Shoosmiths on good faith: High Court decides to swim with the tide and recognise fair dealing

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In the recent case of Yam Seng Pte Ltd v International Trade Corporation Ltd, the High Court decided to swim with the tide and recognise an implied duty of good faith and fair dealing. Yam Seng had entered into a distribution agreement with International Trade Corporate. Under it, Yam Seng was granted exclusive rights to distribute certain fragrances bearing the Manchester United brand name. In July 2010, the relationship between the parties ended sourly, with Yam Seng terminating the agreement on the basis of ITC’s alleged breaches.

Among Yam Seng’s arguments for breach of contract was its claim that an implied term of the agreement was that the parties would deal with each other in good faith. The High Court had to consider whether there was such a duty in the context of the agreement between the parties.

In reaching its decision, the High Court compared the English law position – namely that there is no general legal principle of good faith – against the recognition of such a principle in other jurisdictions. Justice Leggatt commented that English Courts were “swimming against the tide” in refusing to recognise a general requirement of good faith in the performance of contracts…

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