High Court implies duty of good faith into "relational" contracts
In a recent case regarding two parties which had collaborated with each other for 10 years to produce electronic training manuals for commercial pilots, the High Court implied a duty of good faith
In a recent case regarding two parties which had collaborated with each other for 10 years to produce electronic training manuals for commercial pilots, the High Court implied a duty of good faith into the commercial contract (Bristol Groundschool Limited v Intelligent Data Capture Limited [2014] EWHC 2145 (Ch)).
The judgment referred to and agreed with the analysis of Mr Justice Leggatt in Yam Seng Pte Ltd v International Trade Corpn [2013] EWHC 111. In Yam Seng, Mr Justice Leggatt argued that a duty of good faith could be implied into ordinary commercial contracts and, whilst it should not be implied by default, it was more likely to be implied into "relational" contracts - i.e. long term commercial relationships which require a high degree of trust and cooperation, like franchise agreements, joint ventures and distribution agreements.
To read our view on the Yam Seng case, please click here: an implied duty of good faith in English law franchise agreements: is the genie out of the bottle?
In Bristol Groundschool, the defendant ran a counterclaim that BGS breached an implied duty of good faith by downloading materials from IDC's IT systems without authorization. The High Court found that there was such a duty (which BGS had breached) by applying the following test - can the conduct in question be regarded as "commercially unacceptable" by reasonable and honest people in the particular context involved?
Parties which are negotiating agreements which could be classified as "relational" contracts should be aware of the risk of broader duties of good faith being implied into the agreement and seek to reduce and limit that risk as much as reasonably possible through careful contractual drafting.
The judgment referred to and agreed with the analysis of Mr Justice Leggatt in Yam Seng Pte Ltd v International Trade Corpn [2013] EWHC 111. In Yam Seng, Mr Justice Leggatt argued that a duty of good faith could be implied into ordinary commercial contracts and, whilst it should not be implied by default, it was more likely to be implied into "relational" contracts - i.e. long term commercial relationships which require a high degree of trust and cooperation, like franchise agreements, joint ventures and distribution agreements.
To read our view on the Yam Seng case, please click here: an implied duty of good faith in English law franchise agreements: is the genie out of the bottle?
In Bristol Groundschool, the defendant ran a counterclaim that BGS breached an implied duty of good faith by downloading materials from IDC's IT systems without authorization. The High Court found that there was such a duty (which BGS had breached) by applying the following test - can the conduct in question be regarded as "commercially unacceptable" by reasonable and honest people in the particular context involved?
Parties which are negotiating agreements which could be classified as "relational" contracts should be aware of the risk of broader duties of good faith being implied into the agreement and seek to reduce and limit that risk as much as reasonably possible through careful contractual drafting.