Good faith clauses

Luis Suárez is a controversial footballer. He does not just score goals, he generates legal issues. Last time I wrote about him, a few years ago, it was on inconsistency in evidence. Now, it seems he might be thinking of having another bite of the cherry with the courts. So what’s the issue this time?

Mr Suárez is unhappy about a clause in his contract. It deals with the situation when any offer is made by another club for in excess of £40m. What is then to happen is in dispute.

Surprisingly, there are quite a few parallels between footballers’ contracts and construction contracts. For instance, many footballers’ contracts are, or start from, being a standard form: there is a standard Premier League contract (the club lawyer just fills in the numbers, making sure to count the zeros properly). And, like construction contracts, there are often quite a few zeros to consider. But there are other aspects of their contracts, like construction contracts, such as entire agreement clauses, good faith clauses and issues such as agreements to agree.

Suárez says he is entitled to leave the club when such an offer is made. Liverpool, his club, say: “No, all we need to do is inform you when such an offer is made and sit down and have discussions.”

To most lawyers and indeed many business people, this seems like a dangerous area, an agreement to agree. The problem with that is that those type of clauses are generally unenforceable in English law. You can’t bind yourself to a future position unless it is sufficiently clear as to what it is going to be.

There is a standard premier League contract (the club lawyer fills in the numbers, making sure to count the zeros). and, like a construction contract, there are quite a few zeros

No doubt wary of that, and the potential lack of teeth to such a clause, the footballer’s contract often contains a good faith clause. We see these in construction contracts, too - the NEC standard clauses incorporate an obligation to act in a spirit of mutual trust and co-operation and the JCT has an optional good faith clause. But again these are not obligations that the English courts have found easy to apply.

I’ve recently seen a party unhappy with another party relying strictly on its contractual position to argue that this w as in some way a breach of the obligation to act in good faith. At this point good faith might seem to be at odds with the sanctity of contract, or the last chance saloon of a party with a poor case.

However, earlier this year, the High Court held that an NHS Trust was not acting in good faith when it made “patently absurd” deductions such as £84,540 for a one day old chocolate mousse (which it was entitled to do under the contract) from catering company Medirest for failure to provide the service.

Suárez might have thought that this good faith agreement to enter into negotiations was good enough. He may have felt that there was little point to agreeing a sizable financial trigger point if it wasn’t going to have some impact and allow him to exit. Liverpool appear to be sticking to the letter of the contract - sit down and negotiate. These are divergent views as to not just what the clause means but what impact it will have. One party considers it is an exit route, the other a cause for discussions.

Practices in other contracts or jurisdictions give some further insight. For instance, the Spanish standard football contracts contain a clause which entitles players to leave if an offer of £xx is made. The equivalent English contracts provide for negotiations rather than entitlement to transfer. That might look weak but in general the courts will look to put a meaningful interpretation on the words in a contract. A leading case, ICS vs West Bromwich established that a contract is generally interpreted by ascertaining what a clause would convey to the reasonable man.

Therefore, if the parties use the wrong words to express their intentions, the court will not necessarily give those words their strict and literal meaning. If all the clause is intended to do is start negotiations, then why a value limit let alone a pretty high one? Why not just any offer? What was the real purpose?

Whether good faith comes to the rescue of Mr Suárez remains to be seen. His club manager seemed to think his approach was in anything but good faith, but now seems convinced he will stay. If you are a party to any contract, it is vital to work out when an agreement to agree and good faith is a sensible commercial option that both parties are genuinely buying in to, and when it is simply a device to paper over serious cracks or divergences in the degree to which the parties are, as lawyers say “ad idem”, or of one mind. If you have any fears that it is not purely the former, in my view, I’d blow the whistle on negotiations early. If Mr Suárez does agree a new contract, it would be interesting to know whether he has the drafting on the exit clause amended.

James Bessey is a partner in the construction, infrastructure and projects department at DWF