Thursday, 8 August 2013

Luis Suarez, Liverpool and the dangers of soft obligations in contracts

It was reported today in the Daily Telegraph that Liverpool striker Luis Suarez has been ordered to train alone for several weeks after being accused by manager Brendan Rogers of showing "a total lack of respect" to his club with his public demand to join Arsenal.

Clearly, this represents a breakdown in relationships. It is also the culmination of the saga of Suarez's posturing for a transfer. It's an unfortunate situation for the club and the player.

While football transfers can be the type of deals that really put the ego in negotiations at the best of times, the situation seems to have been fuelled in part by the wording of the Suarez contract, an excerpt of which was quoted by Gordon Taylor, the PFA chief executive who is seeking to mediate between the player and the club on this matter, reported as follows:

"There is a clause in there that if Liverpool do not qualify for the Champions League and then they do receive a minimum offer of £40 million, then the parties will 'agree in good faith to discuss and negotiate in good faith' and see what transpires".

When the contract was originally negotiated, this provision will no doubt have seemed like a good alternative to a difficult discussion. In effect though, it counts for little and had the effect of kicking the issue of the circumstances in which the player can talk to other clubs into the long grass. The trouble is that now, with the parties up to their knees in the long grass, they seem to be finding that as any 12 year old on the rec would tell you, this is not a good place to be...

I am often asked to include these type of soft obligations (to consult, or negotiate, or hold future discussions, or use reasonable endeavours to do something) in contracts. Usually I would counsel strongly against them. Aside from the fact that they are often used as a means of avoiding difficult discussions up front, they can give rise to significant problems of interpretation where the wording used is not specific enough to be meaningful.

In this example, there are some obvious problems, including:
  • Under English law, it is a longstanding principle that so-called "agreements to agree" are generally unenforceable. So saying an obligation is subject to future agreement can effectively make that obligation meaningless;
  • There is no certain meaning to "good faith" in these circumstances. The only way to get certainty on this in the absence of agreement would be to go to court and have the judge decide how this obligation should be interpreted; and
  • Having an obligation to "discuss and negotiate" again brings an unclear meaning. This could be a very short discussion and negotiation indeed, and explains why Liverpool seem to have given short shrift to offers below their own valuation.
This is a classic example of where it would have been better for all concerned to have thrashed out a more certain position, and a more specific mechanic as to what should happen in the event of a >£40m offer, at the time of signing. The media wrangling and bad blood that has been evident in recent weeks could and, with the benefit of hindsight, should have been avoided with a more transparent and specific approach to papering the player's terms. All too often, negotiations focus on the contract deliverables - an orderly approach to what happens if the deal does not work out should never be sidelined in the excitement of signing a trophy contract.

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