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LUIS SUAREZ: WHEN ‘GOOD FAITH’ BITES

Will he stay or will he go?  It appears that the future of Luis Suarez at Liverpool hinges on the operation of a release clause in his contract. According to various media sources, it provides that: if, subsequent to a failure to qualify for the Champions League, Liverpool receive a bid to buy Suarez in excess of £40m then the decision as to whether or not to accept the offer must be made in ‘good faith’.

But just how far does such an express ‘good faith’ obligation fetter Liverpool’s discretion? In what circumstances could Liverpool be in breach?  Recent case law is instructive.

In SNCB Holding v UBS AG [2012] EWHC 2044 (Comm), Cooke J held at [72] that an express “good faith” obligation requires only “subjective honesty, genuineness and integrity” (alternatively formulated as “truthfulness, honesty and sincerity”).  Cooke J drew a clear distinction with the obligations imported by an express term requiring “utmost good faith” which – when used outside the insurance context – amounts to the much fuller obligation “to observe reasonable commercial standards of fair dealing, faithfulness to the agreed common purpose and consistency with the justified expectations of the other party.”

If the narrow approach of Cooke J were applied, it would seem a low hurdle for Liverpool to establish that their decision not to sell Suarez was made in good faith.  It would take something akin to simply dismissing an offer out of hand or deciding not to sell Suarez out of spite in order to constitute a breach.  Of course, Suarez’s own perception of Liverpool’s decision-making is not relevant.  Courts would look to whether Liverpool’s conduct “would be regarded as commercially unacceptable by reasonable and honest people”, per Leggatt J in Yam Seng v ITC [2013] EWHC 111 (QB) at [144].

However, in Mid Essex Hospital Services v Compass Group [2013] EWCA Civ 200, the Court of Appeal did not appear to have any difficulty in finding a more substantive “good faith” obligation despite the absence of the word “utmost” in the express term in issue.  Further, Jackson LJ observed at [109] that “the content of a duty of good faith is heavily conditioned by its context”. 

Emphasising the context of the clause, Suarez might run the following argument:

  • The buy–out clause only comes into effect if Liverpool fail to quality for the Champions League.  Thus, it can readily be seen that the common purpose of the buy–out clause, in its totality, is to ensure that Liverpool will not frustrate Suarez in his desire to play Champions League football.
  • There is no absolute obligation to sell when a £40m+ bid is received but there is an effective presumption that this is a satisfactory amount.  So, properly viewed, the ‘good faith’ decision term is not a mere fetter on Liverpool’s discretion as that discretion has been ceded to the presumption.  Rather, that term provides a limited mechanism for Liverpool to avoid the operation of the presumption.
  • On this construction, Liverpool could only refuse to sell if their decision is reasonably based on the factors surrounding a particular £40m+ offer which were unknowable at the time the clause was agreed.

Certainly, it would be an ambitious construction and may well be excluded by the precise wording of the clause.  In any event, Liverpool might well clear such a higher hurdle.  For example, an unknowable but proper factor justifying a ‘good faith’ refusal to sell could be that the bidding club turns out to be a direct Premier League competitor of Liverpool’s (such as Arsenal).  Moreover, such a factor would not necessarily frustrate Suarez’s Champions League ambitions (as a foreign club could still come knocking).          

Damian Brown QC and Marc Delehanty are members of Littleton Chambers’ Sports Law Group. For more information about our Sports Law Group or to instruct one of our barristers please contact the clerks on clerks@littletonchambers.co.uk or 02077978600.

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