Should Good Faith have any Place in English Contracts?

Should Good Faith Have Any Place In English Contracts? This paper will discuss how good faith obligations might be understood into contracts, and also the issue of how express terms within a contract requiring good faith should be interpreted within a contract. I will be looking into a number of court cases; the European Council Directive and the Uniform Commercial Code to help me to do my best in answering should good faith have any place in English contracts? Currently there is no formal legal definition of good faith within a contractual context. The Oxford English Dictionary defines good faith as “Honesty or sincerity of intention.” The courts have tried to define good faith, but to this date they have been very reluctant to do so. This is seen in the High Court of Justice Chancery Division, CPC Group Limited V Qatari Diar Real Estate Investment Company 2010. “The court concluded that an obligation in a property joint venture to act in “utmost good faith” did not require one party to subordinate its interests to those of the other party, but was likely to require it to: Avoid cynical resort to the black letter of the law; serve reasonable commercial standards of fair dealing; be faithful to the agreed purpose of the agreement; and act consistently with the justified expectations of the other party.” Also in Street v Derbyshire Unemployed Workers’ Centre EWCA Civ 964 “Shorn of context, the words “in good faith” have a core meaning of honesty. Introduce context, and it calls for further elaboration.

The term is to be found in many statutory and common-law contexts, and because they are necessarily conditioned by their context, it is dangerous to apply judicial attempts at definition in one context to that of another”. Only in certain sectors has a concept parallel to good faith crept in.That is the Unfair Terms in Consumer Contracts Regulations 1999. These provide that a standard contract term, for example one which has not been individually negotiated, is to be regarded as unfair if “contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract” (Reg. 51) and commercial agency arrangements (whereby an agent must look after the interests of the principal and act in good faith). Even with the introduction of the European Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, whichintroduces a notionof "good faith"in order to prevent significant imbalances in the rights and obligations of consumers on the one hand and sellers and suppliers on the other hand. With, CPC Group Limited V Qatari Diar Real Estate Investment Company 2010, Street v Derbyshire Unemployed Workers’ Centre and the European Council have clearly reluctant to have a formal definition of good faith.

But have said that Judges should use their own judgement within the context of the case. In a very recent case has brought the English Contract Law closer to other legal systems. The case is Yam Seng PTE Ltd v International Trade Corp Ltd (2013) EWHC 111 (QB). This case is related to a claim for breach of contract and misrepresentation brought by a distributor in Singapore against an English supplier of products bearing the logo of the famous English football team, Manchester United. The distribution agreement gave Yam Seng Pte Ltd the exclusive right to promote and sell these products throughout the Asia-Pacific region. However, at the time the agreement was entered into, International Trade Corp Ltd had not acquired all the rights it purported to license as part of case, it pleaded that there was an implied term in the Agreement that the parties would deal with each other in good faith.

The summery of the judgement is that, Mr Justice Leggett found that International Trade Corp Ltd was held to have both repudiated the agreement and procured it by misrepresentation. He also considered in great detail whether or not there was an implied term in the agreement that the parties would deal with each other in good faith. Although Mr Justice Leggett recognized a previous reluctance to imply a duty to act in good faith in English contract law, he found that the “traditional English hostility towards a doctrine of good faith in the performance of contracts, to the extent that it still persists is misplaced”. Further he saw no difficulty in “implying such a duty in any ordinary commercial contract based on the presumed intention of the parties”. This case is important even though Mr Justice Leggett didn’t think that English law is ready to recognise duty of good faith, to be implied with contract law. But it could be implied as duty of good faith as a term of fact. Mr Justice Leggett actually implied there was a duty not to act dishonestly in the provision of information. There are a number of features of this case which make it of interest in regards to implied terms of good faith.

Firstly there it is another example where an express “good faith” clause was constructed narrowly and restricted to its precise scope. Secondly because there was already a “good faith” clause covering some areas of the contract, there was no room to imply another. Thirdly even if there had been an implied obligation of good faith, it would not have applied to a straight forward contractual entitlement. There are plenty of good reasons why good faith should, should have a place in English Contact Law. Having good faith as part of contract law would be guided by ethical considerations such as promise keeping. Also this would lower the risk of misrepresentation, which is a false statement of fact made by one party to another, which, whilst not a term of the contract, induces the other party to enter into the contract. Also if both parties are working with good faith, this would lead to them working better together. In my opinion this is a clearly part of the law which needs to be improved.

This would make sure the overall judgement of the case is just and fair to all involved and that all judgements where good faith is involved will be uniform. Also by having a doctrine of good faith, will allow bad faith dealings to be dealt with in a clean and direct fashion. T If we a have a look over the pond to the United States of America, every contract or duty falling under which is imposed by many states, imposes “an obligation of good faith in its performance or enforcement.” Good faith is defined by Uniform Commercial Code 1- 201(19): “Good Faith" means honesty in fact in the conduct or transaction concerned.” But the 1994 commentary on the UCC by the Permanent Editorial Board should be noted. The board stated that the good faith provision “does not support an independent cause of action for failure to perform or enforce in good faith he doctrine of good faith merely directs a court towards interpreting contracts within the commercial context in which they are created, performed and enforced, and does not create a separate duty of fairness and reasonableness which can be independently breached. There are some negative reasons why we don’t need a doctrine of good faith, firstly it is said that good faith is a loose cannon. By this I mean the doctrine would set down some restrictions, but we are not sure how far these will go setting these moral standards and whose moral standards they are protecting.

With this we will still be unclear on how to act in good faith. Secondly by having a doctrine of good faith will not recognise that all contracts are not alike. Mr Michael Bridge said, “In my view, what s needed is an informed treatment of different areas of commercial contract law.” In conclusion I feel that there should be a doctrine of good faith. This is because the English contract law already does its best to regulate and combat bad faith, but not good faith. But if they also regulate good faith they will be able to address this more directly and openly. Also by not having a doctrine of good faith the Judges will not be able to come to a judgement within contract law justly. Also in this time of international trading, where a lot of the United Kingdom’s trading partners already have some sort of doctrine of good faith. For example The United Sates of America with the Uniform Commercial Code. Also article 7 of The United Nations Convention on Contracts for the International Sale of Goods (CISG) sates “In the ‚ interpretation of  this  Convention, regard is to be had to its international character and to the  need to promote  uniformity  in  its  application  and  the observance of   good faith in internatioal trade.” With this is mind I would recommend that a Statutory Framework to Act in Good faith (Contract) is set up.

This framework would clearly define a formal legally recognised definition of good faith would be defined as “The mental and moral state of honest, even if objectively unfounded, conviction as to the truth or falsehood of a proposition or body of opinion, or as to the rectitude or depravity of a line of conduct. One who acts in good faith, so far as the violation of positive law, or even, in certain junctures, of natural law, is concerned, is said to labour under an invincible error, and hence to be guiltless. This consideration is not infrequently applied to determine the degree of right or obligation prevailing in the various forms of human engagements, such as contracts and the law of obligations. In the matter of prescription it is held to be an indispensable requirement whether there be question of acquiring dominion or freeing oneself from a burden.” The Framework to Act in Good faith (Contract) will also set down guidelines when a claim can be made to help prevent the abuse of this right. As to the contractual remedies that could be given, I feel personally that Exceptio Non Adimpleti Contractus which is from Roman law, it means exception of a non-performed contract. “An exception or defence available in Roman law, that a person who is being sued for non-performance of contractual obligations can defend themselves by proving that the plaintiff did not perform their side of the bargain.”

Also damages could also be awarded to the party affected by the breach. Theses damages should only be limited to the amount reasonably foreseen; these damages should exclude pain and suffering. The timescales within which action may be taken for breaches of contract law, as stated in the Limitation Act 1980 will apply. In conclusion I feel the English legal system will be benefit from having a doctrine of good faith. This because I will help the judiciary come to fair and just decisions, regarding “good faith”, which can be done in a open and transparent way and can bring the law closer in alignment with protection of what is morel and right. Also by having good faith doctrine, it will not just be dispute settling but will give both parties more protection. By providing more security against the risks of opportunism and exploitation, so when good faith finds a place in law. The environment will become easier to trust people and allow more risk taking.

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