Addleshaw Goddard

A question of faith — obligations of good faith in English law

English courts have historically been reluctant to recognise an implied duty of good faith in commercial agreements. However, three recent decisions have cast that understanding into some doubt. The High Court decision in Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB) found that an enforceable, implied obligation on the parties to act in good faith existed. The decision should be contrasted carefully with Compass Group UK and Ireland Ltd (as Medirest) v Mid Essex Hospital Services NHS Trust [2013] EWCA Civ 200, in which the duty of good faith was limited to the express terms of the contract and indicated that the presence of the implied duty depends on the contractual context. A further comparison can be made with the decision in TSG Building Services Plc v South Anglia Housing Ltd [2013] EWHC 1151, which found that any good faith obligation that does exist will not apply to a clause that provides a right to terminate without cause.

In 2009, Singapore-based company Yam Seng entered into an exclusive distribution deal with International Trade Corporation (ITC) to market Manchester United-branded deodorants and toiletries across various Asian regions.

ITC later breached the contract by: failing to ship orders promptly; failing to make orders available as promised (or, in the case of certain products, at all); undercutting Yam Seng’s agreed prices with outlets; attempting to claw back certain distribution rights; and providing false information before and after entering into the contract…

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