The claimant issued proceedings, claiming he was entitled to a ' further period of time in which to be paid' additional earn-out consideration under the SPA. The claimant then requested a 'reasonable extension' for the provision of his services, which the defendant rejected. The claimant provided his services for four years and received approximately £4 million by way of earn-out consideration, calculated according to an agreed formula in the SPA. The SPA stated that the claimant ' shall have the option' to provide his consultancy services for a period of four years from completion of the SPA and ' such further period as shall reasonably be agreed' between the parties. The SPA also provided for deferred consideration through an earn-out provision relating to the claimant's consultancy services. The claimant received roughly £16 million in initial consideration. Morris concerned a sale and purchase agreement (the ' SPA') relating to shares in a company. We conclude by highlighting certain drafting points which can be learned from the judicial treatment of agreements to agree.

In this article, following on from our earlier case update, we explore the implications of the recent Court of Appeal case of Morris v Swanton Care & Community Ltd ( Morris), 2 in which the claimant sought to rely on a contractual option allowing him to provide additional services for ' such further period as shall reasonably be agreed' as the basis for a damages claim. It is therefore crucial that businesses give careful consideration at the initial drafting stage to what is being agreed and the risk of any terms being held to be unenforceable. 1 Consequently, agreements to agree have traditionally been held to be void for uncertainty with the result that they are typically found to be unenforceable. In fulfilling their duty to construe contracts fairly and with the parties' intentions in mind, the courts will not intervene to ' make a contract' or ' go outside the words' used.

When faced with this issue, the English courts generally require certain essential elements of a contract to be agreed before they will enforce it. It is one which typically arises when one party decides not to proceed with the next phase of engagement and the other claims to have suffered loss or damage as a result of that decision.

However, while such agreements to agree may be commercially attractive, whether or not they are legally enforceable is another question entirely. This approach buys the parties time to build trust, develop the products or processes that will be commercialized down the line and establish the commercial rationale for and terms of any further engagement. Sometimes these provisions set out detailed mechanisms for doing so, while other times they can be no more than a sentence or two. In these circumstances, the original contract will often contain a provision whereby the parties indicate that they intend to reach a new agreement in the future. As a result, rather than negotiating their prospective secondary agreement at the time of initial contracting, the parties merely agree that certain or all contractual terms of that agreement will be determined in the future. Often, businesses will enter into an agreement on the basis of an understanding (whether express or implicit) that a further arrangement will be reached at some future time, when the commercial rationale for and prospective terms of that further agreement may have become clearer. 'Agreements to agree' are a commercial fact of life for businesses, particularly those involved in long term contracts, such as research and development agreements in the life sciences or industrial sectors, complex technology contracts, or energy and resources supply arrangements.

Agreement in principle sample