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WALFORD AND OTHERS V MILES AND ANOTHER
HOUSE OF LORDS
[1992] 2 AC 128, [1992] 1 All ER 453, [1992] 2 WLR 174, 64 P & CR 166, [1992] 11
EG 115, [1992] 1 EGLR 207
HEARING-DATES: 6, 7 November 1991, 23 January 1992
23 January 1992
CATCHWORDS:
Contract -- Enforceability -- Contract to negotiate -- Lock-out agreement -- Agreement to purchase business and
land subject to contract -- Collateral contract to continue negotiations and to terminate negotiations with any third party
-- No specific time limit on duration of collateral agreement -- Whether implied term that defendants would continue to
negotiate in good faith for reasonable period -- Whether collateral contract enforceable
...
In 1986 the respondents decided to sell the business and the premises and received
an offer of £1
...
In the meantime the appellants entered into negotiations with the respondents and
on 12 March 1987 the respondents agreed in principle to sell the business and the premises to them for £2m and warranted that the trading profits in the 12 months following completion would be not less than £300,000
...
The appellants duly provided the comfort letter from their
bank in the time specified and on 25 March the respondents confirmed that, subject to contract, they agreed to the sale
of the property and the shares in the company at a total price of £2m
...
The appellants brought an action
against the respondents for breach of a 'lock-out' agreement, collateral to the negotiations which were proceeding to purchase the business and the premises subject to contract, under which the appellants had been given an exclusive opportunity to try to come to terms with the respondents
...
It was contended
that the consideration for the collateral contract was the appellants' agreement to continue negotiations and the provision
of the comfort letter from their bank
...
The appellants
appealed to the House of Lords
...
It followed that the alleged collateral agreement was unenforceable and the appeal would
therefore be dismissed
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Channel Home Centers Division of Grace Retail Corp v Grossman (1986) 795 F 2d 291 criticised
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CASES-REF-TO:
Albion Sugar Co Ltd v Williams Tankers Ltd, The John S Darbyshire [1977] 2 Lloyd's Rep 457
...

Courtney & Fairbairn Ltd v Tolaini Bros (Hotels) Ltd [1975] 1 All ER 716, [1975] 1 WLR 297, CA
...

Mallozzi v Carapelli SpA [1976] 1 Lloyd's Rep 407, CA; affg [1975] 1 Lloyd's Rep 229
...

Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana, The Scaptrade [1981] 2 Lloyd's Rep 425; affd
[1983] 1 All ER 301, [1983] QB 529, [1983] 2 WLR 248, CA; affd [1983] 2 All ER 763, [1982] 2 AC 694, [1983] 3
WLR 203, HL
...

Trees Ltd v Cripps (1983) 267 EG 596
...

INTRODUCTION:
Appeal
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(Bingham LJ dissenting) on 19 December 1990 allowing the appeal of the respondents, Peter Norman Miles and Valerie Jean Miles, from the judgment of Judge Bates QC sitting as a judge of the High Court in the Queen's
Bench Division, on 21 July 1989 awarding the appellants damages to be assessed in the appellants' action against the respondents for damages for breach of an oral contract and/or misrepresentation and/or negligent misstatement and/or
breach of warranty made by the first respondent on behalf of both respondents to the appellants on or about 19 March
1987 and evidenced by letter dated 18 March 1987
...

COUNSEL:
Philip Naughton QC and Angus Moon for the appellants; Stanley Brodie QC and Edward Cohen for the respondents
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23 January 1992
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PANEL: Lord Keith of Kinkel, Lord Ackner, Lord Goff of Chieveley, Lord Jauncey of Tullichettle and Lord BrowneWilkinson
JUDGMENTBY-1: LORD KEITH OF KINKEL
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My Lords, I have had the opportunity of considering in draft the speech to be delivered by my noble and learned friend Lord Ackner
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JUDGMENTBY-2: LORD ACKNER
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My Lords, Mr Martin Walford, the first named appellant, is a solicitor in private practice
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They own the third na-

med plaintiff, a company which plays no part in this dispute
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The company's auditors at the material
time were Mr Patel and Mr Khanderia, who carried on their profession under the name of Patel Khanderia & Co
...
Negotiations took place with Mr Patel and Mr Khanderia via the medium of a company, Statusguard Ltd, in which Mr Patel and Mr Khanderia had a 30% interest
...

Towards the end of 1986 the respondents decided once more to try to sell the company and its business premises,
Mr Patel put forward an offer of £1
...
Meanwhile the appellants had heard that the business was up for sale
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Although the appellants knew nothing
about the photographic processing business, they thought they had found a bargain
...
The appellants considered that the business and its premises were, in the words of Mr Naughton QC in opening this appeal, 'dramatically undervalued'
...

Following a meeting on 12 March 1987 at Mr Martin Walford's offices, the main terms of the purchase were agreed
in principle and on 16 March Mr Martin Walford faxed a letter expressly headed 'subject to contract' to Mr Randall of
Messrs Tarlo Lyons Randall Rose, the solicitor for the respondents
...
In his letter of 16 March Mr Martin Walford recorded that Mr
Miles had given his assurance that, provided he received a clear indication of the intention to proceed with the purchase
not later than the close of business on Wednesday, 25 March, he would not treat with any third party or consider any
other alternative offers
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This letter was however overtaken by oral exchanges which occurred on the same day between Mr Martin Walford and Mr Miles
...
It is common ground that the penultimate paragraph of that letter correctly sets out the agreement which had been reached as to negotiations between third parties
...
He asked me to provide a comfort letter from our bankers confirming that they are, subject to
contract, prepared to provide the finance of £2,000,000 to enable Acquisition Corpn to effect the purchase
...
'
The letter from Lloyd's Bank which Mr Walford enclosed, dated 18 March, was addressed to Mr Randall and expressed to be given without responsibility
...

On 25 March Mr Randall wrote to Mr Martin Walford acknowledging the receipt of this letter and enclosure, and
confirmed that, subject to contract, his client agreed to the sale of the property and the shares at a total price of £2m
...
He
pointed out that everything was still subject to contract and that the transaction might not go through, but that, if it did
not, his client would be interested to pursue discussions
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Mr Martin
Walford was anxious to meet Mr Miles on that day, but Mr Miles was not available
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This they refused to do
...
Meanwhile the shares in the company and the property
in Blackfriars Road had been sold for £2m to Statusguard Ltd, the corporate vehicle through which Mr Patel and Mr

Khanderia had tried to make the purchase in 1985
...
It was
Mrs Miles who informed the court that she and her husband spent the afternoon of Friday, 27 March at the company's
premises and during that time decided not to sell to the Walfords or their company
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If they failed to do so, they might
lose staff and then fail to produce the £300,000 profit which was the subject of the warranty
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They therefore, decided whether to continue in business
themselves or to ask Mr Patel is he was still interested
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Mr Patel, in his evidence, said that after he had received Mr
Randall's letter of 25 March he had no contact with Mr Miles until the telephone conversation on 27 March, to which I
have just referred
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He concluded that Mr Miles and Mr Patel had continued to keep
in touch notwithstanding the oral agreement of 17 March recorded in the letter of 18 March
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The consideration for this oral agreement was twofold: firstly,
the appellants agreeing to continue the negotiations and not to withdraw and, secondly, their providing the comfort letter
from their bankers in the terms requested
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the [first respondent] on behalf of himself and the [second respondent] would terminate negotiations with any
Third Party or consideration of any alternative with a view to concluding an agreement with the [appellants] and further
that even if he received a satisfactory proposal from any Third Party prior to the close of business on 20th March 1987,
he would not deal with that Third Party or give further consideration to any alternative
...

For reasons which will become apparent hereafter, it was decided to amend this paragraph by the following addition:
'It was a term of the sale collateral agreement necessarily to be implied to give business efficacy thereto that, so
long as they continued to desire to sell the said property and shares, the [first respondent] on behalf of himself and the
[second respondent] would continue to negotiate in good faith with the [appellants]
...

In the statment of claim it was furhter alleged that, by reason of the wrongful repudiation by the respondents, the
appellants lost the opportunity of completing the sale and purchase of the shares and property, and that the true market
value of the shares and the property was of the order of £3m
...
In addition to the above, there was a claim for damages for misrepresentation by the respondents in continuing to deal with third parties
...

The decision of first instance and the Court of Appeal
After the close of pleadings, directions were given, inter alia, that the assessment of any damages to which the
appellnats might be entitled for the alleged loss of opportunity of completing the sale and purchase of the shares and
property should await the determination of the issue of liability
...
The judge did not deal with this contention
...
He therefore ordered that the damages for the alleged loss
of opportunity be assessed
...

In the Court of Appeal, by a majority (Dillon and Stocker LJJ), the appeal was allowed (save to the extent of the
award of the damages for misrepresentation) on the grounds that the agreement alleged was no more than an agreement
to negotiate and was therefore unenforceable
...
He would have set aside the award of damages for misrepresentation on the grounds that it was not justified by the evidence or the trial judge's findings
...

The validity of the agreement alleged in para 5 of the statement of claim as amended
The justification for the implied term in para 5 of the amended statement of claim was that, in order to give the collateral agreement 'business efficacy', Mr Miles was obliged to 'continue to negotiate in good faith'
...
It was of course conceded that the agreement made no specific provision for the period it was to last
...
It was however accepted that such period of time would not end when negotiations had ceased, because all such negotiations were conducted expressly under the umbrella of 'subject to contract'
...

Apart from the absence of any term as to the duration of the collateral agreement, it contained no provision for the
respondents to determine the negotiations, albeit that such a provision was essential
...
However, in order to determine whether a given reason was a proper one, he accepted that the test was not an
objective one: would a hypothetical reasonable person consider the reason a reasonable one? The test was a subjective
one: did the respondents honestly believe in the reason which they gave for the termination of the negotiations? Thus
they could be quite irrational, so long as they behaved honestly
...
This was first decided in terms in Courtney v Fairbairn Ltd v Tolaini Bros
(Hotels) Ltd [1975] 1 All ER 716 at 720, [1975] 1 WLR 297 at 301-302, where Lord Denning MR said:
'If the law does not recognise a contract to enter into a contract (when there is a fundamental term yet to be agreed)
it seems to me it cannot recognise a contract to negotiate
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It seems to me that a contract to negotiate, like a contract to enter into a contract, is not a contract known to the
law
...
'
In that case Lord Denning MR rejected as not well founded (and Lord Diplock expressly concurred with this rejection) the dictum of Lord Wright in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 at 515, [1932] All ER Rep 494 at
505:
'There is then no bargain except to negotiate, and negotiation may be fruitless and end without any contract ensuing; yet even then, in strict theory, there is a contract (if there is good consideration) to negotiate, though in the event
of repudiation by one party the damages may be nominal, unless a jury think that the opportunity to negotiate was of
some appreciable value to the injured party
...
In that case Kerr J ([1975] 1 Lloyd's Rep 229) had applied the dictum of Lord Wright in
Hillas & Co Ltd v Arcos Ltd before the Courtney & Fairbairn Ltd case had been decided and held that there was an
obligation on the parties at least to negotiate bona fide with a view to trying to reach an agreement
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First or second port to be agreed

between Sellers and Buyers on the ship passing the Straits of Gibraltar
...

The decision that an agreement to negotiate cannot constitute a legally enforceable contract has been followed at
first instance in a number of relatively recent cases: Albion Sugar Co Ltd v Williams Tankers Ltd, The John S Darbyshire [1977] 2 Lloyd's Rep 457, Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana, The Scaptrade
[1981] 2 Lloyd's Rep 425, Trees Ltd v Cripps (1983) 267 EG 596, Nile Co for Export of Agricultural Crops v H & JN
Bennett (Commodities) Ltd [1986] 1 Lloyd's Rep 555, Voest Alpine Intertrading GmbH v Chevron International Oil Co
Ltd [1987] 2 Lloyd's Rep 547 and Star Steamship Society v Beogradska Plovidba, The Junior K [1988] 2 Lloyd's Rep
583
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In the present case, so it was contended, by the end of the telephone conversation on 17 March there was no existing difference
...
However this submission overlooked that what had been 'agreed' on the telephone on 17 March was 'subject to contract'
...

Further, there were many other matters which had still to be considered and agreed
...

Although the cases in the united States did not speak with one voice your Lordships' attention was drawn to the decision
of the United States Court of Appeals, Third Circuit in Channel Home Centers Division of Grace Retail Corp v Grossman (1986) 795 F 2d 291 as being 'the clearest example' of the American cases in the appellants' favour
...

I do not find the decision of any assistance
...
This appears
to me, with respect, to be an unsustainable proposition
...
The same does not apply to an agreement to
use best endeavours
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How can a court be expected to decide whether, subjectively, a proper reason existed for the termination of negotiations? The answer suggested depends upon whether the
negotations have been determined 'in good faith'
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Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations
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Mr
Naughton of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations
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It is here that the uncertainty lies
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There can be thus no obligation to continue to negotiate until there is a 'proper reason' to withdraw
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The validity of the agreement as originally pleaded in the statement of claim
Paragraph 5 of the statement of claim, as unamended, followed the terms of the oral agreement as recorded in the
penultimate paragraph of the letter of 18 March
...
'
Despite the insistance by Mr Naughton upon the implied term pleaded in the amendment involving the obligation to

negotiate, Bingham LJ, in his dissenting judgment, considered that that obligation could be severed from the agreement
...

Before considering the basis of Bingham LJ's judgment, I believe it is helpful to make these observations about a
so-called 'lock-out' agreement
...
There are often good commercial reasons why A should desire to obtain
such an agreement from B
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A may well consider that he is not prepared to run the risk of expending
such time and money unless there is a worthwhile prospect, should he desire to make an offer to purchase, of B, not
only then still owning the property, but of being prepared to consider his offer
...
But I stress that this is a negative agreement -- B, by agreeing not to negotiate for this fixed period
with a third party, locks himself out of such negotiations
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What A has achieved is an exclusive opportunity, for a fixed period, to try and come to terms with B, an opportunity
for which he has, unless he makes his agreement under seal, to give good consideration
...

The agreement alleged in para 5 of the unamended statement of claim contains the essential characteristics of a basic valid lock-out agreement, save one
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Bingham LJ sought to cure this deficiency by holding that the obligations upon the respondents not to deal with other parties should continue to bind them
'for such time as is reasonable' in all the circumstances'
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the time would end once the parties, acting in good faith, had found themselves unable to come to mutually ac ceptable terms
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bring the reasonable time to an end by procuring a bogus impasse, since that would involve a breach of the duty of reasonable good faith which parties such as these must, I think, be taken to
owe to each other
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Such a duty, for the reasons which I have given above, cannot be imposed
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Thus, even if, despite the way in which the Walford's case was pleaded and argued, the severance favoured by Bingham LJ was permissible, the resultant agreement suffered from the same defect (although for different reasons) as the
agreement contended for in the amended statement of claim, namely that it too lacked the necessary certainty, and was
thus unenforcable
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JUDGMENTBY-3: LORD GOFF OF CHIEVELEY
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My Lords, I have had the advantage of reading in draft the speech of my learned
and noble friend Lord Ackner
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JUDGMENTBY-4: LORD JAUNCEY OF TULLICHETTLE
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My Lords, I have had the advantage of reading in draft the speech of my

learned and noble friend Lord Ackner
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JUDGMENTBY-5: LORD BROWNE-WILKINSON
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My Lords, I too agree with the speech of my noble and learned friend Lord Ackner and, for the reasons which he gives, would dismiss this appeal
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SOLICITORS:
Wedlake Bell; Tarlo Lyons Randall Rose

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