WORLD SPORT GROUP PTE. LTD v. ASIAN TOUR INTERNATIONAL LTD

HCA 2779/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2779 OF 2008

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J U D G M E N T

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Introduction

1.  This is the inter partes hearing of an application by the Plaintiff for an interlocutory injunction to hold the Defendant to the terms of clause 8 of an agreement in writing (“the Agreement”) between them dated 7 December 2007.  I will need to explain what the Agreement is all about in a moment but before I do so I need to recount the course of the litigation so far.  The Agreement expired on 31 December 2008, it being an agreement for one year only.

2.  On 31 December 2008, the Plaintiff applied to me for an ex parte injunction which I granted.  The Order doing so is at A/29-30.  The material parts of the Order were as follows:

“The Intended Defendant be restrained, whether by itself or through or by its directors, shareholders, officers, employees or agents, until trial or further order, from entering into (or permitting, allowing, assisting or procuring) any agreement with any party other than the Intended Plaintiff:-

(a)  To produce the following programming for tournaments sanctioned by the Intended Defendant (‘Asian Tour events’)

(i)  Asian Tour Weekly programmes.

(ii)  Highlight programmes of the Asian Tour events.

(iii)  Audio-visual coverage of selected Asian Tour events for ‘live’, delayed and/or repeated broadcasts on various media platforms.

(collectively the ‘Asian Tour Programming’); and/or

(b)  To sell and distribute the Asian Tour Programming in any place in the world without first advising the Intended Plaintiff of the terms of the intended agreement with such third party and giving the Intended Plaintiff seven days to match the same in accordance with the terms of clause 8.3 of the Production and Distribution Agreement dated 7 December 2007 made between the Intended Plaintiff and Intended Defendant.”

This Order tracks the wording of the inter partes summons which is now before me [A/28.1-28.4].

3.  Given the potentially serious consequences of the Order, I appointed an early return date, the 5 January 2009, to give the Defendant an opportunity to be heard.  At this hearing, the Defendant gave an undertaking in terms which were acceptable to the Plaintiff, and which reflected the ex parte injunction, until 6 February 2009 when the matter could be more fully contested.  On 6 February, the Defendant asked to be released from its undertaking on the basis that there was no justification for the making of the injunction.

4.  I should also mention that on 9 January, I heard a short application which required me to determine whether a Qualifying Golf Tournament in Thailand was one of the events covered by the Agreement.  I ruled that it was but this ruling has no impact on whether the injunction should be granted in the Plaintiff’s favour.

5.  From that brief introduction, I turn to the substance of the application.

The Nature of the Claim

6.  This case concerns the marketing and promotion of the Asian Golf Tour which, with the growth and popularity of golf throughout the region, has grown to become one of the major golf tours in world golf.  Including Asian Golf Tour co-sanctioned tournaments outside Asia which are part of other golf tours, such as the USPGA Tour and the European Tour, there will be 39 tournaments which will either be sanctioned or co-sanctioned by the Asian Golf Tour in 2009.  Of these, 20 will be held within the geographical region in Asia covered by the Asian Golf Tour [see B/89-90].

7.  The Plaintiff, which is a Singaporean company, is in a substantial way of business in the production, sale and distribution of televised sporting events in Asia and elsewhere in the world.  The Defendant, a Hong Kong company, engages in the management, marketing, administration, development and promotion of professional golf tournaments within Asia which it has designated the Asian Tour.

8.  The Asian Tour as such, has a substantial membership of professional golfers who compete in the various golf tournaments that it sanctions in which they can win the substantial prize money on offer as well as PGA ranking points which go to determine a golfer’s ranking in the world game.  The Defendant, as the operator of the Asian Tour has, in part, a “trade union” function representing as it does the interests of the golf professionals who subscribe to it and who play in the tournaments sanctioned by it.  As such it therefore represents the playing talent which will determine the standard of golf at its sanctioned events.  In order to qualify for the Tour new professional golfers without a previous track record of success need to qualify through a series of qualifying tournaments.  Once on the Tour, they are required to do sufficiently well throughout the year to retain their place on it for the following year otherwise, they will need to pre-qualify again.  In this way, a high standard of golf is maintained throughout the tournaments on the Tour which will make these tournaments attractive to the public who will wish to attend the golf courses where they are played to see the players in action and, perhaps more importantly, who will wish to watch them on television.

9.  This case concerns the television broadcast of these tournaments both live and as edited highlights together with discussion programmes about the players and the tournaments.  It is these rights which the Defendant has sold to the Plaintiff on an agreed fee structure.  The Plaintiff in turn engages television production companies to film the tournaments on its behalf or it may do so itself in-house.  These programmes are then sold on by the Plaintiff, no doubt at a profit for itself, to various broadcasters around the region and indeed worldwide for their television audience to view.

10.  Now that the Agreement is at an end, the Defendant wishes to sever its relationship with the Plaintiff and make other arrangements for the broadcast of its golf tournaments.  Given the history of their relationship and, more relevantly, the terms of the Agreement the Plaintiff says that it cannot do so without first entering into bona fide negotiations with it to renew the Agreement for another year, which the parties had been able to agree about since 2001 and that failing agreement, the Plaintiff is entitled to insist on the Defendant giving it an opportunity to match any offer by a third party to perform this service for the Defendant.  I will consider the terms upon which these contentions are based shortly but, what the Plaintiff says is that the Defendant has failed to hold “in good faith” renewal negotiations with it and now it has evinced an attitude of looking elsewhere for the sale of its broadcast rights with no intention of honouring its obligation to offer the Plaintiff the opportunity of matching any third party offer.  It therefore has sought and obtained the ex parte injunction to preserve the apparent contractual position by preventing the Defendant from offering these broadcast rights without first giving the Plaintiff the opportunity of matching any third party offer.  This therefore is how the matter currently stands, held by an equivalent undertaking from the Defendant.  As a result, the Defendant is not able to secure the broadcast of its tournaments in 2009 unless, of course, it deals with the Plaintiff which it is not disposed to do.

The Agreement in 2008

11.  The outcome to this matter must turn on the effect of the Agreement.  The Agreement is to be found at B/17-21.  I do not intend to reproduce here substantial passages from the Agreement but it will be helpful to set out the recitals and clause 2 which describes what the Plaintiff is contracted to do, clause 6 being the consideration and the renewal provisions in clause 8.

12.  I have already referred to the renewal provisions which in effect give the Plaintiff’s the first right of renewal which it exercised on the expiry of 2007 Agreement.  The recitals refer to this which is the basis upon which the 2008 Agreement came into being.  The recitals are as follows:

“WHEREAS

A.  Pursuant to Production & Distribution Agreement T06AT1066 PA, dated 19 December 2006 (the ‘Principal Agreement’) Asian Tour appointed WSG to produce, sell and distribute the Asian Tour Programming in 2007.

B.  In accordance with the provisions of the Principal Agreement WSG exercised its first right of renewal to produce, sell and distribute the Asian Tour Programming in 2008, and the parties now wish to confirm the terms on which WSG is appointed by Asian Tour to produce, sell and distribute the Asian Tour Programming during the Term of this Agreement.”

From this I come to clause 2 which describes the Plaintiff’s appointment and the basis of its appointment:

“2.  PRODUCTION & DISTRIBUTION AGREEMENT

2.1  Subject to the limitations of Clause 3 and the provisions of Clause 4, during the Term of this Agreement Asian Tour hereby appoints WSG, on a sole and exclusive basis, to:

2.1.1  produce the following Asian Tour Programming for tournaments sanctioned by the Asian Tour (the ‘Asian Tour Events’):

(a)  Asian Tour Weekly programme;

(b)  highlight programmes of the Asian Tour Events (the ‘Highlight Programmes’); and

(c)  audio-visual coverage of selected Asian Tour Events for ‘live’, delayed and/or repeat broadcasts on various media platforms (the ‘Event Programming’).

(collectively the ‘Asian Tour Programming’); and

2.1.2  to sell and distribute the Asian Tour Programming throughout the world (the ‘Territory’).”

13.  The consideration for this is at clause 6, the material terms of which are the following:

“6  CONSIDERATION

6.1  In consideration of WSG’s production of the Asian Tour Programming, the parties agree as follows:

6.1.1  Asian Golf Weekly Programme:  Asian Tour shall pay to WSG, within seven (7) days of receipt of an invoice (which is to be sent on a monthly basis), the production and delivery costs and expenses of US$14,402 per programme;

6.1.2  Highlights Programme:  Asian Tour shall pay to WSG, within seven (7) days of receipt of an invoice, the production and delivery costs and expenses, where such costs and expenses shall be:

(a)  when produced from a live event signal, cost per programme – US$9,942; or

(b)  when produced without a live event signal, cost per programme – US$16,567; and

6.1.3  Event Programming:  The production and delivery budget for each Asian Tour Event shall be agreed between the Parties on a case-by-case basis.

6.2  In consideration of WSG’s right to sell and distribute the Asian Tour Programming, the parties agree as follows:

6.2.1  WSG shall pay to Asian Tour the minimum guarantee sum of United States Dollars five hundred and five thousand (US$505,000) (the ‘Mimimum Guarantee’).

6.2.2  The Minimum Guarantee shall be paid quarterly, in equal instatements of United States Dollars one hundred and twenty six thousand two hundred and fifty (US$126,250) on the 1^st January 2008, 1^st April 2008, 1^st July 2008 & 1^st October 2008.

6.2.3  All revenue (net of all applicable taxes) generated from the sale and distribution of the Asian Tour Programming shall be distributed to the Parties in the following order:

(a)  WSG shall be entitled to recover the first US$505,000, so as to recoup its payment of the Minimum Guarantee;

(b)  WSG shall be entitled to retain the next United States Dollars ninety live thousand (US$95,000) of revenue;

(c)  Thereafter the revenue shall be split seventy five percent (75%) to Asian Tour and twenty five percent (25%) to WSG.”

I should observe that the provision at 6.2.1 and 6.2.2 was not in the 2007 Agreement which Mr McLeish, for the Plaintiff, has drawn my attention to as an indication of the effects of the negotiation process in circumstances where there had been a third party offer made to the Defendant which the Plaintiff had been given the opportunity to match, which it was willing to do, thereby concluding the Agreement for 2008.

14.  Clause 8 which describes the procedure to be adopted in attempting a renewal of the Agreement for the following year is for these purposes the all-important provision.  I will set it out in full:

“8  RENEWAL OF AGREEMENT

8.1  Tour agrees WSG shall have a first and matching right to renew this Agreement for the production, sale and distribution of the Asian Tour Programming, Asian Tour hereby grants WSG a one (1) month exclusive period of negotiation, where the parties agree good faith negotiations shall commence from:

(a)  1 July 2008 in respect of the sale and distribution rights; and

(b)  1 October 2008 in relation to the production rights,

(each a ‘Renewal Negotiation Period’ and collectively the ‘Renewal Negotiation Periods’).

8.2  If the Parties fail to reach an agreement during a Renewal Negotiation Period, Asian Tour shall have the right to offer the production, sale and/or distribution rights (as applicable) of the Asian Tour Programming to a third party, on terms no more favourable than those offered to WSG.  Where a third party then seeks to acquire the rights to produce, sell and/or distribute (as applicable) the Asian Tour Programming, Asian Tour shall advise WSG of the terms of any such bona fide third party offer (the ‘TP Offer’).

8.3  Where WSG advises that it wishes to match the terms of the TP Offer, within seven (7) days of receipt thereof, Asian Tour shall enter into an agreement with WSG on the terms of the TP Offer.  Where WSG does not respond within said seven (7) days, Asian Tour shall have the right to enter into an agreement with the third party who provided the TP Offer.”

15.  The effect of it, as I think must be clear from a reading of its terms, is that it gives the Plaintiff “first bite” in obtaining a contract for the subsequent year.  This is achieved by providing for two exclusive negotiation periods in July and October.  If those negotiations fail to produce a renewal of the Agreement, the Defendant is at liberty to offer the rights under the Agreement to a third party “on terms no more favourable than those offered to (the Plaintiff)”.  If that third party wishes to take up this offer, the Defendant is required to advise the Plaintiff of such a bona fide offer following which the Plaintiff will have seven days to match it in which circumstances the Defendant is required to contract with the Plaintiff on those terms.

The 2008 Negotiations

16.  These negotiations have been described in much detail in the affidavits of Mr Hardess of the Plaintiff [A/43-61, A/114-136] and by Mr Kyi Hla Han [A/81-87] and Mr Eric Lynge [A/88-133] of the Defendant.  What I am about to set out in summary form will be no substitute for a reading of those affidavits and the email correspondence which has been exhibited to them which appears in Bundle B.

17.  The evidence deals with the two stage process of exclusive good faith negotiations in July and October, of which it is said the Defendant is in breach because it has not been willing to engage in such negotiations but has chosen to drag its feet and fob off the Plaintiff by raising various issues whilst not being prepared to “name a figure” for renewing the Agreement.

18.  The other issue relates to the Defendant’s failure to allow the Plaintiff to match any third party offer to it by not being straightforward about its discussions with third parties, restricting itself to vague and inconclusive indications that it has been in discussion with IMG, a suitor in 2007, and the European Tour without clearly telling the Plaintiff what offers these parties have made and thereby giving it the opportunity to match such an offer under clause 8.3.  It is this right that the Plaintiff has now come to enforce by this application.

19.  The course of the negotiations opened on 1 July 2008 with a meeting between Mr Hardess and Mr Smith of the Plaintiff and Mr Norquest and Mr Lynge of the Defendant.  There is a note of the meeting at B/25-26 which shows that this was highly tentative and preliminary.  The parties agreed to return to these discussions shortly.  Mr Hardess followed up with an email on 3 July [B/27] reiterating the Plaintiff’s wish to renew the Agreement 2009 and to return to discussions as soon as possible.  It asked the defendant to name its price for a renewal.  Mr Lynge replied on 7 July [B/28] to say that the Defendant was not disposed to “name its number” preferring the Plaintiff to name a price which the Plaintiff “(felt) is an accurate reflection of the Asian Tour rights given the various scenarios which can play out”.  This email was constructive in the sense that Mr Lynge said that a tentative 2009 tournament schedule would be sent out which would be useful to the Plaintiff in the event that it came to it that it would have to try and match any third party offer to the Defendant.  The one month exclusive renewal period was extended by the Defendant for the Plaintiff’s benefit for a further seven days.

20.  On 11 July [B/22-23], Mr Hardess named the Plaintiff’s price by sending a letter offering US$550,000 for the exclusive right to sell and distribute the Asian Tour.  On 17 July, the parties met at the British Open at Royal Birkdale followed by an email from Mr Smith on 23 July [B/33] which appeared to show that the parties were disposed to continue with their discussions.

21.  On 29 July, the Defendant wrote substantively raising five areas of concern [see Lynge affidavit paras.32-33, A/96-97].  These were:

(i)  The matching right in clause 8.3 was one which the Defendant wished to have removed;

(ii)  The Defendant should have the right to approve and sign agreements in which the Asian Tour programme is sold;

(iii)  The Defendant was uneasy about the Plaintiff’s involvement with a proposed competing One Asia Tour;

(iv)  The Defendant considered that Asian Tour Programming was its property and required the Plaintiff’s agreement that this was so;

(v)  The Defendant had strong concerns about the sales effort in Korea.

This resulted in a strong response from Mr Georgiou, of the Plaintiff, who said at a meeting between the parties on 4 August that these concerns were not relevant and the only negotiable term was the money that the Plaintiff had to pay the Defendant and underlined that by maintaining that the Plaintiff had every right to pursue its One Asia interest.  Matters then moved quickly over the course of the second half of August.  The Defendant sent an email on 11 August further expressing its point of view and another meeting took place to have these matters ventilated.  On 12 August, Mr Smith of the Defendant sent an email to say that the Plaintiff was willing to negotiate the first two items raised in the Plaintiff’s email of 29 July [see para.17 above] but the remaining items could not be agreed.  On 14 August, the Defendant indicated that it was not prepared to further extend the exclusive renewal negotiation period.  Within two hours of that email, Mr Georgiou, the Plaintiff’s chief operating officer, replied in very strong terms [B/37].  He said this:

“Dear Eric,

Thanks for your email.

I would like to draw your attention to our meeting at the British Open last month where we agree that if the Asian Tour did not think our offer (given to you in early July) was appropriate that it would let us know what the Asian Tour would accept.  The Asian Tour agreed to this and has, as of today, not honoured this commitment.  As we have suggested below, we are happy to discuss alternative arrangements but, other than discuss various ‘issues’, we have not been given all the terms on which the Asian Tour is willing to renew our agreement.  This is the very essence of bad faith.

Yours sincerely,

Andrew”

22.  It seems to me that this email really put an end to any real prospect of bringing the parties back to the negotiating table.  The following day Mr Han observed, in an email, that agreement had not been possible and that the Defendant would consider its options and revert to the Plaintiff as required by the Agreement.

23.  On the same day, Mr Smith of the Plaintiff sent a further email, I suspect hoping to bring the parties back together again [B/39] setting out what the Plaintiff had been prepared to be flexible on over the course of the negotiations that had taken place.  The relevant part of the email is this:

“WSG has, in endeavouring to conclude these negotiations, provided you with:

1.  A financial commitment based on a draft 2009 schedule.

2.  A solution to the issue of a matching right, where WSG would hold a first right of negotiation only, and no longer a matching right beyond 2008.

3.  An option on the structure of agreement that would allow Asian Tour to be a signatory to all contracts, where WSG would be appointed as your agent.”

24.  Nothing further came of this and on 9 October, the Plaintiff took the position that it was only prepared to negotiate on financial issues, it having said so in an email on 3 October which started the negotiation for production rights, this now being the exclusive negotiation period over those rights.  I can take this shortly by saying that no agreement was possible in the course of October nor indeed subsequently.

25.  This impasse came about because of the failure by the parties to overcome the Defendant’s objection to the Plaintiff involving itself with the One Asia Tour which would rival the Asian Tour and, as the Defendant saw it, would place the Plaintiff in a position where it would face an unacceptable conflict of interest.  It would not be able to serve two Golf Tours within the same region at the same time.

26.  Although there were further discussions as late as November and December (see Mr Han’s affirmation, paras.15-16 A/84) the deadlock could not be broken.

27.  On 16 December, the Plaintiff’s group legal advisor wrote to say that the Plaintiff had an absolute right to renew this agreement and that the Defendant had not negotiated in good faith and also that the Defendant had received a third party offer which it had failed to reveal to the Plaintiff so as to give it an opportunity to decide whether it wished to match that offer.  These allegations were denied by the Defendant’s solicitors in a letter dated 18 December 2008 [B/56].

28.  The Plaintiff relies on the affidavit of Mr Evans [A/62-63] which relays what he says took place at an awards dinner on 21 December 2008 which had been organised by the Defendant.  He says that he spoke to Mr Han and asked him what the Defendant’s plans were for the programming of Asian Tour’s events in 2009, in response to which he says that Mr Han told him that “a proposal on the table from ETP [European Tour Productions] was being considered but no firm decision had been made”.  Mr Han has responded in his affirmation [A/85, paras.18-21] in considerable detail, the gist of which was that the Defendant was “considering all our options including going in-house and we had made no firm decision as to what direction we would take”.

29.  On 24 December, relying on Mr Evans’ version of this conversation, the Plaintiff’s solicitors wrote to the Defendant’s solicitors to say that a third party offer had been made to the Defendant by European Tour Productions and that they wished to be advised of it so that they could exercise their “matching right” under clause 8.3 [B/57].  A further letter from the Plaintiff’s solicitors was sent on 29 December asking, amongst other things, for an undertaking that the Defendant will not contract with any other party without first complying with its obligations under clause 8 [B/58].  Two days later, the plaintiff issued its writ and obtained the ex parte injunction.

The Issues

30.  As the matter has developed in the course of the hearing, it is Mr Beresford, who appears for the Defendant, who has sought to erect five obstacles, as it were, to the continuation of the injunctive relief.  I propose to examine each of these insofar as that may prove to be necessary in deciding the outcome of this summons.  The five objections, I take from the text of Mr Beresford’s skeleton argument.  They are these:

“(1)  The plaintiff’s claim that the defendant failed to negotiate with the plaintiff in good faith was based upon material non-disclosure.

(2)  In any event, the plaintiff’s claim to enforce an obligation to negotiate in good faith is liable to be struck out as disclosing no reasonable cause of action.

(3)  Properly construed, the contract contains an express term for its expiry and the matching right does not extend beyond the term.

(4)  Even if the matching right does extend beyond the term, it is only a single matching right and it has been exhausted.

(5)  Even if a failure to comply with clause 8 after the expiry of the term is a breach of contract, the court would not order specific performance because:

(a)  Damages are an adequate remedy;

(b)  The courts will not normally specifically enforce agency contracts;

(c)  The plaintiff does not show that it is ready and willing to perform all terms and conditions thereafter to be performed by it, in particular its fiduciary duty of loyalty.”

I will take these points in the order that I have set them out.

Material Non-Disclosure

31.  This complaint is limited to the allegation that the Defendant had failed to negotiate in good faith with the Plaintiff as is required of it by clause 8.1.  Mr Beresford submits that had the court been provided with all the correspondence at the ex parte hearing, it could not have failed to come to the conclusion that there had been good faith negotiations in the course of which the “lock-out” negotiating period had twice been extended by the Defendant.

32.  In response, Mr McLeish submits that a perfectly balanced picture had been presented to the court on 31 December and that, if anything, the items of correspondence that had not been disclosed were to the Plaintiff’s detriment in circumstances that what had been presented to the court was the Plaintiff’s complaint that the Defendant had not been prepared to engage in a negotiating process but merely had raised a variety of “issues” rather than addressing the monetary offer that had been made to it and responding by naming its own price.

33.  Mr Beresford has referred to emails exhibited to Mr Lynge’s affidavit at “EL3, 4, 6 and 7” from the Defendant which addressed matters upon which it has sought the Plaintiff’s agreement.  The principal matters over which no agreement was arrived at related to the Asia One Tour and the ownership of the programming rights.

34.  I of course have now had the benefit of considering all of the affidavit evidence and the correspondence at the ex parte stage and, as it now is, in its entirety.  I do not believe that what was omitted would have materially altered my impression of the matter as the ex parte judge nor would have the omitted emails altered the ex parte outcome where the real purpose of the order was to preserve the position concerning the Defendant’s ability to contract with anybody else until the hearing of the inter partes argument.  I am content to hold that the omission of these emails did not amount to material non-disclosure and accordingly, I decline to discharge the ex parte Order.  I will now proceed to consider the inter partes argument proper on its merits. 

Does the Obligation to Engage in Bona Fide Negotiations Disclose a Reasonable Cause of Action?

35.  Mr Beresford submits that this provision contained in clause 8.1 requiring negotiations in good faith in respect of an agreement for the year following the expiry of the present Agreement is not sustainable in law and that any action based on it is liable to be struck out.  For this he relies on the case of Walford v Miles [1992] 2 AC 128, a decision of the House of Lords.  In that case, the parties had entered into a similar “lock-out” agreement during which the parties were required to engage in good faith negotiations with each other for an unspecified period of time which was understood to require the parties to negotiate for a reasonable period of time.  In the Court of Appeal, in the case of Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 279, Lord Denning MR said at 301-302:

“If the law does not recognise a contract to enter into a contract (when there is a fundamental term yet to be agreed) it seems to me it cannot recognise a contract to negotiate.  The reason is because it is too uncertain to have any binding force … It seems to me that a contract to negotiate, like a contract to enter into a contract, is not a contract known to the law … I think we must apply the general principle that where there is a fundamental matter left undecided and to be the subject of negotiation, there is no contract.”

Lord Ackner, with whom the other four law lords agreed, adopted the Master of the Rolls’ reasoning.  He said this at 138C-H:

“The reason why an agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty.  The same does not apply to an agreement to use best endeavours.  This uncertainty is demonstrated in the instant case by the provision which it is said has to be implied in the agreement for the determination of the negotiations.  How can a court be expected to decide whether, subjectively, a proper reason existed for the termination of negotiations?  The answer suggested depends upon whether the negotiations have been determined ‘in good faith.’  However the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations.  Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations.  To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering him improved terms, Mr. Naughton, of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question — how is a vendor ever to know that he is entitled to withdraw from further negotiations?  How is the court to police such an ‘agreement?’  A duty to negotiate the good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party.  It is here that the uncertainty lies.  In my judgment, while negotiations are in existence either party is entitled to withdraw from those negotiations, at any time and for any reason.  There can be thus no obligation to continue to negotiate until there is a ‘proper reason’ to withdraw.  Accordingly a bare agreement to negotiate has no legal content.”

Mr Beresford submits therefore that no reliance whatsoever can be placed on this clause in the present case.

36.  In response, Mr McLeish says that Walford v Miles, notwithstanding that it is a House of Lord’s decision, is not the last word on the matter and he has referred me to Petromac Inc. v Petrobras (No.3) [2006] 1 Lloyds Rep 121, where Longmore LJ obiter, when faced with an agreement to negotiate in good faith felt able to distinguish what was before him and the agreement struck down in Walford v Miles where there had been no agreement at all since everything was “subject to contract” and there was no express agreement to negotiate good faith.  At page 153 of the report, Longmore LJ referring to the relevant clause before the Court of Appeal said this of it:

“It is not irrelevant that it is an express obligation which is part of a complex agreement drafted by City of London solicitors and issued under the imprint of Linklater & Paines (as Linklaters were then known).  It would be a strong thing to declare unenforceable a clause into which the parties hve deliberately and expressly entered.  I have already observed that it is of comparatively narrow scope.  To decide that it has ‘no legal content’ to use Lord Ackner’s phrase would be for the law deliberately to defeat the reasonable expectations of honest men, to adapt slightly the title of Lord Steyn’s Sultan Azlan Shah lecture delivered in Kuala Lumpur on 24 October 1996 (113 LQR 433 (1977)).  At page 439 Lord Steyn hoped that the House of Lords might reconsider Walford v Miles with the benefit of fuller argument.  That is not an option open to this court.  I would only say that I do not consider that Walford v Miles binds us to hold that the express obligation to negotiate as contained in clause 12.4 of the Supervision Agreement is completely without legal substance.”

Mr McLeish submits therefore that one needs to consider this clause on its merits, as did Longmore LJ in the Petrobras case in deciding whether to uphold it.  But his real answer to Mr Beresford’s submission is that it is unnecessary for the court to trouble itself with clause 8.1 at this stage.  What the Plaintiff is here to do is to protect its matching right in clause 8.3. Whether there is a valid and enforceable duty to negotiate does not matter on this application.  The parties are beyond that stage.

37.  Mr Beresford says that the Plaintiff should not be allowed to blow hot and cold on the duty to negotiate in good faith when at the time it was complaining to the Plaintiff that it had such a duty and now, when faced with an argument as to this clause’s validity, it says this can, for present purposes, be left over to the trial.

38.  It seems to me that this is not the argument on the application for the injunction.  I agree with Mr McLeish’s submission that the parties have now gone beyond 8.1.  The trial judge can decide on the validity of this clause.  In any event, it seems to me that there is a serious issue to be tried as to whether this can be construed as a valid term of the contract.  Clause 8.1, as in Petrobras, differs from the term in Walford v Miles, and so the argument is there to be made at the trial.  We have now reached the clause 8.3 stage and it is this which needs to be addressed.

Does the Matching Right Subsist After the expiry of the Term of the Contract?

39.  Mr Beresford submits that the contract cannot be construed in a way that provides for the survival of the matching right in clause 8.3 after the termination of the Agreement on 31 December 2008.  Mr Beresford’s analysis is the following.  Clause 8.1 provides for the two month long periods of exclusive negotiation in July and October.  Failure to agree engages the clause 8.3 matching right over the balance of the life of the Agreement.  Once the contract expires so does the matching right.  As Mr Beresford put it, “That construction accords both with common sense and the justice of the matter from both parties’ point of view.  The defendant needs to know when it is free to contract elsewhere.  The Plaintiff has its privileges during the term of the Agreement.  Thereafter, it is always free to compete for the Defendant’s custom”.

40.  For this argument to defeat the application for an injunction based as it is on the right to match, it seems to me that Mr Beresford needs to show that his construction that all bets are off after 31 December 2008 is one that is bound to succeed.  Put another way, that there is no serious issue to be tried that the matching right survives the expiry of the rest of the Agreement.

41.  I can well see a contrary argument where, for instance, a defendant deliberately runs the clock down to after midnight on 31 December and in that way frustrates the Plaintiff’s matching right.  Can he rely on his own mala fide obstructiveness to defeat the right.  I think not.  It seems to me that, putting aside the more fundamental question of whether a court would be willing to tie in an unwilling defendant to an insistent plaintiff, potentially for many years to come, the matching right is capable of surviving the expiry of the contract, certainly in circumstances where it can be shown that the Defendant has been obstructive by deliberately or, unreasonably dragging its feet in producing a third party offer for the Plaintiff to match or, by producing no third party offer at all.  Any other construction would reward bad conduct on the part of a defendant who could then take advantage of such conduct.

42.  In my judgment, the present state of the evidence is such that the Plaintiff would be able to question the Defendant’s conduct after the close of the “lock-out” periods in July and October.  I am not to be taken to condemning the Defendant’s approach to its negotiations over the 2009 arrangements, but it seems to me that there is, at this stage, a serious issue to be tried on the negotiations in general.  It follows therefore that given this view of the evidence and my construction as to the circumstances in which the matching right might be held to survive the end of an Agreement, that these are matters for trial and that Mr Beresford must be held to have failed to show that there is nothing more to argue about after 31 December 2008.

If the Matching Right Survives the End of the Agreement, the Right Has Been Waived?

43.  Mr Beresord submits that in the event that the matching right extends beyond the termination of the Agreement, the Defendant has offered the Plaintiff the opportunity to match a third party offer which it did on 9 January 2009 and which the Plaintiff declined to match.  I can take this very shortly.  It seems to me that these very ad hoc arrangements which had been put up by the Defendant to the Plaintiff, cannot begin to measure up to the sort of third party offer for a full-service package which the Agreement contemplates and which had obtained in the previous year when IMG had been in the frame as an alternative whose offer the Plaintiff had matched for 2008.

Even If There Has Been Non-Compliance with Clause 8  the Court Will Not in These Circumstances Order Specific Performance

44.  Mr Beresford submits that this is because damages would be an adequate remedy and also because specific performance will not go to enforce an agency contract.

45.  The essence of this is that the Defendant is justified in its decision not to contract with the Plaintiff.  Firstly, because the Plaintiff will not be persuaded to resile from its stated objective of participating in the One Asia Tour which the Defendant says would be a direct competitor with it.  The conflict of interest would be insurmountable and it should not have to contractually tie itself, perhaps indefinitely, to the Plaintiff which would also be servicing the interests of its rival.  Secondly, given the tenor of the emails, the one by Mr Georgiou accusing the Defendant’s executives of bad faith in the conduct of the negotiations and the contentious and unfriendly tone of some of the other communications, it is now quite impractical to expect the Defendant to bind itself to parties who have evinced such hostility to it.  This sort of Agreement can only function against a background of good and workable co-operation.

46.  These arguments of course address the balance of convenience which Mr Beresford says favours a refusal of the injunction, leaving the Plaintiff to its remedy in damages.

47.  At this stage of the argument, Mr Beresford is appealing to the court’s discretion not to compel performance of a contractual provision, the effect of which would put the Defendant in the position of having to treat with a party in which it has no confidence given its stance on the One Asia Tour and for this and for the other reasons, principally where an atmosphere of hostility now exists between the parties, it should not have to give its custom to such a party and, potentially, for an indefinite period. I am therefore persuaded by Mr Beresford that the injunctive relief sought should not be granted. 

48.  Mr Beresford has also submitted, as an additional reason, that the court will not specifically enforce an agency contract.  I do not believe that this contract can be so characterised.  Both of these parties are contracting as principals. 

49.  It is the nature of the obligation to hold the Defendant to an indefinite working relationship in the face of a now very uncordial atmosphere, largely caused by the Plaintiff’s refusal to withdraw its interest in the promotion of the One Asia Tour and, the recriminative nature of the correspondence and attitude of the Plaintiff’s executives that has made future collaboration unworkable.  I am going to refuse the injunction.  The Plaintiff will now have to try and prove its case at the trial that it has a valid Agreement which includes a matching right beyond 31 December 2008 and, if it does so to prove its losses in terms of loss of profit.  The Defendant will therefore be released from its undertaking and can now freely negotiate for the 2009 schedule without the need to refer any offer it receives to the Plaintiff for its first refusal.

Orders

50.  The application for the interlocutory injunction will stand dismissed.  The Defendant’s undertaking is discharged.  I will also make an order nisi in respect of costs which will be Defendant’s costs in the cause to include the costs previously reserved.  Such an order would accord with the usual practice where an interlocutory injunction has been refused.