In brief
- In CIT Group Finance (Ireland) v SpiceJet Ltd [2026] EWHC 1277 (Comm) the Commercial Court has provided helpful guidance on the operation of the Braganza duty, an implied duty which can require parties to exercise contractual discretions rationally, in good faith and in accordance with their contractual purpose.
- In holding that the duty should not be implied into agreements entered into in an attempt to resolve earlier payment issues, the Court has upheld the principle of contractual certainty, and emphasised that the contractual discretions will only be subject to implied terms in narrow circumstances.
Background
The claim concerned lease agreements between SpiceJet and CIT in relation to two Boeing 737-8MAX aircraft. Following SpiceJet's failure to make rental payments in accordance with the leases, the parties agreed Early Termination Agreements (ETAs) which provided for less onerous redelivery conditions than those contained in the leases, but required SpiceJet to pay all sums owed, together with associated interest, up to and including the Early Termination Date in the ETAs.
In addition, clause 13.14 of the ETAs provided that:
Any failure to comply with the terms of this Agreement shall at [CIT's] discretion render this Agreement null and void and [CIT] may revert to the terms of the Lease in place prior to the date of this Agreement…
SpiceJet redelivered the aircraft in accordance with the ETAs but nine months later CIT contended that rent remained due and owing. It therefore purported to exercise its right under clause 13.14 to treat the ETAs as null and void and revert to the terms of the leases. It then issued proceedings, claiming unpaid rent, together with additional expenses.
CIT subsequently applied for summary judgment. One key issue for the court concerned the operation of the so-called "Braganza duty".
When will a Braganza duty be implied?
The Braganza duty takes its name from the Supreme Court's decision in Braganza v BP Shipping Ltd (2015), which held that, where a contract confers a discretion upon one party, the law may imply an obligation that the discretion is exercised rationally and in good faith. In this case, SpiceJet contended that clause 13.14 was subject to such an implied term, and that by exercising the clause as it did, CIT had failed to comply with the duty.
Subsequent authorities have indicated that, where a contract confers a bare right to terminate, that right is not subject to the Braganza duty and the party entitled to exercise it may do so for any reason. However, as the Commercial Court observed, no such short cut was available here as clause 13.14 could not be characterised as a straightforward termination right. The effect of the clause was not to bring the parties' contractual relationship to an end entirely. Instead, it operated to revert the parties to the pre-existing terms of the leases.
As a result, the question of whether a Braganza duty should or should not be implied had to be "the result of a process of construction which takes account of the characteristics of the parties, the terms of the contract as a whole and the contractual context."
In this case the Court concluded that the contractual purpose of the ETAs was to incentivise SpiceJet to redeliver the aircraft and pay the monies owed, in exchange for CIT's restraint in not otherwise enforcing its legal entitlements. For so long as SpiceJet remained in breach of its obligations under the ETAs, CIT was entitled to revert to the leases. It could decide for itself how patient it was willing to be, and owed no duty to SpiceJet in that regard.
The fact that clause 13.14 used the words "at the Lessor's discretion" did not necessarily import the Braganza duty. As the Court emphasised, determining whether a Braganza duty is owed does not turn on whether the label "discretion" is used, but rather on the usual process of construction.
Moreover, while a Braganza duty may be implied where a contractual discretion has a clear conflict of interest, in this case there was no relevant conflict or imbalance of power - the exercise of clause 13.14 would always operate to SpiceJet's disadvantage and so there was no need to weigh SpiceJet's interest against CIT's.
In those circumstances, the Commercial Court was not persuaded that the imposition of a Braganza duty was warranted. Having also rejected SpiceJet's separate arguments on estoppel and waiver, summary judgment was granted in favour of CIT.
Takeaway
There is no general duty of good faith under English contract law. Absent a specific obligation to do so, parties are usually entitled to enforce their contractual rights without regard to the counterparty's interests. However, in recent years the English courts have recognised certain exceptions to that principle, including the Braganza duty. Nevertheless, as this decision demonstrates, the circumstances in which it will arise will be narrowly construed, and mere use of the label "discretion" will not be determinative. For contracting parties, seeking certainty that their agreements can be operated as intended, it is a welcome result.