on components, packaging, assembly and logistic costs” and would depend on the routes on which the snack boxes would be sold by the airline. A “price per box” was never agreed.
The proposal was accepted and Ms Cooper began supplying the snack boxes to the airline. There was no formal contract in place however Ms Cooper alleged that, based on the negotiations and evidenced in various emails, the airline had agreed to enter into a three-year supply contract with En Route commencing on 1 April 2014 and ending on 31 March 2017.
Before the alleged end date of the contract in 2017, the airline stopped purchasing the snack boxes and Ms Cooper sought to enforce the terms of the alleged contract in court.
The court found that there was no contract between En Route and the airline due to uncertainty over a fundamental term of the agreement, in this case, the price.
Although there had been discussions regarding the principles the parties would use to determine the price of the snack boxes and the claimant produced various emails to evidence this, there was no agreed formula and the pricing principles discussed had not been quantified at the time the contract was alleged to have been entered into. Even when a price per box was agreed in 2014, it was only in relation to a short period of supply and did not cover the entire period of the alleged contract.
The court stated that the price per box was a “fundamental element” of the agreement that had not yet been agreed and as such, no binding contract could be established and the airline was free to stop purchasing the snack boxes when it did.
The court also refused to imply a term into the contract that the price payable by the airline was to be a “reasonable” sum, the reason being that s8(1) of the Sale of Goods Act 1979 states that if an agreement is silent as to the price, the buyer must pay a “reasonable sum” but if the parties have agreed a formula for the price which is just not sufficiently certain, no such term is implied. Thus, no contract was created.
The case outlines the importance of the certainty of key contractual terms. While the courts accept that contracts are sometimes completed informally and accept that often they aren’t drafted perfectly, the court will not draft the contract for the parties during legal proceedings and will enforce the contract based on the words that are used. Therefore, the terms of the contract must be expressed in a way that is sufficiently clear to allow the meaning of the terms to be ascertained.
If you have any queries over the certainty and enforceability of your contract terms, please do not hesitate to contact a member of the Commercial team.