Home Page | Cases | ANZ v Frost

ANZ v Frost Holdings Pty Ltd

Supreme Court of Victoria (Full Court) [1989] VR 695

Overview

This case revolved around whether negotiations between ANZ and Frost Holdings regarding the production of a calendar produced an agreement that was sufficiently certain to constitute a contract.

 

Facts

CalendarFrost (plaintiff/respondent) submitted a proposal to ANZ (defendant/appellant) pursuant to which Frost Holdings would put together a collection 12 paintings which they would then produce as calendars and make available for retail sale by ANZ.

Frost argued that ANZ accepted the propsal and later prepudiated the agreement.

ANZ argued that there was no agreement and, if there was, it was not legally binding, being no more than an agreement in principle to consider the proposal further and that any details discussed were not agreed with sufficient certainty to give rise to contractual obligations.

 

Held (trial judge)

Held there was an enforceable agreement and awarded damages.

Held (Kaye J)

Question was whether there was a binding an enforceable contract.

Justice Kaye held that there was not.

  • There was no agreement on essential terms. 
  • Where a ‘relevant or critical term’ requires future agreement it is not enforceable. 
  • It is ok to agree that part of the a contract will be settled by a third party (or by a third party arbitrator if parties cannot agree) – because all the matters between the parties have been settled.
  • Here there was absence of agreement ‘concerning the style, size, quality and price of the proposed calendar’.

His Honour's judgment included the following statements (my emphasis):

[page 700] ... on 16 April there was no agreement between the parties upon essential terms of the plaintiff's proposals.

"It is a first principle of the law of contracts that there can be no binding and enforceable obligation unless the terms of the bargain, or at least its essential or critical terms, have been agreed upon. So, there is no concluded contract where an essential or critical term is expressly left to be settled by future agreement of the parties"; per Sugarman J in the Full Court of the Supreme Court of New South Wales, quoted on appeal with approval by Menzies J in Thorby v Goldberg (1964)112 CLR 597, at 607. See also May and Butcher Ltd v R (HL) [1934] 2 KB 17, at 20, per Lord Buckmaster and, at 22, per Lord Warrington.

An agreement by a term of which a relevant or critical term will be the subject of future agreement between the parties is not enforceable. This general principle of the law of contract was stated by Viscount Dunedin in May and Butcher Ltd v R, at 21 in the following passage: "To be a good contract there must be a concluded bargain, and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing [701] to be settled by agreement between the parties. Of course it may leave something which still has to be determined, but then that determination must be a determination which does not depend upon the agreement between the parties. In the system of law in which I was brought up, that was expressed by one of those brocards of which perhaps we have been too fond, but which often express very neatly what is wanted: `Certum est quod certum reddi potest.' Therefore, you may very well agree that a certain part of the contract of sale, such as price, may be settled by someone else. As a matter of the general law of contract all the essentials have to be settled. What are the essentials may vary according to the particular contract under consideration. We are here dealing with sale, and undoubtedly price is one of the essentials of sale, and if it is left still to be agreed between the parties, then there is no contract."

Referring to the same principle of law, Lord Wright in Scammell and Nephew Ltd v Ouston [1941] AC 251, at 268-9 stated: "There are many cases in the books of what are called illusory contracts, that is, where the parties may have thought they were making a contract but failed to arrive at a definite bargain. It is a necessary requirement that an agreement in order to be binding must be sufficiently definite to enable a court to give it a practical meaning. Its terms must be so definite, or capable of being made definite without further agreement of the parties, that the promises and performances to be rendered by each party are reasonably certain."

No doubt the principle is founded on recognition that the parties might subsequently fail to agree upon the undecided term, and that in such event the agreement would fail for want of agreement concerning a relevant term.

The situation is distinguished from a contract made by parties leaving an essential term to be agreed upon by them, and if they fail to agree the disputed term is to be determined by a third party or by arbitration. Such was the situation in Foley v Classique Coaches Ltd [1934] 2 KB 1, where a term of a supplemental agreement to an agreement for the sale of land provided that the purchasers would buy from the vendor, who was the proprietor of a petrol station situated on the land, all of his supplies of petrol from the vendor of the land at a price to be agreed upon by the parties from time to time. The supplemental agreement further provided that any dispute or difference about the subject matter or construction of the agreement should be submitted to arbitration. The judgments of both Scrutton LJ and Greer LJ, holding the supplemental agreement to be valid and binding on the purchasers, proceeded largely upon the existence of the arbitration clause in the supplemental agreement. Scrutton LJ, at 10, stated that the arbitration clause applied to any failure of the parties to agree upon the price of petrol available for supply.

...

[703] In the present case the plaintiff and the defendant neither on 16 April nor at any material time thereafter reached agreement upon all the essential contractual terms of their bargain. In addition to the means of fixing the price per unit, they had not agreed upon matters of design, style, quality and size of paper, and content of the calendar, and the number of calendars to be supplied to the defendant. These were not merely specifications of the calendar. Apart from the quantity to be supplied, those were matters which constituted the subject matter of the negotiations. Differences about those matters were not capable of resolution by implication.

Appeal allowed

Justices Marks and Teague agreed with the reasons of Kaye J and the proposed orders.

 

Further resources