The legal principle on which the decision is based is called the ratio decidendi (
the reason for deciding) and is a proposition of law which is binding. A judgment may also contain statements obiter dicta (
other things said) which is not essential to the decision and therefore not binding.
Sir Rupert Cross defined the ratio decidendi as
.. any rule of law expressly or impliedly treated by the judge as a necessary step in reaching his conclusion, having regard to the line of reasoning adopted by him... (Precedent in English Law).
Professor Michael Zander states that the ratio is
.. a proposition of law which decides the case, in light or in the context of the material facts... (Law Making Process).
It is necessary to distinguish between the ratio decidendi and obiter dicta of a judgment in order to establish the relevant precedent.
A number of factors can lead to difficulties in determining the ratio.
Identifying the ratio can be difficult as it is not clearly indicated in a judgment.
Some old cases are weak authority as they do not state the reason for the decision.
Not all the reasons for a decision are essential.
A case may have more than one ratio in a single judgement as there may be several points of law are at issue, each producing ratio. In multi judge courts, such as the Court of Appeal and Supreme Court, sometimes each judge will have reached the same conclusion by different and even conflicting means . So there can be no single ratio of the whole court despite a majority decision.
Esso v Commissioners for Customs & Excise 
Defendants, Esso, advertised a 'free' promotional World Cup coin, one coin for every four gallons of petrol bought. The claimant argued that Esso were liable to pay purchase tax. The issue for the court to decide was whether the coins were sold. It could be determined by deciding whether the coins were
produced in quantity for general sale, which depended on whether there was a contract for sale of goods under the Sale of Goods Act.
The case was heard by five judges in the House of Lords. There was a majority decision with one judge dissenting (4:1). Of the four judges in the majority no more than two of the judges delivered the same ratio on any point.
Lord Fraser, dissenting, argued that the motorist had a straightforward contract for the coins as part of the undisputed contract for the purchase of petrol.
Viscount Dilhorne and Lord Russell, and the three Court of Appeal judges, argued that there was no contract for the coins as they were a gift.
Lord Wilberforce and Lord Simon argued that there were two contracts, one for the petrol and a 'collateral contract' for the coins.
Therefore on Lord Fraser's interpretation, there was a contract, the claimant won. On the other interpretations, that the coins were a gift or were part of a contract which was not a sale, the claimant lost.
There is no discernible ratio and therefore the decision will not be binding on future courts.