KEYWORDS: AGREEMENTS TO NEGOTIATE
KEY TAKEAWAY
In commercial, arms' length dealings, it is rare that an implied agreement to negotiate will be found, particularly where essential terms of the contract to be entered into are not settled. Similarly, it is unlikely that estoppel will apply during commercial negotiations.
The facts
The defendants in these proceedings set about developing a new hotel adjacent to the beach, which became Caves Beachside Hotel. In around 2005, the defendants asked Mr Hopper, owner of the plaintiff company (Cuisine), whether he would be interested in running the catering operations of the Hotel. Mr Hopper was subsequently involved in the design of the catering aspects of the Hotel and diverted staff and resources away from other undertakings in anticipation of operating at the Hotel. Cuisine began to provide the catering for the Hotel when it opened in 2009 and did so until July 2013, when the defendants terminated the arrangement with Cuisine. No formal agreement was ever reached on the final terms governing the parties' relationship.
Cuisine commenced proceedings. Its primary claim was for breach of contract, being an implied agreement with the defendant that the parties would use good faith and their best endeavours to enable a lease or licence to be finalised granting Cuisine a lease term of up to 15 years. In breach of such agreement, Cuisine argued, the defendant did not negotiate in good faith or use its best endeavours to enable a lease or licence to be finalised and as a consequence Cuisine had suffered loss and damage. Cuisine also made arguments based on estoppel and misleading conduct.
The decision
Kunc J concluded it was "difficult to conceive" of circumstances giving rise to an implied agreement to negotiate in good faith "because, in the absence of express words, all that is left is the parties' conduct of negotiating" (at [95]). His Honour concluded that the contract case failed because, to the extent there was an agreement of a lease term of 15 years, all other terms were indeterminate and it would otherwise be an unenforceable agreement to agree (at [97]–[98]).
Kunc J followed the recent decision in Baldwin v Icon Energy Ltd [2015] QSC 12 in finding that an open-ended obligation to negotiate in good faith is not enforceable (as opposed to an obligation to negotiate about specific issues).
In relation to Cuisine's estoppel case, Kunc J extracted the test from Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 397 that the assumption generated in the plaintiff must include that the defendant would not be free to withdraw from the expected legal relationship (at [148]). Kunc J noted:
For the same reasons, the misleading conduct case failed (at [164]–[169]).
There is also a judicial finding that "Caves Beach is an attractive seaside spot south of Newcastle" (at [1]).
http://www.austlii.edu.au/au/cases/ nsw/NSWSC/2015/1273.html
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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