Joint Ventures And Implied Duties Of Good Faith

Nehayan v Kent [2018] EWHC 333 (Comm) is the latest case in a growing line of authorities in the UK on the implication of good faith in "relational" commercial contracts, such as joint ventures, franchise agreements and distribution agreements.

The Facts

Sheihk Tahnoon Bin Saeed Bin Shakhboot Al Nehayan (Sheihk Tahnoon) and Mr Kent entered into a joint venture to develop luxury hotel and online travel businesses. Mr Kent managed the business and Sheihk Tahnoon provided funding. When the businesses started to fail, Sheihk Tahnoon sought to extricate himself from the business. The parties entered into a framework agreement to demerge the business. Sheihk Tahnoon was also convinced that Mr Kent had "swindled" Sheihk Tahnoon and Mr Kent entered into a promissory note agreeing to repay Sheihk Tahnoon some of his losses. In addition to these agreements, Sheihk Tahnoon's representatives were conducting separate negotiations with a third party to sell Sheihk Tahnoon's majority shareholding in one of the companies, instead of transferring it to Mr Kent as part of the separation, something Mr Kent was not aware of at the time.

Mr Kent was unable to keep up with the payments due under the framework agreement and promissory note and thus Sheihk Tahnoon issued a claim before the courts for these sums which totalled approximately €15 million. In those proceedings, Mr Kent claimed that his consent to the framework agreement and promissory note was obtained by unfair means (including physical duress and other illegitimate pressures). Mr Kent counterclaimed that Sheihk Tahnoon had breached his fiduciary duties and/or a contractual duty of good faith.

"Relational Contracts"

In determining whether a general duty of good faith could be implied in such circumstances, Lord Justice Leggatt pointed to his own previous judgment in Yam Seng Pte Ltd v International Trade Corp [2013] EWHC 111 (QB). The ruling in that case (on which we have previously commented) held that a duty of good faith could be implied into ordinary commercial contracts, and whilst it should not be implied by default, it was more likely to be implied into "relational" contracts - i.e. long term commercial relationships which require a high degree of trust and cooperation, like franchise agreements, joint ventures and distribution agreements.

In this case, Lord Justice Leggatt referred to the chain of jurisprudence that has since developed in support of his previous judgment, including the case...