Cases - Petromec v Petroleo Brazileiro SA Petrobras & Another

Record details

Name

Petromec v Petroleo Brazileiro SA Petrobras & Another

Date

[2004]; [2013]

Citation

EWHC 127 (Comm); EWCA Civ 150

Keywords

Tendering and procurement

Summary

This dispute arose from an engineering contract. The court at first instance examined the enforceability of a clause that was included as a term in an enforceable contract. The clause provided that the parties would negotiate in good faith to reach agreement on certain amounts of costs for the upgrade of a semi-submersible oil production platform which were payable to one of the parties under a separate clause in the contract.

The court held that this type of situation was different from the pre-contract negotiations addressed in Walford v Miles but that, while the process remained one of negotiations, the fundamental objections still applied, as the ultimate object of the negotiations was to reach agreement and it would still be impossible to identify the content of such agreement. Such an agreement was not enforceable because of the uncertainty of the outcome of such negotiations. Even if an obligation to negotiate in good faith were recognised in cases where it forms part of an agreement, a breach of such obligation would not enable the innocent party to recover the benefit of the bargain to which the bona fide negotiations would have led, because the very existence of such bargain and its terms would always remain uncertain. However, the Court of Appeal (although dealing with the issue on an obiter basis) left room for change on this point and held that the fact that the obligation to negotiate in good faith is made part of a complex agreement is relevant, and 'it would be a strong thing to declare unenforceable a clause into which the parties have deliberately and expressly entered'. Longmore LJ concluded that Walford v Miles was not binding in relation to such an express obligation to negotiate.