A duty of good faith will normally require a party to adhere to the overall spirit of a contract, to observe reasonable commercial standards of fair dealing and to be faithful to the agreed common purposes.
There is no automatic duty of good faith in English law. Generally, a specific clause in a contract is needed.
The English Courts have been reluctant to 'read into' a contract a general duty of good faith. It is thought that to do so would create uncertainty, by implying obligations which are subjective.
However, the Courts have recognised that by their very nature, there are a limited number of specific relationships which require such a duty. This includes consumer, agency, insurance and employment contracts.
Express good faith clauses may be agreed between the parties. Their construction and interpretation must be clear in order to impose the intended result.
It is important the contract is well written. Express clauses have been the origin of much litigation.
In some cases, there can be disagreements about whether a duty of good faith should be implied into a contract. The Courts apply an objective test if they decide to imply terms into a contract, so as to reflect the parties' perceived intentions. The Courts have implied a duty of good faith:
However, the Courts have not implied a good faith obligation to prevent a party exercising a freely negotiated contractual right to terminate a contract. This was shown in the case of TSG Building Services Plc v South Anglia Housing Ltd (2013).
Organisations have spent considerable time, effort and money litigating good faith clauses. It is cost-effective to spend time drafting detailed provisions at the outset of a contract. We can help with such drafting.