The Duty to Negotiate in Good Faith: Are BATNA Strategies Legal?

Abstract

A negotiator's Best Alternative to a Negotiated Agreement (BATNA) is a key source of negotiating power. The BATNA concept was originally developed in the United States and has been exported to other countries through negotiation books and courses. But can negotiators legally rely on BATNA strategies in civil law countries, where there is a duty to negotiate in good faith? And when does a duty to negotiate in good faith arise in a common law country like the United States? In addressing these research questions, this article concludes that the duty to negotiate in good faith under the civil law weakens the ability of negotiators to rely on their BATNA power and subjects them to the possibility of reliance damages when they violate the duty. Under the common law approach used in the United States, negotiators can exercise their BATNA power unless they decide to assume a duty to negotiate in good faith. The risk of assuming this duty increases when negotiators use preliminary agreements — such as term sheets, memoranda of understanding, letters of intent, and agreements in principle. In light of a recent Delaware Supreme Court decision allowing the plaintiff to recover expectation damages, the consequences of breaching this duty can be severe. The article includes several practical lessons for negotiators who are considering the use of preliminary agreements.