The Binding Force of Agreements to Negotiate in Good Faith

The Cambridge Law Journal, November 2014, Vol 73(3), pp 598-628

UNSW Law Research Paper No. 2015-04

32 Pages Posted: 2 Feb 2015

See all articles by Leon Trakman

Leon Trakman

University of New South Wales (UNSW) - Faculty of Law

Kunal Sharma

University of New South Wales (UNSW)

Date Written: January 31, 2015

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 recognizing 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.

Keywords: Contract, certainty of terms, agreement to agree, good faith

Suggested Citation

Trakman, Leon and Sharma, Kunal, The Binding Force of Agreements to Negotiate in Good Faith (January 31, 2015). The Cambridge Law Journal, November 2014, Vol 73(3), pp 598-628, UNSW Law Research Paper No. 2015-04, Available at SSRN: https://ssrn.com/abstract=2558612

Leon Trakman (Contact Author)

University of New South Wales (UNSW) - Faculty of Law ( email )

Kensington, New South Wales 2052
Australia

Kunal Sharma

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

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