455. Hillas & Co Ltd v Arcos Ltd [1932] 43 Ll.L. Rep 359

Interpretation – vague terms in established contractual setting accorded binding force

The Facts

English buyers purchased Russian softwood timber from an English company through which the Russian Soviet Government conducted its trading operations.

The contract in question was headed “Heads for the purchase of Russian goods”.

Pursuant to the agreement, buyers purchased 22 000 standards of softwood goods “of fair specification” with an option to purchase a further 100 000 standards.

The option was qualified by the words “such contract to stipulate that whatever the conditions are, buyers shall obtain the goods on conditions and at the prices which show to them a reduction of 5% on the FOB value of the official price list at any time ruling during 1931. Such option due to be declared before January 1, 1931”.

The option was exercised but sellers repudiated.

Findings

MacKinnon J awarded the buyers damages.

His decision was reversed in the Court of Appeal (panel including Scrutton LJ).

The House of Lords (Tomlin, Warrington, Thankerton, MacMillan and Wright) restored MacKinnon’s judgment.

Commentary

The case noteworthy for the following statement by Lord Tomlin:

“The problem for a court of construction must always be so to balance matters that without violation of essential principles the dealings of men may as far as possible be treated as effective and that the law may not incur the reproach of being the destroyer of bargains”

Lord Wright’s obiter dictum on the binding nature of an agreement to agree

“Yet even then, in strict theory, there is a contract (if there is good consideration) to negotiate, though in the event of repudiation by one party the damages may be nominal, unless a jury think that the opportunity to negotiate of some appreciable value to the injured party”

was rejected in later cases, particularly, in Courtney and Fairbairn Ltd v Tolaini Brothers (per Lord Denning).

 

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