Clifford Chance

A contractual obligation to negotiate in good faith – binding or not binding?

22 July 2011

Express obligations to negotiate documents in good faith are often encountered in financing transactions, particularly in commitment papers. Before 2005, it was accepted law that an obligation to negotiate in good faith was not enforceable. The Court of Appeal's comments in the Petromec case of that year ruffled feathers a little by suggesting that in some circumstances an express obligation to negotiate in good faith may be enforceable. However, in the recent decision of Barbudev v Eurocom the High Court has returned to the previous position that such an obligation is always unenforceable. As the ruling of a first instance court only, this decision is not binding on other courts and does little to clarify the extent to which an express obligation to negotiate in good faith will be binding. Its significance is that it seems to signal a reluctance on the part of the lower courts to build on, or follow, the Court of Appeal's lead in Petromec.

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