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THE BINDING FORCE OF AGREEMENTS TO NEGOTIATE IN GOOD FAITH

  • Leon E. Trakman (a1) and Kunal Sharma (a2)
Abstract

This article evaluates the established judicial proposition that an agreement to negotiate in good faith is antithetical to the principles of the common law. English courts are reluctant to enforce such agreements on the ground that they constitute unenforceable “agreements to agree”. Recently, courts have started to recognise an exception in cases where parties agree to negotiate over a term mandated by an existing agreement, such as to review a price clause or resolve a dispute by undertaking negotiations in good faith. The primary arguments against enforcing an independent agreement to negotiate in good faith are threefold. First, parties engaged in good faith negotiations are assumed to lack a serious legal intention to contract. Second, such an agreement is substantively uncertain in nature and does not promise to produce a contract. Third, the failure of parties to conclude their negotiations does not lead to an easily identifiable loss. In light of these considerations, this article considers the viability of enforcing an agreement to negotiate in good faith in the absence of a pre-existing contract. It argues that the legal obstacles to recognising agreements to negotiate have been overstated. Given the commercial value of enforcing such agreements, it proposes that agreements to negotiate in good faith should be recognised and given legal content by common law courts.

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Corresponding author
Address for correspondence: The Law Building, UNSW Australia, UNSW Sydney NSW 2052, Australia. Email: l.trakman@unsw.edu.au.
Address for correspondence: The Law Building, UNSW Australia, UNSW Sydney NSW 2052, Australia. Email: kunal88@msn.com.
References
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1 Courtney & Fairbairn Ltd. v Tolaini Brothers (Hotels) Ltd. [1975] 1 W.L.R. 297, 301 (Lord Denning M.R.).

2 For more on these questions in the context of English and Australian law, see Peel, E., “The Status of Agreements to Negotiate in Good Faith” in Burrows, A. and Peel, E. (eds.), Contract Formation and Parties (Oxford 2010); Paterson, J. M., “Duty of Good Faith: Does It Have a Place in Contract Law?” (2000) 74 L.I.J. 47; Yates, D., “Commentary on ‘Two Concepts of Good Faith’” (1995) 8 J.C.L. 145; O'Connor, J. F., Good Faith in English Law (Aldershot 1990). On different meanings of “good faith” in contracts, see Carter, J. W. and Peden, E., “Good Faith in Australian Contract Law” (2003) 19 J.C.L. 155.

3 [2012] EWCA Civ 548.

4 Ibid., at para. [44].

5 Shaker v Vistajet Group Holding SA [2012] EWHC 1329 (Comm) (Teare J.).

6 Ibid., at para. [3].

7 Ibid., at para. [7].

8 Ibid., at para. [7].

9 Ibid., at para. [17].

10 Yam Seng Pte Ltd. v International Trade Corporation Ltd. [2013] EWHC 111 at [153] (QB) (Leggatt J.). See also Compass Group UK and Ireland Ltd. v Mid Essex Hospital Services NHS Trust [2012] EWHC 781 (QB) (Cranston J.).

11 Yam Seng [2013] EWHC 111, at para. [141]. On relational contracts, see Board, S., “Relational Contracts and the Value of Loyalty” (2011) 101 Amer.Econ.Rev. 3349; Macneil, I. R., “Contracting Worlds and Essential Contract Theory” (2000) 9 S.&L.S. 431. But see Eisenberg, M. A., “Why There Is No Law of Relational Contracts” (2000) 94 N.W.U.L. Rev. 805.

12 Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd [2014] EWHC 2104.

13 Ibid., at para. [26].

14 Ibid., at para. [25].

15 Walford v Miles [1992] 2 A.C. 128.

16 [2014] EWHC 2104, at para. [40].

17 Ibid., at para. [52].

18 Ibid., at para. [64].

19 See Peel, “The Status of Agreements”, p. 50.

20 See Walford [1992] 2 A.C. 128.

21 Ibid., at p. 138.

22 Ibid. See also Peden, E., “Incorporating Terms of Good Faith in Contract Law in Australia” (2001) 23 Syd.L.R. 222.

23 Walford [1992] 2 A.C. 128. See Cumberbatch, J., “In Freedom's Cause: The Contract to Negotiate” (1992) 12 O.J.L.S. 586; Brown, I., “The Contract to Negotiate: A Thing Writ in Water?” [1992] J.B.L. 353; Peel, E., “'Locking-Out’ and ‘Locking-In’: The Enforceability of Agreements to Negotiate” [1992] C.L.J. 211; Neill, P., “A Key to Lock-Out Agreements?” (1992) 108 L.Q.R. 405.

24 On the approval of Walford v Miles by the New Zealand Court of Appeal, see Wellington City Council v Body Corporate 51702 (Wellington) [2002] 3 N.Z.L.R. 486. See also Elizabeth Bay Developments Pty Ltd.v Boral Building Services Pty. Ltd. (1995) 36 N.S.W.L.R. 709. On reluctance of courts in Australia to impose a duty to negotiate in good faith, see e.g. Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 C.L.R. 45. See also Peden, “Incorporating Terms of Good Faith in Contract Law in Australia”, p. 222.

25 See Walford [1992] 2 A.C. 128, at p. 138.

26 On the moral boundaries of culpability for breach of contract, see Kimel, D., “The Morality of Contract and Moral Culpability in Breach” (2010) 21 Kings L.J. 213.

27 See generally Brownsword, R., Hird, N.J., and Howells, G. (eds.), Good Faith in Contract: Concept and Context (Ashgate 2006), especially ch. 1; Davies, J., “Why a Common Law Duty of Contractual Good Faith is Not Required” (2002) 8 Cant.L.R. 529.

28 On this tension, see D. Kimel, “The Morality of Contract”; Bridge, M.G., “Does Anglo-Canadian Contract Law Need a Doctrine of Good Faith?” (1984) 9 Canadian Business Law Journal 385. But see Chandler, P.A. and Holland, J.A., “Notice of Contractual Terms” (1988) 104 L.Q.R. 359.

29 See Burrows, J.F., Finn, J., and Todd, S.M.D., Law of Contract in New Zealand, 2nd ed. (Wellington 2002), paras. [2.2.6], [6.3.3]; Finn, P., “Commerce, the Common Law and Morality” (1989) 17 M.U.L.R. 87. Brownsword, Hird, and Howells, Good Faith in Contract, p. 3.

30 See May & Butcher Ltd. v The King [1934] 2 K.B. 17. See also Tolaini Brothers [1975] 1 W.L.R. 297.

31 Ibid. See also Socimer International Bank Ltd. (in liquidation) v Standard Bank London Ltd. (No 2) [2008] EWCA Civ 116, [2008] 1 Lloyd's Rep 558 at [112]; Cremean, D., “Agreements to Negotiate in Good Faith” (1996) C.D.R.J. 61; see also Brownsword, R., Contract Law: Themes for the Twenty-First Century, 2nd ed. (Oxford 2007), 114–20.

32 On the threshold between negotiating (or bargaining) fairness and unfairness, see Gillatt v Sky Television Ltd. [2000] 1 All E.R. (Comm) 461 (court modifying contract terms on grounds of bargaining unfairness over asset valuation).

33 See T. Sourdin, “Good Faith, Bad Faith? Making an Effort in Dispute Resolution” (2012) Australian Centre for Justice Innovation, Good Faith Paper 1, available online at www.civiljustice.info/goodf/1. See also United Group Rail Services Ltd. v Rail Corporation (NSW) [2009] NSWCA 177, (2009) 74 N.S.W.L.R. 618, 637–39 (Allsop P.); Strzelecki Holdings Pty Ltd.v Cable Sands Pty Ltd. [2010] WASCA 222, (2010) 41 W.A.R. 318 at [45], [47], [64] (Pullen J.A.), [109] (Murphy J.A.).

34 See Carter v Boehm (1766) 97 E.R. 1162, 3 Burr. 1905, 1910. See also Mellish v Motteux (1792) 170 E.R. 113, 113–14, Peake at 156.

35 See Trakman, L.E., “Pluralism in Contract Law” (2010) 58 Buff.L.R. 1031.

36 See Turpin, C.C., “Bonae Fidei Induciae” [1996] C.L.J. 260. See also Barbudev v Eurocom Cable Managements Bulgaria EOOD and others [2011] EWHC 1560 (Comm).

37 See generally The Moorcock (1889) 14 PD 64, at p. 68 (Bowen L.J.).

38 See Liverpool City Council v Irwin [1977] A.C. 239, 261 (Lord Salmon).

39 See Le Walays v Melsamby (1319) Y.B. Hil. 12 Edw. II 83–86 (Beresford C.J.). See also T.F.T. Plucknett in 65 Selden Society 4.

40 See the decision of the NSW Court of Appeal in United Group Rail [2009] NSWCA 177, (2009) 74 N.S.W.L.R. 618, and the decision of the English High Court in Emirates Trading Agency LLC [2014] EWHC 2104. See also Peel, “The Status of Agreements”, p. 50.

41 See New Zealand Shipping Co Ltd. v Société des Ateliers et Chantiers de France [1919] A.C. 1, 9.

42 On the distinction between good faith duties in English and codified civil law systems of Europe, see Lord Bingham in Interfoto Picture Library Ltd. v Stiletto Visual Programmes Ltd. [1989] 1 Q.B. 433, 439; Director General of Fair Trading v First National Bank [2001] UKHL 52, [2002] 1 A.C. 481 at [17].

43 On the decline of “good faith” duties as a measure of “fair dealing” in contracting, see Mason, A.F., “Contract, Good Faith and Equitable Standards in Fair Dealing” (2000) 116 L.Q.R. 66; Atiyah, P., The Rise and Fall of Freedom of Contract (Oxford 1979), 402–05. But see Yam Seng [2013] EWHC 111, in which the High Court implied a duty to negotiate in good faith into a long-term distribution agreement. On resistance to duties to contract in good faith in general among Australian judges, see e.g. Service Station Association Ltd. v Berg Bennett & Associates Pty Ltd. (1993) 45 F.C.R. 84, 91–98 (Gummow J.); South Sydney District Rugby League Football Club Ltd. v News Ltd. [2000] FCA 1541, (2000) 177 A.L.R. 611 at [238]–[239].

44 But see Interfoto [1989] 1 Q.B. 433, at p. 439 (Bingham L.J.). On a duty to perform a contract in good faith, see Malik v Bank of Credit and Commerce International SA (in liquidation) [1995] 3 All E.R. 545; Phillips Electronique Grand Public SA v British Sky Broadcasting Ltd. [1995] E.M.L.R. 472; Imperial Group Pension Trust Ltd. v Imperial Tobacco Ltd.[1991] 1 W.L.R. 589; Balfour Beatty v Light Railway Ltd. (1996) 78 B.L.R. 42, 58. See also Lücke, H.K., “Good Faith and Contractual Performance” in Finn, P.D. (ed.), Essays on Contract (Sydney 1987); Harrison, R., Good Faith in Sales (London 1997), 7; Burton, S.J., “Breach of Contract and the Common Law Duty to Perform in Good Faith” (1980) 94 Harv.L.Rev. 369.

45 See John B. Conomos Inc. v Sun Co. Inc., 831 A.2d 696, at 706 (Lally-Green J.) (Pa Sup Ct, 2003). See also Dobbins, T.J., “Losing Faith: Extracting the Implied Covenant of Good Faith from (Some) Contracts” (2005) 84 Or.L.Rev. 227.

46 Restatement (Second) of Contracts § 205.

47 See Farnsworth, E.A., Farnsworth on Contracts, 2nd ed. (Boston 1998), vol. 1, 328–29. But see Eisenberg, M.A., “The Duty to Negotiate in Good Faith in American Law” in Lockhart, C. (ed.), Misleading or Deceptive Conduct: Issues and Trends (Sydney 1996), 117.

48 See Farnsworth, Farnsworth on Contracts, p. 380; Dobbins, “Losing Faith”, p. 227.

49 See Uniform Commercial Code §1–201(b)(20) (UCC). See also Palmieri, N.W., “Good Faith Disclosures Required during Pre-Contractual Negotiations” (1993) 24 Seton Hall L.Rev. 70.

50 See Houh, E.M.S., “The Doctrine of Good Faith in Contract Law: A (Nearly) Empty Vessel?” [2005] Utah L.Rev. 1; Murray, J.E. and Murray, T., Corbin on Contracts (St Paul, MN 2008), vol. 8, 5694. On the common law background to the duty of “good faith” in contract law and sales in particular under the UCC, see Summers, R.S.'Good Faith’ in General Contract Law and the Sales Provisions of the Uniform Commercial Code” (1968) 54 Va.L.Rev. 189–90, 195, 203.

51 See e.g. Zimmermann, R., The Law of Obligations: Roman Foundations of the Civilian Tradition (Oxford 1990); S. Whittaker and R. Zimmermann, “Good Faith in European Contract Law: Surveying the Legal Landscape” and Schermaier, M.J., “Bona Fides in Roman Contract Law” in Zimmermann, R. and Whittaker, S. (eds.), Good Faith in European Contract Law (Cambridge 2000), chs. 1 and 2, respectively.

52 See M.J. Schermaier, “Bona Fides in Roman Contract Law”.

53 See Pollock, F. and Maitland, F.W., The History of English Law before the Time of Edward I, 2nd ed. (Cambridge 1923), vol. 1, 187–89.

54 On good faith duties in European civil codes, see Bürgerliches Gesetzbuch (Civil Code) (Germany) § 242; Codice Civile (Civil Code) (Italy), arts. 1337, 1375; Code Civil (Civil Code) (France), art. 1134. See also Quagliato, P.B., “The Duty to Negotiate in Good Faith” (2008) 50 I.J.L.M.A. 213.

55 See S. Whittaker and R. Zimmermann, “Coming to Terms with Good Faith”, in Zimmermann and Whittaker, “Good Faith in European Contract Law”, p. 653; Quagliato, “The Duty to Negotiate in Good Faith”; Lücke, “Good Faith and Contractual Performance”.

56 Bürgerliches Gesetzbuch (Germany) § 242; Codice Civile (Italy) art. 1137.

57 §§242, 311(2) Bürgerliches Gesetzbuch (Germany).

58 See Case 1: Negotiations for Premises for a Bookshop” in Cartwright, J. and Hesselink, M. (eds.), Precontractual Liability in European Private Law (Cambridge 2008), 33.

59 Code Civil (France), art. 1134; see also arts. 1382 and 1383 for liability for causing harm, including by negligence: see Tallon, D., “Contract Law” in Bermann, G.A. and Picard, E. (eds.), An Introduction to French Law (New York 2008), 212: Fabre-Magnan, M., “Duties of Disclosure and French Contract Law: Contribution to an Economic Analysis” in Beatson, J. and Friedmann, D. (eds.), Good Faith and Fault in Contract Law (Oxford 1995); see also N.W. Palmieri, “Good Faith Disclosures Required during Pre-Contractual Negotiations” (pre-contractual duties in Italian law).

60 See e.g. Quagliato, “The Duty to Negotiate in Good Faith”.

61 Cartwright and Hesselink, Precontractual Liability in European Private Law, p. 33.

62 See Whittaker and Zimmermann, “Good Faith in European Contract Law” and chapters by Schermaier and Gordley in the same volume; Vogenauer, S. and Weatherill, S., “The European Community's Competence to Pursue the Harmonisation of Contract Law: An Empirical Contribution to the Debate” in Vogenauer, S. and Weatherill, S. (eds.), The Harmonisation of European Contract Law (Oxford 2006); Berger, K.P., “Harmonisation of European Contract Law: The Influence of Comparative Law” (2001) 50 I.C.L.Q. 877. See Klass, G., “Contracting for Cooperation in Recovery” (2007) 117 Yale L.J. 2. See also Duke, A., “A Universal Duty of Good Faith: An Economic Perspective” (2007) 33 Mon.L.R. 182.

63 Giliker, P., “A Role for Tort in Pre-Contractual Negotiations? An Examination of English, French and Canadian Law” (2003) 52 I.C.L.Q. 969; see also Mirmina, S.A., “A Comparative Survey of Culpa in Contrahendo, Focusing on Its Origins in Roman, German and French Law as well as Its Application in American Law” (1992) 8 Conn.J.Int'l.L. 77.

64 See Cartwright and Hesselink, Precontractual Liability in European Private Law, pp. 457, 462.

65 Ibid., at p. 114. See Kessler, F. and Fine, E., “Culpa in Contrahendo, Bargaining in Good Faith, and Freedom of Contract: A Comparative Study” (1964) 77 Harvard L.Rev. 401.

66 See note 63 above.

67 On Lord Justice Bingham's differentiation between civil and common law traditions, see Interfoto [1989] 1 Q.B. 433, at p. 439.

68 On limiting a landlord's right to increase rent “in its sole discretion”, see Canadian National Railway Co v Inglis Ltd. (1992) 93 D.L.R. (4th) 461 (Ont. Gen. Div.). Cf. Meehan v Jones (1982) 149 C.L.R. 571. On the relationship between consent to contact and the superior bargaining position of one party, see Atiyah, The Rise and Fall of Freedom of Contract, pp. 5–6.

69 On the tenuous divide between promise as trust and contract, see Kimel, D., From Promise to Contract: Towards a Liberal Theory of Contract (Oxford 2003), chs. 2–3.

70 Collins, H., “Implied Terms: The Foundation in Good Faith and Fair Dealing” (2014) C.L.P. 1.

71 Ibid., at p. 19 (emphasis added).

72 Mason, “Contract, Good Faith and Equitable Standards in Fair Dealing”, p. 69.

73 On duties to negotiate in good faith based on party conduct, see Aiton Australia Pty Ltd. v Transfield Pty. Ltd. (1999) 153 F.L.R. 236, 263. See also Gergen, M.P., “The Use of Open Terms in Contract” (1992) 92 Colum.L.Rev. 997. See also Yam Seng [2013] EWHC 111, at para. [139], where Leggatt J. discusses the relevance of acting with “fidelity” to the promise in the context of good faith in performance of an agreement.

74 On how failed “trust building” denigrates the freedom of contract, see Atiyah, The Rise and Fall of Freedom of Contract, pp. 72–73; Smith, A., Lectures on Jurisprudence, edited by Meek, R.L., Raphael, D.D., and Stein, P.G. (Oxford 1978), 538–39. But see Kimel, From Promise to Contract, ch. 3.

75 Market Street Associates Limited Partnership v Frey, 941 F. 2d 588, 596 (7th Circuit, 1991). See also Duke, “A Universal Duty of Good Faith”, p.182.

76 Market Street 941 F. 2d 588, at p. 596 (7th Circuit, 1991).

77 On an economic efficiency of good faith in contracts, see Adams, J.N., “The Economics of Good Faith in Contract” (1995) 8 J.C.L. 126. On the economic rationality of parties choosing between contractual and non-contractual alternatives, see Goldberg, V.P., Framing Contract Law: An Economic Perspective (Cambridge, MA 2006).

78 See Burton, “Breach of Contract and the Common Law Duty to Perform in Good Faith”, pp. 369, 373. On legal fictions applied to frustrated contracts, see Trakman, L.E., “Legal Fictions and Frustrated Contracts” (1983) 46 M.L.R. 3.

79 See Rainy Sky S.A. v Kookmin Bank [2011] UKSC 50, [2011] 1 W.L.R. 2900; Lloyds TSB Foundation for Scotland v Lloyds Private Banking Group Plc [2013] UKSC 3, [2013] 1 W.L.R. 366 at [23], [45], [54].

80 On an implied duty to “behave honestly” that includes community standards of honesty, see Garry Rogers Motors (Aust) Pty. Ltd. v Subaru (Aust.) Pty. Ltd. (1999) ATPR 41–703, [1999] F.C.A. 903.

81 On the nature of negotiating fairness, see Brownsword, Hird, and Howells, Good Faith in Contract, pp. 114–20; Beale, H., “Commentary on Good Faith and Fairness in Failed Contract Negotiation” (1995) 8 J.C.L. 120; N. Cohen, “Two Freedoms and the Contract to Negotiate” in Beatson and Friedmann, Good Faith and Fault in Contract Law, pp. 25–26. See generally Adams, J. and Brownsword, R., Understanding Contract Law (London 2007), chs. 1–2.

82 On bad faith in giving false information in negotiating, see Yam Seng [2013] EWHC 111, at paras. [155]–[156]. On unreasonably withholding consent, see Gan Insurance Co Ltd. v Tai Ping Insurance Co Ltd. (No 2) [2001] Lloyd's Rep. IR 667; Eastleigh B.C. v Town Quay Developments Ltd. [2009] EWCA Civ 1391, [2010] 2 P. & C.R. 2.

83 See Abu Dhabi National Tanker Co. v Product Star Shipping Ltd. (No 2) [1993] 1 Lloyd's Rep. 397, 403; Socimer International Bank Ltd. (in liquidation) v Standard Bank London Ltd. [2008] EWCA Civ 116, [2008] Bus. L.R. 1304 at [575]–[577]. But see Brownsword, Good Faith in Contract, p. 197.

84 On subjective honesty implied from voluntary negotiations, see Paterson, “Duty of Good Faith”, p. 132.

85 Yam Seng [2013] EWHC 111, at para. [137]. See also Meehan v Jones (1982) 149 C.L.R. 571 in which Gibbs C.J. endorsed a test of subjective honesty, while Mason J. endorsed both honesty and reasonableness. But see Carter and Peden, “Good Faith in Australian Contract Law”, p. 3 (good faith duties in contract should be limited to “honesty”, not “reasonableness”).

86 See Abu Dhabi National Tanker [1993] 1 Lloyd's Rep. 397, at p. 404; Peel, “The Status of Agreements”, pp. 42–50.

87 W.N. Hillas & Co Ltd. v Arcos Ltd. (1932) 43 Lloyd's List Rep. 359, 367.

88 On the “test” adopted by the Privy Council to govern implied terms based on party practice, see BP Refinery (Westernport) Pty Ltd. v Hastings Shire Council (1977) 180 C.L.R. 266 (Privy Council). On implied duties of good faith in Australian contract law, see Peden, E., “The Meaning of Contractual ‘Good Faith’” (2002) 22 Aust.Bar Rev. 235; Carlin, T.M., “The Rise (and Fall) of Implied Duties of Good Faith in Contractual Performance in Australia” (2002) 25 U.N.S.W.L.J. 99. See Bridge, “Does Anglo-Canadian Contract Law Need a Doctrine of Good Faith?”, p. 385.

89 On implied-in-fact duties based on trade usage, see e.g. Nelson v Dahl (1879) 12 Ch. D. 568, 575; Dashwood v Magniac [1891] 3 Ch. 306, 370. On implied duties based on custom, see e.g. Wigglesworth v Dallison (1799) 99 E.R. 132, 1 Douglas K.B. 201, 207.

90 On implied duties of good faith, see Jobern Pty. Ltd. v BreakFree Resort (2008) Aust. Contract R. 90–269, [2007] FCA 1066; Gordon, M., “Discreet Digression: The Recent Evolution of the Implied Duty of Good Faith” (2007) 19 Bond L.R. 26. But see Bridge, “Does Anglo-Canadian Contract Law Need a Doctrine of Good Faith?”, p. 426; Bridge, M., “Doubting Good Faith” (2005) 11 N.Z.B.L.Q. 426; Munroe, H., “The ‘Good Faith’ Controversy in Australian Commercial Law: A Survey of the Spectrum of Academic Legal Opinion” (2009) 28 U.Q.L.R. 161.

91 On giving legal content to the concept of good faith, consider Hoskins, H., “Contractual Obligations to Negotiate in Good Faith: Faithfulness to the Agreed Common Purpose” (2014) 130 L.Q.R. 131 (Hoskins proposes faithfulness to the common purpose as a measure of the parties' good faith obligations). See also discussion in Yam Seng [2013] EWHC 111, at paras. [135]–[139] (meaning of good faith performance); United Group Rail [2009] NSWCA 177, (2009) 74 N.S.W.L.R. 618, at para. [65] (meaning of good faith in negotiation where there is a pre-existing contractual relationship); and Emirates Trading Agency LLC [2014] EWHC 2104, at para. [53]. All of these cases emphasise the role of honesty as a constituent of good faith.

92 On “a reasonable” duty to negotiate in good faith, see Jobern (2008) Aust. Contract R. 90–269, [2007] FCA 1066; Vodaphone Pacific Ltd. v Mobile Innovations Ltd. [2004] NSWCA 15.

93 On the use of “best endeavours” in negotiating as an unenforceable “agreement to agree”, see Shaker [2012] EWHC 1329, at para. [3]. On the judicial construction of enforceable agreements to “use best endeavours” in negotiating, see Walford [1992] 2 A.C. 128, at p. 138 (Lord Ackner). On “best endeavours”, see Multiplex Constructions (UK) Ltd. v Cleveland Bridge UK Ltd. [2006] EWHC 1341 (TCC), 107 Con. L.R. 1; Watford Electronics Ltd. v Sanderson Ltd. [2001] EWCA Civ 317; 2001 1 All E.R. (Comm) 696 at [45]; Little v Courage [1995] C.L.C. 164 at [475]; Peel, “The Status of Agreements”, pp. 40–42. On “reasonable endeavours”, see Queensland Electricity Generating Board v New Hope Collieries Pty Ltd. [1989] 1 Lloyd's Rep. 205, 205, 210. On “best efforts” in negotiating, see United Group Rail [2009] NSWCA 177, (2009) 74 N.S.W.L.R. 618.

94 On the implication of terms based on the parties presumed intention, see Attorney General of Belize v Belize Telecom Ltd. [2009] UKPC 10, [2009] 1 W.L.R. 1988 at [21] (Lord Hoffman). See also Market Street 941 F. 2d 588, at p. 596 (7th Circuit, 1991) (Posner J.).

95 See Shaker [2012] EWHC 1329.

96 See Peel, “The Status of Agreements”, p. 40 (challenging Lord Ackner's distinction in Walford between an enforceable duty to use “best endeavours” and an unenforceable duty to negotiate in good faith and proposing that neither should be enforceable).

97 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 A.C. 378, 389–90; Yam Seng [2013] EWHC 111, at para. [144].

98 See Stapleton, J., “Good Faith in Private Law” (1999) 52 C.L.P. 1; Gleeson, A.M., “Clarity or Fairness: Which Is More Important?“(1990) 12 Syd.L.R. 305. But see Renard Constructions (ME) Pty. Ltd. v Minister for Public Works (1992) 26 N.S.W.L.R. 234.”

99 See Yam Seng [2013] EWHC 111, at para. [138]; HIH Casualty & General Insurance Ltd. v Chase Manhattan Bank [2003] UKHL 6, [2003] 1 All E.R. (Comm) 349 at [15].

100 Consider Hoskins, “Contractual Obligations”.

101 See Foley v Classique Coaches Ltd. [1934] 2 K.B. 1; F. & G. Sykes (Wessex) Ltd. v Fine Fare Ltd. [1967] 1 Lloyds Rep. 53, 57 (Lord Denning).

102 (1932) 43 Lloyd's List Rep. 359.

103 [2005] EWCA Civ 891, [2006] 1 Lloyd's Rep. 121.

104 Coal Cliff Collieries Pty. Ltd. v Sijehama Pty. Ltd. (1991) 24 N.S.W.L.R. 1 at [13].

105 (2009) 74 N.S.W.L.R. 618.

106 Hillas (1932) 43 Lloyd's List Rep. 359, at p. 367.

107 Ibid.

108 Ibid.

109 Ibid.

110 Petromec Inc. v Petroleo Brasileiro S.A. Petrobras (No 3) [2005] EWCA Civ 891, [2006] 1 Lloyd's Rep. 121, at p. 152, quoting Walford [1992] 2 A.C. 128, at p. 138 (Lord Ackner). Cf. HIH [2003] UKHL 6, [2003] 1 All E.R. (Comm) 349, at para. [15] (Lord Bingham).

111 Petromec [2005] EWCA Civ 891, [2006] 1 Lloyd's Rep. 121, at paras. [152]–[153]. Not irrelevant for Longmore L.J. was the fact that the contract was drafted by a high-profile law firm (at paras. [152–153]).

112 Coal Cliff Collieries (1991) 24 N.S.W.L.R. 1, at pp. 26–27 (Kirby P.), 40–43 (Handley J.A.).

113 Ibid., at p. 26.

114 United Group Rail [2009] NSWCA 177, (2009) 74 N.S.W.L.R. 618, at para. [69].

115 See Emirates Trading Agency LLC [2014] EWHC 2104, at paras. [42]–[46].

116 Yam Seng [2013] EWHC 111, at paras. [26]–[27].

117 See Peel, “The Status of Agreements”, pp. 44–50; Petromec [2005] EWCA Civ 891, [2006] 1 Lloyd's Rep. 121, at pp. 126–27.

118 Hillas (1932) 43 Lloyd's List Rep. 359, at p. 367.

119 Ibid.

120 Petromec [2005] EWCA Civ 891, [2006] 1 Lloyd's Rep. 121, at pp. 152–53.

121 Coal Cliff Collieries (1991) 24 N.S.W.L.R. 1, at pp. 26–27.

122 Peel, “The Status of Agreements”, p. 50. See also Lord Justice Staughton, “Good Faith and Fairness in Commercial Contract Law” (1994) 7 J.C.L. 193; Queensland Electricity [1989] 1 Lloyd's Rep. 205, at p. 210 (Sir Robin Cooke); Pacific Brands Sport & Leisure Pty. Ltd. v Underworks Pty. Ltd. [2005] FCA 288, (2005) Aust. Contract R. 90–213 (Finkelstein J.).

123 Hillas (1932) 43 Lloyd's List Rep., at p. 359.

124 See Steyn, J., “Contract Law: Fulfilling the Reasonable Expectations of Honest Men” (1997) 113 L.Q.R. 433. See also Steyn L.J., First Energy (UK) Ltd. v Hungarian International Bank Ltd. [1993] 2 Lloyd's Rep. 194, 194–96. On the reasonable assumption of honestly in fair dealings, see HIH [2003] UKHL 6, [2003] 1 All E.R. (Comm) 349, at paras. [15] (Bingham L.J.), [69] (Hoffmann L.J.).

125 United Group Rail [2009] NSWCA 177, (2009) 74 N.S.W.L.R. 618, at para. [64].

126 See Hoskins, ”Contractual Obligations”.

127 See e.g. Peel, “The Status of Agreements”, pp. 43–47. On an implied duty of a landlord to negotiate a renewal of a lease in good faith, see Empress Towers Ltd. v Bank of Nova Scotia [1991] 73 D.L.R. (4th) 400.

128 See Chivers, C.R., “'Contracting Around’ the Good Faith Covenant to Avoid Lender Liability” [1991] Colum.Bus.L.Rev. 359; Brownsword, Hird, and Howells, Good Faith in Contract, p. 37; Dixon, B., “Can the Common Law Obligation of Good Faith be Contractually Excluded?” (2007) 35 A.B.L.R. 110. See also Rose and Frank Co v J.R. Crompton & Bros Ltd. [1923] 2 K.B. 261; Rose & Frank Co. v J.R. Crompton & Bros Ltd. [1925] A.C. 445.

129 United Group Rail [2009] NSWCA 177, (2009) 74 N.S.W.L.R. 618, at para. [65].

130 See e.g. Burton, S.J., Elements of Contract Interpretation (Oxford 2008), chs. 1–2.

131 See e.g. Seddon, N.C. and Ellinghaus, M.P., Cheshire & Fifoot's Law of Contract, 8th ed. (Sydney 2002), para. [6.16]; Strzelecki Holdings [2010] WASCA 222, (2010) 41 W.A.R. 318, at paras. [45], [47].

132 On an express agreement to appoint an arbitrator to determine the reasonable contract price from time to time, see Foley [1934] 2 K.B. 1, at para. [1]. See also Sykes [1967] 1 Lloyds Rep. 53, at paras. [53], [57] (Lord Denning). But see Con Kallergis Pty. Ltd. v Calshonie Pty. Ltd. (1998) 14 B.C.L. 201.

133 See comparable reasoning by Allsop P. in United Group Rail [2009] NSWCA 177, (2009) 74 N.S.W.L.R. 618, at para. [65].

134 See Lam v Austintel Investments Australia. Pty Ltd. (1989) 97 F.L.R. 458, 575 (Gleeson C.J.) (no legal duty of disclosure in a horizontally integrated relationship).

135 For debate on these issues in relation to “fault” in contracting, see e.g. Edelman, J., “In Defence of Exemplary Damages” in Rickett, C. (ed.), Justifying Private Law Remedies (Oxford 2008), 225. But see Posner, R., “Let Us Never Blame a Contract Breaker” in Ben-Shahar, O. and Porat, A. (eds.), Fault in American Contract Law (Cambridge 2010), ch. 1.

136 See Tolaini Brothers [1975] 1 W.L.R. 297.

137 See Cartwright and Hesselink, Precontractual Liability in European Private Law, pp. 455–67; Markesinis, S.B., Unberath, H., and Johnston, A., The German Law of Contract – A Comparative Treatise (Oxford 2006), 387. See also Berger, “Harmonisation of European Contract Law”, p. 877; Collins, H., “Good Faith in European Contract Law” (1994) 14 O.J.L.S. 229. On a somewhat contentious 2011 American decision enforcing an agreement to negotiate in good faith in accordance with an expressly non-binding term sheet, giving rise to expectation damages for breach, see SIGA Technologies Inc. v PharmAthene Inc. (S. Ct., Delaware, CA No 2627, 24 March 2013).

138 See e.g. Petromec [2005] EWCA Civ 891, [2006] 1 Lloyd's Rep. 121, at p. 118. See generally Commonwealth v Amann Aviation (1991) 174 C.L.R. 64.

139 United Group Rail [2009] NSWCA 177, (2009) 74 N.S.W.L.R. 618, at para. [64].

140 United Group Rail (2009) [2009] NSWCA 177, (2009) 74 N.S.W.L.R. 618, at para. [74]. See Blackpool and Fylde Aero Club Ltd. v Blackpool Borough Council [1990] 1 W.L.R. 1195 (and also more broadly on agreements to meet and undertake genuine and good faith negotiations). Cf. Chaplin v Hicks [1911] 2 K.B. 786; Sellars v Adelaide Petroleum N.L. (1992) C.L.R. 332, 349.

141 Emirates Trading Agency LLC [2014] EWHC 2104, at para. [47].

142 See Friedmann, D., “Economic Aspects of Damages and Specific Performance Compared” in Cunnington, R. and Saidov, D. (eds.), Contract Damages: Domestic and International Perspectives (Oxford 2008), 65.

143 See Winterton, D., “Money Awards Substituting for Performance” [2012] Lloyd's Maritime and Commercial L.Q. 446. But see Stevens, R., “Damages and the Right to Performance: A Golden Victory or Not?” in Neyers, J.W., Bronaugh, R., and Pitel, S.G.A. (eds.), Exploring Contract Law (Oxford 2009), 171.

144 See Robinson v Harman (1848) 154 E.R. 363, 1 Ex. 850, 855. On resort to reliance damages when expectation damages are difficult to determine, see Omak Maritime Ltd. v Mamola Challenger Shipping Co. Ltd. [2010] EWHC 2026 (Comm), [2011] 2 All E.R. (Comm) 155. See also Commonwealth v Amann Aviation Pty. Ltd. (1991) 174 C.L.R. 64.

145 On the award of a loss of profit and wasted expenditure for breach of an implied general duty to negotiate in good faith, see Yam Seng [2013] EWHC 111, at paras. [177]–[185], [186]–[192].

146 See Friedmann, D., “The Performance Interest in Contract Damages” (1995) 111 L.Q.R. 628.

147 Emirates Trading Agency LLC [2014] EWHC 2104, at para. [47]: the Court noted that, in appropriate cases, damages could be awarded for loss of a chance.

148 See Attorney-General v Blake [2001] 1 A.C. 268, 299 (Lord Hobhouse). See generally Barnett, K., Accounting for Profit for Breach of Contract: Theory and Practice (Oxford 2012); Cunnington, R., “The Measure and Availability of Gain-Based Damages for Breach of Contract”, in Cunnington, R. and Saidov, D. (eds.), Contract Damages: Domestic and International Perspectives (Oxford 2008), 207, 235; Campbell, D. and Wylie, P.Ain't No Telling (which Circumstances are Exceptional)” [2003] C.L.J. 605.

149 See Smith, S.Performance, Punishment, and the Nature of Contractual Obligation” (1997) 60 M.L.R. 360.

150 See Walford [1992] 2 A.C. 128, at pp. 135–38 (Lord Ackner).

151 On the award of such expenses in part to avoid speculation over expectation damages, see e.g. McRae v Commonwealth Disposals Commission (1951) 84 C.L.R. 377. But see Peel, “The Status of Agreements”, pp. 58–59. On unintended breach in excluding a tender bid on the erroneous assumption that it was submitted after the tender deadline, see Blackpool [1990] 1 W.L.R. 1195, at p. 1195.

152 Peel, “The Status of Agreements”, p. 58. Peel observes also that a claimant may seek to include in his or her reliance loss the loss of the opportunity to negotiate with another party and argue that this opportunity had a value which should be recognised as part of the reliance loss: Ibid., at p. 58, n. 83. Such a claim, however, could attract criticisms of uncertainty similar to claims for expectation damages.

153 See Attorney General v Blake [2001] 1 A.C. 268; Weinrib, E., “Punishment and Disgorgement as Contract Remedies” (2003) 78 Chi-Kent L.Rev. 55; Botterell, A., “Contractual Performance, Corrective Justice, and Disgorgement for Breach of Contract” (2010) 16 Legal Theory 135. On the argument in support of the partial disgorgement of profits arising from breach of an agreement to negotiate, see Devonshire, P., “The Hypothetical Negotiation Measure: An Untenable Fiction” [2012] Lloyds Maritime and Commercial L.Q. 393; on “user damages”, see Stoke City Council v W. & J. Wass [1988] 1 W.L.R. 1406, 1414.

154 On the “Wrotham Park” measure of damages, see Wrotham Park Estate Co. Ltd. v Parkside Homes Ltd. [1974] 1 W.L.R. 798. See also Burrows, A., “Are ‘Damages on the Wrotham Park Basis’ Compensatory, Restitutionary or Neither?” in Cunnington, R. and Saidov, D. (eds.), Contract Damages: Domestic and International Perspectives (Oxford 2008), 165 See also Restatement (Third) of Restitution and Unjust Enrichment (2011) § 39, Comment C.

155 See e.g. East v Maurer [1991] 1 W.L.R. 463.

156 See Cobbe v Yeoman's Row Management Ltd. [2006] EWCA Civ 1139, [2006] 1 W.L.R. 2964 at [4]–[7] (Mummery L.J.) in which Court of Appeal proposed the use of proprietary estoppel to regulate pre-contractual misconduct. However, the decision was reversed on appeal to the House of Lords: see Cobbe v Yeoman's Row Management Ltd. [2008] UKHL 55, [2008] 1 W.L.R. 1752.

157 On torts as a means of vindicating bad faith conduct, see Gardner, J., “What is Tort Law for? Part 1: The Place of Corrective Justice” (2011) 30 Law & Philosophy 1. See also Zipursky, B. and Goldberg, J., “Torts as Wrongs” (2010) 88 Tex.L.Rev. 917; Giliker, P., “A Role for Tort in Pre-Contractual Negotiations? An Examination of English, French and Canadian Law” (2003) 52 I.C.L.Q. 969.

158 See Halifax Building Society v Thomas [1996] Ch. 217.

159 See Burrows, J., “Contractual Co-Operation and the Implied Term” (1968) 31 M.L.R. 390.

160 On structural inequality between negotiating parties, see e.g. Keeley v Fosroc International Ltd. [2006] EWCA Civ 1277, [2006] I.R.L.R. 961 (employment relations); Lombard Tricity Finance Ltd. v Paton [1989] 1 All E.R. 918 (consumer transactions).

The authors thank Michael Bridge, Hugh Collins, Michael Kirby and Stewart Macaulay for their insights, the Private Law Cluster Group at UNSW for their comments and David Musayelyan and Andrew Smorchevsky for their research and editorial assistance.

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