An implied duty of good faith in commercial contracts?
In the context of contract drafting, how should this development be dealt with?
- One thing always worth considering is a general (boilerplate) clause to exclude all implied warranties, conditions etc.
- On some long-term contracts, it may be worth including a clause that expressly deals with this point - to avoid any uncertainty. Such a clause could impose a clear express duty; which the court was willing to uphold in the recent case of Compass Group UK and Ireland Limited (trading as Medirest) v Mid Essex Hospital Services NHS Trust, as discussed in our previous alert. Alternatively, a clause could make it clear that there is no duty of good faith owed by either party to the other, except as set out in the express terms of the contract.
- It is probably a bit soon to see a change in standard drafting. One should wait to see what happens in the courts next, before starting what could be feisty discussions with counter parties as to why one does not want to offer them any duty of good faith. Such an approach might well suggest a willingness to engage in commercially unacceptable behaviour. The courts may yet narrow Mr Justice Legatt's decision sufficiently to reduce its potential impact - there is, after all, quite some history of not having a general obligation of good faith in English contract law, and other judges may want to keep it that way.
One final point to be noted: if this concept is developed, and if the concept of good faith and what it requires of a party really is no less uncertain than the meaning of any contract term in today's legal environment of contract interpretation, then is that a good thing for contract draftsman, or does it simply confirm that there is no certainty at all...?
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