Contractual Discretions: The Braganza Duty If a contract does include express terms that refer to positive requirements to exercise good faith in relation to specific defined contractual obligations, then this may make it more difficult to argue that other terms, which do not refer to such requirements, ought to be subject to an implied duty of good faith. be capable of clear expression and not contradict any express term of the contract (the ‘Cardinal Rule’).so obvious that "it goes without saying" (the ‘Officious Bystander Test’) and.necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it (the ‘Business Efficacy Test’) or.In order for the duty to be implied, it must: It is important to remember that an implied duty of good faith is no different from any other implied term. However, the more of these factors that are present, the greater the likelihood that the contract will be considered relational.
It is not necessary for all of the ingredients listed above to be present. There may be a degree of significant investment/substantial financial commitment by one contracting party (or both) in the venture.The contracting parties intend to place trust and confidence in one another (but of a different kind to that involved in fiduciary relationships).The spirits and objectives of the venture may not be capable of expression exhaustively in a written contract.The contracting parties are committed to collaborating in the performance of the contract.The contracting parties intend that their respective roles be performed with integrity, and with fidelity to their bargain.The contract involves a high degree of communication, co-operation and predictable performance based on mutual trust, confidence, and expectations of loyalty.The contract is long-term, with the contracting parties mutually intending a long-term relationship.There are no specific express terms preventing a duty of good faith being implied.A non-exhaustive list of ‘ingredients’ for a relational contract was set out in a landmark 2019 High Court judgment, Bates v Post Office : Just because a relationship between two parties is ‘relational’, it does not follow that any contract entered into in the course of that relationship must be relational.
In recent years, a concept has developed in English law that a general duty of good faith is likely to be implied (where there is no express provision) into commercial contracts that are ‘relational’ in nature.Ī relational contract is one that is long-term and calls for collaboration and co-operation between contracting parties and a greater regard for each other’s interests than would ordinarily be required between commercial contracting parties dealing with one another at arm’s length. In What Circumstances Can a Duty of Good Faith Be Implied into a Commercial Contract?
In this article, we consider recent developments in the circumstances under English law in which duties of good faith can be implied into commercial contracts, the potential impact of this on party obligations, the potential expressly to exclude implied duties of good faith, and the remedies available for breach of an implied duty of good faith. English law also imposes some restrictions on the exercise of contractual discretion, which may be overlooked by contracting parties. However, contracting parties should be aware of a growing body of cases in which a duty of good faith has been implied, and the ramifications for their contracts. Implied Duties of Good Faith in Commercial Contracts Under English LawĮnglish law does not generally impose a duty of good faith on contracting parties, unlike some other legal systems.
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