Is The Devil Really in the Detail?

A recent decision of the Sheriff Appeal Court considered the enforceability of ‘agreements to agree’

As solicitors, we caution our clients that clauses in contracts which are essentially the parties agreeing to reach an agreement on a matter at a later date will be very difficult to enforce; certainty and specifics should always be preferred over uncertainty and the general. The extent to which a clause in a contract between two parties agreeing to agree a certain matter in the future could be relied on was the subject matter of the recent Sheriff Appeal Court decision in the case of David Young and Jean Carole v Scott Redevers Menzies, Nicola Elizabeth Menzies and Keeper of the Registers of Scotland.

The case centred around a dispute between two neighbours in the village of Killearn about a septic tank. The judgement starts with the key fact in this case - that the neighbours did not get along! The Youngs sought declarator that a septic tank located on their land belonged to them and that they had a right to remove it and install a new tank in a location of their choosing to serve the Menzies’ property. The action was originally raised in 2014 and in an unexpected development in late 2015 the parties halted the case to have a day of negotiations which resulted in agreement being documented in a ‘Heads of Agreement’ and the action being sisted. Per the Heads of Terms, the Youngs agreed to instala new waste management system at their expense on an identified part of their land which would then be conveyed to the Menzies in exchange for discharge of existing servitude rights. The precise location, design and specification of the new waste treatment system were to be agreed by their respective experts.

Peace and unity restored to Killearn? Unfortunately not, and true to the history of their relationship, the neighbours could not reach agreement on the new waste treatment system and the case called before the Sheriff Court to decide whether the Heads of Agreement signed in 2015 were enforceable or void from uncertainty.

The Sheriff at first instance held there was an enforceable contract. However, the decision was appealed on the basis that the Sheriff had erred on focusing on whether the essentials had been agreed, as the contract was incurably incomplete and therefore void from uncertainty. The Youngs argued that the precise location was an essential term of the contract with other terms only becoming operable when this was agreed, yet there was no way of forcing agreement and no mechanism for resolution and therefore this was an incurable defect making the contract unenforceable.

The Appeal Court held that there was no doubt that the parties were intending to be bound by the Heads of Agreement and so the first test of there being a contract was met. On the matter of whether it was void from uncertainty, they accepted that where parties enter into an agreement to agree, or a contract to enter into a contract, any such agreement or contract will not be enforceable, but will be held to be void from uncertainty. However, they also stated that even where the parties have not agreed on an essential term, but have agreed to agree in future, it does not necessarily follow that the agreement will be held to be void from uncertainty. If there is a mechanism for agreeing (such as arbitration) the contract is likely to be held to be enforceable. They went on to say that it does not follow, either as a matter of logic or principle, that the absence of a mechanism for resolving every impasse which may lead to a contract being unworkable, or being frustrated, necessarily means that the contract is void from uncertainty.

The Court considered that based on the facts of the case in hand, the contract was not one where the parties have agreed to reach a future agreement on a term of the contract, whether essential or not. On the contrary, they had agreed, between themselves, everything which was within their ability to agree. The remaining parts of the agreement were to be agreed by their respective experts and they had authorised their experts to reach this agreement within broad parameters. The Court therefore upheld the Sheriff's decision saying that the fact that the parties did insert a mechanism for agreeing the “how” (albeit there was no mechanism for use in the event that the parties’ experts could not agree) could render that which would otherwise have been enforceable, unenforceable.

The position stands that a general agreement to agree clause will not be enforceable. However, it does not necessarily follow that parties cannot ‘park’ some matters to be agreed in the future – so long as there is an agreed mechanism and boundaries within which that agreement is to be reached. So, we need detail but not every single bit of detail.