Acting in ‘good faith’

Posted 14/04/2013

There have been a number of recent decisions in the High Court on the issue of whether there is some kind of inherent duty placed on parties to a contract to act in good faith towards each other. A number of Judges have looked at this issue in different contexts, most recently in the case of Yam Seng Pte Limited v International Trade Corporation Limited. In this case the High Court held that, although the ordinary approach under English Law is that there isn’t a general duty of good faith placed upon the parties to a contract, there can be contracts in which the duty is implied.In this judgement, the Judge was at great pains to stress how many other both common and civil law jurisdictions impose a duty of good faith on contracting parties, and that so far the English jurisdiction had fallen short from doing this. The Judge in this instance relied on the usual principals of implying terms into a contract to imply the duty of good faith into that particular relationship. Despite the speculation within the legal profession as to whether this would be the start of a move within the courts towards a more general application of a duty of good faith, in the recent decision of the Court of Appeal in Mid Essex Hospital Services NHS Trust v Compass Group UK & Ireland Limited, the court is clear that there is no general doctrine of good faith in English contract law.

Slightly paradoxically, within the same paragraph in the judgement the Court says that ‘although a duty of good faith is implied by law as an incident of certain categories of contract’ and relies on the Yam Seng case to say this, the very next sentence reads: ‘if the parties wish to impose such a duty they must do so expressly’. These sentences appear to contradict each other, and as such it might be suggested that this is as close as the Court of Appeal will get to saying that they disagree with a decision on the law given by the High Court.In this case, the decision in the High Court had originally been in favour of the implication of the duty of good faith between the parties. Here, fines were levied by the health authority that were grossly disproportionate to the act that formed the contractual basis for levying the fine – in this case, issuing a fine of £84,540 because a chocolate mousse had been left in a fridge for one day after its best before date.A further clause within the agreement between the Trust and the provider said that they would cooperate with each other in good faith and take all reasonable action necessary for the efficient transmission of information and instructions between each other. The Court of Appeal found that this wording did not import an express general duty to act in good faith towards each other either.It seems that having been presented with an opportunity to develop a broader application of a general duty to act in good faith amongst contracting parties, to bring the English jurisdiction more in line with other jurisdictions around the world, the Court of Appeal has reiterated the traditional position. Although some may consider this to be unfair, or wrong, it is at least legally certain that the only way in which a duty to act in good faith towards each other as contracting parties can arise is for there to be an express term to that effect.  

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This article was previously published in the East Anglian Daily Times.