Britain likes to think of itself as a nation of justice and fair play. Surely, you might think, the concept of 'good faith' must be one of those fundamental principles of fairness, like the laws of cricket or the Queensberry Rules, that we exported to the world?
Well, actually, no. Unlike many other countries, English law has generally not recognised an implied obligation that parties to a contract should perform their obligations in good faith – even in long-term 'relational' contracts covering outsourcing, services provision or reseller relationships. English courts have long held that parties should have the freedom to contract in the way that they wish, and so have been reluctant to intervene to impose overriding obligations of good faith.
Against this background, two recent cases have thrown the issue back into the spotlight. Both involved some pretty dubious behaviour. In one, a UK company went to some lengths to persuade a Singapore-based company to become its distributor for duty-free sales in Asia, and then proceeded to undermine it by delaying product shipments and allowing lower prices for non-duty free sales. The agreement was rudimentary and made no mention of a requirement of good faith.
The judge clearly took a dim view of the UK supplier and was inclined to agree partly with the case against it, conceding that it may be possible to imply a term into an ordinary commercial contract that the parties must have originally intended to deal with each other in good faith. In the case itself, this meant a duty not to agree undercutting prices, and a duty not knowingly to give false information.
Contrast this with another case, involving claims of unfairness in the deduction of service credits under hospital catering contract (£84,000 for a chocolate mousse one day past its use-by date). Despite the contract containing a good faith clause, the court held that the deductions were legitimate because they complied with the letter of the contract. If a contract contains an express good faith statement linked to particular circumstances, the court will not imply a wider requirement.
This leaves negotiators of commercial ICT contracts in something of a quandary. Should you include a good faith clause at all or, to know exactly where you stand, should you go to the other extreme and expressly disclaim any duty to act in good faith towards your contracting party (which would be an interesting negotiating position to have to justify across the negotiating table)?
Actually, what these cases illustrate just as much as Britain’s attitude to fair play is our legal system’s capacity for inherent irony. Because the court considering a contract without a good faith clause worked hard to imply a limited duty of good faith after all; whereas the court examining a contract actually containing a good faith clause did exactly the opposite and rejected the existence of a legal good faith doctrine. You couldn’t make it up!