Factual and Procedural Background
This appeal arises from a decision of Judge Cooke concerning the legal effect of exchanges between representatives of the 16th and 17th defendants ("Willis") and the claimants (Company A and Company B) in late November 2004. The exchanges related to Willis' acceptance of liability for the conduct of their employee, the 12th defendant. The judge rejected Willis' application for a declaration that no binding agreement had been made and granted summary judgment declarations in favor of Company A and Company B.
The underlying proceedings involve Company A and Company B claiming damages against several employees and others alleged to have engaged in a fraudulent scheme diverting premium income. The 12th defendant, employed by Willis and also a director of Company B, was alleged to have assisted in the scheme. Claims against him included conspiracy, procuring breaches of contract, and constructive trust liability based on dishonest assistance.
Willis had cooperated with the investigation and was informed of its progress. When the 12th defendant was joined as a defendant in July 2004, the possibility arose that Willis would be joined for vicarious liability. Willis sought to avoid joinder, concerned about potential full liability for the claimants' losses.
On 23 November 2004, representatives of the parties discussed Willis accepting legal responsibility for the employee's conduct without being joined to the proceedings, subject to agreeing a mechanism (such as arbitration) to quantify Willis' contribution. A draft letter reflecting this proposal was exchanged and signed by both parties, accompanied by a caveat email clarifying Willis' acceptance was for only a share of the loss, not full responsibility.
Subsequent telephone conversations and emails confirmed that Willis accepted liability only for a "fair share" of the loss, to be determined by negotiation or other means including arbitration or court determination if necessary. Company A and Company B deferred joinder of Willis based on this understanding.
Legal Issues Presented
- Whether the exchanges between the parties, including a signed letter and caveat email, constituted a binding and sufficiently certain agreement as to Willis' liability for the employee's conduct.
- Whether the parties had reached an agreement to agree on the extent of Willis' liability, or a binding agreement to pay a fair share of the loss determined objectively.
- The legal effect of the caveat limiting Willis' acceptance of liability to a proportionate share rather than full responsibility.
Arguments of the Parties
Appellant's Arguments
- The judge erred in finding a binding agreement; the parties only agreed to negotiate Willis' share of liability, resulting in an agreement to agree which lacks certainty and is unenforceable.
- The extent of Willis' liability was left undetermined and subject to future negotiation, which never occurred, thus no complete contract was formed.
- The court cannot impose terms or complete the agreement for the parties where essential terms remain unresolved.
- Willis' acceptance of liability was limited to their proportionate share, but the agreement did not preclude liability for the whole loss.
Appellee's Arguments
- The parties, both represented by senior lawyers, intended to enter a binding agreement reflected in the signed letter and caveat email.
- The acceptance of liability for a "fair share" prescribed an objective standard capable of determination by negotiation, mediation, arbitration, or court if necessary.
- The agreement was sufficiently certain and commercially sensible, representing a compromise to avoid joinder of Willis in the proceedings.
- The court should give effect to the parties' intention and enforce the agreement despite the absence of agreement on the precise quantum.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| The Didymi [1988] 2 Lloyd's Rep. 108 |
Clarification that terms such as "equitably" or "fairly and reasonably" are sufficiently certain for contractual purposes and courts can determine fair and reasonable damages. |
The court relied on this precedent to support the view that an agreement to pay a "fair share" is not uncertain and is enforceable as courts can determine what is just and reasonable. |
| Mamidoil-Jetoil Greek Petroleum Co SA v. Okta Crude Oil Refinery AD [2001] 2 Lloyd's Rep 76 |
Distinguishes between a binding long-term contract with price to be agreed and an agreement where parties have yet to agree essential terms; confirms courts can enforce agreements with objective standards but not agreements to agree. |
The court applied this authority to distinguish between a binding agreement to pay a fair share (objectively determinable) and an agreement to agree the principles or quantum, which lacks certainty. |
| May and Butcher Ltd v. The King [1934] 2 KB 17 |
Establishes that an agreement to agree essential terms in the future is not a binding contract due to uncertainty. |
The court cited this case to illustrate that where parties leave essential terms to be agreed between themselves, no contract arises. |
Court's Reasoning and Analysis
The court carefully analyzed the communications between the parties, including a formal signed letter, a caveat email, and subsequent telephone conversations. It recognized that the signed letter reflected an acceptance by Willis of legal responsibility for their employee's conduct, but the caveat email qualified this acceptance to only a "fair share" of liability, to be negotiated or determined by arbitration, mediation, or court if necessary.
The court found that the parties intended to defer final agreement on the exact quantification of Willis' liability, with an understanding that a mechanism would be agreed to determine Willis' contribution. However, this mechanism and the principles for determining the share were never agreed, and the parties contemplated that failure to agree could result in litigation and joinder of Willis.
The court distinguished between an agreement to pay a fair share determined by an objective standard (which would be binding and enforceable) and an agreement to agree the principles or quantum of that share (which is uncertain and not binding). It found that the parties had not reached agreement on the principles or method to determine Willis' share and that this essential term was left open for future negotiation.
Accordingly, the court concluded that the parties had not formed a binding contract, as the agreement lacked the necessary certainty. The court emphasized that it cannot impose terms or complete agreements that the parties themselves have not made. It also noted that the formal letter contemplated only a deferral of joinder and a future standstill agreement, reinforcing the provisional nature of the arrangement.
Holding and Implications
The appeal was ALLOWED, the earlier order set aside, and a declaration made that the parties had not reached a binding contract.
The direct effect is that Willis is not contractually bound by the alleged agreement to accept liability for a fair share of the losses. The parties remain free to litigate the issues of liability and quantum, and Willis may be joined to the proceedings. No new legal precedent was established beyond the application of established contract principles concerning certainty and agreements to agree.