25 February 2013

While there is no implied duty of good faith in English contracts, this is not the case in many European civil law jurisdictions, such as Belgium, France, Germany, Italy, the Netherlands, Poland, Portugal, Spain and Switzerland. While the interpretation of the implied duty is not the same in all these countries, in general they all
involve obligations in respect of ethics, diligence in pursuing negotiations, and disclosure. English contracts often expressly apply a duty of good faith to specific parts of the contract; for example withholding payment only when subject to a dispute ‘in good faith’, or negotiating the price of an element of the contract not yet agreed at the time of contract signature.

Such good faith provisions are often drafted with the intention of avoiding ‘agreements to agree’ on matters not yet determined at the time of the contract. They may not achieve that, however. Two recent High Court cases identify issues that can arise where obligations of good faith are drafted into agreements without adequate precision…

If you are registered and logged in to the site, click on the link below to read the rest of the Shoosmiths briefing. If not, please register or sign in with your details below.