Agreements to agree

Morris v Swanton Care (Court of Appeal) [2018]

‘Reasonable’ is perhaps the contract drafter’s favourite word. It is often used as a form of compromise. However, as this case demonstrates it does have its limitations.


In 2006, Mr Morris sold shares in Glenpath Holdings to Swanton Care. Together with the initial consideration, Swanton agreed to pay Mr Morris earn-out consideration to be calculated in accordance with a schedule to the SPA. The earn-out schedule provided a formula for assessing the amount of such earn-out consideration in consideration for Mr Morris providing ongoing consultancy services.

The earn-out schedule provided that Mr Morris “shall have the option” to provide consultancy services for a period of four years after completion and “following such period such further period as shall reasonably be agreed between Mr Morris and [Swanton]”.

In 2010, Mr Morris purported to give formal notice of his request for a “reasonable extension” to the earn-out period. Swanton rejected the extension on the basis that there was “no appetite in the business for an extension”.

Mr Morris claimed that he had a contractual entitlement to a further earn-out period during which he would have earned additional earn-out consideration. He argued that the wording of the relevant clause was mandatory because it provided that he “shall” have an “option” for a further period.


The High Court and the Court of Appeal both found that Mr Morris did not have an enforceable right to provide consultancy services beyond the initial period of four years. The provision related to a further period was an unenforceable agreement to agree. The reference to the parties “reasonably” agreeing the further earn-out period did not save the clause because the word “reasonably” was used as an adverb to describe the manner in which the parties were required to reach agreement not the length of the ‘further period’.

Because the clause in this SPA contemplated that the parties would be free to agree or disagree about any extension (even if they acted reasonably when discussing a potential extension), it was void for uncertainty.

Mr Morris did not allege that Swanton had acted unreasonably in denying the extension but, even if Swanton had acted unreasonably, Mr Morris would still not have a claim because it was open to the parties to disagree even if they acted reasonably.

Even if the clause had provided for a further extension for a reasonable period, rather than requiring the parties reasonably to agree a further period, this would still have been unenforceable. The Court of Appeal agreed with the High Court that the SPA did not provide any framework to determine the reasonable length of the period. It rejected Mr Morris’s contention that the SPA made provision because “reasonable” imported an objective framework which the court could apply to quantify the duration of his extension “option”. The judge said that the court would have to identify some objective benchmark for determining the reasonable period without reaching an alternative subjective view or descending into the commercial fray. It was said that this was simply not possible. The mandatory language of the clause (“shall”) did not assist and nor did reference to Mr Morris’s “option” because the character of the option was too uncertain to be enforced.

There was nothing in the performance of the SPA in the initial four years after completion from which a court could extrapolate a reasonable period for an extension. Though Mr Morris sought to identify relevant factors, all of them were commercial factors for the parties to factor into a commercial negotiation, in which they could agree or disagree to an extension, not factors permitting a court to determine the reasonable period of an extension.

Points to Note: