An Agreement to agree: enter at your peril!

The case of Dany Lions Ltd v Bristol Cars Ltd provides a recent example of why one should think twice when considering the inclusion of an “agreement to agree” in a contract. Such a mechanism can only be enforced if it is contractually certain and this case demonstrates how difficult it can be to incorporate a sufficient degree of certainty.

It is a well-settled principle of law that a so-called agreement to agree between parties is unenforceable. An agreement between A and B that A will use his reasonable (or best) endeavours to enter into an agreement with B is also unenforceable.

Dany Lions Ltd v Bristol Cars Ltd concerned an agreement to use reasonable endeavours to contract with a third party. The claimant (D) brought a claim against the defendant (B) for damages arising from B’s alleged failure to perform its obligations under a contract for the restoration of a classic car. D had bought the car from B, who was to undertake various restoration works. B was unable to progress the works and so D and B entered into a settlement agreement. Clause 2 of that agreement set out a condition precedent whereby D was to use “its reasonable endeavours” to enter into an agreement with a specialist restorer (J) for the restorations works.

The court held that whilst an obligation to use reasonable endeavours to achieve a particular object was not in itself to be regarded as too uncertain to be enforceable, in this instance clause 2 was insufficiently certain to give rise to enforceable obligations. Although the subject matter and scope of the future agreement with J were clearly defined, in that the works to be carried out had been specified, nothing had been said about such terms as price and time for payment. Those items were left open for negotiation and the parties could legitimately have had differing views and interests, leaving the court with no objective criteria to determine whether it was reasonable for D to refuse to agree to any particular term that may have been on offer.

The judge, Andrews J, noted that she had reached her conclusion “with regret” because it seemed obvious that this was objectively intended by the parties to be a binding and enforceable obligation. Whilst the courts will try so far as is possible to construe a contract in such a way as to make commercial sense of it and to give effect to the obligations that are contained within it, it cannot re-write the contract or substitute terms that the parties themselves have failed to include or agree upon.

This case therefore serves as a useful reminder of the perils of entering into an agreement to agree. The terms of the agreement to be agreed must be sufficiently defined so that a court is able to judge objectively to what extent a party has used its reasonable endeavours to agree the contract.

Reference: Dany Lions Ltd v Bristol Cars Ltd [2014] EWHC 817 (QB)