Good Faith and Commercially Reasonable Manner - CSA Provision
The confluence of the CSAs
In a rare, and beautiful confluence across twenty five years of time and an Atlantic ocean of space, paragraphs 9(b) of the 1995 English Law CSA, 9(b) of the 2016 English law VM CSA and 11(d) of the 2016 NY Law VM CSA are utterly identical. How about that! You can fault ISDA’s crack drafting squad™ for many things — and as you know, I do, readers — but not in this case for consistency. There’s a comparison in the panel to the right if you don’t believe me.
“Good faith and commercially reasonable manner” as a general standard
Whether a merchant should commit himself to dealing in good faith, or in a commercially reasonable manner, or both, is one that vexes many of our learned friends. Especially those in America. The only discomfort it should occasion is to a solicitor’s livelihood, for this magic expression, while doing no more than articulating the commercial imperative and the basic commercial outlook of a good egg, puts many a tedious negotiation to the sword.
Everyone benefits but officers of Her Majesty's — or (cough) the People’s — courts.
“In good faith and a commercially reasonable manner” cuts the crap and promises to unlock some negotiations and take the tedious line-by-line muck-raking out of others.
There is a certain kind of legal negotiator apt to see phantoms and ghosts at every turn. He has a bleak vision indeed of a counterparty’s general commercial aspirations for his organisation.
“What if,” he will say, “your traders mendaciously use this clause to bring about my firm’s misfortune in a way I – er – cannot now anticipate?” (This fellow’s imagination tend to be fantastical in the abstract, but rather prosaic in the particular).
Such a chap is often placated by the magical expression “acting in good faith and a commercially reasonable manner”. It may help persuade him across that wobbly bridge to consensus. Many a time it has helped the JC get home in time for supper.
Litigation risk: The one argument against the general principle is that it is inherently vague and therefore a source of potential dispute in itself, even if we always exercise our rights reasonably and in good faith. But come now — it only presents litigation risk to clients who don’t trust you — and here you have bigger problems, frankly — or for those whom you don’t trust — also not without issues. Here, your problem is not the good faith obligation; it’s that you have a lousy client relationship. It hardly affects litigation risk in any case: An unhappy client will take action either way, and will argue a lack of good faith in any case.
As for commercial reasonableness, and that objection I can already see you formulating that it admits shades of doubt, and encourages litigation — well, for you the great case of Barclays v Unicredit should be a source of succour. And for you Americans, for whom Barclays v Unicredit is of persuasive value only, there is the fact that “in good faith and a commercially reasonable manner” is written into the Uniform Commercial Code should bend your ear: if it is okay there — and in the 2016 NY Law VM CSA — why not elsewhere?
In any case, whatever your contract says, if a court finds you have acted wantonly, or in bad faith, do not expect much sympathy when you argue that, by the contract, you were entitled to.
- Being an officer of the court, American friends, and not someone who goes door-to-door selling encyclopaedias.