Good faith obligations in contract: are the English courts going soft?

Traditionally, English law does not recognise a general duty of good faith applicable to contracts (with certain limited exceptions, such as insurance contracts). Rather, the English courts recognise the right and freedom of commercial contracting parties to enter into an agreement on whatever terms they see fit and to prioritise their own self-interest (subject obviously to the usual constraints imposed by considerations of public policy, illegality and so on).

This is so irrespective of whether or not the courts might otherwise consider that one or other party has made a bad bargain or compromised itself commercially by what it has agreed to. The overriding principle is that the English courts will not rewrite the parties’ contract for them. Therefore, where it is intended that one or both parties should perform any or all of their obligations under a contract in good faith, this should be provided for expressly in the contract.

There have, however, been some recent cases in which the courts have considered whether a duty of good faith should be implied into certain types of contract, primarily long-term, ‘relational’ (i.e. involving mutual co-operation) contracts, and whether, in fact, English law should be (or is already) moving towards the attitude adopted in some other jurisdictions, mainly civil law systems, that recognise such an implied duty. This bulletin reviews these recent decisions and considers what, if any, future impact they may have on parties’ obligations under English law commercial contracts…

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