COVID-19 And Duties Of Good Faith Under English Law

• Published date: 08 July 2020
• Subject Matter: Corporate/Commercial Law, Coronavirus (COVID-19), Contracts and Commercial Law, Government Measures, Operational Impacts and Strategy
• Law Firm: Dechert
• Author: Mr Simon Fawell and Abdul Azeem S/o Abdul Samad

As part of its response to the coronavirus pandemic, the UK government issued guidance on 7 May 2020 'strongly encouraging' contractual parties to 'act responsibly and fairly in the national interest in performing and enforcing their contract' (the Guidance).¹ That call was reiterated in a supplement published on 30 June 2020 which also confirmed that the Guidance would remain in place indefinitely.

The guidance makes clear that it does not override any legal rights or obligations that the parties may have under the terms of the contract or otherwise in law, custom or practice (including any equitable relief).

It does, however, raise the question of English law's approach to express and implied obligations of Good Faith and the extent to which the English courts might take the Guidance into account (if at all) when considering parties' conduct.

The meaning of "Good Faith" in English law

Unlike some other jurisdictions, English Law does not recognise a general duty of Good Faith applicable to all contracts.² However, the English courts have increasingly shown themselves willing to give effect to express contractual terms requiring parties to act in Good Faith and, in certain circumstances, to imply a duty to act in Good Faith.

The English courts' reticence to recognise a general duty of Good Faith dealing is generally attributed to a reluctance to interfere with principles of freedom of contract and contract certainty together with a difficulty in defining precisely what "good faith dealing" means and encompasses.

In CPC Group Ltd v Qatari Diar Real Estate Investment Company,³ the Court, considering an express obligation for the parties to act in "utmost Good Faith" described the general principle as a duty "to adhere to the spirit of the contract, to observe reasonable commercial standards of fair dealing, and to be faithful to the agreed common purpose, and to act consistently with the justified expectations of the parties."

In Bates v Post Office (No 3),⁴ the Court went further, determining that the duty of Good Faith, such as it existed, went beyond a duty to act honestly and required the parties to refrain from behaviour that the reasonable and honest person would consider commercially unacceptable with reference to the specific powers assigned under the contract.

The Guidance encourages parties to go further than the current limits on Good Faith dealing identified by the English courts, making clear that "Fair and Responsible Contractual Behaviour" includes "being reasonable and proportionate in responding to performance issues and enforcing contracts (including dealing with any disputes), acting in a spirit of cooperation and aiming to achieve practical, just and equitable contractual outcomes having regard to the impact on the other party (or parties), the availability of financial resources, the protection of public health and the national interest." This appears to encourage a positive duty to consider the interest of other parties to a contract.

Express contractual duties to act in Good Faith

Notwithstanding that there is no general duty of Good Faith under English law, parties are...