Disputes 2017: The death of good faith

​Will 2017 see clarity at last on the issue of implied duties of good faith in English contract law?

In brief

  • Several High Court cases in recent years have relied upon a concept of an implied duty of good faith, which has not traditionally been a feature of English law.

  • The Court of Appeal has not to date set out the extent to which English law will impose a duty of good faith on commercial parties, though it has not embraced the idea.

  • 2017 is likely to see further isolated attempts to introduce an implied general contractual duty of good faith, and possibly a decisive move by the appellate courts to kill it off once and for all.

The rise of good faith

In the last few years, there have been various sporadic (if determined) attempts within the High Court to introduce into English contract law an implied general contractual duty of good faith, similar to the one frequently found in civil law jurisdictions. In particular, the judgment of Leggatt J in Yam Seng Pte Limited v International Trade Corporation Limited sought to establish a general principle for implying a contractual obligation of good faith into an innocuous-sounding (but in fact very broad) category of “relational” contracts. These involved the parties entering into something more than a one-off transaction, and were characterised as contractual relationships involving a high degree of communication, co-operation and predictable performance based on mutual trust and confidence and shared values.

Several other decisions in 2014 (principally Emirates Trading Agency LLC v Prime Mineral Exports Private Limited and Bristol Groundschool Ltd v Intelligent Capture and others) referred with approval to and/or applied Yam Seng.

However, it is fair to say that, by and large, the English judiciary did not respond favourably to Yam Seng’s proposed implied general contractual duty of good faith, as shown by a slew of cases over 2013 to 2015, such as Hamsard 3147 Limited and Anor v Boots UK Ltd, which we consider here; and Fujitsu Services Limited v IBM United Kingdom Limited, which we consider here

Extinguishing uncertainty

During the one occasion, however, on which Yam Seng has been substantively considered by an appellate court, namely in Mid-Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a Medirest), which we consider further here), the opportunity was missed to set out a clear position on the issue. Whilst the Court of Appeal was at pains to contain and even side-line Yam Seng, it did not completely close the door on the idea of an implied general contractual duty of good faith. As a result, in his judgment in MSC Mediterranean Shipping Co SA v Cottonex Anstalt, Leggatt J, without referring expressly to his decision in Yam Seng, made various findings on the exercise of contractual rights that were supported by his conclusion that there was “…increasing recognition in the common law world of the need for good faith in contractual dealings”.

On appeal, Leggatt J’s conclusion was given short shrift, and Moore-Bick LJ in particular noted, again without specifically referring to Yam Seng, that in Mid-Essex the Court of Appeal “…had recently reiterated that English law does not recognise any general duty of good faith in matters of contract” and decried any attempts by judges to look for “…some “general organising principle” drawn from cases of disparate kinds”, and he set out his views on the dangers that would arise from recognising a general principle of good faith.

What it means for you

Yam Seng, Emirates Trading and Bristol Groundschool remain live, and 2016 has seen a number of other judgments that have had to wrestle with the issue, albeit usually in very context and fact-specific circumstances. As such, it is likely that 2017 will see at least one further judgment in which an attempt is made to breathe life back into the idea of an implied general contractual duty of good faith. It is also conceivable that the issue will be raised once again before an appellate court and, given the Court of Appeal’s increasingly open hostility to the notion of an implied general contractual duty of good faith, comprehensively dismissed (perhaps by express reference to Yam Seng) once and for all. For those drafting commercial contracts, or interpreting them in light of a dispute, this would provide certainty and clarity as to parties’ obligations.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.