An implied general duty of good faith in contract law: has the time come for England and Wales?

Written by Prof. Christina Perry

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There is no general doctrine requiring parties to act in good faith in contract law in England and Wales. However, a line of cases beginning with Yam Seng v International Trade Corporation in the High Court in 2013 indicated that duties of good faith could be implied into certain “relational” contracts, or contracts in which the parties had an established ongoing relationship. Other situations where the English courts have agreed that a duty of good faith could be implied into a contract included Amey Birmingham v Birmingham City Council, in which the Court of Appeal considered that a 25-year PFI contract should be treated as a relational contract, and Bates v Post Office, in which the High Court concluded that the contract between the Post Office and its sub-postmasters was a relational contract and hence contained an implied good faith obligation.

There has been some reluctance on the part of English courts to expand this to a general duty of good faith in all commercial contracts, as the courts have considered that “the better course is for the law to develop along established lines,” as Moore-Bick LJ put it in MSC Mediterranean Shipping Company v Cottonex Anstalt. There was some disquiet at the time of the Yam Seng decision in 2013, but now the duty of good faith, at least in terms of relational contracts, is well accepted.

However, in its reluctance to impose a general good faith obligation in all commercial contracts, English law is swimming against the tide, to a certain extent. Other common law countries have recognised some form of good faith obligation, even if they are reluctant to call it a general duty of good faith. The Supreme Court of Canada has recently recognised a “general organizing principle” of good faith in Bhasin v Hrynew. The USA has long recognised a general obligation of good faith in contracting, as set out in the Uniform Commercial Code and the Restatement (2^nd) of Contracts. In Australia, Allsop CJ held in Paciocco v. Australia and New Zealand Banking Group Ltd. that good faith is ‘an implication or feature of Australian contract law attending the performance of the bargain and its construction and implied content.’

In civil law jurisdictions such as France and Germany, good faith is an integral concept in the law of contract. Civil law systems focus on the behaviour of the parties to a contract more than in common law systems, which focus on the terms of the contract itself. In civil law jurisdictions, the primary objective and remedy of the law in relation to a contract is the performance of that contract. Given this focus, there is less emphasis in civil law countries than in common law countries on upholding a contract’s express terms and the law and the courts may, under certain circumstances, override a contract’s express terms. As a general matter, civil law systems have not traditionally been as concerned with predictability of outcomes or freedom of contract as common law systems.

At the end of the day, would including a general obligation of good faith in contracts make English law more competitive in the global market? Does this reluctance to adopt a general contractual duty of good faith truly add to predictability of outcomes, and/or contribute to freedom of contract? Or has English law already included sufficient protection for contractors, in the forms of misrepresentation, implied terms, the operation of exclusion clauses, economic duress, and undue influence? It may be that the resolute refusal of English judges to adopt even the slightly softer wording of the judges in Canada and Australia sets English law apart in the marketplace. It is for practitioners and their clients to decide if this relatively unique status makes English law more or less attractive as a choice of law for commercial contracts.

In my book, Good Faith in Contract Law, I discuss this reluctance to adopt a general contractual duty of good faith on the part of English courts, and compare the situation in England and Wales with that of other common and civil law countries. I analyse both express and implied terms of good faith, as well as the related Braganza duty of rationality in relation to contractual discretions.

I also explore the treatment of good faith in English law with respect to specialised types of contracts, including employment agreements, insurance contracts, agency agreements and general consumer law. This book explores the many facets of an obligation to act in good faith, both in English law and other jurisdictions. It compares various areas of the law which are not often studied together, and provides in-depth evaluation of recent case law in relation to good faith in commercial contracts.