The need for certainty to form a contract – case review of the High Court Judgment in LNT Aviation Ltd v Airbus Helicopters UK Ltd

In the High Court case of LNT Aviation Ltd v Airbus Helicopters UK Ltd [2022] EWHC 309, the Court considered whether a contract had been entered into between the parties for the replacement of a helicopter’s gearbox.

It is trite law that a binding contract must contain offer, acceptance, an intention to create legal relations, and consideration. In this case, the Court reviewed emails exchanged by the parties to assess whether a binding contract had been concluded. 

Background

The Claimant LNT Aviation Ltd (“LNT”) purchased a helicopter from the Defendant Airbus Helicopters UK Ltd (“Airbus”) in early 2013. In June 2017, when the helicopter was nearly 30 years old, Airbus issued an Alert Service Bulletin (“Alert”) requiring LNT to replace certain components in the helicopter’s gearbox. Implementation of the Alert was made mandatory when the European Union Aviation Safety Agency issued an Airworthiness Directive. At the time of the Alert, the helicopter’s gearbox had less than 300 flight hours remaining. LNT estimated that this would take them through to 2019.

LNT wrote to Airbus to arrange the replacement gearbox, and on 20 June 2017, submitted a log card with details about the gearbox and a purchase order to Airbus to undertake the gearbox work. Ten days later, Airbus confirmed the costs of such work (totalling €4,000) would be at Airbus’ expense. For administrative reasons, a second purchase order had to be issued on 8 August 2017. Airbus predicted that the work required to replace the gearbox would not be carried out until July 2018. As a result of the Alert, the helicopter was grounded on 25 September 2017.

Due to delays, in April 2018 Airbus provided LNT with a temporary solution in the form of a loan gearbox costing £6,640. Airbus’ proposals at the time referred to this as a ‘commercial gesture of goodwill’. However, this loan gearbox failed, and the helicopter remained grounded.

In July 2018, Airbus discovered that, according to the helicopter’s log card, the gearbox was older than suspected and would, in fact, need a full overhaul, at an estimated cost of between £375,000 and £450,000.

LNT alleged that Airbus was contractually obliged to replace the gearbox despite the cost and had negligently made promises that it would replace the gears.  Airbus denied that it entered into any contract with LNT but as a gesture of goodwill, offered them a discounted exchange gearbox. LNT did not accept this offer.

The question for the High Court to consider was whether LNT and Airbus entered into a contract with regard to the installation of a replacement gearbox in the Helicopter, and if so, when that contract was entered into and on what terms.

The Decision

LNT pleaded various alternative contracts that it alleged had been made between itself and Airbus in 2017 and 2018. These included an argument that Airbus informing LNT that it would replace the gears in the Helicopter in June 2018 was acceptance of the purchase order, and that permitting the loan gearbox to be installed was consideration for making the helicopter available.

The Court refused to accept any of LNT’s alleged contracts, finding that fundamentally ‘there was no offer and acceptance capable of forming a contract’.  The Court concluded that Airbus’ offer to pay for the gearbox work amounted to no more than an invitation to treat, since it was made to the owners and operators of more than 180 helicopters throughout the world, and that this invitation was clearly subject to agreement of specific contractual terms between Airbus and the owner of the relevant helicopter(s) in any particular country.

The Court concluded that the purpose of the first purchase order was to ‘start the ball rolling’ and was not intended to propose or accept any contractual terms as it contained very little information; similarly, the subsequent purchase order was ‘nothing more than an administrative tidying up matter’.  To deem these purchase orders binding would not be in line with commercial common sense, as it would have bound Airbus to ‘take all necessary steps’ to replace the gears before it had even assessed its ability to repair the gearbox. The Court noted that this was too wide a term to be implied by reason of business efficacy, and that this formulation did not address important matters such as the timing of the replacement, who would pay for parts, the duration of the works and the recourse and remedies if the works were not carried out. In other words, there was not sufficient certainty as to the terms for a contract to have been formed. 

The Court went on to say that LNT’s making the helicopter available for the work did not contractually constitute ‘valid consideration’, and instead held that the arrangements were akin to a non-binding ‘goodwill agreement’.

Practical implications

LNT was seeking to rely on an exchange of emails and correspondence spanning several years in order to establish that a contract had been agreed. The Court declined to construct a binding contract on the basis that the emails did not show a clear intention to create legal relations or define the precise terms of a potential contract.

This judgment is a reminder to parties of the need for certainty of terms when forming a contract, and that nothing should be left to chance when contracting with customers and suppliers. Where a party wishes to enter into a contract, it should be clear as to the basis on which it wishes to do so, and communicate its intention clearly with the other party. 

Written by Judith Hopper and Hannah Roberts.