Subject to contract agreement — Further oral agreement not to withdraw from negotiations — Whether oral agreement agreement to negotiate — Whether agreement to negotiate enforceable — Appeal by defendants allowed in part
In or about 1986 the defendants were minded to sell their photographic business and premises at 18 Blackfriars Road, London SE1, to Messrs Patel and Khanderia (“P&K”); P&K made an offer of £1.9m. On March 16 1987 the plaintiffs made a written offer subject to contract to purchase the business and premises for £2m. However, the defendants in due course sold the business and premises to P&K for £2m. The plaintiffs commenced proceedings alleging an oral contract in a telephone conversation on March 17 1987, as evidenced by a letter of the following day, to the effect that the defendants agreed that in consideration of the plaintiffs agreeing not to withdraw from negotiations the defendants would terminate negotiations with any third party and would not deal with any third party prior to close of business on March 20 1987.
The defendants appealed from a decision (July 21 1989 [1990] 1 EGLR 212) of His Honour Judge Bates QC, sitting as a judge of the High Court, that they were in breach of the agreement not to negotiate with third parties and that they had misrepresented to the plaintiffs that they were not negotiating with P&K.
Held Bingham LJ dissenting, the appeal was allowed save as to the award of damages of £700 for negligent misrepresentation.
A “lockout agreement”, an agreement conferring exclusive rights to negotiate, is an agreement to negotiate and is unenforceable. Per Dillon and Stocker LJJ Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297 was binding authority and could not be distinguished as the plaintiffs sought by contending that all the essential terms in the present case had been agreed; the agreement evidenced by the letter of March 16 1987 was subject to contract and either party could have resiled. The oral agreement was an obligation to continue genuine negotiations and not to withdraw until and unless a bona fide agreement for sale became incapable of achievement. Such an agreement was unenforceable.
Per Bingham LJ: the agreement by the plaintiffs “not to withdraw” from negotiations could be severed from the element of negotiations so that the agreement was not an agreement to negotiate and was enforceable.
Stanley Brodie QC and Edward Cohen (instructed by Tarlo Lyons Randall Rose) appeared for the appellants; and Philip Naughton QC and Angus Moon (instructed by Wedlake Bell) appeared for the respondents.
