Durham Tees Valley Airport Ltd v bmibaby Ltd
Court of Appeal
Citations:  EWCA Civ 485;  1 All ER (Comm) 731;  1 Lloyd’s Rep 68; (2010) 154(18) SJLB 28;  CLY 545.
The defendant was a low-cost airline and the successor to the ‘bmi baby’ brand formerly run by its predecessory company, BMRL. The claimant was the owner of Durham Tees Valley Airport. They sought to attract low-cost airlines to its airport and otherwise raise revenue. To this end, it began negotiating BMRL for a ‘base’ contract – a contract in which the airline could keep its planes at the airport overnight.
In 2003, BMRL and the claimant reached an agreement. The contract included various obligations on both parties to use ‘best endeavours’ to achieve various goals. It also included a clause requiring the parties to agree on a flight plan for 2005, but otherwise granted BMRL considerable discretion in running business from the airport. In December 2005, this contract was taken over by the defendant through novation.
The operation ran a loss, so the defendant withdrew its operations in November 2006. The claimant sued for breach of contract. They alleged that the contract required the defendant to operate two aircraft at the airport. The defendant therefore breached the contract by withdrawing operations. Alternatively, the claimant argued that the defendant was in breach of an implied term. This implied term required the defendant to operate their aircraft in ‘a manner which was reasonable in all the circumstances.’
The defendants argued that the contract was merely permissive – it allowed, but did not require them, to operate the aircraft. If the contract did require them to operate the aircraft, they contended it was void for uncertainty. This was because the contract did not specify the minimum number of flights. The defendants also thought that the contract was an unenforceable ‘agreement to agree’, because it required the parties to agree on a flight plan.
- Did the contract make operating the aircraft mandatory?
- Would such an obligation be too uncertain to be enforced?
- Was the contract an unenforceable ‘agreement to agree’?
The court held that:
- The effect of the contract was mandatory, not permissive. The defendant’s proposed construction of the contract did not accord with commercial common sense.
- The contract was not an unenforceable agreement to agree. The flight program clause was not an essential term of the contract.
- There was no need for a term specifying the minimum number of flights to render the contract sufficiently certain. The claimant’s proposed implied term was also unnecessary. The contract specified that the first defendant had to fly their aircraft commercially and that each plane should on any given day leave and return at least once. Based on this, the court had sufficient objective criteria to determine whether the defendants were in breach of contract. This would depend on whether they were, ‘in a real and genuine sense, flying [their] aircraft’. The complete absence of flights would be a breach of contract. The contract was not void for uncertainty.
Since the first defendant had completely stopped flights, they were in breach of contract.
This Case is Authority For…
Patten LJ explained the test for certainty in English law:
‘For a contract to be enforceable the court has to be able to say whether any particular standard of performance is or is not a breach of contact and, if a breach exists, to determine what measure of damages is appropriate.’
Where there are objective criteria for determining whether there is a breach, it may be possible to hold a contract sufficiently certain.
‘Where such criteria exist and are ascertainable then a term of reasonableness is often implied in order to incorporate them as the measure of performance required under the contract.’
However, this is not necessary if the contract provides its own metrics for determining what the parties’ obligations are.
The court explained that for the purposes of assessing damages, the claimant is entitled to be put in the position they would have been in had the contract not been breached. To do this, the court will usually compare the existing facts to a world in which the defendant complied with the contract, but did no more than he was contractually obliged to do. If the contract gives the defendant a choice between two ways of discharging the contract, the court will assume that he will choose the option least onerous to them.
More complicated are cases like this where the defendant is granted a broad discretion as to how to act, subject to a minimum floor. In these cases, the court will not assume that the defendant would have complied with the contract by doing the bare minimum. Patton LJ explained that:
‘…the court has to look at the relevant economic and other surrounding circumstances to decide on the level of performance which the defendant would have adopted…[it] must assume that the defendant would not have acted outside the terms of the contract and would have performed it in his own interests having regard to the relevant factors prevailing at the time. But the court is not required to make assumptions that the defaulting party would have acted uncommercially merely in order to spite the claimant. To that extent, the parties are to be assumed to have acted in good faith although with their own commercial interests very much in mind.’