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Caution - "Agreement to Agree" Clause Ruled Null and Void

on Tuesday, 12 March 2019.

The Court of Appeal has concluded that an agreement to agree clause was null and void due to uncertainty in a crucial contracts case.

Philip Morris v Swanton Care & Community Limited

The facts of the case were as follows. Morris sold his business to Swanton in 2006. The sale agreement included a clause which gave Morris an option to provide consultancy services for four years from completion, and, following this period, for a further time as reasonably agreed between the parties. Morris completed the four years and wanted to continue. Swanton refused and challenged the right to continued consultancy work.

The High Court decided that Swanton had no obligation to provide further consultancy work to Morris as the contractual term was merely an "agreement to agree". On this basis, it was void for uncertainty (the rest of the agreement was found to be enforceable).

On appeal, the Court of Appeal agreed with the High Court's decision and clarified the rationale behind its conclusion. Clarification was given that despite the use of "reasonableness" in the drafting of the clause, this made no substantive difference to the unenforceability of an "agreement to agree". The clause was insufficient to provide certainty, including the lack of a good faith provision or any attempt to add commercial detail, and therefore was void.

Comment

This case is a useful reminder regarding the danger of using "agreements to agree" in commercial contracts. If you want a term to be enforceable, ensure it has certainty. It is better to take the time and negotiate the details early, than risk ending up with nothing at all down the line.


For more information, please contact Laura Barrell in our Commercial Law team on 01923 919 313.

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