Ipsofactoj.com: International Cases [2001] Part 3 Case 4 [CAEW]


COURT OF APPEAL, ENGLAND & WALES

Coram

Baird Textile Holdings Ltd

-  vs -

Marks & Spencer Plc

SIR ANDREW MORRITT, V-P

LORD JUSTICE JUDGE

LORD JUSTICE MANCE

28 FEBRUARY 2001


Judgment

Sir Andrew Morritt, V-P

INTRODUCTION

  1. Baird Textile Holdings Ltd ("Baird") had been one of the principal suppliers of garments to Marks and Spencer plc ("M&S") for thirty years when, on 19th October 1999 M&S, without warning, determined all supply arrangements between them with effect from the end of the then current production season. On 10th January 2000 Baird commenced these proceedings against M&S contending that M&S was precluded by both contract and estoppel from determining such arrangements without reasonable notice. M&S applied under CPR Rule 24.2 for summary judgment against Baird on the ground that it had no reasonable prospect of succeeding on either claim. On 29th June 2000 Morison J dismissed the claim in so far as it was based on contract but directed that it proceed to trial in so far as it was based on estoppel. Each party appeals, with the permission of Morison J, from that part of his order which is against it. Accordingly the issues which arise are whether Baird has a real prospect of succeeding on its claim based on (1) contract, and (2) estoppel, or, if not, whether there is some other compelling reason why that claim or issue should be disposed of at a trial.

  2. Before dealing with those issues it is necessary to describe the basis of the claims in some detail. M&S is a household name. It is primarily a clothing retailer. It operates through a large number of retail outlets in the UK and abroad. One of the secrets of its success in the provision of best value merchandise to its customers was buying direct from a few selected manufacturers. Where possible it selected manufacturers based in the UK. By these means it sought to achieve economies of scale whilst avoiding long and expensive supply lines. The commercial relationship between the selected manufacturers and M&S was close.

  3. Sir Richard Greenbury joined M&S in 1953. He retired as Chairman and Chief Executive in 1999. In his witness statement dated 11th April 2000 provided to Baird he said (para 4.1):

    The special partner relationship which M&S developed with all its suppliers of goods and services was, from its inception some 70 years ago, a cornerstone principle of the company. Furthermore, it was at the very heart of the way we did business with our suppliers and a fundamental part of that philosophy was that M&S was going to carry on doing business with the manufacturer season after season, year after year. Continuity of production into the foreseeable future was the basis of all discussions and negotiations. Indeed it was clearly understood that once a major supplier to M&S, always a supplier - unless the manufacturer's performance was considered to be poor in which case high level meetings would be arranged to discuss the situation.

  4. The principal witness for M&S, its director for Procurement, Technology and Logistics Mr Joe Rowe, agreed. In paragraph 19 of his witness statement dated 21st February 2000 he said:

    M&S was developed by a principle of "partnership". This was not a partnership in the legal sense, but more in the spirit of co-operation. The people involved in managing M&S and the suppliers had known each other for a long time, seeing their companies grow together. As a result, they were able to trust each other, converse freely and work together for mutual benefit. The traditional M&S - supplier relationship was symbiotic - both fed off each other. M&S had a desire to give the best possible value to its consumers, which could be achieved by enhancing economies of scale. It was readily acknowledged that it was in the best interest of M&S for its suppliers to grow with it, thereby passing on greater economies of scale to M&S and, hence, its customers. Accordingly, as the M&S business grew through the 1900's many of its suppliers grew at a similar rate.

  5. By the 1990s there were four major suppliers of clothing to M&S, namely, Baird, Courtaulds, Coats-Viyella and Dewhirst. From 1990 to 1998 the annual value of clothing supplied to M&S by those four suppliers rose from £867.2m to £1,235m. Baird's share of those supplies in monetary terms rose from £136.1m to £205.5; but in percentage terms its share fluctuated within a narrow band of 15.7% to 18.9%. The value to Baird of the business with M&S represented between 30% and 40% of its total turnover.

  6. The core of the case for Baird, in paragraph 9 of the Particulars of Claim, is that:

    In the course of establishing, maintaining and conducting its relationship with BTH, Marks & Spencer induced BTH to believe and implicitly promised that, in exchange for BTH agreeing

    (a)

    to supply Marks & Spencer with garments year by year on a seasonal basis;

    (b)

    to allow Marks & Spencer to be closely involved in the design and manufacture of the garments so to be supplied;

    (c)

    to establish and maintain a workforce and manufacturing capacity sufficient to meet and be highly responsive to Marks & Spencer's continuing requirements;

    (d)

    not to act in a manner which in the view of Marks & Spencer was contrary to its interests; and

    (e)

    to deal with Marks & Spencer in good faith and reasonably having regard to the objective of the relationship, the relationship would continue long term and would be terminable only upon the giving of reasonable notice; and that during the subsistence of the relationship Marks & Spencer would acquire garments from BTH in quantities and at prices which in all the circumstances were reasonable and would deal with BTH in good faith and reasonably having regard to the objective of the relationship.

  7. That allegation is supported by copious particulars relating to specific aspects of the commercial relationship between Baird and M&S. Such aspects include

    1. close relationships between senior executives,

    2. regular consultations on strategy, sales, design, technology, quality and logistics,

    3. the appointment by Baird of managers selected by M&S to monitor relationships between them and to provide information to them,

    4. co-operation by Baird working to seasonal timetables laid down by M&S,

    5. carrying out procurement policies in a manner designed to benefit M&S,

    6. the implementation of an umbrella arrangement of an unusual sort whereby substantial advantages were conferred on M&S,

    7. acceptance by Baird of M&S requirements as to place and standards of production, approval of sub-contractors and other commercial associations both in relation to specific acquisitions and investment and generally, and

    8. the provision to M&S of confidential information.

  8. The particulars are supported by voluminous evidence. Not all allegations of fact are agreed and there is some dispute as to the proper inferences to be drawn from them. But it is clear that Baird has a real prospect of succeeding in establishing each of the particulars; similarly it has a real prospect of succeeding in establishing that the particulars establish the contentions made in paragraph 9. Accordingly, with one exception, it is not necessary to describe the factual allegations in any more detail.

  9. The exception is the seasonal ordering practice. There are two seasons Spring / Summer and Autumn / Winter. Sales from M&S stores for those seasons commence in late January and mid-August respectively. The process of producing the goods for those seasons commences 12 months ahead with a design brief from M&S and the production by the suppliers a few months later of working designs and garments. M&S then selects a design and distributes the manufacturing work amongst the suppliers. Such distribution, in the words of Mr Rowe (witness statement dated 21st February 2000 para.15), is made

    having regard to who designed the garments that have been selected, the production capacity of a given supplier, costings, the technical expertise and innovation being offered by the supplier and many other factors. These would include senior management's views on the likely future role of a given supplier in any particular product area relative to the growth of M&S.

    Goods are ordered, normally six months in advance, by a computerised process which specifies the quantities, design and colours required. The general terms of business, under which they are given, recognises that agreed alterations to such orders will be required from time to time and will be confirmed in writing.

  10. Having given the particulars to which I have referred, in paragraph 9.28 of the Particulars of Claim, Baird avers that

    Marks & Spencer deliberately abstained from concluding any express contract or contracts with BTH either to regulate the parties' on-going relationship or their respective rights and obligations season by season because it considered that it could thereby achieve much greater flexibility in its dealings with BTH than could be achieved under a detailed contract or contracts. The absence of such an express contract or contracts was accepted by BTH because, as Marks & Spencer knew and intended or ought to have known, BTH understood from the above pleaded conduct of Marks & Spencer that there existed a relationship between the two companies which was to continue long term and be terminable only on the giving of reasonable notice and under which the parties had the reciprocal rights and obligations pleaded in paragraph 9 above.

  11. Baird contends in paragraph 10 of its particulars of claim that in the circumstances the period of reasonable notice is not less than three years. It claims £38.5m for lost profits over that period and reimbursement for anticipated expenditure of £15.1m. Such sums are claimed not only as damages for breach of contract but also as

    a sum equivalent to the aforesaid damages to avoid the injustice of Marks & Spencer acting inconsistently with the aforesaid belief by terminating the relationship without notice.

  12. Since the judge's order was made on 29th June 2000 the estoppel claim has been further prepared for trial. The pleadings have been amended and some disclosure has taken place. Neither party suggested that the amendments to the Particulars of Claim changed the nature of the estoppel case. They were content to proceed with the cross-appeal by reference to the pleadings before the judge. We were informed that, subject to the cross-appeal, the trial on the estoppel issue was fixed for January 2002.

    CONTRACT

  13. In paragraph 11 of the Particulars of Claim Baird alleged that the summary determination of the relationship between it and M&S was in breach of the contract pleaded in paragraph 9. The judge did not agree. He summarised the arguments of counsel and described the principles to be applied as

    (1)

    A court will only imply a contract by reason of the conduct of the parties if it is necessary to do so. It will be fatal to the implication of a contract that the parties would or might have acted as they did without any such contract. In other words, it must be possible to infer a common intention to be bound by a contract which has legal effect. If there were no such intent the claim would fail.

    (2)

    All contracts, to be enforceable must be sufficiently certain to enable the courts to give effect to the parties' intentions rather than to give effect to a contract which the court has had to write for them. On the other hand it can be said that the Courts do not incline to adopt a 'nit-picking' attitude to such matters and will endeavour, where possible, to construe the obligations in a way which gives effect to the parties' bargain. There is a line to be drawn between a generous attitude to making contracts work and striking them down on grounds of uncertainty.

  14. In his application of those principles to this case the judge said:

    13.

    On this head of the claim I am satisfied that Baird's case in favour of an implied contract cannot succeed. In the first place, it would be unlikely that one could properly imply a contract when it is the pleaded case of Baird that M&S deliberately refrained from concluding any express contract because it could achieve greater flexibility without one. To imply a contract against such a party would seem to me to offend against the principle that the parties' conduct must show an implied common intention to create legal relations by contract.

    In any event, the alleged terms are far too imprecise to be capable of being enforced. [After referring by way of analogy to Blue Metal Ltd v Robert Frank Hughes (1963) AC 74. Morison J continued] Mr. Field [counsel for Baird] could not say that so long as the implied contract continued with Baird, M&S were prevented from appointing principal suppliers. And I cannot understand how the various factors listed by him would work in practice. If M&S's future requirements were for fewer and more expensive garments of a type which Baird was unable or unwilling to produce at an acceptable cost, what then? There is, in my judgment, no firm base upon which one could ascertain either a particular quantity or a particular share which should be attributed to Baird in the future. Were the alleged contract to have legal effect then the court would, to all intents and purposes, be making a bargain for the parties rather than seeking to enforce a bargain which they themselves had made.

  15. For Baird counsel submits that where, as alleged in paragraph 9, one party intentionally induces a particular belief in another, on which the other relies, such conduct attracts legal responsibility. The responsibility relied on is

    1. to give reasonable notice to terminate the relationship and

    2. during the subsistence of the relationship, to acquire garments from Baird in such quantities and at such prices as were in all the circumstances reasonable.

    More specifically he contends that the judge was wrong in three respects, namely

    1. necessity is not the test for the implication of a contract from conduct,

    2. there is a sufficient prospect of success in establishing an intention to create the legal relations relied on, and

    3. the obligations are sufficiently certain to be enforceable as part of the alleged contract.

  16. In connection with the wide proposition counsel referred to academic discussion with regard to "relational contracts" and the legal implications to which they may give rise. But the articles which he produced did not suggest that the normal rules as to the implication and formation of contracts or the usual requirements of certainty did not apply to "relational contracts". Accordingly it is to those rules that I turn.

  17. Counsel suggested that the requirement of necessity to which the judge referred was derived from the judgment of Bingham LJ in The Aramis [1989] 1 Ll.L.R 213. He submitted that it was either confined to the cases exemplified in that case or, at least, inapplicable to cases in which there had been a long continuing relationship or an intentional inducement such as Baird relies on in this case.

  18. The Aramis [1989] 1 Ll.L.R 213 concerned the question whether a contract could be implied between the transferee of a bill of lading to whom the goods had been delivered and the carrier. Prior to the Carriage of Goods By Sea Act 1992 the implication of such a contract was necessary if the transferee and the carrier were to have rights enforceable between themselves in respect of, for example, damage to the goods or the payment of freight. Bingham LJ considered the authorities at some length to see how the implication of contracts in this field had grown and developed. He cited with approval from the judgment of May LJ in The Elli [1985] 1 Ll.R. 107, 115 that

    .... no such contract should be implied on the facts of any given case unless it is necessary to do so: necessary, that is to say, to give business reality to a transaction and to create enforceable obligations between parties who are dealing with one another in circumstances in which one would expect that business reality and those enforceable obligations to exist.

    Bingham LJ accepted that the authorities showed that "a contract will only be implied if it is necessary to do so". In expressing his own view Bingham LJ said (page 224):

    .... it would, in my view, be contrary to principle to countenance the implication of a contract from conduct if the conduct relied upon is no more consistent with an intention to contract than with an intention not to contract. It must, surely, be necessary to identify conduct referable to the contract contended for or, at the very least, conduct inconsistent with there being no contract made between the parties. Put another way, I think it must be fatal to the implication of a contract if the parties would or might have acted exactly as they did in the absence of a contract.

  19. Counsel for Baird relied on the fact that in Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195, a case concerning the implication of a contract from a request for tenders and a submission in response, Bingham LJ put the matter somewhat differently. In that case he referred (pp. 1201 and 1202) to the "confident assumptions of commercial men" and the need to "be able to conclude with confidence both that the parties intended to create contractual relations and that the agreement was to the effect contended for".

  20. For M&S it was submitted that it would be odd if the principle for the implication of a contract at all should be different or less onerous than the principle for the implication of a term in a contract. Reliance was placed on Wilson v Partenreederei Hannah Blumenthal [1983] AC 854 and The Gudermes [1993] 1 Ll.R.311. The former concerned the question whether a contract to abandon an arbitration might be implied from conduct, or more precisely lack of conduct. Lord Brandon of Oakbrook considered (p.914) that an actual abandonment, as opposed to an estoppel precluding an assertion of continuance, required proof of conduct of each party, as evinced to the other party and acted on by him, as "leads necessarily to the inference of an implied agreement" between them to abandon the contract. Lord Roskill referred (p.923) to "the only possible inference [being] that the agreement to arbitrate has been rescinded by mutual consent". Though Lord Diplock made no similar observation both Lords Keith of Kinkel and Brightman agreed with Lords Brandon and Roskill. In The Gudermes the cargo owner sought to establish a further contract with the ship-owners arising out of arrangements made to cope with the situation arising from an unauthorised diversion to Malta rather than Ravenna. The judge, Hirst J, held that the appropriate test was that described by May LJ in The Elli [1985] 1 Ll.R. 107, 115. The Court of Appeal upheld that direction. Staughton LJ giving the judgment of the court considered (p.320) that

    .... it is not enough to show that the parties have done something more than, or something different from, what they were already bound to do under obligations owed to others. What they do must be consistent only with there being a new contract implied, and inconsistent with there being no such contract.

  21. In my view the judge did not adopt the wrong test for the implication of a contract from conduct. It is apparent that the statements in The Aramis are not confined to the limited circumstances with which that case was concerned and are reflected in one form or another in Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council, Wilson v Partenreederei Hannah Blumenthal and The Gudermes.

  22. The second issue arises not only from the terms of paragraph 12(1) of the judgment of Morison J but also from the terms of paragraph 9.28 of the particulars of claim. Baird contends that the judge placed undue weight on that allegation and overlooked the references to "detailed contract or contracts". It submitted that the wish to maintain flexibility and so to abstain from detailed contracts was not inconsistent with an intention to have a contractual umbrella to regulate the commercial relationship, more particularly given the belief M&S had intentionally induced in Baird as alleged in paragraph 9 of the Particulars of Claim. In this connection counsel relied on the speech of Lord Hoffmann in Carmichael v National Power plc [1999] 1 WLR 2042, 2050/1 to the effect that the subjective views of one party is some evidence as to what, objectively, the court should conclude to have been agreed.

  23. Counsel for M&S pointed out that the allegation is that M&S "abstained from concluding any express contract...to regulate the parties on-going relationship ...." Nevertheless Counsel for M&S did not suggest that the allegation in paragraph 9.28 was conclusive, merely a serious impediment to the implication for which Baird contends. In my view it would be inappropriate at this stage to take too literal a view of the pleading. I am prepared to assume that in the passage I have quoted some reference to "detail" should be implied so as to reflect the later reference to the need to maintain flexibility by abstaining from detailed contracts. On that reading there is some force in this point. But it cannot be conclusive either way.

  24. The crucial point, in my view, arises from the third issue, namely whether the obligations arising from the alleged implied contract would be sufficiently certain to be contractually enforceable. Counsel for Baird submitted that on questions of certainty the court takes a benevolent view and seeks to uphold the contract by so construing its terms as to produce certainty rather than the converse. He relied on the dictum of Steyn LJ in First Energy (UK) Ltd v Hungarian International Bank [1993] 2 Ll.R. 194, 196 on the need for the law to protect the reasonable expectations of honest men. He cited as examples Abrahams v Reiach Ltd [1922] 1 KB 477 and Paula Lee v Robert Zehil & Co Ltd [1983] 2 AER 390 in which problems of certainty were overcome by the implication of a requirement of reasonableness.

  25. In relation to the facts Counsel for Baird suggested that there were a number of links in the relevant chain. He relied on a representation to Baird of a long term relationship to induce it to participate in the M&S supply base. He asserted that given that intentional representation M&S must have intended that Baird would get a reasonable level of M&S business year on year. He contended that not only did Baird so understand the representation but that was the way the relationship was in fact operated. Although, as I have already pointed out in paragraph 5, the proportion of business given by M&S to Baird remained relatively constant in percentage terms Counsel did not contend that M&S allocated its business amongst the four principal suppliers in accordance with any predetermined formula. He contended that the past could, with the assistance of experts, indicate what would be a reasonable allocation for the future.

  26. Any debate about certainty of contractual terms and implications of reasonableness to avoid uncertainty must start with the decision of the House of Lords in Hillas v Arcos (1932) 147 LT 503. In that case the question was whether an option to buy "100,000 Standards for delivery in 1931" was sufficiently certain against the background of a contract concluded and performed the previous year for the purchase of "22,000 standards softwood goods of fair specification over the season 1930". The House of Lords concluded that the contract was sufficiently certain. Lord Tomlin interpolated into the option the requirement of "fair specification" expressly required by the previous year's contract. He considered that (p.512) in that context the words

    mean that the 22,000 standards are to be satisfied in goods distributed over kinds, qualities and sizes in the fair proportions having regard to the output of the season 1930, and the classifications of that output in respect of kinds, qualities and sizes. That is something which if the parties fail to agree can be ascertained just as much as the fair value of a property.

    Lord Wright (p.517) referred to the legal implication of reasonableness running through modern English commercial law and supplying the requisite degree of certainty in appropriate cases. The distinction between those cases in which the implication of reasonableness provides for certainty and those in which it does not appears most clearly from the speech of Lord Thankerton. He distinguished (p.513) between cases where the contract provides for an objective standard which the court applies by ascertaining what is reasonable and those where, there being no such standard, the test of reasonableness is being used to make an agreement for the parties which they have not made for themselves. He was impressed by the consideration that a commercial matter was involved and the parties themselves thought that they had made a contract.

  27. The same principle is apparent from Australian Blue Metal Ltd v Hughes [1963] AC 74. That case concerned a mining lease containing a grant of the right to mine for magnesite in a specific area for an agreed royalty. The lease was silent as to the period for which it was to run, the means of its termination, the quantity of magnesite which might be mined and whether or not the right was exclusive. The issue was whether it was terminable at will or only on notice. The Privy Council considered that it was terminable at will. Lord Devlin giving the advice of the Board said (p.94/5)

    The second feature is that no express obligation was imposed on the appellants to do any mining at all, and in their Lordships' opinion none can be implied. The only practical way of framing such an obligation with sufficient precision to make it enforceable is to do what was done in the 1942 agreement and specify a minimum quantity of material that has to be won in a given period. Their Lordships were referred to Hillas & Co Ltd v Arcos Ltd a case in which the House of Lords was able to use the implication of reasonableness to fill the gaps left by the parties. But in the present case there are no criteria which would enable a court of law to determine what would be a reasonable quantity. There would be too many uncertain factors to be taken into account, such as the profitability of mining in the future and the possibility of mining being done by other licensees ....

  28. In both the cases relied on by Baird, namely Abrahams v Reiach Ltd [1922] 1 KB 477 and Paula Lee v Robert Zehil & Co Ltd [1983] 2 AER 390, the existence of a contract was not in doubt. The court was concerned with the assessment of damages for the breach of an undoubted obligation. The issue was how it was to be performed. I do not consider that either of them is of relevance to this case.

  29. The issue of certainty arises, not with regard to the alleged obligation to give reasonable notice of termination, but with the allegation that

    .... during the subsistence of the relationship Marks & Spencer would acquire garments from BHT in quantities and at prices which in all the circumstances were reasonable ....

    Counsel for Baird accepted that this involved an obligation on Baird to supply such garments irrespective of whether it had accepted the order. It is not alleged that there was some objective criteria by which to assess what was a reasonable quantity or price. Counsel disclaimed any contention that M&S in fact allocated business from year to year in accordance with some formula of its own. The annual allocation was separately determined in each year in the light of the circumstances then prevailing.

  30. I agree with the conclusion of the judge. The alleged obligation on M&S to acquire garments from Baird is insufficiently certain to found any contractual obligation because there are no objective criteria by which the court could assess what would be reasonable either as to quantity or price. This is not a case in which, the parties having evidently sought to make a contract, the court seeks to uphold its validity by construing the terms to produce certainty. Rather it is a case in which the lack of certainty confirms the absence of any clear evidence of an intention to create legal relations. The allegation in paragraph 9.28 also confirms the lack of intention to create legal relations for if there had been the requisite certainty because of the objective criteria then to that extent there would have been a detailed contract and a loss of flexibility. It cannot be said, let alone with confidence, that the conduct of the parties is more consistent with the existence of the contract sought to be implied than with its absence. The implication of the alleged contract is not necessary to give business reality to the commercial relationship between M&S and Baird. In agreement with the judge, I do not think that Baird has a real prospect of success on its claim in contract.

  31. Whether there is some other compelling reason for requiring the contractual claim to be disposed of at a trial depends on the view one takes of the estoppel claim. If, as the judge thought, the estoppel claim has a real prospect of success then it may be inconvenient to preclude any consideration of a contractual claim. I turn, then, to consider the estoppel claim.

    ESTOPPEL

  32. This claim is pleaded in the following terms:

    12.

    Further and alternatively, Marks & Spencer's aforesaid conduct in establishing and maintaining the said relationship induced BTH to believe that the relationship was long term and would only be terminated upon the giving of reasonable notice and that during the subsistence of the relationship Marks & Spencer would acquire garments from BTH in quantities and at prices which in all the circumstances were reasonable and would deal with BTH in good faith and reasonably having regard to the objective of the relationship.

    13.

    Throughout the said relationship BTH and William Baird have relied on this belief by

    (a)

    allowing Marks & Spencer to control and influence BTH's business in the manner pleaded above;

    (b)

    investing in assets and employees in order to be highly responsive to Marks & Spencer's requirements;

    (c)

    abstaining from doing anything which Marks & Spencer considered to be contrary to its interests, including in particular abstaining from manufacturing for any other retailers except through its brand business; and

    (d)

    forgoing the opportunity of establishing relationships with other retailers.

    14.

    As a consequence of such reliance it would be unjust and inequitable to allow Marks & Spencer to act inconsistently with such belief.

    15.

    In the premises, Marks & Spencer is estopped from denying the contract pleaded in paragraph 9 above, alternatively Marks & Spencer is estopped from denying that the relationship with BTH could only be determined by the giving of reasonable notice, which, in the circumstances is a period of three years, as pleaded in paragraph 10 above.

    The relief sought in relation to this allegation is not an injunction but

    (2)

    Alternatively the sum of £53.6m in compensation for the injustice resulting from Marks & Spencer acting inconsistently with BTH's belief that the said relationship was long term and would only be determined on reasonable notice.

  33. It is accepted that in so far as the estoppel claim is linked, by paragraph 15, to the contract pleaded in paragraph 9 then to that extent it must stand or fall with the claim in contract. This was the conclusion of the judge. But the judge also determined that in so far as the estoppel claim was linked by paragraph 15 to "the relationship" it should go to trial. In this respect he said:

    20.

    I am satisfied that this way of putting the case should be kept open for Baird. Whilst I would have enjoyed attempting to reconcile the innumerable cases to which I was referred, discretion has proved to be the better part of valour. The fact is that this claim should be tried in the courts, even if there are formidable, but not, I think, insurmountable, hurdles for Baird to overcome. It will be for the trial judge, having found the facts, to deal with the legal submissions and any view I now expressed might tie his hands. Generally speaking, in my view, adopting the conventional approach, the estoppel in question here is a true estoppel by convention. M&S may be precluded from denying there was a common understanding that their relationship with Baird was long-term. There are dicta in the Court of Appeal which are consistent with this form of estoppel being free standing and it is noteworthy that Professor Treitel, who takes a contrary view as to the import of the Court of Appeal judgments, qualifies his conclusions with the words "the present position seems to be that it cannot .... produce this effect [namely create a new cause of action]". If ever a case were fit to test the limits of the doctrine of estoppel by convention then this is it. The amounts involved are potentially large; the case is likely to have significant knock-on effects since tie-ups between manufacturers and retailers is now more of a commonplace then when M&S started them; the law on this topic is developing and capable of further refinement. Therefore, not only is this part of the claim arguable but there are good reasons why the case should be tried and a final judgment made on the basis of findings of fact.

  34. Counsel for M&S submits that the judge was wrong. He contends, amongst many and varied arguments, that a conclusion to that effect does not involve the reconciliation of numerous cases but the recognition that this court is, as the judge was, bound by three decisions of the Court of Appeal to conclude that the estoppel claim has no real prospect of success either. The three decisions and the propositions they respectively established are

    1. a common law or promissory estoppel cannot create a cause of action, Combe v Combe [1951] 2 KB 215;

    2. an estoppel by convention cannot create a cause of action either, Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84 and

    3. accepting that a proprietary or equitable estoppel may create a cause of action it is limited to cases involving property rights, whether or not confined to land, Western Fish Products Ltd v Penwith District Council [1981] 2 AER 204, 217.

  35. Counsel for Baird did not dispute that those cases established the propositions for which M&S contended. Rather, he submitted, it is wrong to categorise particular types of estoppel and then impose limitations in each category not applicable to one or more of the other categories. He suggested that English law permits some cross-fertilisation between one category and another. He contended that English law should follow where the High Court of Australia has led in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 and Commonwealth of Australia v Verwayen (1990) 170 CLR 394 and permit estoppel to create causes of action in non-proprietary cases. In reply counsel for M&S conceded that if the Australian cases, to the effect that promissory estoppel extends to the enforcement of voluntary promises, represent the law of England then the judge was right and the cross-appeal must fail.

  36. Warnings against categorisation have been given by Robert Goff J and Lord Denning MR in Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84, 103A-104E and 122B-D, by Scarman LJ in Crabb v Arun DC [1976] QB 179, 192H-193B and by Lord Bingham of Cornhill in Johnson v Gore Wood & Co [2000] All ER (D) 2293 at p.16. But dicta to the contrary effect are to be found in First National Bank v Thomson [1996] Ch. 2311, 236 per Millett LJ, McIlkenny v Chief Constable of the West Midlands [1980] 1 QB 283, 317 per Lord Denning MR and in Johnson v Gore Wood & Co [2001] 1 All ER p. 481, 507/8 per Lord Goff of Chieveley.

  37. As in the case of the contractual claim, it is important to appreciate exactly what is being alleged and why. The material allegation in paragraph 15 is that M&S is estopped from denying that "the relationship with BTH could only be determined by the giving of reasonable notice". But by itself this claim, which has undoubted echoes of Hughes v Metropolitan Railway Co (1877) 2 App.Cas.439 and Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130, does not lead to the relief sought. For that purpose it is essential to establish an obligation by estoppel that, in the words of paragraph 12,

    during the subsistence of the relationship Marks & Spencer would acquire garments from BTH in quantities and at prices which in all the circumstances were reasonable.

    As counsel for Baird put it in their written argument "BTH contends that an equity generated by estoppel can be a cause of action". They rely on a series of dicta as pointers in that direction contained in Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84, Taylor's Fashions v Liverpool Trustees [1982] QB 133, Habib Bank v Habib Bank [1981] 1 WLR 1265, The Hendrik Sif [1982] 1 Ll.R. 456, Holiday Inns v Broadhead (1974) 232 EG 951, Re Basham [1986] 1 WLR 1498 and Gillett v Holt [2000] 3 WLR 815.

  38. In my view English law, as presently understood, does not enable the creation or recognition by estoppel of an enforceable right of the type and in the circumstances relied on in this case.

    • First it would be necessary for such an obligation to be sufficiently certain to enable the court to give effect to it. That such certainty is required in the field of estoppels such as is claimed in this case as well as in contract was indicated by the House of Lords in Woodhouse AC Israel Cocoa Ltd v Nigeria Produce Marketing Co Ltd [1972] AC 741 and by Ralph Gibson LJ in Troop v Gibson [1986] 1 EGLR 1, 6. For the reasons I have already given I do not think that the alleged obligation is sufficiently certain.

    • Second, in my view, the decisions in the three Court of Appeal decisions on which M&S rely do establish that such an enforceable obligation cannot be established by estoppel in the circumstances relied on in this case. This conclusion does not involve the categorisation of estoppels but is a simple application of the principles established by those cases to the obligation relied on in this. I do not consider that any of the dicta in the line of cases relied on by Baird could entitle this court to decline to apply those principles.

  39. Counsel for M&S was, at one stage, inclined to concede that if we considered that the House of Lords, after the facts had been found at a trial, might adopt the propositions formulated by Mason CJ, Wilson and Brennan JJ in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 then it might be said that there was a real prospect of succeeding on the estoppel issue so that judgment under CPR 24.2 should not be given at this stage. In reply he submitted that the possibility that the House of Lords might adopt those propositions was an inadequate reason for allowing a trial. I agree. If I am right in believing that English law, as it now stands, does not permit the enforcement of an estoppel in the form alleged in this case then it is the duty of this court to apply it, notwithstanding that it may be developed by the House of Lords, who are not bound by any of the cases relied on, in the future. As Mann LJ said in Hamid v Secretary of State for the Home Department [1993] Imm AR 216, 222 (a renewed application for leave to move for judicial review, from which, if rejected, there could be no appeal)

    This court has in effect been asked to grant leave on the basis that, regarding ourselves as bound by two previous decisions of this court, we should in due time contemplate whether or not this is a suitable case for leave to appeal to their Lordships' House. In my judgment this court has to apply the law as it stands, and the law as it stands is as stated in the cases of Khan and Chan and upon that basis there is no ground for granting leave to move.

    To the like effect is the dictum of Mummery J in Bristol & West BS v Turner [1991] 2 EGLR 52, 54 that the duty of this court is to apply the law as it stands. See also Willoughby v Eckstein [1936] 1 All ER 650 and Derby v Weldon (No.3) [1989] 3 All ER 118, 124. It must follow that it cannot be a compelling reason for requiring the estoppel claim to be disposed of at a trial either.

  40. In all these circumstances I do not agree with the judge that the estoppel claim has a real prospect of success. Nor do I agree that there are good reasons why this issue should be tried. I have accepted that there is a real prospect that the allegations will be established but if there is no real prospect that if established they will give rise to the relief claimed then there is no reason compelling or otherwise why they should be established at a trial. It follows that there can be no compelling reason for only disposing of the contract claim at a trial either.

    CONCLUSION

  41. For the reasons I have sought to explain I would dismiss the appeal and allow the cross-appeal.

    Lord Justice Judge

  42. The stark issue in this appeal is whether Morison J should have refused to exercise his discretion under CPR 24.2 to grant summary judgment against the claimant. ("BTH")

  43. CPR 24.2 provides:

    The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if it considers that that claimant has no real prospect of succeeding on the claim .... and there is no other compelling reason why the case .... should be disposed of at a trial.

  44. The procedure overlaps with but is additional to the "strike out" procedures to be found in CPR 3.4. Thus, for example, if the statement of the claimant's case disclosed no reasonable grounds for bringing the claim (CPR 3.4(2)(a)) the court would presumably conclude that the claimant did not enjoy any real prospect of success. (CPR 24.2(a)). However the discretion provided in CPR 24.2 is expressly subject to the specific limitation that, even when the court is satisfied that there is no reasonable prospect of success, it should not be exercised if there is any "compelling reason" for the case to proceed to trial. Although I agree with the judgments of the Vice Chancellor and Mance LJ, it is this feature of CPR 24.2 that has caused me some concern.

  45. I do not propose to repeat the relevant facts which are set out in the judgment of the Vice Chancellor. I should however emphasise at the outset that although the essential facts were not all agreed, the argument proceeded and the legal principles were analysed without any apparent difficulty on the basis of BTH's pleaded case and the affidavit evidence.

  46. The crucial assertion made by BTH is contained in paragraph 9.28 of the particulars of claim, which read:

    Marks & Spencer ('M&S') deliberately abstained from concluding any express contract or contracts with BTH either to regulate parties' on-going relationship or their respective rights and obligations season by season because it considered that it could thereby achieve much greater flexibility in its dealings with BTH than could be achieved under a detailed contract or contracts. The absence of such an express contract or contracts was accepted by BTH because, as M&S knew and intended or ought to have known, BTH understood from the above pleaded conduct of M&S that there existed a relationship between the two companies which was to continue long term and to be terminable only on the giving of reasonable notice and under which the parties have the reciprocal rights and obligations pleaded in paragraph 9 above.

  47. From this pleading, it appears that BTH are contending that notwithstanding the long and close business relationship with M&S, it was perfectly well understood between them that M&S deliberately chose not to enter into an express contract to regulate the continuing, or future business relationship between them, or which would serve to impose any express contractual obligation to place orders in the future or give reasonable notice of termination. Given that the essential prerequisite of any contract is an "agreement", it would seem rather surprising to hold that M&S was contractually bound by an implied agreement with BTH which it had deliberately, therefore intentionally, abstained from concluding expressly, or that an obligation in contract sounding in damages to give reasonable notice of termination, carrying with it a simultaneous obligation to place orders with BTH throughout the period of notice, was expressly rejected but impliedly accepted by M&S.

  48. I agree with the judgment of the Vice Chancellor on the contractual issue generally, and in particular his analysis of the problems of ascertaining with any sufficient precision the parties' mutual obligations, and also, by reason of the uncertainty, of establishing a mutual intention to create a legally enforceable relationship.

  49. The interesting question therefore is whether equity can provide a remedy which cannot be provided by contract. It seems clear that the principles of the law of estoppel have not yet been fully developed, and during the course of the argument I was greatly attracted by the consideration that if summary judgment were entered against BTH under CPR 24.2 in a case such as this, the effect would be to stultify the possible development of the substantive law, or the correction of what Lord Hoffmann, in Kleinwort Benson Ltd v Lincoln CC [1999] AC 349 described as "ancient heresies".

  50. Two specific aspects of the current principles of the law of estoppel which may be open for reconsideration need mention. First, it is possible to envisage that the different principles encapsulated under the heading, "Estoppel", should cease to be treated as if they were individually compartmentalised. The most illuminating analysis of the disadvantages of rigidity was summarised by Robert Goff J in Amalgamated Investment v Texas Bank [1982] QB 84, where he said,

    Of all doctrines, equitable estoppel is surely one of the most flexible .... it is no doubt helpful to establish, in broad terms, the criteria which, in certain situations, must be fulfilled before an equitable estoppel can be established; but it cannot be right to restrict equitable estoppel to certain defined categories, and indeed some of the categories proposed are not easy to defend .... Thus in Snell .... the editors isolate two categories of equitable estoppel, promissory estoppel and proprietary estoppel. It may be possible nowadays to identify the former with some degree of precision; but the latter is much more difficult to accept as a separate category .... As a separate category, proprietary estoppel may be regarded as an amalgam of doubtful utility .... It is not surprising, therefore, to discover a tendency in the more recent authorities to reject any rigid classification of equitable estoppel into exclusive and defined categories ....

    (See also per Oliver J in Taylor's Fashion Ltd v Liverpool Victoria Trustees Co Ltd noted at [1982] 1 QB 133 and further, per Lord Denning MR in Amalgamated Property Co v Texas Bank: but, see to the contrary, his earlier observations in McIlkenny v Chief Constable of the West Midlands [1980] 1 QB 283, and his description of the House "called Estoppel", with its many rooms)

  51. The less graphic, but equally trenchant comment by Millett LJ, as he then was, in First National Bank v Thomson [1996] Ch 231 at 236, summarises the opposite contention:

    .... (the) attempts to demonstrate that all estoppel other than estoppel by record are now subsumed in the single embracing estoppel by representation and that they are all governed by the same requirements has never won general acceptance.

  52. The removal of formal classifications would represent the starting point from which to consider the second possible development, consigning to history the misleading aphorism that estoppel is a shield, not a sword. In reality that principle has no application to what is described as a proprietary estoppel The cause of action founded on proprietary estoppel may, and should, so the argument runs, be extended generally in this jurisdiction, both in accordance with the recent decisions in the High Court of Australia in Waltons Stores (Interstate) Ltd v Maher [1988] 164 CLR 387 and Commonwealth of Australia v Verwayen [1990] 170 CLR 394, and perhaps also by reference in this jurisdiction to Plimmer v Wellington [1884] 9 App CAS 699, which involved a contractual interest in a licence over land, and also on the basis that if the compartmentalisation of "estoppel" were broken down, the remedies provided for one form of estoppel (proprietary estoppel) would then be extended to the others.

  53. These, very briefly summarised, were the considerations which led me to the preliminary view that although BTH's argument in contract was unsustainable, the possible development of the law in relation to estoppel might properly justify allowing the case to proceed to trial.

  54. If it did, however, both the trial judge and this court would be bound to hold that the principles relating to proprietary estoppel are limited to "rights and interests created in and over land" and, possibly "to other forms of property". (Western Fish Products v Penwith DC [1981] 2 All ER 204, where in this specific context, Megaw LJ observed, at 218: "The question of new rights and remedies is a matter for Parliament, not the judges".) Moreover, assuming for present purposes only that this authority could be distinguished, the difficulties arising from the underlying uncertainties referred to in the judgment of the Vice Chancellor extend to the estoppel as well as the contractual issue. (Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] AC 741.) In reality, BTH's possible success in this litigation would depend on establishing liability against M&S in equity when it would not otherwise be liable in contract, and would represent a dramatic, if not indeed a revolutionary development of the legal principles governing the enforcement of private obligations.

  55. On reflection, I am persuaded by the judgments of the Vice Chancellor and Mance LJ, and for the reasons given by them, that there is no real prospect of the claim succeeding unless and until the law is developed, or corrected, by the House of Lords. In my judgment however, such a possibility would not normally justify a case proceeding to, nor provide a compelling reason for trial. However settled the law may appear to be, one of its strengths is that the possibility of development, or change, remains. In my view, even for the purposes of CPR 24.2, we must apply the law as it is, not as it may possibly one day become (my emphasis).

  56. I do not believe that this approach means that the development of the law is likely to be stultified. If for example, there were a significant conflict in the authorities, or if the law could reasonably be described as uncertain, or perhaps also, if there were a substantial body of academic or judicial opinion that the law as currently understood produced injustice and should be considered by the House of Lords, but simultaneously the essential facts were heavily in dispute, considerations such as these might provide a compelling reason for trial. Although the House of Lords in Barrett v Enfield LBC [1999] 3 WLR 79 has recently emphasised that the law should be developed on the basis of established rather than assumed facts, in this case, as I have explained, many of the essential facts are not in reality in dispute. If Morison J's order were set aside, as I think it should be, without suggesting that this court should grant permission to appeal to the House of Lords, it would be open to BTH to seek permission either from this court, or if refused, directly from the House of Lords, which could then decide whether the principles of estoppel should be re-examined, and whether this case provides an appropriate vehicle for that examination.

    Mance LJ

  57. I have had the benefit of reading in draft the judgments of the Vice-Chancellor and of Judge LJ, with whose reasoning and conclusions I agree. I also gratefully adopt the Vice-Chancellor's summary of the background to and circumstances of this application.

  58. M&S applied to the judge for summary judgment pursuant to CPR Part 24.2, on the basis that

    the Claimant has no real prospect of succeeding on the claim and there is no other reason why the case should be disposed of at trial.

    Considerable evidence was filed on both sides. The judge was not confined to Baird's pleading, but was bound to look at the prospects overall. He was not, however, in a position where he could resolve any real disputes of fact. Further, as Baird submits, he was not best placed to evaluate or assess complex facts, with a view to determining their significance. I have, in these circumstances, felt the force of Baird's submission that the court should be reluctant to determine the present issues summarily, and that they should be sent for full trial. On the other hand, it is clear that any trial, at which all the facts would have to be fully investigated before forming any definite view as to their potential significance, would be long and very expensive. If, on the claim and evidence before us, the claims offer no real prospect of success, then it is incumbent on us to say so. I agree with the Vice-Chancellor that it is no answer to suggest that, if the case were to go further and the House of Lords were to determine the law to be other than we find it, then the claims might acquire a real prospect. That is a matter for the House of Lords.

    CONTRACT

  59. The Vice-Chancellor has set out paragraph 12(1) and (2) of the judgment below, in which Morison J summarised the relevant legal principles as he saw them. For a contract to come into existence, there must be both

    1. an agreement on essentials with sufficient certainty to be enforceable and

    2. an intention to create legal relations.

  60. Both requirements are normally judged objectively. Absence of the former may involve or be explained by the latter. But this is not always so. A sufficiently certain agreement may be reached, but there may be either expressly (i.e. by express agreement) or impliedly (e.g. in some family situations) no intention to create legal relations.

  61. An intention to create legal relations is normally presumed in the case of an express or apparent agreement satisfying the first requirement: see Chitty on Contracts (28th Ed.) Vol. 1 para.2-146. It is otherwise, when the case is that an implied contract falls to be inferred from parties' conduct: Chitty, para.2-147. It is then for the party asserting such a contract to show the necessity for implying it. As Morison J said in his paragraph 12(1), if the parties would or might have acted as they did without any such contract, there is no necessity to imply any contract. It is merely putting the same point another way to say that no intention to make any such contract will then be inferred.

  62. That the test of any such implication is necessity is, in my view, clear, both on the authority of The Aramis [1989] 1 Ll.R. 213, Blackpool & Fylde Aero Club Ltd v Blackpool B.C. [1990] 1 WLR 1195, The Hannah Blumenthal [1983] AC 854 and The Gudermes [1993] 1 Ll.R. 311 cited by the Vice-Chancellor, and also a matter of consistency. It could not be right to adopt a test of necessity when implying terms into a contract and a more relaxed test when implying a contract – which must itself have terms.

  63. Here it is sought by the claimant to argue in reverse. First, the issue of intention to create legal relations is addressed and it is suggested that the judge gave only one reason (based on paragraph 9.28 of the claim) for negativing any such intention. Then, having sought to show that reason as ill-founded, it is argued that the only barrier to an enforceable contract is "essentially one of interpretation" and of giving effect to an intention on the part of the parties to contract.

  64. It is, in my judgment, more appropriate to take the requirements in the order in which I have set them out, and to recognise their potential inter-relationship. If there is no sufficient agreement on essentials, that is on any view fundamental, and it may well also reflect an absence of intention to create legal relations.

  65. Here, Baird has pleaded in detail facts and matters showing and concerning an exceptionally close and inter-active commercial relationship with M&S. The more I have heard and read about the closeness of the parties' commercial co-operation in the past, the less able I have felt to see how its effect could be expressed in terms having any contractual certainty. The parties were in constant contact, discussing, developing, adapting or altering their arrangements. Baird submits that the answer lies in recognising that there were on each side broad obligations

    1. to continue the long-standing purchaser-supplier relationship (unless and until one or other gave reasonable notice to determine it, put at three years) and, in that context,

    2. for M&S to purchase and for Baird to supply a "reasonable" or "appropriate" share of whatever were M&S's requirements from time to time, so as

    3. to ensure, at least to that extent, that the production facilities that Baird had devoted to M&S's business to date were maintained, or (at all events) run down in a less abrupt and painful way than actually occurred.

  66. The terms of the suggested contract are more particularly contained in paragraph 9 of the claim:

    .... in exchange for BTH agreeing (a) to supply [M&S] with garments year by year on a seasonal basis; (b) to allow [M&S] to be closely involved in the design and manufacture of the garments so supplied; (c) to establish and maintain a workforce and manufacturing capacity sufficient to meet and be highly responsive to [M&S] continuing requirements; (d) not to act in a manner which in the view of [M&S] was contrary to its interests; and (e) to deal with [M&S] in good faith and reasonably having regard to the objective of the relationship, the relationship would continue long term and would be terminable only upon the giving of reasonable notice; and that during the subsistence of the relationship [M&S] would acquire garments from BTH in quantities and at prices which in all the circumstances were reasonable and would deal with BTH in good faith and reasonably having regard to the objective of the relationship.

  67. Mr Field for Baird identified four particular factors that would come into play in the exercise required whenever it became necessary to establish what significance the suggested contract had in practice:

    1. the parties' long–term intention to maintain a flexible supply base,

    2. M&S's overall requirements over the relevant period,

    3. the extent to which Baird was likely to be able to supply such requirements and

    4. Baird's level of investment in its facilities.

    He accepted that, under the suggested contract, it would have been Baird's implied obligation to meet a reasonable or appropriate share of whatever were M&S's actual requirements, so far as it had the capability to do so and so far as the price was reasonable. He submitted that, in this way, a court could, by examining the parties' past performance and their present situations and needs, work our whatever might be the minimum purchase obligations that M&S should be taken to have committed itself to place and Baird to have committed itself to supply during a three year period of notice.

  68. When the suggested long-term contract is put in these terms, it becomes clear that it would, in case of any dispute, involve the court writing a "reasonable" contract for the parties, after making a complete review of their situations, needs, abilities and expectations. It could only become relevant to seek to identify the impact of such long-term obligations in a situation where actual co-operation had broken down or one or the other party wanted to reduce its commitment to the minimum. So the court would be expected to undertake the exercise in the very situation where the parties' actual behaviour could no longer serve as a guide to the answer. I agree with the Vice-Chancellor that this is not an exercise that the court can or should undertake, or, indeed, which the parties can objectively be taken to have intended. The presence in the suggested contractual formulation of implied duties of good faith is an additional barrier in the way of the conclusion for which Baird contends, in view of English law's general refusal to recognise any duty of this nature as an implied contractual term.

  69. Objectively, the only sensible analysis of the present situation is in my judgment that the parties had an extremely good long-term commercial relationship, but not one which they ever sought to express, or which the court would ever seek to express, in terms of long-term contractual obligations. The upshot is that I agree with the judge's conclusion that there was never here any agreement on essentials.

  70. In addition, I consider that the fact that there was never any agreement to reach or even to set out the essential principles which might govern any legally binding long-term relationship indicates that neither party can objectively be taken to have intended to make any legally binding commitment of a long-term nature. Their conduct in this regard contrasts with their conduct in entering into short-term commitments relating to each season, as well as their conduct in entering into other particular contracts, such as that made by both M&S and Baird with the clothing designer, Matthew Williamson, dated 27th March 1998.

  71. It is true that the seasonal contracts were themselves unusual in their terms and/or operation, in that great flexibility and latitude was allowed. But that does not, in my view, make it any more likely that the parties were intending, without expressing anything, to commit themselves to some implied long-term contract - rather the contrary. Sir Richard Greenbury has described the six monthly seasonal contracts as "in reality no more than declarations of intent", referring in support to the very significant variations occurring thereafter through to the end of the selling season. But neither that statement nor any other material before us supports a suggestion that the contracts were not contracts as and when made and as and when varied. Again, the fact that the parties were prepared to make such contracts, confident in their mutual willingness to adapt them subsequently to future conditions, appears to me to contrast with the fact that they never sought to enter into or express any longer-term contracts, despite the quality of the mutual understanding and confidence which Baird emphasises.

  72. It is also true that the contract with Matthew Williamson was for two seasons (Spring and Autumn / Winter 1999). But, even accepting that M&S thereby to some extent committed itself beyond the usual seasonal contracts, that is not the basis on which the present claims are mounted. Any commitment related to the design of only two capsule ranges of ladieswear garments, each including 20 garments of which 10 were likely to be selected by M&S. That specific commitment, into which M&S were prepared to enter, offers no support for - indeed it can once again be contrasted with - the very broad and unspecific commitment which it is suggested can be implied by virtue of the close relationship developed with Baird.

  73. On M&S's part, it was, according to paragraph 9.28 of Baird's claim, a quite deliberate matter of policy not to make any such agreement. Baird's states there that M&S "deliberately abstained from concluding any express contract or contracts with BTH either to regulate the parties' on-going relationship or their respective rights and obligations season by season because it concluded that it could thereby achieve much greater flexibility in its dealings with BTH than could be achieved under a detailed contract or contracts". To postulate that Baird was at the same time objectively accepting - without in any way seeking to express or define - whatever long-term obligations might arise from the exercise that Mr Field suggests, seems to me unrealistic.

  74. The further plea is made in the same paragraph that Baird only accepted the absence of any express contract or contracts because, as M&S "knew and intended or ought to have known, BTH understood from the above pleaded conduct of [M&S] that there existed a relationship between the two companies which was to continue long term and be terminable only on the giving of reasonable notice and under which the parties had the reciprocal rights and obligations pleaded in paragraph 9 above". That Baird understood that there existed a relationship which was to continue long-term is clear. That it contemplated that it would act as stated in each of clauses (a) to (e) set out in paragraph 9 of its claim and that M&S would in return acquire garments in quantities and at prices which were agreed as reasonable and would likewise deal with Baird in good faith and reasonably having regard to the objective of the relationship can likewise readily be accepted. But references to Baird and M&S understanding that the relationship would be "terminable only on giving of reasonable notice" and would involve "reciprocal rights and obligations" introduce a different element. An understanding as to "terminability" and as to "rights and obligations" suggests attention directed expressly to the legal position. Elsewhere, in paragraph 12 of the claim, the belief stated to have been induced in Baird by M&S is that the relationship "would only be terminated upon the giving of reasonable notice". That is readily understandable as factually accurate. But nowhere in the detailed facts pleaded or the evidence supporting Baird's case is there any material to suggest (or in my view any likelihood to be found) that

    1. Baird actually directed its attention to the legal, as opposed to the factual, position regarding either termination or the parties' "rights and obligations" before October 1999 or, still less, that

    2. M&S "knew and intended or ought to have known" that Baird had directed its attention to or reached any conclusion of that aspect.

    Had there been any such material or likelihood, one might also have asked why, in that event, neither party thought of putting into writing the general agreement regarding terminability on reasonable notice only and the general rights and obligations for which Baird now contends.

  75. Bowen LJ said in Sanders v Maclean (1883) 11 QBD 327, 343 that

    Credit, not distrust, is the basis of commercial dealings; mercantile genius consists principally in knowing whom to trust and with whom to deal, and commercial intercourse and communications is no more based on the supposition of fraud than it is on the supposition of forgery.

  76. This was said in the context of an argument that, in order to obviate the risk of fraud, all original bills of lading in a set should be tendered under a sale contract. But a similar underlying theme is to my mind of relevance here. It is evident that Baird felt, quite rightly, that it had achieved a long and very close relationship, an informal business "partnership", with M&S, and that it could, as a practical matter, rely on this and on M&S's management's general goodwill and good intentions. But managements, economic conditions and intentions may all change, and businessmen must be taken to be aware that, without specific contractual protection, their business may suffer in consequence. I do not think that the law should be ready to seek to fetter business relationships, even - and perhaps especially - those as long and as close as the present, with its own view of what might represent appropriate business conduct, when the parties have not chosen, or have not been willing or able, to do so in any identifiable legal fashion or terms themselves.

  77. For all these reasons, therefore, I consider that the judge was correct to rule that Baird had no real prospect of success in establishing the contract pleaded in paragraph 9.

    ESTOPPEL

  78. Baird accepts that the plea in paragraph 15 of the claim of an estoppel "from denying the contract pleaded in paragraph 9 above" stands or falls with the conclusion reached on the contract pleaded in paragraph 9.

  79. I turn therefore to the alternative estoppel pleaded, which is "from denying that the relationship could be determined by the giving of reasonable notice, which in the circumstances is three years".

  80. Baird acknowledges that an estoppel precluding M&S from denying that the relationship with BTH could only be determined by the giving of reasonable notice would not assist, unless it also meant that M&S (and presumably Baird) were precluded from ceasing to place and honour orders for a "reasonable" or "appropriate" share of whatever were M&S's requirements from time to time, so as to ensure, to that extent, that the production facilities that Baird had devoted to M&S's business to date were maintained, or at least run down gradually, during such period of notice. The question presents itself how such an estoppel would differ in substance or effect (a) from the enforcement of obligations of insufficient certainty to be contractual (b) in circumstances where an intention to affect legal relations cannot objectively be imputed to either party. Baird's answer is that it does not seek to protect its expectation interest. That, it accepts, could only be done in contract. Rather it is seeking to protect its reliance interest.

  81. Thus, the recovery which it claims was originally pleaded as compensation for "the incurring of costs and losses, principally on disposals, .... which would not have been incurred if the three year notice period required under the contract had been given". Following the dismissal by Morison J of the contract claim, a revised pleading was served which re-expresses the claim (in paragraph 16) as being for equitable compensation, the measure of which is put as "the detriment sustained by BTH in consequence of [M&S's] departure from the state of affairs which [M&S] had induced BTH to expect". The heads and figures which follow (in paragraph 17) look vulnerable to the comment that they include losses which Baird would anyway have suffered, even if a three year notice and three years' further business had been given. But (in paragraph 18) Baird seeks to meet this point by contending that it should be entitled to claim those elements of the losses which would or might have been sustained, even if three years' notice had been given, "since BTH would have been able to earn profits during the notice period which would have more than offset those costs". Thus, it is said, "it would not be equitable to assess compensation by reference to the amount of the losses which would have been sustained even with a period of notice, without at the same time giving Baird credit for the loss of profits during that period".

  82. This does however suggest some problem in differentiating expectation damages (the standard contractual measure) from the reliance loss to which Baird is ostensibly limiting itself. Another view might be that reliance loss should be based on a comparison between Baird's position as a result of M&S's assumed assurances that three years' notice would be given of any termination of the relationship and Baird's position as it would have been had there never been any such assurances. That too would however open up questions as to whether Baird could and would then have developed the relationship and made profits in the past as it did. Baird's revised pleading goes on to include a restitutionary claim, with which we are not concerned.

  83. In support of its claim based an estoppel protecting its reliance interest, Baird argues that estoppel is or should be viewed as a flexible doctrine, that any rigid classification into different types of estoppel with differing requirements should be rejected, and that it is open to English law to afford the protection proportionate to Baird's reliance for which Baird contends. Mr Field cites in particular Amalgamated Investment and Property Co Ltd v Texas Commerce International Bank Ltd [1982] 1 QB 84 and Oliver J's reasoning in Tayors Fashions v Liverpool Trustees [1982] QB 133 and (as Oliver LJ) in Habib Bank v Habib Bank [1981] 1 WLR 1265. Speaking generally, I accept that estoppel is a flexible doctrine, that broad equitable principles underlie its application in different fields (the concept of unconscionability being one such general principle) and that one should avoid "rigid classification of equitable estoppel into exclusive and defined categories" (Robert Goff J's phrase in Amalgamated Investment at pp.103H-104A; cf also Lord Denning MR's often quoted passage at p.122B-D, contrasting with his earlier observations in McIkenny v Chief Constable of the West Midlands [1980] 1 QB 283, 317B-D).

  84. However, not only are we bound in this court by previous authority on the scope of particular types of estoppel, but it seems to me inherent in the doctrine's very flexibility that it may take different shapes to fit the context of different fields. Throughout the passage at pp.103A-107F in Robert Goff J's judgment in the Amalgamated Investment case, to which Mr Field drew our attention, careful attention was paid to context. That there are, on authority, certain distinctions between the characteristics of estoppel in different contexts is also clear. For example, it is established that to found a promissory estoppel, a representation must be clear and unequivocal: Woodhouse AC Israel Cocoa Ltd v Nigeria Produce Marketing Co Ltd [1972] AC 741. In relation to estoppel by convention, it has been said by Ralph Gibson LJ in Troop v Gibson [1986] 1 EGLR 1 that

    .... where both parties have engaged upon a course of negotiation or transactions representing mutually the one to the other that a certain state of affairs is accepted regarding their conduct, then the necessity for proof of some clear and unequivocal statement becomes of less importance. The court must determine what the state of affairs is which the parties have accepted and decide whether there is sufficient certainty and clarity in the terms of the convention to give rise to any enforceable equity. For my part I think that the extent to which the importance of clear and unequivocal statements is reduced in cases of estoppel by convention is probably small. In all cases the representation or statement must be sufficiently clear; and, since the doctrine of estoppel, when applied deprives a party of the ability to enforce a legal right for the period of time and to the extent required by the equity which the estoppel has raised, the clarity required will seldom fall below what is unequivocal for the relevant purpose.

  85. In contrast, a proprietary estoppel may arise from promises of an "equivocal nature": cf observations of Slade LJ in Jones v Watkins (CA, unrep'd 26 November 1987, cited by Robert Walker LJ in Gillett v Holt [2000] 3 WLR 815, 829-830). It may arise even though "there is nothing like a bargain as to what particular interest is to be granted, or when it is to be granted, or by what type of disposition it is to be granted" (per Robert Walker LJ in Gillett v Holt, at p.834D). Through the means of proprietary estoppel, "relief can be granted although the arrangement or understanding between the parties was not sufficiently certain to be enforceable as a contract, and .... the court has a wide, albeit of course judicial discretion to what extent relief should be given and what form it should take": per Goff J in Holiday Inns v Broadhead (1974) 232 EG 951.

  86. In the present case, Baird's complaint is that M&S did not honour mutual understandings with M&S and/or assurances given by M&S. It is a "general principle that a purely gratuitous promise is unenforceable at law or in equity" and -

    Furthermore, even if a purely gratuitous promise is acted upon by the promisee, generally speaking such conduct will not of itself give rise to an estoppel against the promissor; such an estoppel would be inconsistent with the general principle that purely gratuitous promises will not be enforced.

    See per Robert Goff J in Amalgamated Investment at p.106B, citing Combe v Combe [1951] 2 KB 215. In Combe v Combe a husband had promised his wife to allow her £100 a year free of tax, without his wife furnishing any consideration for the promise. On his failing to pay, she sued on the promise. She failed, because the Court of Appeal (including Denning LJ) refused to treat the principle in Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 as extending to cover such a case.

    That principle, Denning LJ said at p.219:

    .... does not create new causes of action. It only prevents a party from insisting upon his strict legal rights, when it would be unjust to allow him to enforce them, having regard to the dealings which have taken place between the parties.

    Later, at p.220, Denning LJ amplified this point:

    Seeing that the principle never stands alone as giving a cause of action in itself, it can never do away with the necessity of consideration when that is an essential part of the cause of action. The doctrine of consideration is too firmly fixed to be overthrown by a side-wind.

    Birkett and Asquith LJJ both agreed and gave separate judgments, the former adopting the "vivid" aphorism that had been deployed by the husband's counsel, that the principle is "one to be used as a shield and not as a sword".

  87. How far an estoppel may assist in bringing about a cause of action, without standing alone as "a cause of action in itself", has remained a matter of dispute over subsequent years. It may enlarge the effect of an agreement, by binding parties to an interpretation which would not otherwise be correct: see e.g. De Tchihatchef v Salerni Coupling Ltd [1932] 1 Ch 330; The Karen Oltmann [1976] 2 Ll.R. 708; and per Robert Goff J in Amalgamated Investment at p. 106A. In the Amalgamated Investment case itself, Lord Denning MR and, on the view I would prefer, Brandon LJ held that both the company and the bank were bound by their conventional treatment of the company's guarantee of its subsidiary's indebtedness to the bank as extending to such subsidiary's indebtedness to the bank's subsidiary (Portsoken), thus entitling the bank to set up sums due under the guarantee, read in this extended sense, against the obligation that it otherwise had to account to the company for realisations which it had made.

  88. In The Henrik Sif [1982] 1 Ll.R. 456, Webster J held that defendant charterers had estopped themselves from denying that they were parties to what would otherwise have been no more than owners' bills of lading. He described the three alternative bases on which he relied as estoppel by silence or acquiescence, promissory estoppel and general equitable estoppel, adding that estoppel by convention might well also have been available. Some of Webster J's reasoning, read literally, comes close to saying that any conventional conduct objectively intended to affect legal relations may estop the parties from denying that it has that legal effect. He himself (in Shearson Lehman Hutton Inc. v Maclaine Watson & Co Ltd [1989] 2 Ll.R. 570, 596, 604) later withdrew the suggestion that there was any separate general category of equitable estoppel. Mr Brindle QC challenged the correctness of The Henrik Sif root and branch. The decision must, however, be viewed in its context. There was an undoubted legal relationship, contained or evidenced in the bill of lading contracts – whoever were the parties thereto. The conduct relied upon bound the charterers to accept that they were one of such parties. I see no reason to doubt the outcome.

  89. The doctrine of apparent or ostensible authority also rests on the ability of an estoppel to preclude a person (A) who has held out another person (B) as his agent to a third person (C) from denying the existence of such authority or therefore the validity of a contract purportedly made by B on A's behalf with C. A may also estop himself after the event from denying that B was acting as his agent in contracting with C: Spiro v Lintern [1973] 1 WLR 1002. But in these situations there is either a purported or an actual legal relationship created by the conduct of B and C, to which A is estopped from denying that he is party. In the former situation, he is estopped from denying the existence of a collateral condition of the validity of such relationship (authority). In the latter, he is estopped from denying that B was acting as his undisclosed agent in making an actual contract.

  90. In the present case, what is submitted is that the law ought to attach legal consequences to a bare assurance or conventional understanding (falling short of contract) between two parties, without any actual contract or third party being involved or affected. The suggested justification is the limitation of the relief claimed to reliance loss. On this submission, the requirements of contract (consideration, certainty and an intention to create legal relations) are irrelevant because no contract is asserted. The requirements of estoppel (e.g. that is an unequivocal promise to found a promissory estoppel or conventional conduct of sufficient clarity to found an estoppel by convention and, secondly, the objective intention to affect some actual or apparent pre-existing legal relationship) are by-passed by the limitation of relief. But no authority in this jurisdiction supports the submission that estoppel can here achieve so expanded an application, simply by limiting recovery to reliance loss (assuming that reliance loss could anyway be distinguished satisfactorily from expectation loss – an apparent difficulty which I have already mentioned). Any development of English law in such a direction could and should, in my view, now take place in the highest court.

  91. It is also, on authority, an established feature of both promissory and conventional estoppel that the parties should have had the objective intention to make, affect or confirm a legal relationship. In Combe v Combe, all three judges, echoing what Denning J had said in High Trees, referred to the need for a promise or assurance "intended to affect the legal relations between them" or "intended to be binding" (per Denning LJ at p.220, Birkett LJ at p.224 and Asquith LJ at p.225); see also per Oliver LJ in Spence v Shell UK Ltd [1980] 2 EGLR 68, 73E. In Amalgamated Investment at p. 107B, Robert Goff J touched on the same point, when distinguishing cases where parties had represented a transaction to have an effect it does not have (e.g. De Tchihatchef) as follows:

    Such cases are very different from, for example, a mere promise by a party to make a gift or to increase his obligations under an existing contract; such promise will not generally give rise to an estoppel, even if acted on by the promisee, for the promisee may reasonably be expected to appreciate that, to render it binding, it must be incorporated in a binding contract or contractual variation, and that he cannot therefore safely rely upon it as a legally binding promise without first taking the necessary contractual steps.

  92. A similar theme is involved in the distinction touched on by Robert Walker LJ in Gillett v Holt at p.831G between "a mere statement of present (revocable) intention, and .... a promise".

  93. As I have already said, the fact that there was never any agreement to reach or even to set out the essential principles which might govern any legally binding long-term relationship indicates that neither party can here objectively be taken to have intended to make any legally binding commitment of a long-term nature, and the law should not be ready to seek to fetter business relationships with its own view of what might represent appropriate business conduct, when parties have not chosen, or have not been willing or able, to do so in any identifiable legal terms themselves. These considerations, in my judgment, also make it wrong to afford relief based on estoppel, including relief limited to reliance loss, in the present context.

  94. In support of his case, Mr Field seeks to liberate recognised principles of proprietary estoppel from the confines of that field, and use them to fertilise a more general development of equitable estoppel. He refers to English cases such as in Jones v Watkins, Gillett v Holt and Holiday Inns v Broadhead. He also relied on the reasoning of the Australian cases of Waltons Stores (Interstate) Ltd v Maher (1987-88) 164 CLR 387 and The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 as pointing the road to development of English law.

  95. On this basis, he submits that there is no need for any unequivocal assurance as to, or any clear conventional definition of, the conduct to which M&S are to be bound; and that "proportionate" compensation can be awarded on a reliance basis on the broad assessment by the court of what is equitable. The principles to this effect stated in English cases such as in Jones v Watkins, Gillett v Holt and Holiday Inns v Broadhead were, however, stated in contexts where the parties either envisaged that rights already existed or contemplated and intended that they would be created by a future contract. This was also the case in Waltons Stores, where a landowner was encouraged by a potential lessee to undertake major demolition works on his own land on the firm (though in law, under an equivalent provision to the Statute of Frauds, unenforceable) understanding that a draft lease in agreed form, requiring such demolition and construction of a new building, would actually be executed. In the present case, special and unusually close though the business relationship was, it was between parties who neither made nor, objectively, intended to make any further contracts beyond the seasonal and design contracts to which I have already referred. They must be taken to have been well-aware of the legal significance of contracting or not contracting. Mr Field accepted that the question was ultimately one of risk. In my view, these considerations indicate that the risk fell on Baird in the present situation.

  96. There is also in this court binding authority that the scope of proprietary estoppel (leaving aside cases of mistaken belief as to the existence of current rights) does not extend beyond cases where A to the knowledge of B acts to his detriment in the expectation, encouraged by B, of acquiring a right over B's land or (probably) other property, such expectation arising from what B has said or done: Western Fish Products v Penwith DC [1981] 2 AER 204, 217-9. In that case, it was insufficient that the plaintiffs acted to their detriment in developing their own land as a manufactury, in the belief that the District Council accepted that there was an established use for that purpose and would be prepared to give planning permission on that basis. The present case is not a case of encouragement of Baird to act to its detriment in respect of its own land or other property. It is also not a case of mistaken belief as to existing rights.

  97. It does not, I think, follow axiomatically from Western Fish that this court could not and would not reach a result similar to that reached in Waltons Stores, even though not by the same reasoning. There was in Waltons Stores complete agreement on the terms of the lease. The agreement was merely unenforceable for want of compliance with the statute. It may be arguable that recognition of an estoppel here would not be to use estoppel "as giving a cause of action in itself", and it would certainly not be to undermine the necessity of consideration. Rather, it would preclude the potential lessee from raising a collateral objection to the binding nature of the agreed lease (which was also effectively the reasoning of some of the members of the High Court of Australia: cf headnote para. (2) on p.389). The High Court of Australia's decision in The Commonwealth of Australia v Verwayen (where, after assurances by the Commonwealth that it would not plead either a limitation defence or absence of any duty of care, the Commonwealth was held estopped from later relying on either defence) could well also be reached under English law, without adopting the High Court of Australia's reasoning. I note the view of Prof. Treitel to like effect in Chitty on Contracts (28th ed.) Vol. 1 paras. 3-095, footnote 32 and 3-099 footnote 63.

    CONCLUSION

  98. In the result, I consider that, at all events as the law presently stands in this court, the claims that Baird is pursuing based on both contract and estoppel have no real prospect of success, and that, rather than put on the parties the burden of a lengthy trial to investigate the facts in full detail, we should give effect now to this conclusion. If the matter is to go further, it can only be as a result of a successful appeal to the House of Lords and a different analysis there of the law or of its potential application in circumstances such as the present.


Cases

The Aramis [1989] 1 Ll.L.R 213; The Elli [1985] 1 Ll.R. 107; Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195; Wilson v Partenreederei Hannah Blumenthal [1983] AC 854; The Gudermes [1993] 1 Ll.R.311; Carmichael v National Power plc [1999] 1 WLR 2042; First Energy (UK) Ltd v Hungarian International Bank [1993] 2 Ll.R. 194; Abrahams v Reiach Ltd [1922] 1 KB 477; Paula Lee v Robert Zehil & Co Ltd [1983] 2 AER 390; Hillas v Arcos (1932) 147 LT 503; Australian Blue Metal Ltd v Hughes [1963] AC 74; Abrahams v Reiach Ltd [1922] 1 KB 477; Combe v Combe [1951] 2 KB 215; Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84; Western Fish Products Ltd v Penwith District Council [1981] 2 AER 204; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; Commonwealth of Australia v Verwayen (1990) 170 CLR 394; Johnson v Gore Wood & Co [2000] All ER (D) 2293; First National Bank v Thomson [1996] Ch. 2311; McIlkenny v Chief Constable of the West Midlands [1980] 1 QB 283; Hughes v Metropolitan Railway Co (1877) 2 App.Cas.439; Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130; Taylor's Fashions v Liverpool Trustees [1982] QB 133; Habib Bank v Habib Bank [1981] 1 WLR 1265; The Hendrik Sif [1982] 1 Ll.R. 456; Holiday Inns v Broadhead (1974) 232 EG 951; Re Basham [1986] 1 WLR 1498; Gillett v Holt [2000] 3 WLR 815; Woodhouse AC Israel Cocoa Ltd v Nigeria Produce Marketing Co Ltd [1972] AC 741; Troop v Gibson [1986] 1 EGLR 1; Hamid v Secretary of State for the Home Department [1993] Imm AR 216; Bristol & West BS v Turner [1991] 2 EGLR 52; Willoughby v Eckstein [1936] 1 All ER 650; Derby v Weldon (No.3) [1989] 3 All ER 118; Kleinwort Benson Ltd v Lincoln CC [1999] AC 349; Plimmer v Wellington [1884] 9 App CAS 699; Barrett v Enfield LBC [1999] 3 WLR 79; Sanders v Maclean (1883) 11 QBD 327; Habib Bank v Habib Bank [1981] 1 WLR 1265; Jones v Watkins (CA, unrep'd 26 November 1987); De Tchihatchef v Salerni Coupling Ltd [1932] 1 Ch 330; The Karen Oltmann [1976] 2 Ll.R. 708; The Henrik Sif [1982] 1 Ll.R. 456; Spiro v Lintern [1973] 1 WLR 1002.

Legislations

CPR: R. 3.4, R. 24.2

Authors and other references

Prof. Treitel to like effect in Chitty on Contracts (28th ed.) Vol. 1

Chitty on Contracts (28th Ed.) Vol. 1

Representations

Mr. Richard Field Q.C. and Mr. Charles Béar for the Claimants (instructed by Messrs Herbert Smith)

Mr. Michael Brindle Q.C. and Mr. Andrew Burrows for the Defendants (instructed by Messrs Freshfields Bruckhaus Deringer)


all rights reserved