New Perspectives on Good Faith in Contractual Negotiation
(2023) 67 Canadian Business Law Journal 165
48 Pages Posted: 16 Jul 2023
Date Written: May 17, 2023
Abstract
The advent of the duty of honest performance in Canadian contract law has important implications for the context in which many commercial transactions get negotiated. Good faith obligations will now arise during commercial negotiations where early-stage agreements are put in place to facilitate and constrain the negotiation process. Early-stage agreements are very often part of a process in which a negotiation relationship emerges that is not pre-contractual but is instead structured in part through contracts. They can therefore create a context in which questions about honesty and good faith become highly relevant.
Rather than cling to a paradigm that views the question whether there is a duty to negotiate in good faith as arising in a pre-contractual setting, we need to find ways to delineate and assess the nature of specific good faith obligations that can arise when the negotiation process has a contractual dimension. This article seeks to do just that with respect to obligations that can arise under three fundamental early-stage agreements that get put in place in many mergers and acquisitions transactions: confidentiality, standstill and exclusivity agreements.
The article emphasizes that while one will still need to consider pre-Bhasin case law that focuses on the purpose of a given early-stage agreement and on the parties’ intentions, in a post-Bhasin era one must also contend with questions about the implications of the duty of honest performance. Having to think about a counterparty’s interests, and being subject to an obligation not to mislead, deceive or lie to that counterparty, injects new normative perspectives into an analysis of early-stage agreements that will now have to be considered when assessing negotiation strategies. Importantly, this will put pressure on parties and their advisors to consider whether those strategies are consistent with a genuine commitment to the integrity of the negotiation process.
Keywords: Good Faith, Negotiation, Negotiations, Contract, Contracts, Contract Law, Bhasin, Confidentiality, Standstill, Exclusivity, Mergers & Acquisitions, Canada
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