Good Faith in Contracts

In the context of contract law the concept of good faith is a presumption that the parties to a contract will deal with each other honestly, fairly, and in good faith, so as not to destroy the right of the

other party to the benefit of the contract. Many legal jurisdictions notably in continental Europe have legislative provisions stating that the concept of good faith will apply in all commercial dealings. However the law in England has always been reluctant to place such a responsibility on parties to commercial dealings. This article will examine to what extent this is changing and what you in your business dealings can do if you want your contractual relationships to be carried out in good faith.

The English courts have always been reluctant to impose a general duty of good faith because of their concerns that doing so would undermine contractual certainty. Furthermore the courts were also reluctant to interfere in the business decisions and dealings independent individuals and businesses make. In a famous 2013 case the High Court set out a number of factors which would need to exist for the courts to rule that a general principle exists that parties must act in good faith. However the Court of Appeal in a recent case rolled back on that and reasserted the historic position that English contract law does not recognise a general duty to act in good faith.

Therefore if you want your commercial dealings to be carried out in good faith you must explicitly say this in the contracts that you enter into. Further the courts generally interpret that such express provisions only relate to the actual performance of the particular obligation in the clause in question. Therefore if you want the principle of good faith to apply to more than one obligation in the contract it must be stated in each obligation that you want to apply to. However it is possible for the courts to rule that certain express provisions to act in good faith apply elsewhere in the contract, however that is a technical point outside the scope of this brief article. To afford you the best possible protection the safest option is to explicitly provide for good faith in each and every obligation you wish it to apply to.

Clarity here is key and what you mean by good faith should be explained in the actual provision itself. It is also very important to be aware that express provisions for good faith will not trump an absolute contractual right. In this regard English law is still very different from European civil law, which is both a good and a bad thing: no general principle of good faith means you cannot presume the other party will act honestly and fairly, but also gives you flexibility, and it is this flexibility that English law has sought to protect by not developing a general principle of good faith.

Written by Bruno Rodrigues. If the contents of this article have interested you and you wish to discuss this or any other matter please do not hesitate to contact us using the details on this website.

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