1- Good Faith Flashcards
Walford v Miles (1992)- Ackner
Good faith negotiations
- The concept of duty to carry out negotiations in good faith is inherently repugnant to the adversarial position of parties in negotiations.
- Each party is entitled to pursue their own interest, so long as no misrepresentations are made.
- As part of this he must be entitled to threaten withdrawal from further negotiations or to actually withdraw from further negotiations, in hope the other party may seek to reopen them by offering improved terms.
Difference between good faith in negotiations and performance of contracts?
Negotiations are supposed to be adversarial. Performance is not, since terms are already agreed.
Yam Seng v International Trade Corp (2013) QBD
Case: YS agreed with ITC to distribute fragrances fragrances in specific territories. In 2010 YS informed ITC it was terminating the contract due to ITC’s breach in 2 ways:
1. ITC had undercut the duty-free prices agreed with YS by offering the same products for sale at a lower price in the domestic market of the same territory; and
- Providing false information on which ITC knew YS was likely to rely in the marketing of products.
Decision:
1. English law does recognise an implied duty of good faith in commercial contracts, but it is not automatic. The content of the term is dependent on the context.
- There is an implied term that ITC should not undercut the duty free prices for 3 reasons:
(a) The agreement was a skeletal one which does not attempt to satisfy all of ITC’s obligations in detail;
(b) BUT it did specify the duty free price which constrained ITC from selling any products in the duty free outlets at a lower price. It would thus be surprising if the agreement had been intended to authorise sale in the domestic market at a lower price than that.
(c) The background included an industry assumption that retail prices in domestic markets will be higher than duty free prices, so ITC could have expected their obligations to cover this without expressly stating.
3. The term was not breaches, because the retail price that ITC agreed with the distributor was equivalent to the duty free price.
4. There was an implied term that ITC should not give false info on which YS was likely to rely to its detriment.
5. Whether ITC gave YS incorrect info on the singaporean market KNOWINGLY or INNOCENTLY is crucial. There is no implied term that they should not do it innocently, but there is one that they should not knowingly do it, due to expectation of honesty.
6. On the facts this term was breached. ITC told YS the domestic retail price should be increasing, knowing this to be untrue.
7. Dishonesty on a matter of commercial importance in YS’s dealings with its customers strikes the heart of the trust that is vital to a long-term commercial agreement.
8. In English law a relational (long-term) contract is a sociological, not a legal category. BUT the fact a transaction has these features may be recognised by the courts.
Yem Sing general observations about good faith?
- English law takes a piecemeal approach to good faith. It does not impose general duty, unlike in many civil law systems.
- This is for 3 reasons:
(a) incrementalism- english law prefers to fashion solutions to specific issues, rather than create overarching principles.
(b) Individualism- parties are free to pursue their self interests.
(c) Uncertainty- most important. Recognised a general duty would create uncertainty because its content would be subjective. - English law is ‘swimming against the tide’. Not a CL/civil law divide as the US has it too. Canada and Aus developing it.
- Though a duty to act in good faith is, in English law, implied as an incident of some contracts (e.g. employment) it has not reached the stage of being a general duty.
- BUT an expectation of honesty underlies almost all commercial contracts, though it is seldom made the subject of an express obligation.
Mid Essex Hospital v Compass Group (2013) CoA
Case: Parties made an agreement for Medirest to provide catering and cleaning services to the hospital. The performance did not meet the standard in the agreement.
The hospital relied on its contractual discretion clause under s8 to award service failure points and payment deductions. It had a right to terminate if the number of points exceeded that specified in the agreement in a 6 month period. This occurred.
Medirest disagreed with the number of points awarded and the deductions, so sought to terminate the contract for breach by the hospital for making excessive points and deductions.
Decision:
1. The YS considerations are also relevant to the express obligation to act in good faith.
- The express obligation in clause 3 of the contract did not however impose a general duty to act in good faith on the whole contract. It was specifically for the purpose contained in it.
- Clause 8 did not give rise to an implied term not to exercise discretion in an arbitrary, capricious or irrational way. The agreement itself had precise rules for determining points and deductions, so their calculation did not involve discretion.
- The implied term in YS was a ‘necessary control mechanism’, but it was not here.
- BUT hospital were in breach of the express terms as to point calculation and deductions.
Bristol Ground School v Intelligent Data Capture (2014) SC
Hybrid relational
Case: For 10 years C and D collaborated on producing pilot training manuals. The agreement was formalised in a 1999 and a 2001 contract. In 2009 the two fell out and began producing rival manuals.
Decision:
1. Endorsed Leggate in YS by finding an implied duty of GF in the 2001 agreement.
- The test for an implied term is that of YS- whether the outcome is ‘commercially acceptable’?
- Breach of this term by D’s unauthorised download of materials from C.
- BUT it was not repudiatory because it did not ‘strike at the heart of the trust vital to a long term relationship’ because it was used for limited purposes and the financial damage to C was minimal.
- In YS the relational examples were long term agreements and distributorships. This case did not fit this categories- described as a hybrid. Shows the court is willing to imply GF in contracts where cooperation and communication are important.
- GF extends beyond, but at the very least includes, honesty.
Portsmouth CC v Ensign Highways (2015)
Similar to Mid Essex Hospital.
Case: Under a contract for highway maintenance PCC was permitted to award service points and was entitled to terminate if a certain number accrued in 12 months.
Decision:
1. There is no duty to exercise discretion in GF.
- The point values are max values for breach, not fixed tariffs that are to be applied irrespective of the gravity of the breach.
- BUT this decision is one of whether to exercise a contractual right, not a balancing exercise.
D and G Cars v Essex Police Authority (2015)
Case: A contract for recovery of vehicles said D would recover the vehicles then E would instruct on the action- i.e. on whether to return to the owner, sell at action etc.
A vehicle was recovered and E gave D instructions to crush it. Instead, D’s employees did a body swap between it and one of D’s vehicles. E suspended the contract due to this.
Decision:
- There was an implied term to act honestly and with integrity in the contract, because it is a relational contract due to:
(a) length of relationship;
(b) number of transactions; and
(c) Substance of the contract in dealing with the public’s property and potential evidence for policy investigations.. - There as a breach because the act had ‘compromised the mutual trust between the parties’.
- This seems to broaden good faith, as gives criteria for relational contracts. BUT what is meant by a relational contract is still unknown.
Trends in GF since YS?
- Case law has suggested express terms of GF will be respected (contrast to the skeletal agreement in YS)
- Courts reluctant to construe express GF clauses beyond those acts to which they expressly apply.
- GF clauses in commercial contracts are implied in facts (i.e. based on context), not in law.
- Courts are cautious about applying too high a standard to finding implied GF terms (D & G Cars)
