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A STUDY IN CERTAINTY
K. J. Rooms, B.A., Law m, University of Alberta
On January 27, 1959, the Supreme Court of Canada brought down a
decision which could have far reaching effects throughout the Common Law
provinces. The case was Calvan Consolidated Oil and Gas Company Ltd. v.
M. E. Manning.
This case is important not only for what was specifically decided between
the parties, but also for the principle which may be derived from it. Mr. Justice
Judson spoke for the Court and was not embarrassed by dissenting judgments,
or by what is often more troublesome, concurring judgments which remind
one of Stephen Leacock's legendary character who mounts his horse and
rides off in all directions leaving counsel and the lower courts completely
unenlightened.
This case arose out of a very simple set of facts. The Respondent Manning
and the Appellant Calvan were both holders of petroleum and natural gas
permits issued by the British Columbia government. Manning held permit 153
and Calvan permit 120. Early in 1953 the parties entered into negotiations
with regard to their respective permits with a view to exchanging partial
interests. On the 20th of February 1953, Manning made a written offer to
Calvan in which he proposed to transfer a 20% interest in permit 153 to
Calvan in exchange for a transfer of a 20% interest in permit 120 to Manning.
Calvan was to retain the right to deal with permit 120 and three possible
situations were envisioned and provided for.
First, in the case of a sale the owner of the permit would account to the
other for 20% of the proceeds. Secondly it was provided that if the permit
was to be farmed out to a third party Calvan was to have full power of
decision over the terms of the farmout of permit 120 subject to its duty to
preserve Manning's 20% interest as a working interest. Both Manning and
Calvan's interest would abate according to the extent of the third party's
interest. The third situation contemplated was the development of permit 120
by Calvan and in that case both parties would mutually agree to the terms of
the operating agreement and if they could not agree on any particular clause,
then the clause in question would be arbitrated by a single arbitrator pursuant
to "The Arbitration Act of Alberta". It was also agreed that each party
would keep its permit in force for three years, and that a formal agreement
would be drawn up as soon as possible.
This offer was in the form of a letter from Manning to Calvan and was
signed by Manning. Four days later on the 24th of February, 1953 the
following clause was added: "II it agreed that the termi of the formal agreement are to be subject to our mutual agreement and if we are unable to agree, the terms of the agreement are to be settled by arbitration by a tingle arbitrator, pur.uant to 'The Arbitration Act of the Province of Alberta'."
This offer with the amendment was accepted by Calvan.
Both parties carried on under this agreement for a considerable time.
»[1959] S.GR. 253.
Manning sold permit 153 accounting to Calvan for 20% of the proceeds.
From the evidence at trial, there appeared to be no difficulty over this
transaction.
Later Calvan arranged a farmout of permit 120 to Imperial without
Manning's knowledge or acquiescence and at this point the disagreement
arose which ripened into action. Manning claimed that in their farmout
agreement with Imperial Oil, Calvan had derogated from Manning's 20%
working interet, and thus were in breach of their fiduciary duty towards him.
Calvan brought action to have the court declare that the above quoted letter
with amendments did not, nor ever had, constituted a contract. Mr. Justice
Egbert at trial in the Supreme Court of Alberta,2 declared that there never
had been a contract. In the interests of clarity before discussing the various questions arising out
of this case on its journey through the courts, it is necessary to label two
particular terms of the agreement. The arbitration clause which appeared in
the letter of February 20, 1953 referring to the operating agreement will here
inafter be called the first arbitration clause. The arbitration clause referring
to the drafting of a formal agreement which appeared in the amendment of
February 24th, 1953 will be referred to as the second arbitration clause.
The first question to be decided in the action was a familiar one in the
courts of both England and Canada, and it is fair to say that the principle to be applied is or should be the same in both jurisdictions. This question arises where the parties have drawn up an informal agree ment and expressed their desire that it be cast in more formal terms. Does this reference to a more formal agreement contemplate a new contract and new terms or does it mean that the formal contract is merely to give a more regular and complete expression to the terms already agreed upon? There are a great number of cases on this point and fortunately they all seem to express the same principle.3 This principle is perhaps best stated in Hatzfeldt- Wildenburg v. Alexander where Mr. Justice Parker says: "It appears to be well settled by che authorities that if the documents or letter relied on as constituting a contract contemplate the execution of a further contract between the parties, it is question of construction whether the execution of the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either" because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored." At trial Mr. Justice Egbert took the view that the second arbitration clause contemplated setdement of the terms not only of the informal agreement as it stood on February 24, 1953 but also of any farmout agreement which Calvan
*Calvan Consolidated Oil and Gas Company Limited v. M. E. Manning (1957) 22 W.W.R. (NS) 433. Khmnock v. Ely (Marchioness) 46 E.R. 1066. Winn v. Bull (1877) 7 Ch.D. 29. Rossiler v. Miller (1879) 3 A.C. 1124. Hatzfeldt-Witdenburg v. Alexander 1912 1 Ch. 284. Bianco v. Cobarro 1947 K.B. 854 *Hatzfetdt-Wildenbury v. Alexander 1912 1 Ch. 284.
case
been
fixed, the agreement is not here, me arD.trauon ^^ ■«—."'.— »«" "Jf*
ever may happen when the agreement has been completed and the part.es are «&" boundThere i, nothing in the arbitration clause to enable a contract to be made wh.cn in fact the original bargain had left quite open
The second case is W. N. Hillas Company v. Arcos Limited.10 In this
v«e the parties made an agreement in the most ambiguous terms using
expressions meaning little to the layman or even to the courts. This most
inartistic language did not prevent the parties from performing the original
agreement for a period of a year. At the end of this year however, when
die Hillas Company attempted to enforce an option provided for in the
original contract, the Arcos Company resisted and as a result die Hillas
Company sued them for breach of contract. At trial the Hillas Company
was successful, but this judgment was reversed in the Court of Appeal, where
the selfstyled impenitent Lord Justice Scrutton still felt that he had been
right in May and Butcher v. The King, but found for the Arcos Company,
feeling that he was obliged to do so by the decision of the House of Lords in
May and Butcher v. The King.
This case was then appealed to the House of Lords where the trial
judgment was restored. The Law Lords stated diat Lord Justice Scrutton had mistaken their meaning in May and Butcher v. The King, and the correct
view was that where an agreement could be found despite the difficulty of
construing vague language there would be a contract binding the parties.
Third and last in the series is Foley v. Classique Coaches Limited.11 The
parties, a bus company and a garage owner, entered into an agreement whereby
die bus company would puchase certain property from the garage owner for
a cash consideration and certain added conditions. One of these conditions
was that the bus company would purchase all the petrol they required for
their operations from the garage owner at a price to be agreed by die parries in writing from time to time. As this term stands it is clear from the cases already discussed that it is void for uncertainty. There was in the agreement, however, an arbitration clause as follows: "If any dispute or difference shall arise on the subject matter or construction of this agreement the same shall be submitted to arbitration in the usual way in accordance with the provisions of the Arbitration Act, 1889." At trial judgment was found for the garage operator. The Court of Appeal confirmed this finding, Lord Justice Scrutton holding widi die rest of die court that the arbitration clause related to the subject matter of the agreement and could serve to cure the omission in the clause as to price. In reaching diis conclusion Lord Justice Scrutton considered that he was applying the law in accordance with die judgment of the House of Lords in the Hillas case.
10 (1932) 38 Comm. Cases 23. Also contained in Milner Wri&ht's and Material! on the Law of Contracts. (University of Toronto, 19)4) 117. "[1934] 2 K. B. I. "76W., at 4.
May and Butcher v. The King and Foley v. Classique Coaches Limited may
be classified together. In both cases the terms were unambiguous, and it is
evident that no contract could have arisen from the unsettled terms for the
parties had left something to be agreed. The question to be answered is, did
toe arbitration clause operate to cure the obvious omissions? In May and
Butcher v. The King it was held that the arbitration clause could not operate
until there was a concluded agreement since its terms provided only for
settling disputes with reference to or arising out of the contract. In Foley v.
Classique Coaches Limited however, it was found as a fact by Lord Justice
Scrutton that on construction the arbitration clause did not depend on concluded
terms of agreement, but was by its language a term of a complete agreement
which could serve to cure the obvious unsettled term as to price. The principle
is readily apparent, that where there is an unsettled term and there is an arbi
tration clause which can be construed as providing for the settlement of this
term as distinguished from mere disputes arising out of the contract, such an
arbitration clause can operate to make a contract.
Hillas Company v. Arcos Limited presents a very different situation.
There was great ambiguity here, but no question of an unsettled term. The
question was could certainty be found in the loose terms of trade usage and
the performance of the parties? The court by the use of expert witnesses and
patient examination was able to find an agreement.
It is submitted that the Calvan Case falls within the May and Butcher v.
The King, and Foley v. Classique Coaches Limited category and there is no
need to consider Hillas Company v. Arcos Limited. Mr. Justice Judson puts
this point almost beyond argument when he states:
"My conclusion therefore, is that this contract is not void for uncertainty. There is no need here to invoke the principles of a 'fair' and 'broad' construction of this contract as mentioned by Lord Wright in Hillas and Company v. Arcos Limited supra. The parties knew what they were doing and they expressed their intention with certainty and a complete lack of ambiguity."
Looking at die first arbitration clause in die Calvan Case and comparing
it with those in May and Butcher v. The King and Foley v. Classique Coaches
Limited the Calvan clause stands out as a model of clarity. It might well be
said that Lord Justice Scrutton erred in Foley v. Classique Coaches Limited
in finding that the arbitration clause in that case came within die orbit of the
contract. But be that as it may, this question is one of construction and in no
way derogates from the principle.
Mr. Justice Egbert at trial felt strongly that an arbitrator could not do
what the parties had failed to do and he based his opinion on die mistaken
principle that arbitrators are subject to the same rules as are judges in a court
of law. Both Mr. Justice Porter in the Alberta Court of Appeal and Mr.
Justice Judson in the Supreme Court of Canada took the directly opposite
view, holding that, if properly empowered by the parties, an arbitrator can
make a contract for them. In support of diis diey bodi cite die same
audiority:"
»3[1959] S.GR. 253 at 260. "Rustdl on Arbitration, (17th ed.) at 10.
GIFTS OF LAW BOOKS TO UNIVERSITY
For several years, the Law Library has received Canadian
Bankruptcy Reports as a gift from Sem Field, Q.C. The
subscription is being continued by his firm following Mr.
Field's retirement.
In this connection, the Law Librarian wishes to bring to the attention of the profession that gifts of the more frequently used reports are always most welcome, as constant use makes periodic replacement necessary, particularly of those volumes that contain leading cases. Volumes currently sought by the Library include: Supreme Court Reports, vols. 23, 27, 69; [1925], and [1929]-[1938]; Alberta Law Reports, vols. 21-26; and Territories Law Reports, vols. 5 and 7.
In addition, some of the classic texts which have not been re-edited are now very difficult to obtain. In particular, the Library is most anxious to procure a copy or copies of Remedies of Vendor and Purchaser by C. C. McCaul.
