Case: Pagnan SpA v Feed Products [1987] 2 Lloyd's Rep 601
Outcome: considered
Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601 the English Court of Appeal held that a binding contract had been made in circumstances where no price, quantity, delivery date, loading rate, rate of demurrage and despatch or date of commencement in regard to the sale of corn gluten feed pellets had been agreed in an exchange of telexes between the parties. The fact that the terms yet to be agreed were of economic significance did not prevent a contract being binding if that was what the parties intended. Further, the fact that the parties continued to negotiate after the first agreement had been entered had no effect on whether the agreements were binding because ' ...it was only to be expected that they would continue negotiating the terms that remained without delay' (at 620.8). Lloyd LJ's listing of the principles to be derived from the authorities included at 619.1 that: ...the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled'. Lloyd LJ also stated at 619.5: It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word "essential" in that context is ambiguous. If by "essential" one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by "essential" one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by "essential" one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge, "the masters of their contractual fate". Of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of parties agreeing to be bound now while deferring important matters to be agreed later. It happens everyday when parties enter into so called 'heads of agreement'. (Emphasis added). But at [29] Ipp J also referred to the statement of Lloyd LJ in Pagnan SpA [1987] 2 Lloyd's Rep 601 that I have extracted above, where his Lordship emphasised that that the meaning of 'essential' in the context of agreeing upon essential terms was ambiguous and that there was no legal obstacle standing in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. In Uranium Equities [2008] WASCA 33 ; 36 WAR 97 , the parties to the putative agreement had been negotiating over a proposed mining joint venture, but no heads of agreement had been executed. The Court found that the trial judge was right in concluding that the parties did not intend to be bound by anything said or done by them until such time as the heads of agreement had been executed. The Court went on to state on the question of uncertainty at [257] that it is "trite" that, even when the requisite intention is present, a contract can fail for uncertainty. The Court said it is also trite that only the omission of an essential term will have the effect that a contract is so incomplete or uncertain as to render it invalid, citing Ipp J in Anaconda [2000] WASCA 27 ; 22 WAR 101 at [29] . The Court referred to the statement of Lloyd LJ from Pagnan SpA [1987] 2 Lloyd's Rep at 619 and found that when regard was had to all the circumstances the parties did not intend to be bound by anything said or done by them until such time as the heads of agreement had been executed . The Court concluded that although some of the matters left over by the parties for future negotiation were important, none were essential to the efficacy of the alleged agreement in the sense that the agreement could not be enforced without it. In the same vein in Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 at 445, Blanchard J observed: The court has an entirely neutral approach when determining whether the parties intended to enter into a contract. Having decided that they had that intention, however, the Court's attitude will change. It will then do its best to give effect to their intention and, if at all possible, to uphold the contract despite any omissions or ambiguities. At 448, Blanchard J referred to the statement of the English Court of Appeal in Pagnan SpA v Feed Products [1987] 2 Lloyd's Rep 601: Merely because an important term is deferred to be settled on a future occasion that does not mean that there is no intention to be bound.