Walford v Miles [1992]

Court: House of Lords

Facts: the claimant (C) and the defendant (D) were negotiating the sale of D's company. D agreed to a lock-out agreement, promising not to negotiate with third parties or explore alternative options. However, D subsequently sold the company to a third party. C claimed that D breached both the lock-out agreement and an implied lock-in agreement to negotiate in good faith.

Issue: Whether the lock-out and lock-in agreements were enforceable under English contract law.

Held: The House of Lords dismissed the claim, finding that the agreements were unenforceable.

• Lock-out Agreement: The lock-out agreement was void for uncertainty as it lacked a specified end date. While lock-out agreements, which prohibit negotiations with others, can be enforceable when they have a definite end date, this agreement failed to meet that criterion.

• Lock-in Agreement: The claim for breach of an implied lock-in agreement to negotiate in good faith was also dismissed. Lord Ackner held that such agreements are generally unenforceable due to their inherent uncertainty. It is challenging to determine when a party has failed to negotiate in good faith, as this would contradict the adversarial nature of negotiations.

Key Judicial Statements:

Lord Ackner:

• Lock-in Agreements: A duty to negotiate in good faith is too uncertain to be enforced. The adversarial nature of negotiations implies that parties should be free to withdraw or threaten to withdraw to secure better terms. It is too difficult for a court to determine whether a party has acted in good faith and when it is appropriate to withdraw from negotiations.

• Lock-out Agreements: While a lock-out agreement (a negative obligation not to negotiate with others) can be enforceable, it must have a clear end date to be valid. This type of agreement ensures that a party invests time and resources in the negotiations without the risk of losing the opportunity to a third party.

💡 Leveluplaw: Walford v Miles highlights that while lock-out agreements can be enforceable if they specify a definite end date, lock-in agreements are generally too uncertain to enforce. The case underscores the principle that parties should be able to act in their own interests during negotiations, including the right to withdraw, and that agreements imposing a duty to negotiate in good faith are impractical to enforce due to their inherent uncertainty.