Commercial Law – Contractual Construction – Commercial Lawyers- Can parties agree to negotiate?

When negotiating a contract, a common strategy used to circumvent difficult issues is to insert a provision which states that the parties will negotiate in good faith on the issue with a view to finding a solution after the document has been signed. There has been considerable debate about whether an agreement to negotiate is enforceable as we already know that an agreement to agree is not.

Recent case law suggests that if the parties agree in writing to negotiate in good faith on a point, the courts may enforce it. In particular, such clauses may be enforceable where:-

• It is within a binding agreement and not one that is subject to contract;
• It is expressly referred to in the agreement; and
• It relates to a matter which is easy to ascertain (e.g. it provides a step-by-step mechanism for parties to reach agreement on the point) and capable of objective assessment by a third party.

Commentary: It is difficult/unwise to assume that such clauses will be enforceable if tested. Care must be taken to ensure that they are drawn up correctly. Some of the usual objections to such clauses include that:-

• They are too uncertain to be enforceable;
• Damages for breach of such obligations would be too difficult to assess because the outcome of negotiations cannot be foreseen; and
• They go against the principle that each party must be free to advance its own interests in negotiations.

RT Coopers would strongly recommend the parties negotiate the matter in full before signing any agreement. However, those desperately looking to incorporate such clauses in agreements should have them drafted/reviewed by a solicitor.