| Date | 27 July 2005 |
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| Judgment | Willis Management (Isle of Man) Ltd v Cable & Wireless plc and Pender Insurance Ltd, CA 30 June 2005 |
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| The Issue | Whether the court will uphold an agreement to agree. |
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| Implication |
An
agreement which contains no more than an undertaking by the parties
to enter into good faith negotiations to resolve essential terms will
generally not be enforced by the courts. |
printIt is a well known principle of law that the courts will not enforce "agreements to agree" on the basis that such agreements lack the certainty required of a contract. The Court of Appeal recently looked into this issue in the case of Willis Management v Cable & Wireless and Pender Insurance. Cable & Wireless and its insurers, Pender, employed Willis under a management agreement to provide an underwriting manager. Five of Cable & Wireless' employees, acting in consort with the underwriting manager provided by Willis, had allegedly entered into a fraudulent scheme to divert premium income from Pender to companies which they owned. Cable & Wireless and Pender commenced proceedings against these individuals claiming damages. Willis, as the underwriting manager's direct employer, agreed to cooperate with the investigations and provided information to Cable & Wireless and Pender to assist them in mounting these claims. Despite this, as the proceedings unfolded, it became evident that Cable & Wireless and Pender proposed to apply to the court to join Willis as co-defendants on the basis that Willis was vicariously liable for the acts of its employee. Willis were anxious to avoid being brought in as defendants and concerned that they would be seen as the "deep pocket" defendants such that they might have to pay the whole of Cable & Wireless and Pender's losses, despite that there were a number of other defendants for whom they had no responsibility. This was a reasonable concern since Willis' employee might be held to carry a joint and several liability in respect of the entirety of the losses suffered. With this in mind, corporate lawyers for both Willis and Cable & Wireless discussed a way forward in which Willis' joinder in the proceedings could be avoided. Willis proposed that it would accept the legal responsibility for the conduct of its employee and would not argue the facts. However, there would need to be a mechanism, such as arbitration or mediation, agreed between the parties to quantify the extent of Willis' contribution to the damages. After further discussion between the parties, Cable & Wireless emailed to Willis a draft letter of agreement for both parties to sign. The agreement noted that Willis accepted legal responsibility for the acts and omissions of its employee and that the joinder of Willis into the proceedings would be deferred. Willis signed and returned the letter with a covering email saying that the acceptance of legal responsibility was not intended to be an undertaking of full responsibility for the damages suffered, but in effect acceptance of a share in them which the parties were agreeing to discuss at a later stage in good faith. The effect of those exchanges came before the court. Willis argued that it was not prepared to accept liability for 100% of the damages for which its employee might be jointly and severally liable, since other parties might be at fault and might be held to have played a part in causing damage and loss. Moreover, there might have been contributory negligence by Cable & Wireless and Pender. Willis contended that the parties had agreed that Willis would pay a proportion of the loss to be determined on principles which required further discussion and agreement between the parties. This meant there was therefore no binding agreement between the parties because it lacked certainty. The judge at first instance disagreed and held that the agreement was quite certain enough to be enforced. In his view, the parties had agreed that Willis would be responsible for a fair share of the loss and there was no difficulty in the courts determining what that fair share should be. This left Willis in a precarious position. It remained open to the parties to argue at trial that Willis was liable for more than the proportion of the loss corresponding to its employee's responsibility. Accordingly, the matter was brought to the Court of Appeal. Willis argued that if there was a binding agreement it must have been that Willis had some liability. The extent of that liability was all important and yet it had not been agreed. It had been left over for further negotiation and agreement by the parties. This was therefore agreement which required further matters to be agreed in future negotiations before it was complete. An agreement that Willis could be liable for a wholly indeterminate share of Cable & Wireless and Pender's loss would lack legal certainty. Lord Justice Tuckey agreed with these submissions. It seemed clear to him that the agreement that the parties had made intended that the parties would discuss and agree the way in which the Willis share of the loss would be determined. There was no suggestion within the agreement that the parties intended the court to determine these matters. Indeed, if that had been contemplated by the parties, there would have been little point in deferring Willis' joinder in the general proceedings. The Court of Appeal concluded that the trial judge had reached the wrong conclusion. Whilst the court must strive to give legal effect to what parties have agreed, an agreement to agree an essential term or terms was not an agreement which could be held to be binding upon the parties. The appeal was allowed and the trial judge's order set aside.
CJ-0529
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