It is not unusual for a commercial contract to require the parties to conduct negotiations in good faith, generally to settle matters that had not been sorted out at the time of drafting. In the US, such agreements are largely enforceable, since they have been held to be similar to agreements to use best endeavours, and are thus binding. In the UK, however, there has long been concern that an agreement to negotiate is unenforceable, because it lacks the necessary certainty.

The key authority is Walford [1992] where the seller had orally agreed not to negotiate with anyone else. A price was agreed (subject to contract), but the seller then went on and sold elsewhere. The disappointed party sued, arguing that there was a binding lock-out agreement and that this was subject to an implied term to negotiate in good faith, so long as the seller still wanted to sell. The court concluded that there was no binding agreement and ‘a bare agreement to negotiate has no legal content’. A key issue for the court was that there was no express obligation to negotiate in ‘good faith’ (and the court refused to imply one). Since that decision, there have been instances where the courts had been prepared to enforce lock-out agreements (eg Pitt [1993], where there was a lock-out agreement for a fixed period). Thus, it is important to appreciate that Walford [1992] does not mean that all lock-out agreements (or agreements to negotiate) are unenforceable. If there is a fixed period, and a genuine obligation to negotiate in good faith, then it may be enforceable.

That approach was also confirmed in a 2006 CA decision. The facts were complicated, involving the purchase of an oil production platform with lengthy contracts and a clause in one of the agreements that required two of the parties to negotiate in good faith over the cost of one of the items. In that situation the court had little difficulty distinguishing Walford [1992], where there was no concluded agreement, no express agreement to negotiate in good faith, and no fixed time limit. By way of contrast, the clause in the recent case was not a bare agreement to negotiate – it was an express obligation in a complex contract drafted by lawyers. (‘It would be a strong thing to declare unenforceable a clause into which the parties had deliberately and expressly entered’.)

The end result is that an agreement to negotiate can be binding provided it is sufficiently well defined and there is an express commitment to use ‘good faith’. For a detailed commentary on Petromec v Petrobras [2006] 1 Lloyd’s 121 in [2009] NLJ 1511, 1547.