M&A Weekly Update: when is there a duty of good faith between contracting parties; prospectuses: acceptable languages; and more

There is no general doctrine of good faith under English law. However, case law has established that where parties expressly use the words ‘good faith’ in a binding contract, the court will interpret those words in the same way as any other contractual term — in other words, using normal contractual principles of interpretation. Two cases decided last year (Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] and Ross River Ltd and another company v Waveley Commercial Ltd and others [2013]) raised concerns that the English judiciary were becoming more open to implying a duty of good faith into commercial contracts, particularly where the parties had had an ongoing relationship.

A case recently decided by the Technology and Construction Court (Fujitsu Services Ltd v IBM United Kingdom Ltd [2014]) may give some comfort to contracting parties, in the context of last year’s decisions, that a court may be reluctant to find an express duty of good faith. In Fujitsu, the court did not construe an obligation to have regard to ‘good industry practice’ and a requirement on the parties to work together on an ‘open, honest, clear and reliable’ basis as akin to an express duty of good faith. The judge noted that ‘in a detailed contract like the subcontract, one would expect clear words if there was to be an express duty of good faith’ and that ‘the courts must be careful not to distort the parties’ contractual bargain’. Neither did the court find a fiduciary relationship between the parties…

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