Good Faith Implied As A Term In A 'Relational' Contract

ITC (an English company) approached Yam Seng (a Singapore company) in January 2009 about entering into a distributorship agreement, saying it had recently signed an exclusive licence agreement to manufacture and sell "Manchester United" fragrances and toiletries. In May 2009, a distribution agreement was signed, granting Yam Seng exclusive rights to distribute the products in a number of territories for 30 months.

Yam Seng ended up terminating after 15 months due to consistent breaches by ITC, including failing to ship orders promptly, refusing to supply certain products after Yam Seng had marketed them, undercutting agreed prices and attempting to claw back certain distribution rights.

Yam Seng sought damages for breach of contract, with part of its argument being that there was an implied term that the parties would deal with each other in good faith. It also sought damages for misrepresentation on the basis it had been induced to enter into the agreement by ITC's assertion in January 2009 that it was had a licence to manufacture and sell, when it transpired that the licence was only granted in May 2009.

The High Court (Mr Justice Leggatt) gave...