Is There A General Principle Of Good Faith Under English Law?*

Many jurisdictions2 expressly include in their civil codes references to the concept of good faith in commercial dealings. In that context, an obligation to act in good faith in the making and performance of a contract becomes an express obligation on all parties. It also should be noted that the recognition of a general doctrine of good faith is not limited to just civil law jurisdictions. For example, Australian courts have been known to imply broad duties of good faith into commercial contracts, and the Supreme Court of Canada recently recognised a new common law duty of honest performance.3 Yet, as Sana Mahmud asks, to what extent do the English Courts recognise the concept of good faith?

Good faith under English law - to what extent is this a recognised concept?

Those working in the construction industry will be aware that many standard forms of contract used domestically include obligations that could be commonly construed as good faith-type obligations. Examples are perhaps most obviously apparent in partnering contracts and in clause 10.1 of the NEC3, which states that the parties should act in accordance with the Contract and in a spirit of mutual trust and cooperation. Whilst it is accepted that broad concepts of fair dealing can be reflected in the English court's response to questions of construction and the implication of terms, the long-standing position under English contract law is that courts have been reluctant to recognise any general pervasive duty of good faith.4

The historical reluctance of the courts to imply a general duty of good faith is due in part to concerns that doing so would likely undermine contractual certainty. Instead, the English courts have, as Lord Justice Bingham put it in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd,5 preferred to develop "piecemeal solutions in response to demonstrated problems of unfairness". There is no generally accepted definition of the concept under English law, but in the same judgment, Lord Justice Bingham described good faith as being most aptly conveyed by colloquialisms such as "playing fair", "coming clean" or "putting one's cards face upwards on the table", concluding that it "is in essence a principle of fair and open dealing".

If the term is not expressly defined in a contract, parties will have scope for argument about what an obligation of good faith in a particular context means. Where parties have expressly included good faith obligations in their contract, the general approach is that the courts will seek to give effect to those express provisions which relate to the actual performance of a particular obligation. However, whether a party can successfully rely on such a provision will depend to a great degree on the specific wording of the particular clause. The usual principles of contractual interpretation will apply.6

Often in cases where there is an express clause incorporating an obligation of good faith, parties seeking to rely on the clause have attempted to argue that the duty is a general one that can apply across other provisions of the contract. The courts have generally favoured a narrow interpretation of express contractual obligations of good faith, and in cases where the duty relates to a specific provision, they have been hesitant to imply a wider overarching contractual duty.

The judgment in the 2013 case of Yam Seng Pte Ltd v International Trade Corporation Ltd,7 however, briefly raised expectations that the courts were open to a pervasive duty of good faith being implied more commonly in commercial contracts. A number of subsequent cases, including the first instance decision in MSC, followed the approach in Yam Seng.8 The Court of Appeal has, however, recently overturned the MSC decision at first instance, reverting to the traditional position that English contract law does...