Agreement to Agree Under English Law: Understanding the Legal Framework

In the context of contract law, an agreement to agree is a common phenomenon where the parties to a contract agree to reach a specific agreement on an issue at a later date. However, an agreement to agree is not a binding contract under English law unless it satisfies certain legal requirements. This article will explore the legal framework surrounding agreement to agree under English law and discuss the implications of such agreements for businesses.

Legal Framework

An agreement to agree is not legally binding unless it contains the essential terms required to make it an enforceable contract. This means that the parties must agree on all material terms of the contract, including the subject matter, price, and delivery terms. Without these essential terms, the agreement to agree will be considered too uncertain and incomplete to be enforceable by a court.

The English courts have, in the past, adopted a strict approach to agreement to agree, placing emphasis on the parties` intention to be bound and the certainty of the terms. For instance, in Walford v Miles [1992] 2 AC 128, the House of Lords held that an agreement to negotiate in good faith was not legally binding since it lacked the necessary degree of certainty.

However, in more recent times, the courts have adopted a more practical approach to agreement to agree. In RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] UKSC 14, the Supreme Court held that an agreement to agree could be legally binding if there was a mechanism for determining the missing terms. The court stated that the mechanism must be sufficiently certain and objective to enable a court to enforce the agreement if necessary.

Implications for Businesses

An agreement to agree can be a useful tool for businesses when negotiating contracts. It allows parties to reach an agreement on certain terms while keeping other terms open for negotiation at a later date. However, it is essential to ensure that the agreement to agree meets the legal requirements under English law to avoid uncertainty and potential litigation.

Businesses should also consider whether an agreement to agree is appropriate for the circumstances. In some cases, it may be more suitable to negotiate and agree on all material terms upfront, rather than risk uncertainty and potential disputes later on.

Conclusion

In conclusion, an agreement to agree is a common phenomenon in contract law, but it is not legally binding unless it meets the essential legal requirements under English law. Businesses should be aware of the legal framework surrounding agreement to agree and ensure that any such agreements are sufficiently certain and objective to enforce if necessary. By taking a practical approach and considering the necessity of an agreement to agree, businesses can negotiate and enter into effective contracts that meet their needs.