Backstops, best endeavours, good faith and Attorney Generals

15 January 2019

Rating system:
Reading time (1-10 minutes): 2
Sophistication level (1 (idiot) – 10 (expert)): 7
Entertainment value (1 (turgid) – 10 (side-splitting)): 6
 

Background

Is the Attorney General’s legal advice on the legal effect of the Protocol to the Withdrawal Agreement on Ireland and Northern Ireland (the “Protocol”) correct?

What does the Protocol say?

The Protocol says that its provisions will continue to subsist “unless and until they are superseded, in whole in part, by a subsequent agreement”. But under the terms of the Protocol the parties have a duty to use best endeavours to negotiate a superseding agreement in good faith, bearing in mind the clear stated intention that the Protocol is intended to be temporary.

The Protocol also says: “The Union and the United Kingdom shall, in full mutual respect and good faith, assist each other in carrying out tasks which flow from this Agreement. They shall take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising from this Agreement and shall refrain from any measures which could jeopardise the attainment of the objectives of this Agreement.

The Protocol also makes clear that the principle of ‘sincere cooperation’ should apply.

What did the Attorney General advise?

The Attorney General’s advice was that if the UK puts forward alternative proposals for safeguarding the EU’s interests such as for avoiding a hard border in Ireland (for example by applying new technology), ‘all [the EU] would have to do to show good faith would be to consider the UK’s proposals, even if they ultimately rejected them. This could go on repeatedly without such conduct giving rise to bad faith or failure to use best endeavours, which would require clear and convincing evidence of improper motive and wilful intransigence.”

Was this advice correct? Not really. In fact, the EU would have to do considerably more than just ‘consider’ any such proposals.

To get a better idea why, read on…

‘Good faith’ and other concepts

The advice touches on issues that often come up when negotiating commercial contracts – namely what does the law say about ‘agreements to agree’, ‘good faith’ and ‘best endeavours’?

UK law and European law are somewhat different. However, as a rule it is EU law which would be applied here.

‘Agreement to agree’: Neither English nor European law will generally enforce an ‘agreement to agree’. It is much easier to agree to disagree.

‘Good faith’: Whilst good faith is a concept which is established in most European jurisdictions, it hasn’t generally been recognised in English law, as English law has always been more common. However, things might be changing a bit. In 2005 the Court of Appeal ruled that a contractual obligation to negotiate in good faith can be enforced where that obligation is an express obligation that is part of a contractually binding agreement, and where the matter to be negotiated is capable of objective assessment by a third party.

European law goes somewhat further than UK law in enforcing obligations to negotiate in good faith. The obligation applies whether or not the contract says it should apply. Parties have a mutual ‘duty to cooperate in order to give full effect to the contract’. Although a party ‘is free to negotiate and is not liable for failure to reach an agreement”, “a party who has negotiated or broken off negotiations contrary to good faith and fair dealing is liable for the losses caused to the other party”.

The related EU law concept of ‘sincere cooperation’ is also well-established, and imposes various duties such as observing various procedural obligations.

‘Best endeavours’: Both European and UK law do enforce obligations to use best endeavours, provided that the objective is sufficiently certain and ascertainable. Indeed, a contractual obligation to use ‘best endeavours’ is a strong obligation, and can mean that you have to bust a gut even if it might not be in your commercial interests. When negotiating contracts lawyers often spent a lot of time arguing over what level of endeavours a party must take. That party might start by saying it will agree to take reasonable endeavours. The other party might insist on best endeavours. They might settle on something in the middle, like ‘all reasonable endeavours’. Case law has developed to enable the courts to apply some consistent principles as to what each of these expressions might mean. However, ideally it helps a lot to give some specific examples of the level of endeavours that might be expected to be required in different prospective scenarios.

Conclusion:

As contracts go, the wording in the Protocol about best endeavours, good faith, sincere cooperation and so on is about as strong as you can ever expect to see in any contract. It would be hard to think of ‘a better deal’ which could be negotiated in relation to this aspect of the Protocol, even if the EU were willing to negotiate further.

It might have been helpful if the meaning of this wording had been more clearly explained to everyone.

Asides:

•    One thing that isn’t very clear is whether if a permanent solution hasn’t been sorted by 31 December 2020 the duties to continue negotiating in good faith continue thereafter. The Protocol doesn’t seem to say so. Which begs a few questions…

•    In many organisations, the rules tend to say that a significant majority vote is needed before any big change to the status quo can take place. For example, UK companies need a special resolution (75%) of shareholders to change their Articles of Association. I’m sure there must be a good reason for this. Just saying.