Absolute discretion
Absolute discretion — also known as just “discretion”, seeing as a discretion is not really the sort of thing that admits of degrees — is something you either have or you don’t. Generally in a contract, as in life, you have it, except where you have categorically agreed you do not.
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Negotiation Anatomy™
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In none of these cases does the adjective “absolute” move the conversation on.
That said, as a percussive adjective, “absolute” does pleasingly punctuate a sentence, rather in the same way it does when placed next to the word “unit”.
Reasonable discretion
An “absolute” discretion is to be contrasted in theory, if not really in practice, with a reasonable one, that is bounded by an overriding obligation to act “in good faith, and in a commercially reasonable manner”. But, as we have sounded off elsewhere, any merchant that acts in bad faith, or in a commercially unreasonable manner, even if his contract permits it, should not expect to have clients for very long.
You will hear it specially pled that, for all its superficial appeal, a component of “reasonableness” in a discretion invites argument about its scope, precisely at the point where you might not want any. When, for example, you are exercising a reasonable discretion to demand more margin, or something like that.
Here we pause to remind you that this site is here to entertain, poke fun and provide food for thought, and not to give actionable legal advice.
It seems to us this argument has more mouth than trouser:
A discretion, by its nature, is a self-help remedy. Its exercise requires no permission; no appeal to the court, no arbitral award. One may just do it, at — well — at one’s discretion. Forensic examination of the propriety of the exercise of a reasonable discretion necessarily comes after the fact.
Yes; your counterparty might challenge it in court, but that will come a lot later, and — honestly? — only if you were being unreasonable. The standard of reasonableness, as the great case of Barclays v Unicredit tells us, is subjective, judged from the perspective of she whose conduct is being assessed. It favours the owner of the discretion. It should not be second-guessed: it is hard for others to displace.
Besides, you can always control for this later eventuality by not being unreasonable in the first place. If you are being unreasonable, you are beyond help and, frankly, sympathy. Noli mentula esse.
But, for the time being, if you have a reasonable discretion, you can just box on.[1] A sensible rule of thumb is to contrast the worst that could happen if you do, with the worst that could happen if you don’t.
Bear in mind: your legal eagles are short an option. They are prone to equivocation at times like this. They will fret not just about injunctions, punitive damages and all kinds of like-minded tribulations — the legal mind is beset with phantoms — but whose fault it will be should any of them be visited upon you, and who said you could go ahead. They will fret less about the consequences should you not go ahead, since presumably these were going to happen anyway, so they cannot obviously be blamed for them.
Look at it this way: requiring an absolute discretion where a reasonable one would do, will cost you time, effort and aggravation on every negotiation. This effort — ostensibly to “save the aggravation of later challenge in court” — addresses the remote scenario where your commercial relationship has failed utterly and either you are at war, or one of you is in insolvency. This is about as good an example of the waste of over-processing as you could ask for.
For, if you are staring into the abyss — if you genuinely believe your client is corkscrewing into the side of a hill — and you hesitate to exercise a discretion designed to protect you because it might not turn out to have been reasonable, the problem is not with your legal documents. It is with you.
See also
- Good faith
- Commercially reasonable manner
- Commercial imperative
- You only need airbags if you don’t steer straight
Oct 2021
References
- ↑ Now, your counterparty could seek an injunction to stop you. But the common law is hardly littered with injunctions against the exercise of a reasonable discretion.