The Council entered into a "process" contract with Alirae (Body Corporate 51702 (Wellington)) which obliged the Council's officers to "negotiate in good faith" with Alirae the sale of the Council's interest in the premises at 20 Brandon Street, Wellington, which Alirae was leasing. Negotiations broke down and Alirae sued for breach, alleging that they failed to conduct the negotiations in good faith. The trial judge found for Alirae and assessed damages of $580,209 on the basis that if the Council had not been in breach, a substantive contract for sale and purchase would probably have resulted and Alirae had lost the profit it would have achieved from developing the premises in the manner it had in mind.
- Is an agreement to "negotiate in good faith" enforceable?
Tipping, writing for the court, held that:
the essence of the theory of contract is consensus. It follows that for there to be an enforceable contract, the parties must have reached consensus on all essential terms; or at least upon objective means of sufficient certainty by which those terms may be determined. Those objective means may be expressly agreed or they may be implicit in what has been expressly agreed. Taking price as an example, for a contract to be enforceable the parties must have agreed upon the price, or at least they must have agreed upon objective means of sufficient certainty whereby the price can be determined by someone else, or by the Court. If the price is left for later subjective agreement between the parties, the contract is not enforceable.In the case at bar, the contract had not laid out any specific obligations of the parties, nor was there any consideration for the negotiations. Thus, the appeal was allowed and the contract deemed unenforceable.
An agreement to negotiate in good faith is unenforceable for uncertainty.