• In the case of Walford v Miles [1992] 2 A.C. 128, it was held that an agreement where one party for consideration agrees for a specified period of time to not negotiate with anyone else for the sale of a property can be enforceable. However, an agreement that is open-ended in terms of time is not enforceable. Arguments that a party agreed to negotiate ‘in good faith’ are unenforceable due to uncertainty.

Facts of the Case

  • In 1986, D decided to sell their company and its business premises. Their auditors put forward an offer of £1.9 million.
  • On 23rd April 1987, there was a meeting between D and C, who wished to purchase the company and premises.
  • On 16th March, C faxed a letter headed ‘subject to contract’ to D. This recorded that D had given assurances that D would not treat with any third party or consider alternative offers from them.
  • On 25th March, D’s solicitor wrote to C acknowledging the receipt of the letter and confirming the agreement.
  • D also wrote to another interested party informing them of D and C’s agreement. He said that if the sale did not go through, D would be interested to pursue discussions.
  • On 27th March, due to health considerations, D phoned the interested party and agreed to sell the company to them for the same price C had offered.
  • On 30 March, D informed C of their agreement to sell to the interested party. C treated this as a breach of their non-negotiation agreement and began proceedings against D.

Issues

  • Could an agreement for one party to not negotiate with any potentially interested third parties be enforceable?

Held by the House of Lords

  • Finding for D, that although it was possible for an agreement to not negotiate with third parties could be enforceable, this required a specified period of time for which the agreement was in effect. Since this was not true in the present case, the agreement could not be enforced.
  • Agreements to negotiate in good faith were unenforceable because, while negotiations were in existence, either party was entitled to withdraw from those negotiations at any time and for any reason.

Lord Ackner

  • C pleaded that the letter of 16th March showed that D had agreed to both a ‘lock-out’ agreement, providing C with the exclusive opportunity to discuss terms with D (with no opportunity for third parties to do so), and a ‘lock-in’ agreement to negotiate with C in good faith. Neither of these were for a specified period.
  • The letter also lacked an essential provision for D to determine the negotiations. C has contended that there was an implied term giving D a right to determine the negotiations, but only if they had ‘a proper reason.’ C alleges that this is a subjective test asking whether D honestly believed the reasons given for termination.
  • “How can a court be expected to decide whether, subjectively, a proper reason existed for the termination? 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 own interest, so long as he avoids making misrepresentations. To advance that interest D must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations/to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering improved terms…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” [138C].
  • There is no reason in English contract law to invalidate an agreement where A, for good consideration, has B agree for a specified period not to negotiate with anyone except A for the sale of B’s property.
  • However, this is a negative agreement; B is locked out of negotiations with third parties, but B is not locked into negotiations with A in any meaningful legal sense. This would require a positive obligation to negotiate with A-the ‘negotiate in good faith’ argument already rejected. With no positive obligation, this agreement must only last a specified time to be workable.

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