Good faith in commercial contracts revisited

As mentioned in an earlier article (Good faith and the exercise of discretion in contracts) English law does not impose a general obligation of good faith in the performance of contracts. This contrasts with the position under many other legal systems including the United States. Developments over recent years now seem to be leading to a recognition of a class of long-term “relational” contracts where some form of good faith is implicit in order to give effect to the contractual arrangement. The latest judgement in D&G Cars Ltd v Essex Police Authority¹ has continued this trend.

The position was summarised in a previous judgement² as follows:

“English law has traditionally drawn a sharp distinction between certain relationships – such as partnership, trusteeship and other fiduciary relationships – on the one hand, in which the parties owe onerous obligations of disclosure to each other, and other contractual relationships in which no duty of disclosure is supposed to operate. Arguably at least, that dichotomy is too simplistic. While it seems unlikely that any duty to disclose information in the performance of the contract would be implied where the contract requires a simple exchange, many contracts do not fit this model and involve a longer term relationship between the parties which they make a substantial commitment. Such ‘relational’ contracts, as they are sometimes called, may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involve expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties understanding and necessary to give business efficiency to the arrangements. Examples of such relational contracts might include some joint venture agreements, franchise agreements and long-term distributorship agreements”.

D&G Cars Ltd v Essex Police Authority[2015] EWHC 226 (QB) concerned a long term contract with the police authority for the recovery of vehicles. The judgment confirmed that there was implied duty to act with honesty and integrity in what was termed a ‘“relational” contract par excellence’

The term ‘integrity’ rather than ‘good faith’ was used with the intention of capturing the requirements of fair dealing and transparency required in a contract that created a long-standing relationship between the parties lasting some years. It was recognised that there might well be acts that breached the requirement for integrity that it would be difficult to characterise definitively as dishonest.

This decision appears to indicate a continuing trend and in the future we may expect to see further cases where a long-term contract is held to be a relational contract subject to some form of implied duty of good faith or integrity.

Note however that what good faith requires is sensitive to context. Where an implied obligation is held to exist it will depend on the circumstances of the case as to what is required to perform any such obligation.

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