Georgi Velichkov Barbudev v Eurocom Cable Management Bulgaria & Ors [2012] EWCA Civ 548

Shaker v Vistajet Group Holding SA [2012] EWHC 1329 (Comm)

Two recent cases have considered express contractual agreements to negotiate in good faith, and found them not to be enforceable.

In the February edition of the Update we reported on the High Court’s decision in Barbudev v Eurocom that a side letter to a sale and purchase agreement which contained a term providing that the parties agreed to negotiate an Investment Agreement in good faith, was unenforceable for uncertainty and for being no more than “an agreement to agree” and that the parties to the side letter had not demonstrated the necessary intent to be legally bound by the letter’s contents.

The Claimant appealed to the Court of Appeal on a number of points, but was successful on only one, namely that the judge had erred when deciding that the parties had not intended to be legally bound by the side letter. The Court of Appeal concluded that such an intention was present and could be demonstrated by both the surrounding circumstances and the contents of the side letter. This included the use of the phrase “in consideration of”, references to the Contracts (Rights of Third Parties) Act 1999 and the inclusion in the letter of enforceable confidentiality obligations.

The Court of Appeal upheld the High Court’s decision that even though the parties had intended to create binding legal relations, the side letter’s uncertainty made it unenforceable as an “agreement to agree”.

Shaker v Vistajet is a decision of Mr Justice Teare in the Commercial Court which expressly refers to the decision in Barbudev v Eurocom. Mr Shaker sought the return of a US$3.55m deposit paid pursuant to a Letter of Intent in respect of the potential purchase and operation of an aircraft from a company within the Vistajet group. The Letter of Intent contained a provision that the deposit should be repaid to Mr Shaker where “despite the exercise of good faith and reasonable endeavours” the parties had “failed to reach agreement, execute and deliver the Transaction Documents” before a specified date. Vistajet argued that since Mr Shaker had not proceeded in good faith or used reasonable endeavours to agree the relevant transaction documents, he was not entitled to the return of the deposit.

Mr Justice Teare cited the decision in Barbudev v Eurocom as authority for the principle that agreements to use reasonable endeavours to agree or to negotiate in good faith are unenforceable. He said that the reason for such unenforceability is that “there are no objective criteria by which the court can decide whether a party has acted unreasonably and that a duty to negotiate in good faith is unworkable because it is inherently inconsistent with the position of a negotiating party“. He concluded that a condition precedent requiring a party to negotiate in good faith would be unenforceable for the same reasons.