Rosalina Investments Ltd & Anor v New Balance Athletic Shoes (UK) Ltd

This is a dispute about the existence of a contract. The Claimants (respectively “Rosalina” and “Rosalina UK”, collectively “the Companies”) claim under the terms of what they contend was a contract concluded on 16 September 2016. The Defendant (“NB”) says that there was no final agreement as the terms had not been signed.

The matter has come before me on NB’s application to strike out the claim and/or for summary judgment on the basis that it has no real prospect of success.

The Companies hold the rights to exploit the promotional and commercial activities and services of a member of the Manchester United football team, Marouane Fellaini, both internationally and here in the UK. NB is the UK branch of a global group whose business includes the manufacture and sale of sportswear, including football boots. The global group includes a company called Warrior Sports UK Limited (“Warrior”).

By a written agreement dated 28 March 2013 and signed by the parties, Rosalina granted Warrior the exclusive rights to use certain image rights associated with Mr Fellaini, in return for procuring Mr Fellaini to provide certain promotional and commercial services. The commencement date for that agreement was 17 September 2012, hence its being referred to by the parties in their communications as “the 2012 Agreement”. The 2012 Agreement was novated with effect from 2 February 2015, Warrior’s obligations thereafter being assumed by NB.

The 2012 Agreement came to an end on 31 July 2016, after which the parties corresponded about the terms of an extension/renewal. Notwithstanding the expiry of the 2012 Agreement in July 2016, NB continued to provide football boots and clothing to Mr Fellaini, and he continued to wear and promote their products, until January 2017.

The relationship came to an end when, on 11 January 2017, NB wrote to the Companies notifying them of its decision not to approve an extension to the contract and proposing to pay an amount based upon the terms of the proposed new contract up to 11 January 2017 “in recognition of the services provided”. Payments of over £346,000 have been tendered to the Companies on a quantum merit basis.

Fieldfisher LLP, solicitors for the Companies, responded on 27 January 2017 expressing surprise at the suggestion that no contract had been concluded, asserting that a valid agreement had been in place since September 2016, with an effective date of 1 August 2016.

The Companies issued proceedings on 15 September 2017 claiming over £2m in lost retainer and damages. NB served its Defence on 17 October 2017, the Reply followed on 17 November 2017 and this application was issued on 20 December 2017.

It is common ground between the parties that there was no new agreement or heads of terms which had been signed by all parties prior to the letter from NB dated 11 January 2017 referred to above. NB’s case is that the parties intended conclusion of the contract to occur via signature only. The Companies say that this is not a case where any new agreement was expressly or impliedly “subject to contract”, and that they did in fact agree terms such that a concluded contract came into existence on 16 September 2016; alternatively, if there was no concluded contract, NB was in breach of a continuing obligation under the expired 2012 Agreement to negotiate in good faith.

The issues that arise on this application are therefore (i) whether there was a concluded contract as at 16 September 2016, (ii) if not, whether there is a viable claim for breach of an obligation to negotiate in good faith and (iii) the overarching consideration of the suitability of these issues for determination at this summary stage.

The requirements for striking out a case and/or summary judgment are to be found at CPR r.3.4(2) and CPR r.24.2 respectively. The principles to be applied have been neatly summarised by Hamblen LJ in Global Assset Capital Inc v. Aabar Block SARL [2017] 4 WLR 163 at [27]:

(1)

The court must consider whether the case of the respondent to the application has a realistic as opposed to fanciful prospect of success – in this context, a realistic claim is one that carries some degree of conviction and is more than “merely arguable”.

(2)

The court must not conduct a “mini-trial” and should avoid being drawn into an attempt to resolve conflicts of fact which are normally resolved by the trial process.

(3)

If the application gives rise to a short point of law or construction then, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should “grasp the nettle and decide it”.

Mr Mill QC, for NB, contended that the case as to the (non)existence of a concluded contract was suitable for summary resolution as there were no material facts in dispute. All the necessary evidence was before the court in the witness statements and attachments; he pointed out that the court’s task was the same now as it would be at trial, namely to make an objective assessment of the communications passing between the parties to determine whether there was a concluded contract as at 16 September 2016 as the Companies allege. If, on the proper construction of those communications, there was no concluded contract then the Companies’ case must fail and should be disposed of now. He described the alternative case based on breach of an obligation to negotiate in good faith as “transparently hopeless”.

Mr Onslow QC, for the Companies, argued that the dispute was not suitable for summary determination as his case for a contract concluded on 16 September 2016 was one with reasonable prospects of success. In any event, he said, there were good reasons for proceeding to trial with disclosure and evidence in relation to all the pleaded issues, given his alternative claim arising from the allegation of a breach of the obligation contained in the 2012 Agreement to negotiate in good faith.

It is inevitable on applications such as this that argument on the substantive issues will shade into, and overlap with, the question as to whether or not the case is susceptible of summary resolution. It is almost always necessary to hear the full argument developed in order to determine whether the contentious issues should go to trial. Having heard the parties’ submissions over a day and a half on this application I am satisfied, for the reasons developed further below, that the issues raised are properly susceptible of summary resolution.

NB’s application was supported by a witness statement from Mr George Lubega, of CMS CameronMcKenna Nabarro Olswang LLP. This set out the background, the nature of the case and the main points in issue. Exhibited to Mr Lubega’s statement were the principal documents passing between the parties relating to the alleged contract.

The Companies served evidence from Kaisor Basar (“KB”), a non-practising solicitor and registered football intermediary, Colin Gibson of Fieldfisher LLP, and Stijn Debaene, partner of Fieldfisher LLP and a practising Belgian attorney (“SD”).

I had available to me, in these witness statements and the exhibits thereto (principally those of Mr Lubega and Mr Gibson) all the material communications between the parties between 31 July 2016, when the 2012 Agreement came to an end, and 11 January 2017 when NB wrote notifying the Companies of its intention to cease its association with Mr Fellaini. None of this material was contentious although the meaning to be drawn from it all plainly was.

The case for the Companies is pleaded at paras 9-11 of the Particulars of Claim as follows:

“(C)

The 2016 Agreement

9.

On or about 30 July 2016 the 2012 Agreement lapsed by reason of the expiry of its term, save (insofar as material) in respect of the obligation to negotiate a renewal in good faith as set out in paragraph 6.2.3 above. Nonetheless, both [the Companies] and [NB] proceeded on the basis that [the Companies] and Mr Fellaini would continue to provide services to [NB] and to endorse [NB] products…

[particulars were then set out at paras 9.1-9.5]

10.

Further, on 23 August 2016 counsel for [NB] (Paul Fletcher) sent a draft contract to [the Companies], which he stated would come into effect the following day. In the event, the precise terms of the agreement were the subject of limited negotiation prior to 15 September 2016, on which date Mr Fletcher provided a copy of the proposed agreement to Mr Fellaini’s legal representative (Mr Debaene of Fieldfisher), requesting that he confirm whether any final changes were required.

11.

Mr Debaene responded on 16 September 2016 “This is perfect. How do we arrange the signature. Who goes first?”. On 23 September 2016 Mr Debaene sent a further email “Hi Paul. Shall I have the agreements signed from our side first?” Mr Fletcher reverted “Yes please. Please scan a copy of the signed agreement and personal guarantees to all cc’d to this email. Please then send two originals of each document to Ben Haworth”. The agreement (“2016 Agreement”), signed by Rosalina on 27 September 2016, was then circulated on 5 October 2016, as were personal guarantees signed by Mr Fellaini in support of that agreement, on 26 September 2016.”

Whilst the content of the documents to which reference is made in the above paragraphs of the Particulars of Claim was not in issue, the construction of those and other documents is at the heart of the case.

It is necessary to set out chronologically the full range of inter partes communications for the period August 2016 to January 2017 capable of informing the issue as to whether there was a concluded contract. Although the key date for the alleged conclusion of a contract was pleaded as 15 September 2016, the hearing before me proceeded on the basis that the date upon which the contract was said to have been finalised was 16 September 2016. The relevant communications are as follows:

The Companies’ primary case was that the parties were bound by a contract concluded on 16 September 2016. Mr Onslow’s position was that although it would be open to me to find, as a matter of construction of the documents at this summary stage, that the parties had reached a concluded agreement on 16 September 2016, the contrary position - that there was no concluded agreement as at that date – should not be definitively decided without further disclosure and evidence.

Mr Onslow submitted that the exchanges between them showed the parties to be of one mind in relation to the terms of the new agreement as at 16 September 2016. He acknowledged that that agreement remained to be signed; he characterised the issue as whether that agreement was to take effect immediately or only upon signature by all parties. That issue, he argued, was one for trial, after disclosure, as the outcome would depend upon the weighing up of evidence pointing different ways with the benefit of a more detailed understanding of the background, in particular of the context and significance of the exchanges post-September 2016. These showed, he suggested, a reconsideration on the part of NB, leading to an opportunistic reopening of negotiations.

Mr Onslow drew my attention to the terms of the draft contract as at 16 September 2016 which provided for it to be entered into that day. Rosalina had signed that contract, he pointed out; the exchanges thereafter were directed at putting the agreement which had been concluded into good order. Later communications were of limited assistance, he submitted, relevant only to show what the parties believed they had done on 16 September. There was no later acknowledgement by the Companies that they did not have a contract, he pointed out; the exchanges were reasonably explained by parties who were already in an established relationship showing a willingness to change provisions which were of little importance. He referred me to the “Spring/Fall 2017” New Balance Catalogue, printed in the second half of 2016 for distribution in 2017, many pages of which featured Mr Fellaini. Mr Onslow also relied on a long run of WhatsApp messages exchanged between Mr Fellaini and Ben Haworth of NB in late 2016 discussing the comfort of his boots, with Mr Haworth instructing Mr Fellaini in which matches to wear them. These activities, Mr Onslow argued, were strongly indicative of an ongoing relationship, where the parties believed that they had arrived at an agreement and were conducting themselves upon the basis of that agreement.

Mr Mill contended that upon an objective construction of the above communications between the parties, no agreement was concluded on 16 September 2016. He relied upon the following:

Mr Mill resisted Mr Onslow’s suggestion that I should look only at the communications crossing the line up to 16 September 2016 and consider the position as at that date, without more. He referred me to the observations of Hamblen LJ in Global, at [28-30]:

“[28] It is well established that when deciding whether a contract has been made during the course of negotiations the court will look at the whole course of those negotiations—see Hussey v Horne-Payne (1879) 4 App Cas 311 .

[29] As Earl Cairns LC observed in that case at p.316:

“You must not at one particular time draw a line and say “We will look at the letters up to this point and find in them a contract or not, but we will look at nothing beyond’. In order fairly to estimate what was arranged and agreed, if anything was agreed between the parties, you must look at the whole of that which took place and passed between them”

[30] The rationale of this approach is that focusing on one part of the parties’ communications in isolation, without regard to the whole course of dealing, can give a misleading impression that the parties had reached agreement when in fact they had not – see Lord Selborne in Hussey at p.323.”

Hamblen LJ then referred to the Supreme Court decision in RTS Flexible Systems Ltd v. Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] UKSC 14 approving Lloyd LJ’s judgment in Pagnan SpA v. Feed Products Ltd [1987] 2 Lloyd’s Rep 601 before continuing:

“[34] Despite this clear line of authority, the judge concluded that Global had a realistic prospect of establishing that reference cannot be made to events after [the alleged date of contract] in relation to the question of whether a contract was made on that day and that he should not therefore have regard to such events. He gave four reasons for doing so…(2) the principle that one cannot “interpret the meaning of words used in a contract by reference to what happened later”; (3) the case of Perry v Suffields [1916] 2 Ch 187 in which the Court of Appeal held that “once it is shown that there is a complete contract, further negotiations between the parties cannot, without the consent of both, get rid of the contract already arrived at”

…

[36] As to (2), this is of course correct when one is considering the interpretation of words used in a contract but here the issue is whether a contract was made, not what the contract means.

[37] As to (3), this too is correct once it is established that a contract has been concluded. It does not, however, apply to the prior question of whether a contract has been concluded.”

Mr Mill argued that the only construction to be placed upon the parties’ exchanges set out in paragraph 20 above was that their agreement was “subject to contract” ie that the contract was to be concluded only upon all parties signing. He emphasised that this was a commercial contract between experienced parties dealing at arms’ length with the assistance and advice of solicitors; he drew my attention to the observations of Sir Andrew Morritt C in Cheverny Consulting Ltd v Whitehead Mann Ltd [2006] EWCA Civ 1303, at [45]:

“Obviously each case depends on its own facts but in my view where, as here, solicitors are involved on both sides, formal written agreements are to be produced and arrangements made for their execution the normal inference will be that the parties are not bound unless and until both of them sign the agreement.”

I was directed also to the following passage from the judgment of Beatson LJ in Tahar Benourad v Compass Group Plc [2010] EWHC 1882 (QB), at [106]:

“Where there is no such stipulation [that the agreement is “subject to contract”], this (see e.g. Winn v Bull (1877–78) LR 7 Ch 29, 32, per Jessel MR) is a question of construction. The fact that a draft contractual document or a covering letter to it invites a party to initial or sign a copy and return it to the other party, or contemplates that a party would obtain legal advice before signing are telling indications that the parties do not intend to be bound until the document is signed: Investec Bank (UK) Ltd v Zulman [2010] EWCA Civ. 536 at [19–20].”

Mr Onslow relied on Attrill and others v. Dresdner Kleinwort [2013] EWCA Civ 394, an employment case concerning the question as to whether a unilateral offer made to the workforce was binding on the employer. An issue arose as to whether matters known to the employer, but not known to the employees, was properly to be taken into account on an objective consideration as to whether there was an intent to create legal relations. Elias LJ observed as follows at [86-87]:

“[86] In my judgment this evidence is admissible even on the assumption that it was not known to the employees when the offer was made. The purpose behind the rule is that if the recipient of the unilateral promise would in the light of all the circumstances known to him reasonably understand the promise to be intended to be legally finding, the other party should not be allowed to escape liability by relying on evidence unknown to the recipient to establish that there was no such intention. But a rule of this nature must not be allowed to work an injustice. So a party who in fact knows that the other party does not intend to create legal relations cannot seek to contend otherwise by asserting that the evidence, objectively analysed, supports his case. He knows the truth and should not be allowed to deny it: Pateman v Pay (1974) 232 EG 457. (A similar rule applies to stop an offeree from seeking to snap up an offer on terms consistent with the objective evidence when in fact he knows that the offeror did not intend to agree those terms: Hartog v Colin & Shields [1939] 3 All ER 566.)

[87] Similarly in Lark v Outhwaite [1991] 2 Lloyd’s Rep 132 the plaintiff was asserting an intention to create legal relations but there was evidence from his agent which unambiguously showed that subjectively he did not have any such intention. Hirst J held that whilst the test whether a promise was intended to have legal consequences was primarily objective, the court would not be obliged to ignore entirely evidence of subjective intention. In my view the justification for admitting objective evidence relevant to understanding the likely intention of the offeror, such as the objective evidence in this case about the involvement and concern of the FSA and the need to keep staff is, if anything, stronger. An offeror should not be allowed to assert that there was no intention to create legal relations and at the same time seek to take advantage of a rule designed to benefit the offeree in order to conceal from the courts evidence which is inconsistent with his assertion.”

Mr Onslow argued that NB’s internal communications between 19-23 October 2016 indicated that NB itself believed that agreement had been reached in September. In circumstances where both his clients and NB believed they had reached a deal, Mr Onslow said disclosure of NB’s internal communications thereafter would be important to show what had prompted the change of heart from late October/early November onwards. This, in turn, would feedback into and inform the objective construction of communications passing between the parties before that time.

Mr Mill responded that these were illegitimate attempts to evade the well-established rule emphasised by the Supreme Court in RTS Flexible Systems. He pointed out that Elias LJ’s observations in Attrill were obiter, as the court was satisfied that the employees had at all times known of the relevant matters, and in any event were made in a very different situation, involving a unilateral offer made in the context of a pre-existing and ongoing contractual relationship, a point emphasised by Elias LJ himself at [89].

At the hearing Mr Onslow withdrew his case that NB were estopped from denying that a contract had been concluded.

The Companies’ alternative case, in the event that there was no concluded contract, was that by breaking off negotiations in January 2017 NB were in breach of a continuing obligation imposed by the terms of the 2012 contract to negotiate a renewal in good faith. The relevant provision in the 2012 Agreement, at clause 9 of Schedule 1, provided as follows:

“9.

RIGHT OF FIRST REFUSAL/MATCHING RIGHTS

9.1

At [NB’s] request, the Company [ie Rosalina] and/or the Player shall negotiate with [NB] in good faith with respect to the terms of a renewal of this Contract. The parties shall not be obligated to enter into any agreement if they cannot settle on mutually satisfactory terms.

9.2

Until sixty (60) days prior to the expiration of this Contract or the earlier termination of this Contract (whichever first occurs), the Company shall procure that the player shall not … engage in discussions or negotiations with any third party regarding the Player wearing, sponsoring, promoting, advertising or endorsing, or providing consulting or similar services with respect to any Competitor Products after the Term has expired.

9.3

Without prejudice to clause 9.2 above, Warrior agrees that if during the Term and for a period of sixty (60) days following the expiry of the Term the Company receives a Third Party Offer the Company shall promptly communicate the details of the Third Party offer to Warrior…

9.4

Within thirty (30) days of communication to it of a Third Party Offer including all of the Key Terms, Warrior shall be entitled to require that instead of accepting the Third Party Offer the Company shall immediately enter into a contract with Warrior for the provision of the Player’s services containing the same Key Terms as that Third Party Offer and the remainder of the terms set out in this Contract. For the avoidance of any doubt the Company’s obligation to procure that the Player exclusively wears Warrior Products shall be extended for the period of sixty (60) days following the expiry of this Agreement, or until the moment that the Third Party Offer has been rejected or accepted by Warrior (whichever is earlier)

9.5

If Warrior decides not to enter into a new contract on the terms of the Third Party Offer notified to Warrior this Contract shall expire at the end of the term”

Mr Onslow contended that clause 9.1 imposed mutual obligations of good faith, which NB had breached when it withdrew from the negotiations in January 2017. Having led the Companies to believe, by inviting them to sign the contract in September, that NB would do so too, NB had then sought to re-negotiate, taking advantage of a purely technical point. Mr Onslow submitted that, objectively viewed, an informed observer would say that this was not the way in which good faith business is conducted.

Mr Onslow made the further point that, as the evidence bearing on the issue would necessarily concern all communications, internal to the parties and externally crossing the line, during the period September 2016 to January 2017, the existence of his alternative claim was a further reason why the entire case should proceed to trial.

Mr Mill’s response was that the claim based on an alleged breach of clause 9.1 of the 2012 Agreement was hopeless: first, because the clause did not name Warrior/NB and did not impose any obligation on them. The purpose of the clause was to give Warrior/NB first refusal on a new contract when the 2012 Agreement expired, as the title to clause 9 suggested. Mr Fellaini and the Companies held the image rights and accordingly they were the parties with something to sell; NB was the buyer, the “supplicant”, as Mr Mill put it. Clause 9.1 was thus about restraining Mr Fellaini and Rosalina from secretly negotiating with other sponsors and thereby “gazumping” NB. It was not necessary to imply mutuality.

Second, Mr Mill contended, any obligation under clause 9 ended when the 2012 Agreement ended, or, at the outside, when the 60-day plus 30-day periods provided for by the following clauses 9.2 to 9.4 (if engaged) had expired.

Third, and in any event, he argued, the purported obligation was unenforceable for all the reasons summarised by Lord Ackner in Walford v.Miles [1992] 2 AC 128 at 137-140. Mr Mill also referred me to the case of BBC Worldwide Ltd v. Bee Load Ltd [2007] EWHC 134 (Comm) per Toulson LJ at [90-98].

It was common ground that I had before me all the communications crossing the line between the parties relating to the renewal of the endorsement arrangements between the Companies and NB. Unless there is to be some derogation from the rule in RTS Flexible Systems that such communications are to be objectively construed, I cannot see that any further evidence would permissibly assist in determining whether or not a contract was concluded on 16 September 2016 as the Companies contended.

Mr Onslow sought to persuade me that some derogation from the ordinary rule was called for, by reference to the observations of Elias LJ in Attrill, such that further evidence from the parties themselves, and disclosure of their internal communications, would be required. I remain unconvinced, however: Atrill concerned a unilateral offer. The communication in that case was entirely one-sided, as would be expected. It was against that background that Elias LJ made his observation that it would be unjust if the employer were to be allowed to conceal evidence of facts bearing on his intention to create legal relations at the time he made the offer, by an insistence on the principle of objective assessment. Elias LJ’s comments were obiter, as the workforce did in fact know of the relevant facts. Moreover in Attrill the offer was made during the currency of an existing contractual relationship. The present case is quite different, involving the straightforward situation of two parties negotiating a contract by an exchange of correspondence, engaging the ordinary rules applicable to the formation of a bilateral contract. The inter partes communications in their entirety being before me, I have concluded that this is a case where the court must “grasp the nettle and decide [the issue]” (per Hamblen LJ in Global, cited above).

Nor was I persuaded that I should consider only those communications up to and including 16 September 2016. Mr Onslow’s argument that the later material was of little significance necessarily prejudged the issue which I had to determine, relying as it did upon the contract having been concluded by 16 September. It seemed clear to me, following Global, that I needed to look at the full span of the material over the period August 2016 to January 2017, in order to make an objective assessment of what the parties intended. The issue here was not as to the details of a concluded agreement, but whether the parties had reached agreement at all.

Having considered the full run of communications between the parties, it seems plain to me that they intended to be bound only when all parties had signed. I acknowledge the persuasive force of the fact that both sides appeared to have conducted themselves after 16 September 2016 as if a contract was in place – NB provided boots to Mr Fellaini and communicated with him about wearing them, NB also prepared a catalogue for distribution in 2017 featuring Mr Fellaini in NB clothing. This would be powerful evidence, were it not for the fact that these activities occurred equally before as after 16 September 2016. Moreoever, set against such continued activities are the matters relied upon by Mr Mill, set out at paragraph 24 above. Of these matters, (ii), (iv) and (vii) seem to me to be particularly significant. The language used by the parties – of signatures and in what order they should happen, then later speaking of “amendments/changes” and not “variations” - is highly suggestive of a contract that is not yet over the finishing line. Most significant as I saw it was the communication by KB to PF on 21 December 2016 of Mr Fellaini’s refusal to attend any further personal appearances until the new contract was signed. Why communicate his client’s threat unless it was to force a conclusion to a negotiation that had become over-protracted? Mr Onslow was unable satisfactorily to meet this point.

I note also that the personal guarantees to be signed and provided by Mr Fellaini were not signed and sent to NB until early October. Moreover it is apparent from the correspondence that the delay in October/November was of benefit to the Companies whilst they resolved the matter of the proper company structure for tax purposes. Had discussions with the Revenue necessitated any changes to be made, the plan clearly was for them to be accommodated within the continuing negotiations, prior to final signature.

I have concluded that the parties’ intention was that their agreement would be concluded only upon signature by all parties. By January 2017 only Rosalina had signed, neither Rosalina UK nor NB had done so, and there was no concluded agreement. It follows that the case based upon breach of contract is in my view bound to fail.

I have reached the same conclusion on Mr Onslow’s alternative case alleging breach of a duty to negotiate in good faith. When I asked Mr Onslow to spell out what he contended NB should have done in order to have complied with such a duty, his response was that NB should have signed the agreement, that the breach consisted in encouraging the Companies to sign, but then not doing so itself.

Mr Mill’s short answer to that was that the Companies had never sent the signed version to NB for its signature, thus there could be no breach.

I agree that this provides a short answer, but there are more fundamental objections: first, clause 9.1 did not, in my view, impose any duty of good faith on Warrior/NB. NB was the supplicant at renewal, the Companies and their client Mr Fellaini were in the position of strength as they held the valuable rights on offer; in these circumstances it made sense to impose an obligation on the Companies not to negotiate with anyone else, it was not necessary to impose any like obligation on NB.

Second, the duty to negotiate was not open-ended; it lasted only until the 2012 Agreement expired and possibly up to 90 days thereafter. If it were otherwise then the clause would be void for uncertainty: per Mance LJ in Petromec Inc v Petroleo Brasileiro SA Petrobras (No 3) [2005] EWCA Civ 891 at [120], discussing Walford v Miles [1992] 2 AC 128. Even if clause 9.1 did impose mutual obligations to negotiate in good faith, by January 2017 when NB decided to cease sponsoring Mr Fellaini and declined to sign the agreement, any obligation arising under clause 9.1 had long-since ended.

Third, if clause 9.1 of the 2012 Agreement is to be widely construed in the way contended for by Mr Onslow, it is invalid for the reasons given by Lord Ackner in Walford v Miles at 138E-H:

“..the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering him improved terms. Mr Naughton, of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question – how is a vendor ever to know that he is entitled to withdraw from further negotiations? How is the court to police such an “agreement”? A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either party is entitled to withdraw from those negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a “proper reason” to withdraw.”

Whilst it may now be “generally accepted that [a contract] may impose an obligation on one or both parties to conduct negotiations in good faith” (per Leggatt J (as he then was) in Trustees of Edward Higgs Charity v SISU Capital Ltd [2014] EWHC 1194 at [23]), the validity of such a provision will depend upon the court being satisfied that the traditional objections to such clauses identified by Longmore LJ in Petromec at [116] do not arise: see the discussion in the judgment of Toulson LJ in Bee Load at [94-95].

In this case, if the clause were to be as widely construed as Mr Onslow contended, then each one of the traditional objections would apply. Mr Onslow sought to say that there would be no doubt about the outcome in this case as NB, negotiating in good faith, would have signed the new agreement but this submission again appeared to me to pre-judge the very issue which I had to decide. In my view clause 9.1 of the 2012 Agreement only satisfies the requirements identified by Longmore LJ in Petromec if (i) it imposes a duty on the Companies alone as “vendors” of the rights and (ii) it is time-limited. Clause 9.1, if valid, cannot apply so as to ground a claim by the Companies against NB for breach of a duty to negotiate in good faith by reason of NB failing to sign prior to pulling out of negotiations in January 2017.

For these reasons I am satisfied that the issues raised by NB’s application are suitable for summary determination and that the claim for breach of a concluded agreement and the alternative claim for breach of a duty to negotiate in good faith are each bound to fail. Accordingly there will be an order striking out the claim and/or for summary judgment in favour of NB.

I will hear the parties on costs and any further matters arising.