IMPLYING GOOD FAITH INTO RELATIONAL CONTRACTS
It is well known that under English law there is no general rule that a duty of good faith will be implied into all commercial contracts. This is for a number of policy reasons, including that parties should be able to pursue their own self-interest when entering into contracts, and an underlying fear of the uncertainty that such a general requirement might create.
However, the last decade has seen a number of findings in cases which have been in contravention of this general rule, leaving the position somewhat ambiguous. In the seminal case of Yam Seng Pte Ltd v International Trade Corp Ltd (2013), Leggatt J implied a duty of good faith into the contract under dispute. The dispute in this case arose out of a long-term agreement for the exclusive rights of the claimant to distribute Manchester United branded fragrances in parts of the Middle East and Asia. After the relationship had broken down, the claimant argued that there was an implied term in its agreement with the defendant that each party would deal with the other in good faith, which the defendant had breached. Leggatt J held that because this contract was ‘relational’, a duty of good faith was implied. In this context, a relational contract was a long-term agreement, which required the parties to communicate effectively and cooperate with each other in the performance of the contract, and deal with each other on the basis of mutual trust and confidence. He referred back to his judgment in Al Nehayan v Kent (2018), in which, with respect to an oral joint venture contract between the parties, he also held that a relational contract was in place and therefore an implied duty of good faith existed.
Oct-Dec 2019 issue
Weil, Gotshal & Manges (London) LLP