Certainty, Completeness, and Contractual Machinery in Contract Law
Introduction to Certainty and Completeness
Certainty and completeness represent a distinct requirement for valid contract formation. While some legal scholars and sources conceptualize these elements as inherent to the process of offer and acceptance—viewing them as an offer and acceptance on specifically complete and certain terms—this course treats them as a standalone category. conceptually, the doctrine dictates that the terms of a contract must be sufficiently certain and complete for a court to determine the content of the agreement. Without this clarity, a court cannot know what terms of the contract are being enforced. This topic is considered more conceptually difficult than previous topics like the intention to create legal relations, as it requires an understanding of how the court balances the subjective intent of parties with objective standards of determination.
The General Approach: Wellington City Council v Body Corporate 51702
The fundamental modern approach to certainty and completeness is found in the Court of Appeal decision in Wellington City Council v Body Corporate 51702. In this case, Justice Tipping articulated that the essence of common law contract theory is consensus. For a contract to be enforceable, the parties must reach a consensus on all essential terms. However, Justice Tipping provided an alternative pathways to satisfying this requirement: if the parties have not explicitly agreed on every term, they must have at least agreed upon objective means of sufficient certainty by which those terms can be determined. These objective means may be expressly stated in the agreement or implied based on the explicit terms already present.
Application to Price Terms
Price is almost universally considered an essential term in any sale contract. Agreement on price can manifest in several ways with varying degrees of certainty. Theoretically, if a seller offers a car for and the buyer agrees, consensus is achieved. However, certainty is also maintained if the parties agree on a formula rather than a static figure. For example, an agreement to sell a pile of coal at a rate of is sufficiently certain; as long as the quantity of coal can be measured, the total price is mathematically determinable.
Similarly, agreeing to a price based on market value is generally considered sufficiently certain, provided a functioning market exists for the subject matter. In such cases, if a dispute arises, a court can resolve the price by reviewing evidence from each party regarding the objective market value at the relevant time. Another method is the process of valuation, such as a contract specifying that each party selects a valuer, and if they disagree, a third-party umpire or arbitrator is brought in to make a final determination. These are examples of objective means that allow the court to find the contract enforceable.
Conversely, a price that is left for later subjective agreement—such as a clause stating the sale is at a price agreeable to the parties or to be agreed by the parties—is unenforceable. Justice Tipping emphasized that if price depends on later subjective agreement without objective machinery, the contract fails. Interestingly, if a contract is entirely silent as to price but the parties clearly intended to be immediately bound, the court may imply a term of a reasonable price. In these instances, the court infers that the parties intended for a market-value exchange and will enforce the contract by determining what that reasonable price should be.
The General Approach: Fletcher Challenge Energy and ECNZ
A contemporaneous Court of Appeal decision, Fletcher Challenge Energy v ECNZ, provides a parallel framework for assessing contract formation. Justice Blanchard identified two prerequisites: first, an intention by the parties to be immediately bound at the point of the bargain; second, an agreement (express or implied) or a means of achieving agreement on every term that is legally essential or regarded by the parties as essential. A term is considered essential if one party maintains that agreement on that specific point is mandatory and communicates this to the other party.
Justice Blanchard's second prerequisite explicitly includes the concept of contractual machinery. This refers to a process within the contract—such as an arbitration clause—designed to resolve disagreements or determine terms. For instance, if parties cannot agree on the content of a specific term, they may refer the matter to an arbitrator who provides a final, binding ruling. This machinery provides the means of achieving an agreement that satisfies the certainty requirement.
Concepts of Incompleteness
Incompleteness refers to situations where a term is entirely missing from the agreement. In the Fletcher Challenge case, the court examined a heads of agreement document that was missing three key terms: two were not agreed upon at all, and one was marked to be agreed. Although the court ultimately found that the parties did not intend to be bound by the document (failing the first prerequisite), the majority of the court analyzed the second prerequisite to determine if the agreement would have been complete enough to function as a contract.
The court demonstrated a strong inclination to make a contract work if the parties intended to be bound. In the context of the heads of agreement, the court suggested that even with missing or incomplete clauses, they might have severed unimportant parts or determined the parties' intent through the surrounding commercial context. This techical and complex commercial analysis illustrates that courts prefer to uphold agreements where a clear intention to be bound exists, rather than striking them down for minor gaps.
Vagueness and Uncertainty
While incompleteness involves missing terms, vagueness or uncertainty involves terms that are present but lack clear meaning. The English House of Lords case of G. Scammell and Nephew Ltd v Ouston (referred to by the speaker as Scammell and Alston) involved the purchase of a van with a trade-in and a provision that the balance of the price be paid on higher purchase terms over two years. Because there were numerous variations of higher purchase terms and no specific layout for the installment plan, the court found the agreement too uncertain to be enforced.
In contrast, the New Zealand High Court case of White v RR Ventures 2018 Limited dealt with a sunset clause in a land subdivision contract that simply read sunset clause twelve months. The court found this term had no standard meaning and was uncertain regarding when the twelve-month period commenced and what events triggered termination. However, the court did not void the entire contract. Because there were underlying statutory rules regarding the termination of contracts for unsubdivided land that achieved a similar effect, the court deemed the specific clause minor or redundant and severed it, allowing the rest of the contract to stand.
Finally, in the Fletcher Challenge case, a clause stating that gas would be delivered only if economic was challenged. Despite its seemingly vague nature, the court determined that an objective standard could be found to define what was economic in that commercial context, thereby making the term sufficiently certain for enforcement.
Contractual Machinery in Attorney General v Barker Brothers
The decision in Attorney General v Barker Brothers illustrates how contractual machinery can resolve uncertainty in essential terms. The case involved the lease of land in the Chatham Islands used as an airstrip. The existing lease contained Clause 2, which gave the Crown an option to renew for five years on terms to be agreed upon by the parties, provided the rent was not less than the original lease (). It also contained Clause 18, a general arbitration clause for any difference or dispute arising from the contract.
When the government tried to renew, the landlord requested , which the Crown rejected, prompting an attempt to trigger arbitration. The landlord argued Clause 2 was merely an agreement to agree and lacked certainty. The Court of Appeal, led by President Richmond, held that the presence of the arbitration clause (Clause 18) provided the necessary machinery to determine the rent if the parties could not agree. The court noted that the provision in Clause 2 stating the rent could not be less than the original amount would be pointless if the parties did not intend the renewal right to be a binding, legally effective option. Thus, Clause 18 fixed the uncertainty of Clause 2.
Questions & Discussion
During the lecture, the question arose regarding the specificity of the third-party valuation process. It was clarified that the degree of detail regarding the third party depends entirely on the initial agreement. Parties can name a specific person in advance, establish a process for mutual agreement on a person, or designate an external organization or individual to choose the third party on their behalf. This setup is established within the contract's original terms.
Exam Practice Case Study: Cheese Manufacturing Ltd v Pickle Engineering Ltd
In a hypothetical exam scenario, Gerald (CEO of Cheese Manufacturing Limited) and Manaya (CEO of Pickle Engineering Limited) engage in negotiations for a manufacturing line refit. Pickle Engineering provides a detailed quotation on Wednesday, May 7, stipulating that it is an offer binding upon acceptance, valid until on May 14. The quote specifies a prescribed mode of acceptance: signing and emailing an accompanying form to a specific sales email address and explicitly states that no information system is designated under the Contract and Commercial Law Act 2017.
Gerald attempts to accept in two ways: first, by a simple email sent to Manaya's personal email on May 12, and second, by scanning the prescribed form to the correct sales address at on May 14. Manaya later claims on May 15 that the first attempt violated the prescribed mode and the second was received too late, as she only read it the following morning.
Key live issues for analysis in this scenario include the identification of the valid offer (which is clearly stated in the prompt), the rules regarding prescribed modal forms of communication, and the determination of when electronic communication of acceptance becomes effective. In an exam context, students are encouraged to provide a neutral legal opinion rather than biassed advice. The structure should include an overarching introduction and conclusion, with sections dedicated to the offer and each of the two acceptance attempts, applying law to facts concisely to address the issues likely to be in dispute.