Baird Textile Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ 274

Marks & Spencer abruptly terminated a 30-year supply relationship with Baird Textiles without notice. Baird claimed an implied contract and estoppel required reasonable notice. The Court of Appeal held neither claim had real prospects of success, affirming contractual certainty requirements and that estoppel cannot create a cause of action outside property contexts.

Facts

Baird Textile Holdings Ltd (“Baird”) had been one of the principal suppliers of garments to Marks & Spencer plc (“M&S”) for approximately 30 years. On 19 October 1999, without warning, M&S terminated all supply arrangements with effect from the end of the then-current production season. Business with M&S represented 30-40% of Baird’s total turnover, with annual supplies valued at over £200 million.

The commercial relationship was exceptionally close, characterised by what Sir Richard Greenbury described as a “special partner relationship” and by Mr Joe Rowe as a “partnership” in the “spirit of co-operation” rather than in the legal sense. M&S deliberately abstained from concluding any express long-term contract, preferring the flexibility afforded by seasonal ordering arrangements.

Baird commenced proceedings on 10 January 2000, contending that M&S was precluded by contract and estoppel from terminating without reasonable notice (pleaded at three years), claiming £38.5m for lost profits and £15.1m for anticipated expenditure. M&S applied under CPR Rule 24.2 for summary judgment. Morison J dismissed the contract claim but allowed the estoppel claim to proceed to trial. Both parties appealed.

Issues

• Whether Baird had a real prospect of succeeding on its claim based on an implied contract that the relationship was terminable only on reasonable notice and required M&S to acquire reasonable quantities of garments at reasonable prices.
• Whether Baird had a real prospect of succeeding on its estoppel claim, or whether any compelling reason existed for trial.

Arguments

Baird’s submissions

Baird argued that M&S’s conduct induced a belief of a long-term relationship terminable only on reasonable notice. On contract, Baird contended that necessity was not the correct test for implying a contract from conduct, that an intention to create legal relations was demonstrable, and that the obligations were sufficiently certain through the implication of reasonableness. On estoppel, Baird submitted that English law should avoid rigid categorisation of estoppels, should permit cross-fertilisation between categories, and should follow the High Court of Australia in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 in permitting estoppel to create causes of action beyond proprietary contexts. Baird limited its estoppel claim to reliance loss rather than expectation loss.

M&S’s submissions

M&S argued that the test for implying a contract from conduct was necessity, that the alleged obligations lacked sufficient certainty, and that paragraph 9.28 of the Particulars of Claim (admitting M&S deliberately abstained from express contracts) was inconsistent with any intention to create legal relations. On estoppel, M&S relied on three Court of Appeal authorities establishing: (1) common law/promissory estoppel cannot create a cause of action (Combe v Combe); (2) estoppel by convention cannot create a cause of action (Amalgamated Investment); and (3) proprietary estoppel is limited to property rights (Western Fish Products).

Judgment

Contract claim

The Vice-Chancellor held that the correct test for implying a contract from conduct was necessity, as established in The Aramis [1989] 1 Ll.L.R 213, Blackpool and Fylde Aero Club, The Hannah Blumenthal, and The Gudermes. It would be inconsistent to adopt a test of necessity for implying terms but a more relaxed test for implying the contract itself.

The crucial issue was certainty. Applying the principles from Hillas v Arcos (1932) 147 LT 503 and Australian Blue Metal Ltd v Hughes [1963] AC 74, the Court distinguished between cases where the contract provides an objective standard of reasonableness and those where reasonableness would require the court to make a bargain for the parties. The alleged obligation on M&S to acquire garments “in quantities and at prices which in all the circumstances were reasonable” was held insufficiently certain because there were no objective criteria to assess reasonableness. Baird accepted that M&S did not allocate business according to any predetermined formula.

The lack of certainty confirmed the absence of intention to create legal relations. Paragraph 9.28 of the claim, admitting M&S deliberately abstained from express contracts to maintain flexibility, further undermined any implication. Mance LJ added that the inclusion of duties of good faith was an additional barrier, given English law’s general refusal to recognise such implied terms.

Estoppel claim

The Court of Appeal reversed Morison J on the estoppel claim. The Vice-Chancellor held that English law, as presently understood, does not permit the creation of an enforceable right of the type claimed by estoppel. First, the alleged obligation lacked sufficient certainty, applying Woodhouse AC Israel Cocoa Ltd v Nigeria Produce Marketing Co Ltd [1972] AC 741. Second, the three Court of Appeal authorities relied upon by M&S established that such an enforceable obligation cannot be created by estoppel outside proprietary contexts.

The possibility that the House of Lords might adopt the Australian approach in Waltons Stores was not a sufficient reason to allow the case to proceed. The Court of Appeal was bound to apply the law as it stands.

Judge LJ agreed, noting that development of the law would not normally justify a case proceeding to trial, and that “we must apply the law as it is, not as it may possibly one day become.” Mance LJ conducted a detailed analysis of the distinction between expectation and reliance loss, finding difficulty in differentiating them on the pleaded facts, and emphasised that estoppel requires an objective intention to affect a legal relationship, which was absent here.

Implications

The decision affirms several important principles. First, the test for implying a contract from conduct remains one of necessity: the conduct must be inconsistent with there being no contract. Second, commercial relationships, however close and long-standing, will not give rise to implied contracts where essential obligations cannot be defined with sufficient certainty by reference to objective criteria. Mance LJ’s observation that the law should not “fetter business relationships” with judicially-determined standards when parties have not chosen to commit themselves in identifiable legal terms is significant.

Third, and most importantly for the law of estoppel, the Court of Appeal confirmed (as the law then stood) that: promissory estoppel cannot found a cause of action; estoppel by convention cannot found a cause of action; and proprietary estoppel is limited to rights and interests in land and possibly other property. The Court declined to follow the Australian approach in Waltons Stores, leaving any such development to the House of Lords.

The decision is significant to commercial parties in long-term supply relationships: the existence of a close, trusting business “partnership” does not by itself generate enforceable legal obligations regarding termination or future business. Parties who wish for such protection must secure it through express contractual arrangements. The case also provides guidance on the CPR 24.2 summary judgment procedure, confirming that the possibility of appellate development of the law is not ordinarily a compelling reason for trial.

The judgment leaves open the possibility that the House of Lords might reconsider the boundaries of estoppel, and Judge LJ expressly suggested that Baird might seek permission to appeal there. The limits of the decision include its grounding in particular pleaded facts—especially paragraph 9.28’s admission of deliberate avoidance of express contracts—and the insufficiency of the certainty in the obligations claimed.

Verdict: The appeal was dismissed and the cross-appeal allowed. Paragraphs 1 and 2 of the claim form were struck out. The Court of Appeal held that Baird had no real prospect of succeeding on either the contract or estoppel claim, and there was no compelling reason for trial. Permission to appeal to the House of Lords was refused.

Source: Baird Textile Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ 274