Agreement to agree can be enforceable
MRI v ERDENET (CA) [2013]
In this case an ‘agreement to agree’ in respect of certain charges and a delivery schedule in a contract for the sale of copper concentrates was found to be enforceable even though traditionally such an arrangement would be thought to be unenforceable for lack of certainty.
Facts:
- As part of a settlement agreement, the parties entered into three future contracts for the supply of copper concentrate.
- Erdenet (E) complied with the first two contracts but refused to deliver under the third contract which contained the ‘agreement to agree’. Crucially, this contract contained an arbitration clause which provided a mechanism that could be operated with the assistance of experts to resolve a dispute about the charges and/or the shipping schedule if the parties were unable to agree.
- MRI sued E for breach of contract. The arbitrator found in favour of E and said the contract was unenforceable due to the ‘agreement to agree’ in relation to the price.
- MRI’s appeal on this decision to the High Court (HC) was allowed; E then appealed to the Court of Appeal (CA).
Decision:
- The CA dismissed E’s appeal and upheld the HC decision in favour of MRI, saying that the ‘agreement to agree’ was enforceable.
- The HC and the CA came to a different conclusion from that of the arbitration tribunal on three main questions:
- whether there was an agreement in existence with sufficient part performance – the Courts found that the third contract should be interpreted as part of the settlement agreement and was part of a wider arrangement between the parties which had been partly performed as the parties had been acting under that arrangement for some time. Part performance and benefit or advantage as a result to one or more of the parties overcomes the usual obstacles to enforceability;
- whether the parties intended that the third contract should be legally binding – as this was an arrangement between commercial parties who had acted as if they had a binding contract, it seemed clear they intended for it to be binding and the Courts said that where possible the contract should be construed as such to enable it to be carried out;
- whether the gaps to be agreed in the third contract could be filled by implying some objective criteria of fairness or reasonableness – the existence of the arbitration clause assisted the conclusion that the agreement was sufficiently certain or capable of being rendered so, and that reasonable objective criteria could be implied, as there was a commercial and contractual mechanism which could be operated with the assistance of experts if there was a dispute.
Points to Note:
- This decision demonstrates where a ‘contract’ has been performed or partially performed the Courts have a greater willingness to imply terms to enable a contract to be enforceable even where there is uncertainty over a seemingly fundamental provision. This is particularly the case where the parties have behaved as though they had a binding contract. The CA said that the Courts should strive to preserve parties’ deals, rather than destroy them.
- Where matters remain ‘to be agreed’ (and in some cases this is unavoidable), it is advisable to set out as clearly as possible the mechanism by which any outstanding issues will be resolved if the parties are unable to reach agreement eg for the matter to be referred to an expert for binding determination if necessary.