UK: Willis v Cable & Wireless and Pender Insurance

It is a well established legal principle that where contracting parties have entered into what they consider to be a binding agreement, the courts must strive to give effect to this. The parties are to be regarded as masters of their own contractual fate. Equally, however, it is a well established principle that the courts will not enforce "agreements to agree". The recent case of Willis v Cable & Wireless is a reminder of this principle. In that case the Court of Appeal refused to uphold an agreement to agree an essential term as it said that it was unable to make for the parties the agreement which they have not made for themselves.

The case was an appeal by two co-defendants from a decision of Cooke J in the Commercial Court about the legal effect of exchanges between two parties. Cable & Wireless ("C&W") and its captive insurer, Pender, had commenced proceedings against a number of C&W employees and others who assisted them in an allegedly fraudulent scheme. One of the defendants, Mr Foulger, was employed by Willis to act as Pender’s underwriting manager. On 19 November 2004 Willis, who had previously been providing information to C&W to assist with their Investigation, were told that C&W proposed to apply to join them as defendants on the basis that C&W would allege that Willis were vicariously responsible for Mr Foulger’s conduct. Willis wanted to avoid this.

On 23 November 2004 a C&W consultant spoke to Willis’ Group General Counsel, Mr Bowden. Mr Bowden said that it was Willis’ desire for the consequences of Mr Foulger’s conduct to be dealt with without the need for them to be joined in the proceedings. He proposed that Willis would accept liability for Mr Foulger’s conduct and that the parties would agree a mechanism (such as arbitration) for determining the extent of Mr Foulger’s contribution to the alleged losses. It was also proposed that the parties would enter into a standstill agreement to allow them to agree the mechanism.

The next day Mr Garard (C&W’s Group General Counsel) sent a draft letter of agreement to Mr Bowden by email. The letter set out the terms on which C&W were prepared to accept to defer the joinder of Willis to the proceedings and asked Mr Bowden to sign and return a copy of the letter if he was content with the terms. The letter mentioned nothing about determining the contribution principles.

Mr Bowden replied to the email and returned the agreement the same day (24 November). In his email he said that he had signed and returned the agreement on the understanding that Willis did not accept full responsibility for the damages but in effect for a share of them, which the parties were agreeing to discuss in the future.

Mr Bowden followed up his email with a telephone call the following day. His note of the call recorded the fact that Mr Garard agreed that the signing of the letter was only an acceptance of Willis’ fair share of the losses. The note also recorded the fact that the parties had agreed that they would draft a statement of principles to set out the process to agree Willis’ share. In his witness statement, Mr Garard also recalled that he and Mr Bowden had agreed that the parties "would need to agree a mechanism so as to determine or agree what that share should be and, as before, [Mr Bowden] suggested that an arbitration or mediation might provide an appropriate means of doing do."

On 26 November Mr Garard countersigned the agreement and sent it back to Mr Bowden. Mr Garard also sent Mr Bowden an email confirming a telephone call that they had had earlier that day. In his email, Mr Garard recorded the fact that "Willis’ acceptance of legal responsibility is not intended to be an undertaking of full responsibility for the damages suffered by Pender and C&W, but in effect is for a share in them which you and I will discuss in good faith". It is therefore clear that although the precise method of calculating the extend of Willis’ liability had not yet been agreed; both parties envisaged that they would seek to agree this in the near future.

The judge at first instance had concluded that there was a binding agreement between the parties. He said that the agreement was certain enough to be enforced and was perfectly sensible from a commercial perspective. In his view, if the parties were unable to reach an agreement regarding the extent of Willis’ liability by good faith negotiation, the court could make any determination that was required without the need to join Willis as a defendant to the proceedings.

The issue for the Court of Appeal was whether, read together, the agreement and Mr Bowden’s caveat email of 24 November constituted an agreement of sufficient clarity for it to be enforceable.

The Court of Appeal acknowledged that both Mr Bowden and Mr Garard were senior lawyers and they had obviously intended to enter into a legally binding agreement. It said that although during the discussions between the parties the Willis share of liability was described as a "fair" share, this was simply a label which the parties had put on the outcome that they hoped to achieve. The parties contemplated arbitration or mediation to determine Willis’ share but only in the context of an agreed statement of principles to be applied. It was not an unqualified commitment by Willis to pay a fair share. The court said that one of the main objectives of the exchanges must have been to find some agreed basis upon which Willis’ contribution could be agreed or determined. Until this was done the agreement was incomplete in an essential respect.

The appeal was allowed and the judge’s order set aside. The Court of Appeal said that there was no suggestion that the parties intended the court to determine the extent of Willis’ liability in he event that they were unable to agree this themselves. Although the Court of Appeal made it clear that it recognised that it must strive to give effect to what the parties had agreed, it said that an agreement to agree an essential term or terms at a later date was not an agreement that was capable of being upheld.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 14/07/2005.