Sales of land — Oral agreement — Collateral ‘lock-out’ agreement — Whether implied term to negotiate in good faith — Whether agreement enforceable
material time the respondents, Mr and Mrs Miles, owned a company PNM
Laboratories Ltd together with premises in Blackfriars Road, London, let to the
company — In 1986 the respondents decided to sell the company and its business
premises — Martin Walford and his brother Charles Walford, the first and second
appellants, were interested in purchasing the company and its premises — On
March 16 1987, following negotiations, the first appellant faxed a letter
headed ‘subject to contract’ to the respondents’ solicitor recording that the
first respondent had given his assurance that, provided he received a clear
indication of the intention to proceed with the purchase not later than March
25, he would not treat with any third party or consider any other alternative
offers — In a telephone conversation on the following day with the first
appellant, the first respondent agreed that if the appellants provided a
comfort letter from their bankers confirming that they were prepared to provide
the finance to effect the purchase by Friday of that week, he would terminate
negotiations with any third party with a view to concluding agreements with the
appellants — The first respondent further agreed that even if he received a
satisfactory proposal from a third party before the following Friday he would
not deal with that third party nor would he give further consideration to any
alternative — On March 30 1987 the respondents informed the appellants that
they had decided to sell the company and premises to a third party
appellants brought proceedings relying upon an oral agreement, collateral to
the negotiations — The consideration for this oral agreement was the
respondents’ agreeing to continue the negotiations and not to withdraw and,
further, the comfort letter from the bankers — The Court of Appeal allowed an
appeal by the respondents on the grounds that the agreement alleged was no more
than an agreement to negotiate and was therefore unenforceable — The appellants
appealed
like an agreement to agree, is unenforceable, is simply because it lacks the
necessary certainty — The concept of a duty to carry on negotiations in good
faith is inherently repugnant to the adversarial position of the parties when
involved in negotiations — Each party to the negotiations is entitled to pursue
his own interest so long as he avoids making misrepresentations — To advance
that interest he must be entitled, if he thinks it appropriate, to threaten to
withdraw from further negotiations or to withdraw in fact, in the hope that the
opposite party may seek to reopen the negotiations by offering him improved
terms — A duty to negotiate in good faith is as unworkable in practice as it is
inherently inconsistent with the position of a negotiating party — Accordingly,
a bare agreement to negotiate has no legal content
is clearly no reason in English contract law why A, for good consideration, should
not achieve an enforceable agreement whereby B agrees, for a specified period
of time, not to negotiate with anyone except A in relation to the sale of his
property — This is a negative agreement giving A an exclusive opportunity, for
a fixed period, to try to come to terms with B, an opportunity for which he
has, unless he makes his agreement under seal, to give good consideration — The
agreement alleged in the appellants’ statement of claim contained the essential
characteristics of a basic valid lock-out agreement save that it did not
specify for how long it was to last — Lacking the necessary certainty it was
therefore unenforceable
The following
cases are referred to in this report.
Albion
Sugar Co Ltd v William Tankers Ltd [1977] 2
Lloyd’s Rep 457
Channel
Home Centers, Division of Grace Retail Corporation
v Frank Grossman (1986) 795 F 2d 291
Courtney
& Fairbairn Ltd v Tolaini Brothers (Hotels)
Ltd [1975] 1 WLR 297; [1975] 1 All ER 716, CA
Hillas
& Co Ltd v Arcos Ltd (1932) 147 LT 503;
[1932] All ER Rep 494; 38 Com Cas 23; 43 Lloyd’s Rep 359, HL
Mallozzi v Carapelli SpA [1976] 1 Lloyd’s Rep 407, CA; [1975] 1
Lloyd’s Rep 229
Nile Co
for the Export of Agricultural Crops v H&JM
Bennett (Commodities) Ltd [1986] 1 Lloyd’s Rep 555
Scandinavian
Trading Tanker Co AB v Flota Petrolera
Ecuatoriana [1981] 2 Lloyd’s Rep 425
Star
Steamship Society v Beogradska Plovidba
[1988] 2 Lloyd’s Rep 583 Trees Ltd v Cripps (1983) 267 EG 596,
[1983] 2 EGLR 174
Voest
Alpine Intertrading GmbH v Chevron International
Oil Co Ltd [1987] 2 Lloyd’s Rep 547
This was an
appeal by Martin Walford and Charles Walford from a decision of the Court of
Appeal ([1991] 2 EGLR 185; [1991] 27 EG 114 and [1991] 28 EG 81) allowing an
appeal from Judge Bates QC ([1990] 1 EGLR 212; [1990] 12 EG 107), who gave
judgment for the appellants against the respondents, Mr and Mrs Miles, in
relation to the sale of a company and premises in Blackfriars Road, London SE1,
by the respondents.
Philip
Naughton QC and Angus Moon (instructed by Wedlake Bell) appeared for the
appellants; Stanley Brodie QC and Edward Cohen (instructed by Tarlo Lyons)
represented the respondents.
In delivering
the leading speech, LORD ACKNER said: Mr Martin Walford, the first-named
appellant, is a solicitor in private practice. He is the brother of the
second-named appellant, Mr Charles Walford, who is a chartered accountant. They
own the third-named plaintiff, a company which plays no part in this dispute.
The respondents, Mr and Mrs Miles, husband and wife, at the material time owned
a company, PNM Laboratories Ltd, together with premises in Blackfriars Road,
London SE1, which were let to the
auditors at the material time were Mr Patel and Mr Khanderia, who carried on
their profession under the name of Patel, Khanderia & Co.
In 1985,
because of illness, Mr Miles decided to sell the company and its business
premises. Negotiations took place with Mr Patel and Mr Khanderia via the medium
of a company, Status Guard Ltd, in which Mr Patel and Mr Khanderia had a 30%
interest. These negotiations proved unsuccessful.
Towards the
end of 1986 Mr and Mrs Miles decided once more to try to sell the company and
its business premises. Mr Patel put forward an offer of £1.9m. Meanwhile, the
Walfords had heard that the business was up for sale. There was a meeting
between Mr Martin Walford and Mr Miles on April 23 1987. Although the Walfords
knew nothing about the photographic processing business, they thought that they
had found a bargain. The Miles’ were prepared to warrant that at the date of
completion the cash resources in the company’s bank account would not be less
than £1m and that the trading profits for the 12 months following completion
would not be less than £300,000 before tax. The Walfords considered that the
business and its premises were, in the words of Mr Naughton QC in opening this
appeal, ‘dramatically undervalued’. They were accordingly enthusiastic to
purchase it at this price.
Following a
meeting on March 12 1987 at Mr Martin Walford’s offices, the main terms of the
purchase were agreed in principle and on March 16 Mr Martin Walford faxed a
letter expressly headed ‘subject to contract’ to Mr Randall of Tarlo Lyons
Randall Rose, the solicitor for Mr and Mrs Miles. The purchasers were not to be
the Walfords but a company controlled by them (the third-named plaintiff). In
his letter of March 16 Mr Martin Walford recorded that Mr Miles had given his
assurance that, provided he received a clear indication of the intention to
proceed with the purchase not later than the close of business on Wednesday
March 25, he would not treat with any third party or consider any other
alternative offers. Mr Randall replied on March 17 that he did not have any
instructions to proceed with the sale and that Mr Miles had not given the
assurance alleged. This letter was, however, overtaken by oral exchanges which
occurred on the same day between Mr Martin Walford and Mr Miles. On March 18 Mr
Martin Walford wrote to Mr Randall confirming what had been agreed during that
telephone conversation. It is common ground that the penultimate paragraph of
that letter correctly sets out the agreement which had been reached as to negotiations
between third parties. It reads as follows:
The last
matter discussed between Mr Miles and me related to our ability to make payment
for the shares in the business and the property. He asked me to provide a
comfort letter from our bankers confirming that they are, subject to contract,
prepared to provide the finance of £2,000,000 to enable Acquisition Corpn to
effect the purchase. Mr Miles agreed that if such a letter were in your hands
by close of business on Friday of this week he would terminate negotiations
with any third party or consideration of any alternative with a view to
concluding agreements with me and my brother and Acquisition Corpn and he
further agreed that even if he received a satisfactory proposal from any third
party before close of business on Friday night he would not deal with that
third party and nor would he give further consideration to any alternative.
The letter
from Lloyds Bank which Mr Walford enclosed, dated March 18, was addressed to Mr
Randall and expressed to be given without responsibility. It confirmed that the
bank had offered the brothers loan facilities to enable them and the company
controlled by them to make the purchase for £2m.
On March 25 Mr
Randall wrote to Mr Martin Walford acknowledging the receipt of this letter and
enclosure and confirmed that, subject to contract, his client agreed to the
sale of the property and the shares at a total price of £2m. On the same day,
Mr Randall wrote to Mr Patel’s solicitors informing them that his client had
concluded terms for the sale of the property and the shares in the company to
another party and that he was waiting to receive a draft contract. He pointed
out that everything was still subject to contract and that the transaction
might not go through, but that if it did not his client would be interested to
pursue discussions. On March 26 Mr Walford’s solicitors sent preliminary
inquiries and a draft share purchase agreement to Mr Randall, who sent them on
to Mr Miles the following day. Mr Martin Walford was anxious to meet Mr Miles
upon that day, but Mr Miles was not available.
On March 30 Mr
Randall wrote to Mr Martin Walford informing him that, after careful
consideration, his clients had decided to sell to a company associated with the
auditors, adding that he hoped that the Walfords would accept his clients’
decision without question. This they refused to do. They treated Mr Randall’s
letter as a repudiation of what they alleged to be a contract and then issued
these proceedings. Meanwhile, the shares in the company and the property in
Blackfriars Road had been sold for £2m to Statusguard Ltd, the corporate
vehicle through which Mr Patel and Mr Khanderia had tried to make the purchase
in 1985.
Mr Miles did
not give evidence before the trial judge, Judge Bates QC sitting as a judge of
the High Court. It was Mrs Miles who informed the court that she and her
husband spent the afternoon of Friday March 27 at the company’s premises and
during that time decided not to sell to the Walfords or their company. Her
explanation was that they were concerned whether they and their staff would get
on well with Mr Martin Walford. If they failed to do so, they might lose staff
and then fail to produce the £300,000 profit which was the subject of the
warranty. Moreover, they were both concerned that her husband’s health might
suffer during the year that he would be continuing to work in the business,
providing the Walfords with the expertise which they lacked. They therefore
decided either to continue in business themselves or to ask Mr Patel if he was
still interested. There was a telephone conversation on the evening of Friday
March 27 with Mr Patel, who confirmed that he was still interested and agreed
readily to increase his offer by £100,000, thus matching the price which the Walfords
had offered. Mr Patel, in his evidence, said that after he had received Mr
Randall’s letter of March 25 he had no contact with Mr Miles until the
telephone conversation on March 27 to which I have just referred. The trial
judge did not believe him. He concluded that Mr Miles and Mr Patel had
continued to keep in touch, notwithstanding the oral agreement of March 17
recorded in the letter of March 18.
The
pleaded case
The Walfords
relied upon an oral agreement, collateral to the negotiations which were
proceeding to purchase the company and the land that it occupied ‘subject to
contract’. The consideration for this oral agreement was twofold — first, the
Walfords’ agreeing to continue the negotiations and not to withdraw and,
second, their providing the comfort letter from their bankers in the terms
requested.
For this
consideration it was alleged in para 5 of the statement of claim as follows:
. . . the
First Defendant on behalf of himself and the Second Defendant would terminate
negotiations with any Third Party or consideration of any alternative with a
view to concluding an agreement with the Plaintiffs and further that even if he
received a satisfactory proposal from any Third Party prior to the close of
business on 25 March 1987, he would not deal with that Third Party or give
further consideration to any alternative.
As thus
pleaded, the agreement purported to be what is known as a ‘lock-out’ agreement,
providing the plaintiffs with an exclusive opportunity to try to come to terms
with the defendants, but without expressly providing any duration for such an
opportunity.
For reasons
which will become apparent hereafter, it was decided to amend this paragraph by
the following addition:
It was a term
of the said collateral agreement necessarily to be implied to give business
efficacy thereto that, so long as they continued to desire to sell the said
property and shares, the First Defendant on behalf of himself and the Second
Defendant would continue to negotiate in good faith with the plaintiff.
Thus the
statement of claim alleged that the defendants not only were ‘locked-out’ for
some unspecified time from dealing with any third party but were ‘locked-in’ to
dealing with the plaintiffs, also for an unspecified period.
In the
statement of claim it was further alleged that by reason of the wrongful
repudiation by the Miles’, the Walfords lost the opportunity of completing the
sale and purchase of the shares and property and that the true market value of
the shares and the property was of the order of £3m. Accordingly, the Walfords
claimed that they lost the difference between the price which they had agreed
to pay of £2m and the true market value. In addition to the above, there was a
claim for damages for misrepresentation by the Miles’ in continuing to deal
with third parties. This consisted of the expenses incurred in the negotiations
and in the preparation of contract documents.
The
decision of first instance and the Court of Appeal
After the
close of pleadings, directions were given, inter alia, that the
assessment of any damages to which the Walfords might be
purchase of the shares and property should await the determination of the issue
of liability*. At the trial it was contended on behalf of the Miles’ that the
agreement alleged in para 5 of the amended statement of claim was no more than
an agreement to negotiate and as such was unenforceable. The judge did not deal
with this contention. He held that there was a collateral agreement whereby the
Miles’ undertook to terminate negotiations with any third party or
consideration of any alternative and that even if Mr Miles received a
satisfactory proposal from any third party before the close of business on the
Friday night he would not deal with that party or give further consideration to
any alternative, and that this agreement had been repudiated by the Miles’. He
therefore ordered that the damages for the alleged loss of opportunity be
assessed. He further held that the promises of Mr Miles under the collateral
agreement were misrepresentations and awarded the Walfords £700 on account of
special damages, being the agreed wasted expenditure.
*Editor’s
note: First instance decision reported at [1990] 1 EGLR 212; Court of Appeal
decision reported at [1991] 2 EGLR 185.
In the Court
of Appeal, by a majority (Dillon and Stocker LJJ), the appeal was allowed (save
to the extent of the award of the damages for misrepresentation) on the grounds
that the agreement alleged was no more than an agreement to negotiate and was
therefore unenforceable. Bingham LJ, who dissented, would have held that the
agreement was enforceable on the ground that it could be construed as an
agreement by the Miles’ not to deal with any party other than the Walfords and
not to entertain any alternative proposal. He would have set aside the award of
damages for misrepresentation on the grounds that it was not justified by the
evidence or the trial judge’s findings. Before your lordships the respondents
were not contesting the £700 award.
The
validity of the agreement alleged in para 5 of the statement of claim as
amended
The
justification for the implied term in para 5 of the amended statement of claim
was that in order to give the collateral agreement ‘business efficacy’, Mr
Miles was obliged to ‘continue to negotiate in good faith’. It was submitted to
the Court of Appeal and initially to your lordships that this collateral agreement
could not be made to work unless there was a positive duty imposed upon Mr
Miles to negotiate. It was, of course, conceded that the agreement made no
specific provision for the period it was to last. It was, however, contended,
albeit not pleaded, that the obligation to negotiate would endure for a
reasonable time and that such time was the time which was reasonably necessary
to reach a binding agreement. It was, however, accepted that such period of
time would not end when negotiations had ceased, because all such negotiations
were conducted expressly under the umbrella of ‘subject to contract’. The
agreement alleged would thus be valueless if the alleged obligation to
negotiate ended when negotiations as to the terms of the ‘subject to contract’
agreement had ended, since at that stage the Miles’ would have been entitled at
their whim to refuse to sign any contract.
Apart from the
absence of any term as to the duration of the collateral agreement, it
contained no provision for the Miles’ to determine the negotiations, albeit
that such a provision was essential. It was contended by Mr Naughton that a
term was to be implied giving the Miles’ a right to determine the negotiations,
but only if they had ‘a proper reason’. However, in order to determine whether
a given reason was a proper one, he accepted that the test was not an objective
one — would a hypothetical reasonable person consider the reason a reasonable
one? The test was a subjective one — did
the Miles’ honestly believe in the reason which they gave for the termination
of the negotiations? Thus they could be
quite irrational, so long as they behaved honestly.
Mr Naughton
accepted that as the law now stands and had stood for approaching 20 years, an
agreement to negotiate is not recognised as an enforceable contract. This was
first decided in terms in Courtney & Fairbairn Ltd v Tolaini
Brothers (Hotels) Ltd [1975] 1 WLR 297, where Lord Denning MR said at pp
301-302:
If the law
does not recognise a contract to enter into a contract (when there is a
fundamental term yet to be agreed) it seems to me it cannot recognise a
contract to negotiate. The reason is because it is too uncertain to have any
binding force . . . It seems to me that a contract to negotiate, like a
contract to enter into a contract, is not a contract known to the law . . . I
think we must apply the general principle that where there is a fundamental
matter left undecided and to be the subject of negotiation, there is no
contract.
In that case
at p 302B Lord Denning rejected as not well founded (and Lord Diplock expressly
concurred with this rejection) the dictum of Lord Wright in Hillas & Co
Ltd v Arcos Ltd (1932) 147 LT 503 at p 515 that:
There is then
no bargain except to negotiate, and negotiations may be fruitless and end without
any contract ensuing; yet even then, in strict theory, there is a contract (if
there is good consideration) to negotiate, though in the event of repudiation
by one party the damages may be nominal, unless a jury think that the
opportunity to negotiate was of some appreciable value to the injured party.
The decision
in the Courtney case was followed by the Court of Appeal in Mallozzi
v Carapelli SpA [1976] 1 Lloyd’s Rep 407. In that case Kerr J [1975] 1
Lloyd’s Rep 229 had applied the dictum of Lord Wright in Hillas v Arcos
before the Courtney case had been decided and held that there was an
obligation on the parties at least to negotiate bona fide with a view to trying
to reach an agreement. In that case a contract for the sale of grain contained
a clause which provided:
Cif FREE OUT
ONE SAFE PORT WEST COAST ITALY — excluding Genoa. First or second port to be
agreed between Sellers and Buyers on the ship passing the Straits of Gibraltar.
The Court of
Appeal, however, held that it was impossible to say that the provision in the
contract was legally enforceable or that there was any legally binding
obligation to negotiate.
The decision
that an agreement to negotiate cannot constitute a legally enforceable contract
has been followed at first instance in a number of relatively recent cases — Albion
Sugar Co Ltd v William Tankers Ltd [1977] 2 Lloyd’s Rep 457; Scandinavian
Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade)
[1981] 2 Lloyd’s Rep 425; Trees Ltd v Cripps (1983) 267 EG 596,
[1983] 2 EGLR 174; Nile Co for the Export of Agricultural Crops v
H & J M Bennett (Commodities) Ltd [1986] 1 Lloyd’s Rep 555; Voest
Alpine Intertrading GmbH v Chevron International Oil Co Ltd
[1987] 2 Lloyd’s Rep 547; Star Steamship Society v Beogradska
Plovidba [1988] 2 Lloyd’s Rep 583.
In the Court
of Appeal and before your lordships, Mr Naughton submitted that the Courtney
and the Mallozzi cases were distinguishable from the present case,
because that which was referred to negotiation with a view to agreement in
those cases was an existing difference between the parties. In the present
case, so it was contended, by the end of the telephone conversation on March 17
there was no existing difference. Every point that had been raised for
discussion had been agreed. However, this submission overlooked that what had
been ‘agreed’ on the telephone on March 17 was ‘subject to contract’.
Therefore, the parties were still in negotiation even in relation to those
matters. Further, there were many other matters which had still to be
considered and agreed.
Before your
lordships it was sought to argue that the decision in Courtney‘s case
was wrong. Although the cases in the United States did not speak with one voice
your lordships’ attention was drawn to the decision of the United States’ Court
of Appeal, Third Circuit, in Channel Home Centers, Division of Grace Retail
Corporation v Frank Grossman (1986) 795 F 2d 291 as being ‘the
clearest example’ of the American cases in the appellant’s favour. That case
raised the issue whether an agreement to negotiate in good faith, if supported
by consideration, is an enforceable contract. I do not find the decision of any
assistance. While accepting that an agreement to agree is not an enforceable
contract, the Court of Appeal appears to have proceeded on the basis that an
agreement to negotiate in good faith is synonymous with an agreement to use
best endeavours and as the latter is enforceable, so is the former. This
appears to me, with respect, to be an unsustainable proposition. The reason why
an agreement to negotiate, like an agreement to agree, is unenforceable is
simply because it lacks the necessary certainty. The same does not apply to an
agreement to use best endeavours. This uncertainty is demonstrated in the
instant case by the provision which it is said has to be implied in the
agreement for the determination of the negotiations. How can a court be
expected to decide whether, subjectively, a proper reason existed for
the termination of negotiations? The
answer suggested depends upon whether the negotiations have been determined ‘in
good faith’. However, the concept of a duty to carry on negotiations in good
faith is inherently repugnant to the adversarial position of the parties when
involved in negotiations. Each party to the negotiations is entitled to pursue
his (or her) own interest, so long as he avoids making misrepresentations. To
advance that interest he must be entitled, if he thinks it appropriate, to
threaten to withdraw from further
seek to reopen the negotiations by offering him improved terms. Mr Naughton, of
course, accepts that the agreement upon which he relies does not contain a duty
to complete the negotiations. But that still leaves the vital question — how is
a vendor ever to know that he is entitled to withdraw from further
negotiations? How is the court to police
such an ‘agreement’? A duty to negotiate
in good faith is as unworkable in practice as it is inherently inconsistent with
the position of a negotiating party. It is here that the uncertainty lies. In
my judgment, while negotiations are in existence either party is entitled to
withdraw from those negotiations at any time and for any reason. There can be
thus no obligation to continue to negotiate until there is a ‘proper reason’ to
withdraw. Accordingly, a bare agreement to negotiate has no legal content.
The
validity of the agreement as originally pleaded in the statement of claim
Para 5 of the
statement of claim, as unamended, followed the terms of the oral agreement as
recorded in the penultimate paragraph of the letter of March 18. It alleged
that for good consideration (and this certainly covered the provision by the
plaintiffs of the ‘comfort letter’) Mr Miles on behalf of himself and his wife
agreed that they:
would
terminate negotiations with any Third Party or consideration of any alternative
with a view to concluding an agreement with the Plaintiffs and, further, that
even if he received the satisfactory proposal from any Third Party prior to the
close of business on 20 March 1987 he would not deal with that Third Party or
give further consideration to any alternative.
Despite the
insistence by Mr Naughton upon the implied term pleaded in the amendment
involving the obligation to negotiate, Bingham LJ, in his dissenting judgment,
considered that that obligation could be severed from the agreement. He
concluded that the agreement, as originally pleaded, was a valid and
enforceable agreement and entitled the Walfords to recover whatever damages
they could establish resulted in law from its repudiation.
Before
considering the basis of Bingham LJ’s judgment, I believe it helpful to make
these observations about a so-called ‘lock-out’ agreement. There is clearly no
reason in the English contract law why A, for good consideration, should not
achieve an enforceable agreement whereby B agrees, for a specified period of
time, not to negotiate with anyone except A in relation to the sale of his
property. There are often good commercial reasons why A should desire to obtain
such an agreement from B. B’s property, which A contemplates purchasing, may be
such as to require the expenditure of not inconsiderable time and money before
A is in a position to assess what he is prepared to offer for its purchase or
whether he wishes to make any offer at all. A may well consider that he is not
prepared to run the risk of expending such time and money unless there is a
worthwhile prospect, should he desire to make an offer to purchase, of B not
only then still owning the property but being prepared to consider his offer. A
may wish to guard against the risk that, while he is investigating the wisdom
of offering to buy B’s property, B may have already disposed of it or,
alternatively, may be so advanced in negotiations with a third party as to be
unwilling, or for all practical purposes unable, to negotiate with A. But I
stress that this is a negative agreement — B, by agreeing not to negotiate for
this fixed period with a third party, locks himself out of such negotiations.
He has in no legal sense locked himself into negotiations with A. What A has
achieved is an exclusive opportunity, for a fixed period, to try to come to
terms with B, an opportunity for which he has, unless he makes his agreement
under seal, to give good consideration. I therefore cannot accept Mr Naughton’s
proposition, which was the essential reason for his amending para 5 of the
statement of claim by the addition of the implied term, that without a positive
obligation on B to negotiate with A the lock-out agreement would be futile.
The agreement
alleged in para 5 of the unamended statement of claim contains the essential
characteristics of a basic valid lock-out agreement, save one. It does not
specify for how long it is to last. Bingham LJ sought to cure this deficiency
by holding that the obligation upon Mr Miles and his wife not to deal with
other parties should continue to bind them ‘for such time as is reasonable in
all the circumstances’. He said:
the time
would end once the parties acting in good faith had found themselves unable to
come to mutually acceptable terms . . . the defendants could not . . . bring
the reasonable time to an end by procuring a bogus impasse, since that would
involve a breach of the duty of reasonable good faith which parties such as
these must, I think, be taken to owe to each other.
However, as
Bingham LJ recognised, such a duty, if it existed, would indirectly impose upon
the Miles’ a duty to negotiate in good faith. Such a duty, for the reasons
which I have given above, cannot be imposed. That it should have been thought
necessary to assert such a duty helps to explain the reason behind the
amendment to para 5 and the insistence of Mr Naughton that without the implied
term the agreement, as originally pleaded, was unworkable — unworkable because
there was no way of determining for how long the Miles’ were locked out from
negotiating with any third party.
Thus even if,
despite the way in which the Walfords’ case was pleaded and argued, the severance
favoured by Bingham LJ were permissible, the resultant agreement suffered from
the same defect (although for different reasons) as the agreement contended for
in the amended statement of claim, namely that it, too, lacked the necessary
certainty and was thus unenforceable.
I would
accordingly dismiss this appeal with costs.
LORDS KEITH
OF KINKEL, GOFF OF CHIEVELEY, JAUNCEY OF TULLICHETTLE and BROWNE-WILKINSON agreed with the speech of Lord Ackner
and the reasons given in it and did not add any observations of their own.
The appeal
was dismissed.
