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Walford v Miles

[1992] 2 AC 128

Overview

Mr and Mrs Miles agreed to negotiate with Walford for the sale of a photographic processing business.  They also agreed to terminate negotiations for the sale of the business to any other purchaser (which they did), provided Walford confirmed they were financially able to proceed with a purchase (which they did). 

The Miles’ subsequently decided not to proceed with the negotiations for the sale and eventually sold to a third party. Walford sued for breach of contract.

Walford succeeded at trial.  Mr and Mrs Miles succeeded in an appeal.

The House of Lords dismissed a further appeal. Lord Ackner, while holding that agreements to negotiate in good faith were not enforceable because they were not sufficiently certain, considered that lock-out agreements - agreements not to negotiate with others - could be enforceable.

Photography

 

Facts

Mr and Mrs Miles agreed to negotiate with Walford for the sale of a photographic processing business.  They also agreed to terminate negotiations for the sale of the business to any other purchaser (which they did), provided Walford confirmed they were financially able to proceed with a purchase (which they did). 

The Miles’ subsequently decided not to proceed with the negotiations for the sale and eventually sold to a third party. Walford sued for breach of contract.

Walford succeeded at trial.  Mr and Mrs Miles succeeded in an appeal. The matter was then appealed to the House of Lords.

 

High Court (Queen's Bench Division) (Judge Bates QC)

Awarded Walford damages for breach of contract and/or misrepresentation, negligent misstatement or breach of warranty (he further ordered an assessment of damages for loss of opportunity as well as special damages for wasted expenditure as a result of misrepresentations; this was overturned on appeal and not challenged before the House of Lords).

 

Court of Appeal (Dillon and Stocker LJJ (Bingham LJ dissenting))

Allowed appeal on basis that it was merely an agreement to negotiate and unenforceable.

Dissenting, Bingham LJ, would have held the agreement enforceable - not as an agreement to negotiate with the other party, but as an agreement not deal with other parties for the relevant period.

 

Judgment

Catchwords

Contract-- Enforceability - Contract to negotiate - Lock-out agreement - Agreement to purchase business and land subject to contract - Collateral contract to continue negotiations and to terminate negotiations with any third party- No specific time limit on duration of collateral agreement - Whether implied term that defendants would continue to negotiate in good faith for reasonable period - Whether collateral contract enforceable.

Lord Keith of Kinkel

Agreed with Lord Ackner. Appeal dismissed.

 

Lord Ackner

Lord Ackner set out the amended pleading regarding the collateral agreement as follows::

It was a term of the sale 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 respondent] on behalf of himself and the [second respondent] would continue to negotiate in good faith with the [appellants].

Lord Ackner noted that this agreement 'locked out' the respondents from dealing with a third party for an unspecified period of time and also 'locked in' the respondents to dealing with the appellants for an unspecified period of time (the original pleadings referred only to the lock-out arrangement).

Lord Ackner noted that Mr Naughton QC (for the appellants) conceded that 'as the law now stands ... an agreement to negotiate is not recognised as an enforceable contract', referencing Lord Denning MR in Courtney v Fairbairn Ltd v Tolaini Bros (Hotels) Ltd [1975] 1 All ER 716 who said:

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 when there is a fundamental matter left undecided and to be the subject of negotiation, there is no contact. [at 720]

 

Lord Ackner considered US authority relating to agreements to negotiate in good faith and rejected them, finding an agreement to negotiate lacks the necessary certainty to be binding [emphasis added]:

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 negotations 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 negotiations or to withdraw in fact in the hope that the opposite party may 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 these 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.

 

Lord Ackner then considered the 'lock-out' agreement [emphasis added]

... I believe it is helpful to make these observations about a so-called 'lock-out' agreement. There 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. 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 of 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 and 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 [counsel for the Appellant's] proposition ... that without a positive obligation on B to negotiate with A the lock-out agreement would be futile.

 

Lord Ackner then considered this in the context of the present case, finding the agreement contained all necessary elements for a valid lock-out agreement 'bar one' - duration. In the Court of Appeal Lord Bingham (dissenting) had held that in the absence of specification a 'reasonable time' should apply. Lord Ackner disagreed; absent specification, 'there was no way of determining for how long the respondents were locked out from negotiating with any third party'.

There was, therefore, insufficient certainty - the alleged agreement was not enforceable.

 

Lord Goff of Chieveley

Agreed with Lord Ackner.

 

Lord Jauncey of Tullichettle

Agreed with Lord Ackner.

 

Lord Browne-Wilkinson

Agreed with Lord Ackner.