A recent case involving The Football Association Premier League Limited and PPLive Sports International Limited suggests that it would be dangerous to assume, in the context of preliminary agreements, that an agreement to agree will always be unenforceable. 

What did the judge say? 

Mr Justice Fraser explained that the concept of good faith in contracts in English law has moved on a great deal since Walford v Miles [1992] 2 AC 128 was decided  - this is the leading case on exclusivity agreements. It supports the view that while parties can be "locked out" of negotiating with third parties they cannot be "locked into" or forced to negotiate with each other.

In particular, Mr Justice Fraser noted that "If parties expressly agree that if something comes to pass, they will negotiate in good faith, I do not consider such a term should be simply ignored." 

What does this mean for preliminary agreements in the context of Private M&A deals in the UK?

Simply that parties should take care before agreeing to a provision in heads of terms or an exclusivity agreement which requires them to negotiate in good faith. 

So a provision along the following lines, which is expressed to be legally binding rather than a general statement of intent, may be more significant than many would think: "During the Exclusivity Period, you shall provide all reasonable support for our due diligence exercise and shall negotiate in good faith to complete the Proposed Transaction on substantially the terms set out in the Offer Letter."

Although the judge did not decide the case on this point - and his remarks are therefore obiter - it provides an interesting insight into current judicial thinking.

Further information

If you would like to discuss this post or any aspects of UK Private M&A transactions please contact Nick Graves or another member of the Burges Salmon Corporate Group.