Latest

 Article 
Author
Alexandra Whiston-Dew
Source
Law Gazette
Date
11 May 2015

Contract law – a question of faith

The duty of contracting parties to act in good faith has been adopted as an overriding principle in several legal systems.

Despite the general nod to commonality between national legal systems and, in particular, common law systems such as Canada and Australia, English courts have consistently refused to commit to this somewhat vague and subjective concept.

However, the recent judgment of Mr Justice Dove in D&G Cars Ltd v Essex Police Authority [2015] EWHC 226 (QB) refocuses the discussion by implying a duty to act with honesty and integrity in what he termed a ‘“relational” contract par excellence’. This new development towards accepting good faith as an implied term in commercial contracts compels contracting parties, and their lawyers, to ask: in what commercial contracts is such a duty implied? And, importantly, what behaviour would trigger a breach?

The evolving view

The traditional view of English courts being against implying the duty of good faith when negotiating or performing contracts was succinctly pronounced by Lord Justice Bingham in his judgment in Interfoto Picture Library Ltd v Stiletto Visual Programmes [1989] QB 433, stating that English law has ‘committed itself to no such overriding principle’.

Of course, there are instances where special duties are required in contractual relationships, such as consumer contracts or in fiduciary, agency or employment relationships (special duty contracts). In such contracts the requirement to act in a certain way is at the very root of the contractual relationship and pays consideration to the balance of power between the parties.

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