Case law: Agreement void because it left delivery dates to be agreed later
Businesses entering into agreements should avoid clauses leaving essential terms to be agreed later by the parties, otherwise they risk the courts treating the terms as too uncertain to be legally binding, a recent ruling makes clear.
This update was published in Legal Alert - May 2017
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A company ordered four oil tankers from a contractor. There was also an option agreement under which the company could order further ships from the same contractor - with the delivery dates to be 'mutually agreed upon' when the option was exercised.
The contractor got into financial trouble and was unable to provide certain guarantees under the option agreement. The company claimed this was a breach of the agreement and claimed compensation. The contractor argued that the option agreement was void for uncertainty because it failed to provide sufficient certainty on the essential issue of delivery dates for the new tankers.
The High Court decided that, since delivery dates were an essential term, the agreement could not be legally binding. It was a mere 'agreement to agree', and therefore unenforceable. Nor was it possible to imply a term into the agreement setting a delivery date if the parties could not mutually agree on a delivery date of their own. The potential implied terms put forward by the company were neither so obvious as to go without saying nor necessary to give business efficacy to the agreement.
- Businesses entering into agreements should avoid clauses leaving essential terms to be agreed by the parties at some later stage, or risk the courts deciding the terms of the agreement as too uncertain to be legally binding
Case ref: Teekay Tankers Ltd v STX  EWHC 253
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