The feeling is a familiar one during many drawn out contract negotiations: time is marching on, both sides just want to finish the process but the important logistical details are just not being agreed upon. The temptation to leave various matters to be agreed by the parties at a later date can be very strong. However, this approach holds hidden dangers for contracting parties as it risks the whole agreement being rendered void.
It is a well-established principle that agreeing to agree to something in the future is unenforceable in law. For a contract to be binding there must be certainty as to what the terms of the contract are and an agreement to agree provides no such certainty. It is essential, if you are leaving details to be decided at a later date, that the intention of the clause in question is objective and is capable of being determined by a third party.
In a recent case (Teekay Tankers Ltd v STX Offshore and Shipbuilding Co Ltd ) the courts found an agreement not to be legally binding, despite being under an obligation to strive to make the contract work. There was no argument that the parties had not intended the agreement to be binding on them both, but a delivery date for the goods under the contract was to “be mutually agreed”, and the parties were to use their “best efforts” to agree on the date. This provision resulted in the whole agreement being void for uncertainty.
The courts held that they could not imply a term into the contract that one party could determine the delivery date, nor could they imply that the date for delivery should be a reasonable one, as these implied terms would have directly contradicted the wording included in the document. Allowing one party to determine the delivery date would not have been mutual and the courts felt that “best efforts” to agree the date meant that the parties should not be fettered by restrictions such as reasonableness.
The Teekay Tankers case serves to highlight the importance of a properly drafted contract. Even where parties intend to be bound and despite the courts being compelled by previous case law to strive to make an agreement binding, an agreement to agree will still be void for uncertainty.
If you wish to discuss any of the issues raised in this article please contact Chris Wills, Director and Head of Corporate, on 01872 226992 or at email@example.com, or Stephanie Taylor, the author of the article.
The information provided in this article is for general information purposes only and does not constitute legal or other professional advice and cannot be relied upon as such. Any law quoted in this article is correct as at 7 June 2017. Appropriate legal advice should be sought for specific circumstances before any action is taken. Copyright © Murrell Associates Limited June 2017.