Peter A Allard School of Law

New Perspectives on Good Faith in Contractual Negotiation

Event Description:

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. It means that good faith obligations will now arise during commercial negotiations in which early-stage agreements are entered into. 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 create a context in which questions about good faith behaviour become highly relevant.

Rather than continuing to work with 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 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 from three fundamental early-stage agreements that get put in place in many mergers and acquisitions (“M&A”) transactions: confidentiality, standstill and exclusivity agreements.

The article emphasizes that while one will still need to have regard to pre-Bhasin case law that focuses on the purpose of a given early-stage agreement and on the parties’ intentions as revealed through the wording of the agreement, in a post-Bhasin era one must now also contend with a set of normative questions about the implications of the duty of honest performance for the negotiation process. Having to think about a counterparty’s interests and not actively or knowingly misleading, deceiving or lying to that party injects normative perspectives into an analysis of legal relationships that business law advisors will now have to consider when evaluating and assessing negotiation tactics and strategy.

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Robert Yalden
Robert Yalden

Robert Yalden is the Stephen Sigurdson Professor in Corporate Law and Finance at the Faculty of Law, Queen’s University. He was previously with Osler, Hoskin & Harcourt LLP where he practiced business law for 25 years and served in a number of leadership roles (including as Co-Chair of the firm’s Mergers and Acquisitions Group and as head of the Corporate Department in its Montreal office). A former law clerk for Justice Bertha Wilson at the Supreme Court of Canada, he is the co-author of Business Organizations: Practice, Theory and Emerging Challenges (Emond), and has written extensively on the forces that shape competing institutional perspectives on the regulation of mergers and acquisitions. He was recently appointed Co-Editor in Chief of the Canadian Business Law Journal.

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