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Despite the above, clause 5 does introduce the principal difficulty for B.
First, it is drafted in terms of an agreement to agree. Generally, such
agreements are considered illusory, see May & Butcher Ltd v R, Coal Cliff
Collieries Pty Ltd v Sijehama Pty Ltd. The rare instances in which they
have been upheld are where the parties have evidenced a commitment to
the transaction by partly performing and, in particular, by performing those
obligations that are now being claimed by one party to render the contract
void for uncertainty, see Foley v Classique Coaches. Perhaps such cases
are now best seen are examples of estoppel, but in any case there is no
evidence of reliance by either party in this case.
In this case there are two uncertain aspects. First the final price is not
certain as it is left to the discretion of B to determine. A reasonable person
in the position of A would be unlikely to finally commit to such a
provision as it leaves A in the position of not knowing how much she will
have to pay. In addition, the court could not fix this uncertainty by
implying that a reasonable price be paid as that is not what the parties
agreed. Second, although there is a good faith obligation the law requires
there to be a mechanism by which gaps in the contract can be filled as well
as negotiations to be well advanced, see Coal Cliff Collieries Pty Ltd v
Sijehama Pty Ltd. Here the negotiations have barely begun and the
mechanism is too uncertain to be given effect to.
It is therefore concluded that there is no contract between A and B.
A good way to use this resource is to read through the following problem question. After you
have read it, consider how you might answer it in point form and in terms of structure. You
should then read through the answers to the questions to give you an idea of what a pass, credit,
distinction and high distinction answer would look like. You should not think of these answers as
being model answers. (There is no such thing and, in any case, you have many better examples in
your casebook.) You should also not consider any of these answers as necessarily right, they all
have weaknesses and you should be guided by your own reading of the cases and text and your
own analysis. The answers given were written under exam conditions; a higher quality and
properly referenced answer would be expected in a take home assessment task.
Following lengthy negotiations for the acquisition of cable television rights to the 2012
Olympics, Alice and Bruce sign the following document:
This document records the completion of negotiations of the Heads of an Agreement by virtue of
which Alice and Bruce agree to execute a formal contract which gives effect to each of the terms
set out below.
1. Alice agrees to acquire from Bruce, and Bruce agrees to grant, the exclusive right
to exploit the licence that Bruce holds to televise the 2012 Olympics.
2. Alice agrees to televise all events at the 2012 Olympics and to provide facilities
sufficient to enable appropriate overseas telecasts.
3. Alice agrees to pay a sum of $3 million on the signing of the formal contract.
4. Alice agrees to pay such sum as Bruce considers to be sufficient in respect of the
revenue obtained from:
(a) approved sponsors; and (b) overseas telecasters.
5. Such other terms as may be agreed between the parties, acting in good faith and in
a spirit of co-operation appropriate to the event to which the Agreement relates.
All such terms to be:
(a) necessary for the efficacy of the venture; and (b) of a kind normally found in
contracts of this type.
Alice decides that the price is too high and refuses to comment on a draft of the formal contract
prepared by Bruce's solicitors. The draft in fact contains a large number of additional terms,
including an obligation that Alice spend no less than $2 million in promoting the telecast and
obtaining sponsors.