Is there a Duty to Negotiate in Good Faith?

• Main Author: FURMSTON, Michael Philip
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 1998
• Subjects: contracts; negotiation; competitive tender; bidding process; Contracts
• Online Access: https://ink.library.smu.edu.sg/sol_research/624; https://ink.library.smu.edu.sg/context/sol_research/article/1623/viewcontent/auto_convert.pdf
• Institution: Singapore Management University

One of the most interesting questions concerning modern contract lawyers is whether, and if so when, there may be a duty on parties to a contract to negotiate in good faith? This may seem an odd question for an English lawyer to raise, granted the refusal of the House of Lords in Walford v. Miles [1992] 2 A.C. 128 to recognise even the effectiveness of an agreement to negotiate in good faith but this case has not escaped cogent criticism (Neill (1992) 108 L.Q.R. 405) and it rests on an axiom (that this is a duty which cannot be enforced) which might appear self-evident if the plaintiff seeks specific performance but looks very different if what the plaintiff seeks is compensation for wasted expenditure. (Note that this was not what the plaintiff in Walford v. Miles sought.) It is often forgotten how expensive the contract making process can sometimes be. A good example arises where the contract is let by competitive tender. To bid accurately and successfully for a multi-million pound project may easily involve spending tens if not hundreds of thousands of pounds. The clear general rule is that such expenditure is for the tenderer’s account (in effect the successful tenders pay for the unsuccessful) but this assumes a fair tendering process.