Settling Disputes - Agreements to Agree Unenforceable

The dangers of leaving agreements with details outstanding are often not given proper attention when negotiations are undertaken, but the courts will not enforce an agreement to agree, as a recent case in the Court of Appeal illustrates. The litigation concerned fraud, which caused loss to a company as the result of the actions of an employee of another company. The employers of the employee who was under investigation wished to avoid court proceedings to establish the extent to which they might be vicariously liable for the wrongdoings of their employee, who had defrauded the other company.

The Agreement - Use of "Fair"

Lawyers acting for the two companies signed an agreement whereby one of the companies agreed to accept responsibility to pay for a fair share of the losses. However, no agreement was made as to the precise mechanism for calculating the payment due in the contract.

In the Court of Appeal it was agreed that the in-house lawyers involved had clearly intended to enter into a legally binding agreement and thus absolve the company of liability to pay for the fraud. However, the word ‘fair’ could only be a description of the intended outcome of the negotiations about sharing responsibility for the losses. They had not agreed the basis on which the contribution to the losses would be calculated. As this was an essential term of the agreement, the purported agreement was unenforceable. When entering contracts important, material terms must be able to be ascertained otherwise the law is in no position to determine and enforce the agreement between the parties.

Anthony Krikler, Gillhams’ Senior Litigation Partner said, "When undertaking negotiations it is all too easy to leave things unfinished, which can result in an unenforceable ‘agreement to agree’. Taking independent advice on commercial contracts and settlement contracts such as these brings to an end the dispute as it is the solicitors' responsibility to ensure that their client's agreements are in fact binding."