Implied terms and exercising discretion to act in ‘good faith’
YILPORT v BUXCLIFF [2012]
The Court was asked to look at implied terms and the restrictions on the exercise of contractual discretion specifically in relation to the contract charges. In some ways this is an interesting contrast to the decision in the SNCB v UBS case which dealt with similar issues.
Facts:
- The case concerned a ship called ‘The Verlaine’ which was damaged in a collision with another ship. Arrangements were made for the ship to make an unscheduled visit to a port in Turkey, Yilport, where it would offload some of its containers. The agreement to allow the ship to dock was documented in a Letter of Intent (‘LOI’), although seemingly there was no discussion or agreement as to the extent of Y’s charges.
- Under the LOI the ship owners confirmed that they would “remain responsible for payment of all charges levied in accordance with the terms and conditions of Yilport”. Those terms and conditions provided that “tariffs for damaged containers and vessels will be determined by Yilport on a case by case basis depending upon the severity of the problem”.
- The judge interpreted ‘tariffs’ to mean actual charges and the question arose as to the extent of Y’s discretion in levying charges.
Decision:
- Where a party to a contract has discretion to fix rates and charges, the Court held that that does not mean that the party’s decisions could be questioned only if the decisions were so unreasonable that no person acting reasonably could have made them. In the context of an agreement to pay ‘all charges’, the judge implied a term that the charges had to be ‘reasonable’ in the circumstances.
Points to Note:
- This was undoubtedly something of an exceptional case due to the emergency situation that the ship owners found themselves in and the fact that in such circumstances it is apparently not unusual for the charges to be agreed retrospectively.
- This ruling perhaps suggests that discretion to fix prices is a special and somewhat exceptional situation where the Courts are prepared to intervene more actively. Whilst it will be relatively rare for a business to have reserved the right to fix or uplift prices in its discretion, where that is the case it seems that the contracting party will have to justify the objective reasonableness of the charges which it seeks to make.