COURT OF APPEAL (CIVIL) DIVISION
ON APPEAL FROM MR. JUSTICE MORISON
Strand, London, WC2A 2LL
Wednesday 28th February 2001
B e f o r e :
LORD JUSTICE JUDGE
LORD JUSTICE MANCE
| BAIRD TEXTILE HOLDINGS LIMITED
|- and -
|MARKS & SPENCER plc
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr. Michael Brindle Q.C. and Mr. Andrew Burrows (instructed by Messrs Freshfields Bruckhaus Deringer 65, Fleet Street, London EC4Y 1HS) for the Defendants
Crown Copyright ©
THE VICE CHANCELLOR :
"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."
"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."
"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."
"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.
"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."
"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."
"(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."
"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 & Others (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."
"...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."
"..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."
"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.
"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..."
"..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.
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."
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.
"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  2 EGLR 52, 54 that the duty of this court is to apply the law as it stands. See also Willoughby v Eckstein  1 All ER 650 and Derby v Weldon (No.3)  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.
Lord Justice Judge:
"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."
"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."
"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 Limited v Liverpool Victoria Trustees Co Limited noted at  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  1 QB 283, and his description of the House "called Estoppel", with its many rooms)
"...... (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."
"…. 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."
"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."
"…. 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".
"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.
"…. 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".
"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."