Towards a General Notion of Good Faith in English Contract Law

“Towards a General Notion of Good Faith in English Contract Law”

Celina Esther V. Cua

Master’s thesis submitted in partial fulfilment of the

requirements for the Degree of Master of Laws

in

International Business Law

Date: 13 June 2013

Supervisor: Prof. dr. Rieme-Jan Tjittes

External Examiner:

Student number: 2516438

i

“Towards a General Notion of Good Faith in English Contract Law”

Word Count: 15,781

© Celina Esther V. Cua 2013

Table of Contents

Preface ..................................................................................................................................................... 2

Chapter 1 ................................................................................................................................................. 3

Introduction ............................................................................................................................................. 3

Chapter 2 ................................................................................................................................................. 6

Good Faith in European Civil Law ......................................................................................................... 6

A. The General Notion of Good Faith ................................................................................................ 6

B. Good Faith in Contract Law of European Civil Law Systems ........................................................ 7

C. Good Faith in Pre-Contractual Negotiations ............................................................................... 10

D. Good Faith in Performance of Contracts .................................................................................... 11

E. Functional Groupings and Application of Good Faith ................................................................ 13

F. Observations ................................................................................................................................ 15

Chapter 3 ............................................................................................................................................... 16

Good Faith in English Law ................................................................................................................... 16

A. Absence of a General Notion of Good Faith ................................................................................. 16

B. Good Faith in Pre-Contractual Negotiations ............................................................................... 18

C. Good Faith in Performance of Contracts .................................................................................... 20

C.1. Express Duty of Good Faith .................................................................................................. 20

C.2. Implied Duty of Good Faith ................................................................................................... 23

D. Good Faith’s Role in Unfair Terms ............................................................................................. 25

E. Observations ................................................................................................................................ 28

Chapter 4 ............................................................................................................................................... 29

Is English Law going towards a general notion of good faith? ............................................................. 29

A. Differences and Similarities of Good Faith .................................................................................. 29

in European Civil Law and English Law Systems ............................................................................. 29

B. English Law’s Persistent Reluctance against Good Faith ............................................................ 31

C. Acceptance of Good Faith ............................................................................................................ 32

by Other Common Law Jurisdictions ................................................................................................ 32

D. Recent Developments in English Law ......................................................................................... 36

D.1. Yam Seng v. ITC .................................................................................................................... 36

D.2. Mid Essex v. Compass Group ................................................................................................ 42

E. Conclusion .................................................................................................................................... 46

Bibliography .......................................................................................................................................... 50

Towards a General Notion of Good Faith in English Contract Law 2

Preface

This work is inspired by a true story, one that took place some years ago as I was acting as

lead counsel for the vendors on my first international merger and acquisition transaction. On

the buyer’s side was an English counsel and the governing law for the transaction is English

law.

During the lengthy negotiations, my co-counsel proposed to include good faith as one of the

obligations of the parties for the transaction and in response, to my utter surprise, the English

counsel said, “There is no good faith in English law!” This was quite unexpected coming

from a mixed legal system that always accepted good faith as a general principle for all

contracts and obligations. From that day forth, my view of contract law will never be the

same and the absence of good faith in English law continued to arouse my curiosity for many

years. Hence, when the opportunity arrived, I naturally chose the topic of good faith in

English law for my research to finally address my questions on this controversial subject.

For this, I thank the Vrije Universiteit International Business Law programme for giving me

the platform to satisfy my curiosity on the role of good faith in English law through this

research paper. I must admit, it is a challenging subject but worth the while.

I also wish to express my sincere gratitude to my supervisor, Prof. dr. Rieme-Jan Tjittes, for

giving me the much needed guidance and inspiration to complete this paper and for bearing

with me through my times of confusion.

Special mention and thanks to Dr. Jacobien Rutgers for her insight on this work’s topic and to

all my professors, classmates and friends for making this year truly one to remember.

Celina Esther V. Cua, 13 June 2013, Amsterdam.


Chapter 1

Introduction

English law has time and again denounced the existence of an overriding principle of good

faith in its jurisdiction.1 Contrary to its civil law counterparts in Europe that embrace the

general principle of good faith, it has chosen only to apply good faith in a piecemeal fashion

and for specific areas. It asserts that the general principle of good faith is totally repugnant to

the fundamentals of its legal system that favors creating incremental and specific solutions to

legal issues, that adheres to the legal principle of party autonomy and holds sacred legal

certainty. It is adamant that it does not need a general principle of good faith for it has its own

homegrown rules to ensure that justice, fairness and reasonableness prevails in its legal

system.

In the recent years, the unwavering position of English law against good faith is continuously

being tested. For one, the duty of good faith has found its way into English law via various

European Union2 harmonisation instruments such as The Commercial Agents (Council

Directive) Regulations 1993 implementing Council Directive 86/653/EEC and The Unfair

Terms in Consumer Contracts Regulation 1999 implementing Council Directive 93/13/EEC,

and with more harmonisation efforts expected in the near future with current talks of a

European Sales Code and the presence of Principles of European Contract Law by the Lando

Commission.3

For another, the current economy has already shifted from a domestic concern into a global

one. Consequently, contracts at this day and age cease to be a national affair. This means that

the good faith principle, which exists in most countries with civil and mixed legal systems

making up the majority of not only European countries but the rest of the world, will

continuously govern or form part of many contracts touching English law whether it likes it or

not.

1 Interfoto Picture Library Ltd v. Stilleto Visual Programmes Ltd [1987] EWCA Civ 6 (per Bingham L.J.),

hereinafter as “Interfoto”. 2 Hereinafter as the “EU”.

3 H.G. Beale, W.D. Bishop, & M.P. Furmston, Contract, Cases & Materials, 5

th Edition, Oxford University

Press 2008, p. 8-9, hereinafter as “Beale, Bishop, & Furmston”


Moreover, the growing acceptance of the principle of good faith in other common law

countries has attracted many writings by English law scholars in the recent years and this has

also inspired recent English court decisions to give good faith a second look or even impute it

in contractual obligations. In fact, Longmore LJ expressed his sentiment to reconsider the

House of Lords’ dictum in Walford v. Miles citing Lord Steyn who criticised such narrow

approach.4 Lord Steyn even stated that the principle of good faith is not a world of difference

from English law’s doctrine of reasonable expectations of the parties and that duties of good

faith, when imposed on the parties, can easily be accommodated by English law.5

Some authors suggest that English law’s often resort to the implication of terms and other

legal doctrines that give more emphasis to party loyalty, the protection of reliance,

cooperation, consideration of the other party’s interest, and substantive fairness, signals its

movement away from the will theory and thus ready to revive the ethical foundations of

contract law existing before the 19th

century.6

With all the foregoing developments on the principle of good faith in English law and its

continuous growing influence, it is time to revisit whether English law’s open denunciation of

a general principle of good faith remains true today.

English law is described to be a dynamic legal system which always transforms to meet the

needs of the times and to create conditions conducive for growth and development.7 Given the

current global economy, the need to adapt to the European and global dimension of contract

law carrying more complex transactions and relationships which renders the old and simple

system of English contract law no longer sufficient to determine the parties’ intricate

contractual obligations and their manner of performance, is English law now ready to

abandon its headstrong position that it does not accept the general duty of good faith and is in

fact heading towards this direction in contract law?

4 Petromec Inc. v. Petroleo Brasileiro SA Petrobas [2005] ECWA Civ 891, par. 121, hereinafter as “Petromec”,

citing Lord Steyn, “Lecture in Sultan Azlan Shah delivered in Kuala Lumpur on 24 October 1996”, (1997) 113

LQR 433, p. 439. 5Beale, Bishop, Furmston, supra note 3, p. 286, citing Lord Steyn, “Contract Law: Fulfilling the Reasonable

Expectations of Honest Men”, (1997) 11 LQR 433, p. 439. 6 Reinhard Zimmerman, Roman Law, Contemporary Law, European Law, The Civilian Tradition Today, Oxford

University Press 2001, p. 174, hereinafter as “Zimmerman, The Civilian Tradition Today”. 7 Beale, Bishop, Furmston, supra note 3, p. 8-10.


The objective of this work is to answer this question by comparing the treatment and the level

of acceptance of good faith in prominent European civil law systems, common law systems

and of course, in English law. It will take into account recent developments in English law

and with these, benchmark the current level of acceptance of good faith by English law and

determine whether it is going towards a general principle or not.

The discussion will start with a general overview of the principle of good faith as seen in

prominent civil law systems in Europe8 and proceed to the examination of how these systems

treat the principle in Chapter 2. Chapter 3 will look into good faith in English law including

the effects of EU harmonisation in this jurisdiction.

A comparison of both civil law and English law systems’ treatment of good faith will be

undertaken in Chapter 4 to identify similarities and differences between the two systems in

this respect. A review of the stand on good faith by other common law jurisdictions will then

be discussed as well as the 2013 English cases on good faith. In the attempt to compare

“apples with apples” an evaluation of how English law is developing insofar as other common

law systems are concerned will be made.

It is important to state that the subject of this paper is good faith in contract law and it will

only focus on the objective sense of good faith which refers to the standard by which conduct

of contractual parties is determined, in contrast to good faith’s subjective sense which deals

with the state of mind of possession or absence of knowledge of a specific act or event (like a

buyer or possessor in good faith in property law).9 The latter will not be dealt with in this

paper.

Finally, for organisation’s sake, the discussion in this paper will follow the natural sequence

of transactions by examining good faith in the abovementioned legal systems starting with the

area of pre-contractual relations to performance of contracts. The discussion in this paper will

be limited to these two fundamental areas of contract law.

8 Hereinafter as “civil law systems”, “civil law countries”, “civil law jurisdictions” and “continental systems”.

9 Reinhard Zimmerman and Simmon Whittaker, Good Faith in European Contract Law, Cambridge University

Press 2000, p. 30-31, hereinafter as “Zimmerman & Whittaker”.


Chapter 2

Good Faith in European Civil Law

A. The General Notion of Good Faith

Good faith is one of the most fundamental legal principles in civil law and due to its

significance it is sometimes referred to as the “foundation of all law”.10

In fact, many

European countries under the civil law system have incorporated good faith in their civil

codes and this has “institutionalized or formalized the role of good faith”11

in contrast to the

English law system wherein the absence of codification of good faith has rendered its role or

treatment less clear.12

Good faith is a principle that we are all too familiar with but notwithstanding this, its precise

meaning remains elusive and there seems to be no generally accepted definition of good

faith.13

Like all other principles governing human conduct, good faith cannot simply be

defined but is described by way of application.14

Hesselink in his thesis entitled “The

Concept of Good Faith” referred to this process as the “concretisation” wherein good faith as

an abstract standard is defined and applied pursuant to specific situations wherein it reveals its

meaning, requirements and scope in each particular situation.15

This is why good faith is seen as an open norm because it is not a rule which spells out

specific requirements but is rather a standard or a way of behaviour which takes into account

honesty, loyalty and considerable behaviour; the texture, scope and degree of which depends

on each particular situation to which it applies. 16

Due to good faith’s said character, the most

commonly accepted description of good faith which is, to take into account the other party’s

reasonable interest, is reflective of such character.

10

J.F. O’Conner, Good Faith in International Law, Darmouth Publishing Company Limited 1991, p. 2,

hereinafter as “O’Conner, Good Faith in International Law”. 11

J.F. O’Connor, Good Faith in English Law, Darmouth Publishing Company Limited 1990, p. 85, hereinafter

as “O’Connor, Good Faith in English Law”. 12

Ibid. 13

Ibid, p. 2-3. 14

Ibid. 15

Martijn W. Hesselink, “The Concept of Good Faith”, in Arthur Hartkamp, Martijn Hesselink, Ewoud

Hondius, Chantal Mark & C. Edgar du Perron (eds), Towards a European Civil Code, 4th

Revised and Expanded

Edition, Kluwer Law International BV 2011, p. 623-624, hereinafter as “Hesselink”. 16

Zimmerman & Whittaker, supra note 9, p. 30-31.


Scholars agree that Roman law’s bona fides is the origin of the modern law good faith

principle.17

The role of bona fides in Roman law paved the way for judges to decide cases in

accordance with reasonableness, fairness and equitable considerations exempting the

application of strict law18

and influenced the abandonment of the exacting caveat emptor

rule.19

Bona fides played a major role in the development of lex mercatoria for its flexibility,

convenience and informality suited the needs of the international merchants.20

The aforementioned roles of Roman law’s bona fides, as we can observe, still resonate in the

present day good faith21

which is viewed as an ethical standard or a normative concept often

related to the moral standards of honesty, candour and loyalty, among others.22

Some legal

systems such as Germany distinguish between the subjective (Glaube) and the objective good

faith (Treu and Glauben)23

which concepts were explained earlier in the Introduction.

B. Good Faith in Contract Law of European Civil Law Systems

As mentioned, good faith generally means that a party to a contract must take into

consideration the reasonable interest of the other party and this is a common theme in most

European civil law systems both during the negotiation and in the performance of contracts.24

Perhaps one of the most influential statutory provisions of good faith is found in German law

under §242 BGB25

which states that, “an obligor has a duty to perform according to the

requirements of good faith, taking customary practice into consideration.”26

German law’s

interpretation and application of good faith is seen as a factor in modifying contracts for better

or for worse and gained its popular reputation with its use in revalorization cases as an

17

O’Conner, Good Faith in English Law, supra note 11, p. 83. 18

Zimmerman & Whittaker, supra note 9, p. 16. 19

Ibid, p. 17-18. 20

Ibid, p. 18. 21

O’Conner, Good Faith in English Law, supra note 11, p. 81-84. 22

Hesselink, supra note 15, p. 620-621. 23

Ibid, p. 619-620, citing Treu and Glauben, correctteza, redelijkheid en billijkheid; see also Zimmerman &

Whittaker, supra note 9, p. 30-31. 24

O’Conner, Good Faith in English Law, supra note 11, p. 81-84; see also H. Beale, B. Fauvarque-Cosson, J.

Rutgers, D. Tallon and S. Vogenauer, Cases, Materials and Text on Contract Law, Second Edition, Hart

Publishing 2010, p. 372. 25

“Bürgerliches Gesetzbuch”. 26

§ 242 of the BGB, http://www.gesetze-im-internet.de/englisch_bgb/index.html (accessed 6 May 2013).

http://www.gesetze-im-internet.de/englisch_bgb/index.html


aftermath of the First World War inflation of the German currency. It is said that good faith

in the sense of justice, equity and fairness is the sole legal basis for many decisions of the

Reichsgericht which was faced with millions of cases involving private transactions which

were distorted at such time.27

There are other provisions of the BGB containing good faith including §157 which deals with

the interpretation of contracts as well as §266, §826 and §138 dealing with abuse of rights.28

The BGB contains no general definition of good faith, but its meaning and usage can be seen

in cases applying the standard. Good faith in German law has an extensive scope which

permeates most of contract law29

and even other areas of private law as well as tax,

administrative and procedural laws.30

Under Swiss law, the general statutory provisions for good faith can be found in the

Preliminary Chapter of the Federal Civil Code, Articles 231

and 332

. Good faith is described

by a prominent Swiss jurist as:

“… the conscience of loyally fulfilling one’s duties towards another, is demanded by the

law in all acts of civil life. The law expects and demands of us that, in the sphere of

law, we act as an ‘honnête homme’ would, the honest man viewed in abstracto, the

honest man worthy of his name in the eyes of all.”33

Similar to German law, the Swiss Federal Code does not specifically define good faith but

scholars agree that it applies to cases of unfairness, overarching or sharp practice in the

exercise of legal rights or fulfilment of legal duties and in all of contract law.34

27

O’Conner, Good Faith in English Law, supra note 11, p. 85-89. 28

Ibid. 29

B.S. Markesinis, W.Lorenz and G. Dannemann, “The Principle of Good Faith (With special emphasis on the

doctrine of Wegfall der Geschäftsgrundlage),” The German Law of Obligations Vol. I, The Law of Contracts &

Restitution: A Comparative Introduction, Reprinted 2001, Oxford University Press, p. 513. 30

Hesselink, supra note 15, p. 634-635. 31

“Article 2 (1) Every person must act in good faith in the exercise of his or her rights and in the performance of

his or her obligations. (2) The manifest abuse of a right is not protected by law”,

http://www.admin.ch/ch/e/rs/2/210.en.pdf (accessed 7 May 2013). 32

“Article 3 (1) Where the law makes a legal effect conditional on the good faith of a person, there shall be a

presumption of good faith. (2) No person may invoke the presumption of good faith if he or she has failed

exercise the diligence required by the circumstances”, http://www.admin.ch/ch/e/rs/2/210.en.pdf (accessed 7

May 2013). 33

O’Conner, Good Faith in English Law, supra note 11, p. 90, citing Fenner v. Blake [1900] 1 Q.B. 426, 428;

Fiacom S.A. v. Sociedad Cadex Ltd. [1980] 2 Lloyd’s Rep. 118, 132. 34

O’Conner, Good Faith in English Law, supra note 11, p. 91.

http://www.admin.ch/ch/e/rs/2/210.en.pdf

http://www.admin.ch/ch/e/rs/2/210.en.pdf


In French law, Article 1134 of the French Civil Code35

is the primary source of good faith

which states that “agreements legally formed take the place of law for those who have made

them… They must be performed in good faith.”36

The code has more than fifty provisions on

good faith and Article 1134 primarily relates to contract performance. Just like its other civil

law neighbours, French law applies good faith in pre-contractual relations and in performance

of contracts. The code also does not define good faith but it is asserted that all contracts are

made in good faith.37

Under Dutch law, good faith governs the entire law of obligations including contract law.38

Articles 6:239

and 6:24840

BW41

are general and mandatory provisions of the Dutch Civil

Code which parties cannot exclude and all their agreements as well as conduct shall observe

the principles of good faith and fair dealing.42

It should be noted that Articles 6:2 and 6:248

use the term reasonableness and equity instead of good faith but this actually means good

faith in the objective sense. The difference in terminology is due to the fact the said articles

fall within a broader system of good faith in the Dutch legal system which includes good faith

in the subjective sense and in order to avoid confusion, the legislators opted to use the terms

reasonableness and equity which is synonymous with good faith in the objective sense. 43

Three functions have been attributed to good faith in Dutch law, namely: (1) as the basis for

interpretation of all contracts, (2) which identifies and provides for supplementary rights and

duties not expressly provided by the parties in the contract, and (3) as a restrictive function

35

Also known and hereinafter as “Code Civil”. 36

O’Conner, Good Faith in English Law, supra note 11, p. 94. 37

Ibid, p. 94-95. 38

Danny Busch, Ewoud Hondius, Hugo van Kooten, Harriët Schelhaas and Wendy Schrama, The Principles of

European Contract Law and Dutch Law, A Commentary, Ars Aequi Libri 2002, p. 47-51, hereinafter as “The

Principles of European Contract Law and Dutch Law”. 39

“Article 6:2 Reasonableness and fairness within the relationship between the creditor and debtor – (1) The

creditor and debtor must behave themselves towards each other in accordance with the standards of

reasonableness and fairness. (2) A rule in force between a creditor and his debtor by virtue of law, common

practice or a juridical act does not apply as far as this would be unacceptable, in the circumstances, by standards

of reasonableness and fairness”, http://www.dutchcivillaw.com/civilcodebook066.htm (accessed 9 May 2013). 40

“Article 6:248 Legal effects arising from law, usage or the standards of reasonableness and fairness – (1) An

agreement not only has the legal effects which parties have agreed upon, but also those which, to the nature of

the agreement, arise from law, usage (common practice) or the standards of reasonableness and fairness. (2) A

rule, to be observed by parties as a result of their agreement, is not applicable insofar this, given the

circumstances, would be unacceptable to standards of reasonableness and fairness.”

http://www.dutchcivillaw.com/civilcodebook066.htm(accessed 9 May 2013). 41

Burgerlijk Wetboek or Dutch Civil Code. 42

The Principles of European Contract Law and Dutch Law, supra note 38. 43

Ibid.

http://www.dutchcivillaw.com/civilcodebook066.htm

http://www.dutchcivillaw.com/civilcodebook066.htm


which means a rule including a contract provision will not bind the parties if it is contrary to

good faith in given circumstances. 44

C. Good Faith in Pre-Contractual Negotiations

One of the most important distinctions between the European civil law systems and the

English law system is the role of good faith in pre-contractual relations which is absent in the

latter but imposed by the former as a duty upon the parties. For said civil law systems, the

duty of good faith in the pre-contractual stage means that parties negotiating a contract must

observe good faith in their dealings with each other, that is, in the most general sense, the

duty to take each other’s interest into consideration during contract negotiations.45

For many

civil law systems, the duty to negotiate in good faith is codified in their civil codes.

In German law, this duty of good faith is found in Section 311(2)46

in relation to Section 24147

BGB which essentially provides that each party has to regard the other party’s rights, legally

protected interests and other interests during contractual negotiations. The violation of this

duty will give rise to liability for culpa in contrahendo.48

In France, the duty of good faith is based on Article 1134 of the Code Civil. Although this

article pertains to contract performance, the duty of good faith in pre-contractual relations has

been generally recognized by the courts and from which arises the duties to inform, of

confidentiality and not to behave inconsistently during negotiations.’49

44

Bea Verschagen, “The Dutch Civil Code and its Precedents (1990-1992)” in Stefan Grundmann and Martin

Schauer (eds), The Architect of European Codes and Contract Law, Kluwer Law International 2006, p.112. 45

Hugh Beale, Bénédictine Fauvarque-Cosson, Jabobien Rutgers, Dennis Tallon and Stefan Vogenauer, Cases,

Materials and Text on Contract Law, Hart Publishing 2010, p. 371-372, hereinafter as “Cases, Materials and

Text on Contract Law” 46

“Section 311 BGB -Obligations created by legal transaction and obligations similar to legal transactions.

…(2)An obligation with duties under section 241 (2) also comes into existence by 1. the commencement of

contract negotiations; 2. the initiation of a contract where one party, with regard to a potential contractual

relationship, gives the other party the possibility of affecting his rights, legal interests and other interests, or

entrusts these to him, or; 3.similar business contacts.” 47

“Section 241 BGB - Duties arising from an obligation.

…(2)An obligation may also, depending on its contents, oblige each party to take account of the rights, legal

interests and other interests of the other party.” 48

The Principles of European Contract Law and Dutch Law, supra note 38. 49

Cases, Materials and Text on Contract Law, supra note 45, p. 373-374.


Same in the case of Germany, The Netherlands recognises that parties when entering into

negotiations enter into a legal relationship wherein the duty of good faith must be observed.50

Moreover, in Italy, the duty of good faith in pre-contractual negotiations and its corresponding

liability is codified in Article 1337 of the Italian Civil Code.51

The duty of good faith in pre-contractual negotiations as generally found in civil law countries

imposes certain responsibilities upon the parties including the duties not to negotiate without

the intention of concluding a contract, not to conduct parallel negotiations, not to break-off

negotiations without a legitimate reason, not to knowingly enter into an invalid contract, not

to disclose confidential information52

and not to behave inconsistently during negotiations.53

Civil law systems have put in place rules for imputing liability for the breach of these duties

such as the rule on culpa in contrahendo.54

D. Good Faith in Performance of Contracts

In civil law countries, good faith also plays a large role in performance of contracts and as

explained, the statutory provisions found in the civil codes of Germany, France and The

Netherlands both apply to pre-contractual relations and performance of contracts.

In German law, good faith is often expressed as Treu and Glauben, a synonym of bona

fides.55

Treu means fidelity while Glauben is faith - the fusion of these two elements forms

the basis and role of good faith in German law.56

As mentioned, the mother provision of good faith in German law is §242 BGB and this

governs performance of contracts and other legal transactions. However, there is another

provision which plays a vital role in contract performance and this is §157 BGB on contract

interpretation which states, “contracts are to be interpreted as required by good faith, taking

50

Ibid, p. 375. 51

Ibid. 52

Ibid, p. 372. 53

ibid p. 374 and 376. 54

For a detailed discussion on pre-contractual good faith and its duties, see Cases, Materials and Text on

Contract Law, supra note 45, p. 371-426. 55

Zimmerman and Whittaker, supra note 9, p. 18. 56

Ibid, p. 18-19; see also Hesselink, supra note 15, p. 624-627.


customary practice into consideration.” Together, these provisions play an overarching role

of good faith affecting the content of contracts as well as the manner and requirements of their

performance.

The widespread and frequent use by the German courts of §242 BGB after the Second World

War as a basis to integrate fairness and other ethical considerations in their decisions have

resulted in the difficulty of ascertaining the precise roles and limits of the application of good

faith in German law. In order to guide the courts in the orderly and rational analysis and

application of §242 BGB and the principle of good faith, scholars developed a classification

or groupings of the functions of §242 BGB known as the Fallgruppen which was influenced

by the work of Franz Wieacker.57

According to the Fallgruppen, §242 BGB has the following roles: (1) supplementation of law

and contract through specifying the manner of performance by providing supplementary

duties on the parties such as the duties to cooperate, provide information, of protection,

loyalty and care;58

(2) limitation of contractual rights by drawing a limit to the invocation of

rights such as in the doctrine of abuse of right;59

and (3) correction of the contract described

as judicial interference into contractual relations to prevent injustice as seen in the German

law’s version of doctrine of clausula rebus sic stantibus.60

Moreover, good faith plays a role

in contract interpretation under §157 BGB.

There are several doctrines which also arose from the courts’ application of good faith such as

the rules controlling unfair clauses in standard terms which was later codified in the Standard

Contract Terms Act of 1976 and the rule allowing third parties to use defenses in a contract to

protect their interests which we now find in the Consumer Credit Act of 1990.61

In this sense,

apart from good faith’s major role in the content and performance of contracts, it is also seen

as a temporary solution until the legislature has undertaken a measure against existing issues

or a springboard for legal development in Germany.62

57

Zimmerman and Whittaker, supra note 9, p. 23. 58

Ibid, p. 24-25; see also Hesselink, supra note 9, p. 624-627, 630-631. 59

Ibid. 60

Known as “Wegfall der Geschäftsgrundlage” which refers to the failure of the fundamental basis of the

transaction resulting in the exemption of performance, in Cases, Materials and Text on Contract Law, supra note

45, p.1102. 61

Zimmerman and Whittaker, supra note 9, p. 28-30. 62

Ibid, p. 28-32.


In French law, Article 1134 of the Code Civil which states that contracts should be performed

in good faith serves as the statutory basis for good faith’s role in contract performance. Until

the 20th

century, good faith played a very little role in French law which was dominated by the

principle of autonomie de la volonté or the will theory in the sense of English law.63

Good

faith has gained more acceptance in modern French contract law which has applied both the

doctrine of abuse of right and Article 1134 in performance of contracts. Moreover, the

supplemental duties of good faith in contracts such as the duties of loyalty, of information and

to cooperate are also found in today’s French law.64

Although good faith in performance of

contracts is evidently present in modern French law, it enjoys a lesser role in comparison to its

all-embracing function in German law.

Anent Dutch law, good faith plays a primordial role which scope covers the entire law of

obligations as discussed earlier in this chapter. In terms of performance of contracts, apart

from Article 6:2 BW that demands that conduct of parties to a contract must be in consonance

with good faith and that contracts and juridical acts that fail to comply with good faith have

no effect, Article 6:248 which expressly provides for the standard of good faith as condition

of the validity and as a qualification of the consequences of contracts is also indicative of the

sweeping character of good faith in Dutch law. Parallel to German law, good faith has also

three functions in the Dutch law, namely, the functions of supplementation, interpretation and

limitation which were discussed earlier.

E. Functional Groupings and Application of Good Faith

From the foregoing, it is evident that good faith has a wide application in European civil law

countries although the exact scope and extent of its application may vary from country to

country. In Germany and in The Netherlands, good faith takes the center stage in the law of

obligations and contracts and is capable of modifying and shaping all obligations of the

parties pursuant to the requirements of good faith. On the other hand, while French law has

codified good faith in the Code Civil, it does not enjoy the same significance in the German

and Dutch legal systems.

63

Ibid, 32-33. 64

Ibid 37.


Notwithstanding the lack of a uniform definition, scope of application and rules of good faith

in these systems, it is generally accepted that good faith serves three main functions therein

which are: (1) concretisation/interpretation whereby the judge or court determines the

requirements of good faith in relation to the specific circumstances of the case; (2)

supplementation which means the provision of duties of good faith such as the duty of loyalty,

duty to protect, duty to cooperate and duty to provide information; and (3)

correction/limitation such as prevention of the abuse of right and prevention or regulation of

unfairness. 65

These three groups of functions are also found in Italy, Portugal and Greece.66

The ways these functions are internally defined by specific countries are not always

homogenous and others distinguish between one function from the other. However, to

generalize, these groupings of good faith’s functions seem consistent with most civil law

countries in Europe and they form what has been called the “inner system” of good faith or

the “trichtonomy” of the European common core of good faith.67

In terms of the applications of good faith in the subject systems, Hesselink accounted for eight

non-exhaustive applications and these are: (1) formation, (2) validity, (3) interpretation, (4)

content, (5) privity, (6) performance, (7) hardship, and (8) remedies for non-performance.68

The formation application covers the discussed rules on good faith’s role in pre-contractual

relations.

The validity application relates to situations wherein a contract is declared invalid if it is

found contrary to good faith such as rules on standard clauses and unfair terms while the

interpretation role covers the interpretation of contracts using the standard or method of good

faith. 69

On content, in terms of the effects of the contract or what in English law would be

characterized as express or implied terms, European civil law countries refers to two types of

terms, namely, autonomous terms which is the equivalent of express terms and heteronomous

65

Hesselink, supra note 15, p.623-627. 66

Ibid, p. 624-627. 67

Ibid; see also Zimmerman & Whittaker, Good Faith in European Contract Law, supra note 9, p. 23-26. 68

Ibid, p. 627-635. 69

Ibid, p. 629.


terms similar to English law’s implied term.70

Good faith is identified as the source of many

heteronomous terms or implied terms in civil law which are commonly referred to as good

faith duties, namely, the duty of loyalty, the duty of care, the duty to cooperate and the duty to

inform.71

The application of privity refers to the expansion of the effects of the contract to third parties

in order to extend to them benefits under the contract as seen in Germany or allowing the

parties to invoke a limitation in the contract against third parties as found in The

Netherlands.72

In terms of contractual performance, application of good faith is seen in cases where parties

have not provided for a manner of performance such as time and date of delivery, the courts

will fill-in these deficiencies using the principle of good faith.

The doctrine of hardship is said to originate from the good faith principle. Some countries

have statutory provisions specifically pointing to good faith as the source this doctrine, while

in other countries the courts have made this reference to good faith.73

Anent remedies for non-performance, good faith applies in two ways, namely, (1) as a source

of remedies for breach such as withholding of performance applied in Germany and in The

Netherlands, and (2) as a limit to the exercise of an available legal remedy such as in cases

where a contract cannot be terminated or the withholding of performance is disallowed in case

of slight breach or in cases where the remedy of specific performance is limited by good

faith.74

F. Observations

The foregoing demonstrates that good faith exists as a general principle in most European

civil law systems. Moreover despite its lack of a complete uniform definition and application

70

Ibid, p. 630-631. 71

Ibid. 72

Ibid, p. 631-632. 73

Ibid, p. 632-633. 74

Ibid, p. 633-634.


in these legal systems, we can definitely see common threads as to the meaning, functions and

applications of good faith.

In the aspect of pre-contractual relations, most European civil law systems apply the duty of

good faith that brings forth certain duties which entail liability for breach through rules such

as the doctrine of culpa in contrahendo. In performance of contracts, we have seen that most

civil law systems in Europe share the same three basic groupings for the functions of good

faith known as the “inner system” of good faith and eight commonalities in terms of good

faith application in actual practice.

Having seen good faith’s role in the European civil law systems, we shall now look at good

faith’s role in English law.

Chapter 3

Good Faith in English Law

A. Absence of a General Notion of Good Faith

There is perhaps no better way to state English’s law position on the general principle of good

faith than in the words of Lord Bingham in the case of Interfoto Picture Library Ltd. v.

Stilleto Visual Programmes Ltd wherein he stated that the English law has characteristically

committed itself to such overriding principle of the good faith.75

English lawyers seem to

perceive good faith as “an invitation to judges to abandon the duty of legally reasoned

decisions and to produce an unanalytical incantation of personal values.”76

Due to good

faith’s perceived fluid interpretation and overriding application, English law remains averse to

such general provisions of good faith found in the civil codes of the continental systems

which appear inconsistent with English law’s principles of party autonomy and legal

certainty.

75

Interfoto (Bingham LJ), supra note 1. 76

Zimmerman, The Civilian Tradition Today, supra note 6, p.169.


English law, however, has not always been hostile to the concept of good faith as popular

sentiment may lead one to believe. History reveals that the earlier Courts of Equity and even

its modern equity principles which are meant to mitigate the harshness of common law, all

sprung from the principle of good faith itself.77

Due to the separate development of the courts of equity and courts of common law in the

English legal system, good faith has not further developed in English law except in the area of

Law Merchant or lex mercatoria which is heavily rooted in Roman law.78

This body of

commercial law that exists since the middle ages, gradually found its way into English law

which process was said to be concluded by Lord Mansfield who declared that good faith is the

governing principle applicable to all contracts and dealings in English Law.79

Lord

Mansfield’s view was however not accepted by the majority and as English law further

developed, good faith remained a special concept applicable only to specific situations rather

than a general principle found in continental systems.

Much of the absence of the general principle of good faith in English law is attributed to the

19th

century classical contract law which has taken a very formalistic approach consisting of a

thin collection of organising principles by which to determine whether there exists a contract

to enforce between the parties.80

The reasoning of the 19th

century contract law is

demonstrated in the case of Carlill v. Carbolic Smoke Ball Co81

wherein the court employs a

simple checklist to determine the existence of a contract between the parties without any

regard to other considerations such moral and market perspectives of the claim.82

The concept of classical contract law is said to flow from the explosion of the market

economy at such time wherein markets became the leading tool for the production and

distribution of wealth. This encouraged the promotion of voluntary or self-imposed choices

of individuals and the doctrine of self-reliance thus cementing the will theory as the governing

principle of contract law.83

77

O’Connor, Good Faith in English Law, supra note 11, p. 1-7. 78

Zimmerman, The Civilian Tradition Today, supra note 6, p. 175. 79

Ibid, p. 176, citing Carter v. Boehm [1766] 3 Burr 1905 (Lord Mansfield). 80

Hugh Collins, The Law of Contract, 4th

Edition, LexisNexis UK 2003, p. 3-4, hereinafter as “Collins”. 81

Ibid, citing Carlill v. Carbolic Smoke Ball Co [1893] 1 QB 256, p. 3-7. 82

Ibid, p. 5. 83

Ibid, p. 3-7; Michael Furmston, Chesire, Fifoot & Furmston, Law of Contract, 16th

Edition Oxford University

Press 2012, p. 13-15, 22-25.


The role of contract law became focused on voluntary choices of individuals and giving them

legal effect and consequently other legal principles including those of morality and fairness

such as unjust enrichment or tort were not given much consideration. As to the courts, their

task became exclusive to ascertaining what the parties have agreed and to enforce it except

only in cases of mistake, duress or illegality.84

Such “unitary and simple analytical framework

of the law of contract, which was provided by the cardinal principle of respecting and

enforcing voluntary choices, established a closed system of thought necessarily excluding

other inconsistent rules and doctrines,” including good faith. 85

However, as mentioned at the onset of this paper, modern English contract law is moving

away from its traditional emphasis on party autonomy and is paying more attention to

concepts of party loyalty, protection of reliance, cooperation, fairness, and the protection of

other party’s interests.86

We shall now visit in this chapter English law’s application and

treatment of good faith, starting with the area of pre-contractual negotiations to contract

performance to see how English law views good faith in the more recent years.

Due to its notable effect on English law, the controversial transplant of the good faith standard

in the area of consumer contracts by virtue of the United Kingdom’s implementation of the

European Council Directive 93/13/EEC on Unfair Terms in Consumer Contracts will be

tackled later in this chapter as well as the House of Lord’s interpretation of the subject

standard in consumer contracts.

B. Good Faith in Pre-Contractual Negotiations

The landmark case of Walford v. Miles87

declared that there is no such thing as an obligation

to negotiate in good faith in English law. In the most categorical of terms Lord Ackner stated

the “concept of a duty to negotiate in good faith is inherently repugnant to the adversarial

position of the parties when involved in negotiations.”88

Parties to a negotiation are entitled

84

Michael Furmston, Chesire, Fifoot & Furmston, Law of Contract,16th

Edition Oxford University Press), p. 15,

hereinafter as “Chesire, Fifoot & Furmston”. 85

Collins, supra note 80, p. 7. 86

Zimmerman, The Civilian Tradition Today, supra note 6, p. 174. 87

Walford v. Miles [1992] 2 AC 128. 88

Ibid, p.138.


to consider only their own interests as opposed to the duty to consider the other party’s

interest found in European civil law systems and can even break negotiations in a sudden

manner if it suits his interest. Lord Ackner further stated that the “duty to negotiate in good

faith is as unworkable in practice as it is inherently inconsistent with the position of a

negotiating party. It is here that uncertainty lies.”89

In this case, the plaintiffs sought to enforce a lockout agreement against the defendants which

agreement failed to indicate the period of negotiation and until when the lock-out clause will

apply between the parties. This failure had led the House of Lords to state that said

agreement is laden with uncertainty. In order to fill-in the vacuum, plaintiffs alleged that the

lockout agreement should be valid for a reasonable term in consonance with the implied duty

of the parties to negotiate in good faith. The House of Lords rejected this argument by stating

that there is no such duty of good faith in English law. Owing to the uncertain nature of the

lockout agreement it was declared unenforceable by the House of Lords stating that a “bare

agreement to negotiate has no legal content.”90

Distinguished from the above case is Petromec Inc. v. Petroleo Brasileiro SA Petrobas91

wherein the obligation of the parties to negotiate in good faith was expressly contained in a

valid and binding contract. The Court of Appeal through Lord Justice Mance ruled that the

agreement to negotiate in good faith was an enforceable agreement which did not suffer from

the uncertainty which prevailed in the lockout agreement considered in Walford v. Miles. 92

Under these circumstances, the court ruled that it is “to defeat the reasonable expectations of

honest men” to rule that the agreement had “no legal content.”93

The difference between the two cases is apparent. In Walford v. Miles there was no existing

agreement between the parties expressly providing for the duty to negotiate in good faith and

this was merely advanced by the plaintiffs as an implied term in order to enforce the lockout

agreement which was suffering from the fatal defect of absence of a period of validity. The

House of Lords then refused to accept such argument as English law does not provide for any

implied the duty to negotiate in good faith. On the other hand, in Petromec, there was a valid

89

Ibid. 90

Ibid. 91

Petromec, supra note 4. 92

Ibid, par. 115-121. 93

Ibid, par. 121, citing the words of Lord Ackner in Walford v. Miles, supra note 87.


and enforceable agreement which expressly contained the duty of the parties to negotiate in

good faith. The Court of Appeal in this case did not need to imply such duty in the contract

and the contract itself was not uncertain and can therefore be enforced by the courts.

As observed, although there is no general obligation to negotiate in good faith in English law,

such duty if expressly stated in the contract in no uncertain terms will be enforced by the

English courts. This is further demonstrated in another case involving a lockout agreement

wherein the Court of Appeal, in the judgment delivered by Gibson LJ, held that a lockout

agreement explicitly for a limited period is enforceable.94

However, as shown in Walford v. Miles, due to the absence of the general obligation to

negotiate in good faith in English law, the English courts will not easily imply such duty in

the contract in order to give effect to a contract which is too uncertain to enforce. This is due

to the principle that the English courts will and can never be obliged to make the contract for

the parties95

in line with the will theory followed by English law wherein the duty of the court

is limited to ascertaining the agreement of the parties and enforcing it.

C. Good Faith in Performance of Contracts

Like in pre-contractual relations, English law, as a general rule, does not recognize any

general obligation of good faith in performance of contracts. However, just as with any rule,

there are exceptions and in special cases English law does recognise and impose the duty of

good faith in contracts via statutes or by implication of terms by the English courts.96

C.1. Express Duty of Good Faith

In the case of insurance contracts, English law does not only impose the obligation of good

faith but that of uberrimae fidei found in Section 17 of the Marine Insurance Act of 1906

which states that a “contract of marine insurance is a contract based upon the utmost good

94

Pitt v. P.H.H. Asset Management Ltd [1994] 1 W.L.R. 327, p. 331-333. 95

Walford v. Miles, supra note 87, p. 131. 96

H.G. Beale, Chitty on Contracts, Volume 1 General Principles, 30th

Edition, Thomson Reuters [Legal] Limited

2008, par. 1-026, hereinafter as “Chitty on Contracts”.


faith, and, if the utmost good faith be not observed by either party, the contract may be

avoided by the other party.”97

This pertains to the disclosure obligations of the insured to the

insurer concerning every material risk that may influence the latter’s judgment in fixing the

premium or determining the risk involved in the insurance contract.98

In Carter v. Boehm, Lord Mansfield stated that “good faith forbids either party by concealing

what he privately knows, to draw the other into a bargain, from his ignorance of that fact, and

his believing the contrary.”99

The reason for this special treatment of insurance contracts is

their speculative nature wherein the special facts upon which the risk is computed and

assumed by the insurer is commonly within the knowledge of the insured. The insurer

therefore trusts that the insured will faithfully disclose to him and not conceal any and all

material facts necessary for properly ascertaining the risk under the contract and calculating

for the premium.100

In Pan Atlantic Insurance Co Ltd. v. Pine Top Insurance Co Ltd., the House of Lords

confirmed that the duty of good faith in insurance contracts and the insured’s violation of the

duty of disclosure is tantamount to the vitiation of the consent of the insured in entering into

the insurance contract and is one of the exceptions to the “fundamental principle that contracts

should be binding.”101

The House of Lords emphasized, “the bedrock principle that has

informed the law of insurance and reinsurance, whether marine or non-marine, for over 200

years is that contracts are based on the utmost good faith.”102

The obligation of good faith has also been imposed upon parties under fiduciary duties. In

Bristol and West Building Society v. Mothew,103

Millet LJ described a fiduciary as “someone

who has undertaken to act for or on behalf of another in a particular matter in circumstances

which give rise to a relationship of trust and confidence”104

and that the distinctive duty of a

fiduciary is that of undivided loyalty to his principal. Within this core duty of loyalty is the

fiduciary’s obligation to act in good faith. In this case, a solicitor is stated to be a fiduciary

97

Section 17, Marine Insurance Act of 1906. 98

Marine Insurance Act of 1906, Section 18. 99

Cater v. Boehm [1766] 3 Burr 1905, p. 1164. 100

Ibid. 101

Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 A.C. 501, 506, see also Carter v.

Boehm, supra note 99. 102

Ibid,p. 509. 103

Bristol and West Building Society v. Mothew [1998] Ch.1, p. 18. 104

Ibid, p. 18-22.


who owes the duty of good faith to his principal. In Simpson v. Hardwood Hutton105

the

fiduciary’s duty of good faith to its principal was reiterated and applied in this case to the

accountants of a partnership firm and its partners.

Apart from the foregoing, English law through statute pursuant to EC Council Directive

86/653/EEC106

expressly imposed the duty of good faith on commercial agents under the

Commercial Agents (Council Directive) Regulations 1993. The term commercial agent is

specifically defined under the regulation.107

Section 3 provides that a commercial agent’s duty

to act in good faith includes the undertaking of proper efforts to negotiate and conclude

transactions entrusted to him by his principal, communicating all necessary information to his

principal and complying with the latter’s reasonable instructions.

Section 4 of the regulation also imposes the duty of good faith on the principal in his relations

with the agent by providing necessary documentation and information to the agent in relation

to matters involved in the agency and providing a reasonable period of notification to the

agent on the principal’s expected volume of transaction and his acceptance or refusal of the

transaction procured by the agent on behalf of the principal.

105

Simpson v. Hardwood Hutton [2008] EWHC 1376. 106

Council Directive (EC) 86/653/EEC on the coordination of the laws of the Member State relating to self-

employed commercial agents [1986]. 107

“Section 2.—(1) In these Regulations— ‘commercial agent’ means a self-employed intermediary who has

continuing authority to negotiate the sale or purchase of goods on behalf of another person (the “principal”), or

to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal; but shall

be understood as not including in particular:

(i) a person who, in his capacity as an officer of a company or association, is empowered to enter into

commitments binding on that company or association;

(ii) a partner who is lawfully authorised to enter into commitments binding on his partners;

(iii) a person who acts as an insolvency practitioner (as that expression is defined in section 388 of the

Insolvency Act 1986(1)) or the equivalent in any other jurisdiction;

‘commission’ means any part of the remuneration of a commercial agent which varies with the number or value

of business transactions;

‘restraint of trade clause’ means an agreement restricting the business activities of a commercial agent following

termination of the agency contract.

(2) These Regulations do not apply to—

(a) commercial agents whose activities are unpaid;

(b) commercial agents when they operate on commodity exchanges or in the commodity market;

(c) the Crown Agents for Overseas Governments and Administrations, as set up under the Crown

Agents Act 1979(2), or its subsidiaries.

(3) The provisions of the Schedule to these Regulations have effect for the purpose of determining the persons

whose activities as commercial agents are to be considered secondary.

(4) These Regulations shall not apply to the persons referred to in paragraph (3) above.

(5) These Regulations do not extend to Northern Ireland.”


C.2. Implied Duty of Good Faith

Apart from expressly providing for the duty of good faith in special contracts, English law

also implies the duty of good faith in ordinary contracts in certain cases. The forthcoming

discussion will illustrate some of these situations.

Among these cases are employment contracts which the English courts over the last few

decades have transformed from ordinary contracts into one with the implied duty of trust and

confidence arising from the implied obligation of good faith as explained by Lord Stern in the

case of Johnson v Unisys Ltd.108

Taking from the judgment of Sir Nicolas Browne-Willson

V.C. in Imperial Group Pension Trust Ltd v. Imperial Tabacco Ltd,109

the judgment stated

that the implied duty of trust and confidence in employment contracts is different from the

implied terms involving a fiduciary. It is an “overarching obligation implied by law as an

incident of a contract of employment” or “a legal duty imposed by law.” It is described as the

“employer’s obligation of fair dealing” to the effect that the employer’s express rights cannot

destroy or seriously damage the trust and confidence between the company and its employees

by virtue of this implied duty.110

The English courts have also imposed the implied term of good faith in order to limit a

unilateral discretionary power given to one party of the contract to prevent unreasonable and

unanticipated results.111

In Paragon Finance Plc (formerly National Home Loans Corp) v.

Nash involving a loan agreement wherein the lender was given unilateral discretion to charge

varying interest rates upon mere notice to the borrower, the Court of Appeal implied a term

that the lender has the obligation not to charge interest rates “dishonestly, for an improper

purpose, capriciously or arbitrarily.”112

The court stated that such discretion given to the

lender under the loan agreement is not intended to be unfettered and the implication of the

term limiting such discretion protects the legitimate expectation of the parties.

108

Johnson v. Unisys Ltd [2003] 1 A.C. 518, 536. 109

Imperial Group Pension Trust Ltd. v. Imperial Tabacco Ltd [1991] 1 WLR 589. 110

Johnson v. Unisys [2003] 1 A.C. 518, p. 536-539. 111

Chitty on Contracts, supra note 96, par. 1-033. 112

Paragon Finance Plc (formerly National Home Loans Corp) v. Nash [2001] WL 1135217, [2001] EWCA

CIV 1466, p. 36.


Leggatt LJ in The Product Star stated:

“Where A and B contract with each other to confer a discretion on A, that does not

render B subject to A’s uninhibited whim. In my judgment, the authorities show that

not only must the discretion be exercised in honesty and in good faith, but having regard

to the provisions of the contract by which it is conferred, it must not be exercised

arbitrarily, capriciously or unreasonably.”113

In case of mortgages, it is has long been settled that the mortgagee owes the mortgagor the

duty to exercise powers of enforcement for repayment in good faith. This duty equally

applies to a receiver tasked to sell and manage the property.114

This demonstrates that in

certain cases, the English courts have imposed the duty of good faith on a party whose

decision and action will affect the interests of the other party.

The duty to cooperate advanced in the case of Mackay v. Dick115

which is an aspect of the

duty of good faith in civil law systems has long been implied by the English courts as stated

by Lord Blackburn:

“I think I may safely say, as a general rule, that where in a written contract it appears

that both parties have agreed that something shall be done, which cannot effectually be

done unless both concur in doing it, the construction of the contract is that each agrees

to do all that is necessary to be done on his part for the carrying out of that thing, though

there may be no express words to that effect. What is the part of each must depend on

circumstances.”116

Further, the implied duty of good faith is imposed by the courts in contracts of partnerships

not only in the performance of the contract but also in its negotiation between potential

partners. Good faith is particularly relevant insofar as the duty of disclosure by the partners is

concerned similar to that of insurance contracts concerning the insured’s duty of disclosure to

the insurer. In Conlon v. Simms the Court of Appeal observed that there are certain contracts

treated by law as contracts of utmost good faith and contracts of partnership are one of

them.117

113

Abu Dhabi National Tanker Co v Product Star Shipping (The Product Star) (No.2) [1993] 1 Lloyd's Rep. 397,

p.404, hereinafter as “The Product Star.” 114

Downsview Nominees Ltd v. First City Corp. Ltd [1993] AC 295 (Privy Council); see also Medforth v. Blake

& Others [1999] 3 WLR 922. 115

Mackay v. Dick [1881] 8 R. (H.L.) 37. 116

Ibid (Lord Blackburn), p. 263. 117

Conlon v. Simms [2008] 1 W.L.R. 484, p. 501, 515.


D. Good Faith’s Role in Unfair Terms

With the EC Council Directive 93/13/EEC on Unfair Terms in Consumer Contracts,118

the

English legislature adopted The Unfair Terms in Consumer Contracts Regulations 1994119

as

repealed and replaced by The Unfair Terms in Consumer Contracts Regulations 1999120

(“Regulations”) which is aimed to improve consumer protection against unfair terms in their

contracts with suppliers or sellers and to improve the proper functioning of the European

internal market.121

The effect of the Regulations is to exclude the determined unfair term

from the contract between the consumer and the seller.122

For our purposes, what is notable is that both the 1994 and 1999 Regulations explicitly

mention the standard of good faith as a criterion for judging whether a contractual term is to

be regarded as unfair. This standard is a direct transplant of Article 3(1) of the Directive. As

claimed by commentators, this is a rather exceptional case in English law and attracted many

writings.123

Section 5(1) of the 1999 Regulations states:

“A contractual term which has not been individually negotiated shall 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 to the detriment of the

consumer.”124

The implication of an express standard of good faith in an English law statute bred much

anticipation regarding how the English courts will interpret such standard which according to

the traditional view has no place in English law. Others regarded that said the good faith

standard would mean that the English courts will have to interpret something it is unfamiliar

118

Dated 05 April 1993, hereinafter as the “Directive”. 119

The Unfair Terms in Consumer Regulations of 1994 (SI 1994/3159), effective 01 July 1995. 120

Unfair Terms in Consumer Contracts Regulations of 1999 (SI 1999/2083), effective 01 October 1999. 121

Recitals of Council Directive (EC) 93/13/EEC on unfair terms in consumer contracts [1993]. 122

Section 8 (1) of Unfair Terms in Consumer Contracts Regulations of 1999 (SI 1999/2083), previously found

in Section 5(1) of The Unfair Terms in Consumer Regulations of 1994 (SI 1994/3159). 123

Maud Piers, “Good Faith in English Law - Could a Rule Become a Principle,” 26 Tul. Eur. & Civ. L.F. 123

[2011], p. 141-143,

http://heinonline.org/HOL/Page?handle=hein.journals/teclf26&div=7&g_sent=1&collection=journals(accessed

16 April 2013). 124

Formerly Section 4(1) of the 1994 Regulations, Emphasis supplied.

http://heinonline.org/HOL/Page?handle=hein.journals/teclf26&div=7&g_sent=1&collection=journals


with.125

These are some of the questions raised and some commentators anticipated that the

English courts will apply the good faith standard using the principles of the continental

systems considering its prevalence there. This speculation was bolstered by the Directive’s

aim for a uniform application of the standard for unfair clauses throughout the EU under

Article 3(1).126

These questions were finally answered by the House of Lords in Director General of Fair

Trading v. First National Bank Plc. 127

This case involved an injunction suit by the Director

General of Fair Trading (“Director”) against First National Bank (“Bank”) concerning the last

part of Clause 8 of the Bank’s standard credit agreement for being unfair and detrimental to

the consumer under the Regulations. The questioned term entitles the Bank to claim post-

judgment interests on the loan which will deprive the consumers of the advantage of merging

the principal due and the interest thereon in the event of judgment on the debt in accordance

with existing laws.

In deciding the issue, the House of Lords turned to Section 4(1) of the 1994 Regulations.

Lord Bingham described the requirement of good faith in the context of the Regulations to

mean “fair and open dealing.”128

The openness requirement means that “the terms should be

expressed fully, clearly and legibly, containing no pitfalls or traps.”129

He further stated that –

“Fair dealing requires that a supplier should not, whether deliberately or unconsciously,

take advantage of the consumer’s necessity, indigence, lack of experience, unfamiliarity

with the subject matter of the contract, weak bargaining position or any factor listed in

or analogous to those listed in Schedule 2 of the regulations. Good faith in this context

is not an artificial or technical concept; nor, since Lord Mansfield was its champion, is it

a concept wholly unfamiliar to British lawyers. It looks to good standards of morality

and practice.”130

125

Hugh Beale, “The Impact of the Decisions of the European Courts on English Contract Law: The Limits of

Voluntary Harmonization,” European Law Review of Private Law 3-2010, Kluwer Law International BV,

p. 501-526, 513, hereinafter as “Beale, Impact of EU Court Decisions”. 126

Ibid. 127

Director General of Fair Trading v. First National Bank Plc [2001] WL 1171932, [2001] UKHL 52,

hereinafter as “DGFT”. 128

Ibid, par.17. 129

Ibid. 130

Ibid.


Lord Steyn in agreement with Lord Bingham explained that good faith in the Regulations

means “the notion of open and fair dealing.”131

He made reference to the commentary on the

Principles of European Contract Law prepared by the Commission of European Contract Law

and opined that the purpose of the provision of good faith and fair dealing in the Regulations

is “to enforce community standards of fairness and reasonableness in commercial

transactions.”132

Of substantial interest to this discussion is the manner of interpretation of the standard of good

faith adopted by the House of Lords. Lord Steyn observes that the Directive is not a

completely harmonious text and reflects the practical solutions adopted to reconcile the

diverging legal systems of member states. In order to promote the objectives of the Directive

of setting a common standard within the EU of what is a fair term notwithstanding its

application in the different legal systems, he declared that “the concepts under directive must

be given autonomous meaning.”133

This means that the standard of good faith contained in the

Directive and the Regulations must be interpreted pursuant to its meaning under the Directive

without reference to any other legal system. On this matter, Lord Bingham emphasised that

the member states of the EU have no unified concept of fairness and good faith and the

Directive does not seem to point to a specific state of law of any single member state in the

application of these concepts. Hence, he is of the opinion that the Directive “lays down a test

to be applied, whatever their pre-existing law, by all member states.”134

Notably, Lord

Bingham’s interpretation of the good faith standard under the Regulations follows his own

interpretation of the good faith standard in Interfoto wherein he declared that the civil law

systems’ concept of good faith does not exist in English Law. This interpretation in effect

reflects that the concept of good faith under the Regulations was in fact interpreted pursuant

to the English law’s interpretation of good faith and not necessarily an autonomous

interpretation under the Directive as viewed by Lord Steyn.

131

Ibid, par. 36, citing Interfoto, supra note 1. 132

Ibid, par. 36. 133

Ibid, par. 32. 134

Ibid, par. 17.


E. Observations

Although there is no general obligation of good faith in English law, the concept and

obligation of good faith is not entirely peculiar to civil law systems but exists in English law

as well.

While it is a common theme that English law does not know of such general duty of good

faith in pre-contractual negotiations as stated in Walford v. Miles, there are some cases where

the obligation to negotiate in good faith if contained in a valid and binding agreement between

the parties such as in the case of Petromec135

or when a lockout agreement is explicitly for a

limited period like that found in Pitt,136

will be enforced by the English courts.

In performance of contracts, in cases where duties of trust and confidence are required by the

nature of the contract between the parties, English law dictates not only the duty of good faith

upon the parties but may even impose that of utmost good faith like in the case of insurance

contracts. Good faith is also imposed to protect against unfairness in the case of consumer

contracts under the Unfair Terms in Consumer Contracts Regulations.

Apart from these special types of contracts, we have also seen that the English courts

recognize and apply the duty of good faith in regular commercial contracts in certain cases to

protect the reasonable expectation of the parties 137

by limiting the unfettered discretion of one

of the parties to contract as seen in The Product Star138

and Paragon,139

by prescribing that a

party making decisions and actions affecting the other exercises such decisions and acts in

honesty and in good faith,140

and by imposing the duty to cooperate between the parties to

attain the purpose of the contract.

Now that we have established there is good faith in English law, we shall see in the next

chapter the key differences between civil law’s and English law’s treatment of good faith and

what may be the reasons for such distinctions. We shall also examine recent developments in

135

Petromec, supra note 4. 136

Pitt, supra note 94. 137

Collins, supra note 80, p. 339-334. 138

The Product Star, supra note 113. 139

Paragon, supra note 112. 140

Downsview and Medfroth, supra note 114.


English law and other common law jurisdictions to appreciate if there has been a shift in

treatment and application of the good faith principle in these jurisdictions.

Chapter 4

Is English Law going towards a general notion of good faith?

A. Differences and Similarities of Good Faith

in European Civil Law and English Law Systems

As seen in the previous chapters, the European civil law systems treat good faith differently

from English law. In these systems, good faith is mostly codified in their civil codes such as

in the German law’s BGB, the French law’s Code Civil and the Dutch law’s BW thereby

rendering the application of good faith more formalistic or institutionalized. The role of good

faith in most of these systems is described as an overarching one as it informs, modifies and

affects all contracts as well as all obligations. Such all-encompassing role of good faith is

particularly true in countries such as Germany and The Netherlands wherein all contracts,

obligations and other legal acts must comply with good faith.

We have also seen that although there is no completely uniform definition of good faith in

European civil law countries, there is a general theme that good faith means the regard of one

party for the reasonable interest of another and this general definition applies to both pre-

contractual relations to performance of contracts.

Following the Fallgruppen system, good faith in European civil law countries plays three

major roles known as the “inner system” of good faith and these are: (1) concretization or

interpretation, whereby courts determine the requirements of good faith in relation to a

specific case or set of circumstances; (2) supplementation, wherein good faith provides for

ancillary duties to the contract such as the duties of loyalty, protection, care and cooperation;

and (3) limitation or correction, in cases where good faith is used to prevent abuse of rights or

unfairness.


Anent the application of good faith in practice, what is pertinent for our purposes is good

faith’s role in the content of the contracts which brings forth many implied duties or implied

terms to contracts and obligations.

In English law however, the obligation of good faith is not codified except in limited cases.

As a result, good faith’s role in this legal system is unclear, if not elusive. In the previous

chapter, it was shown that good faith applies in cases of special relationships, some of which

are expressly stated in statutes such in case of the duty of good faith in insurance contracts. In

consumer contracts, the good faith standard has been codified in the Unfair Terms in

Consumer Contracts Regulations pursuant to the EU Council Directive 93/13/EEC. We have

also seen that in some cases involving ordinary commercial contracts, the duty of good faith is

imposed as an implied term by the English courts to protect legitimate expectations of the

parties or to achieve business objectives under the contract.

Good faith has therefore a very limited scope and role in English law and by no means

possesses the same significant and overarching position in European civil law countries. In

fact, the duty of good faith in pre-contractual relations which is widely accepted in these civil

law countries is not recognized in English law except in cases where the duty is found in a

valid and existing contract or when a lockout agreement is only effective for a limited period.

In performance of contracts, good faith does not apply as a standard for the parties’ conduct

but in some limited cases are imposed by the English courts to contracts involving special

relationships or only in certain circumstances.

However the contrast between civil law and English laws systems’ treatment of good faith

may not be completely true in all respects since there appears to be a parallel as to how these

systems use good faith to supplement or modify the contents of contracts.

In European civil law systems, recalling the inner system of good faith, one of its functions is

to supplement contracts by providing ancillary duties on the parties which are not expressly

stated in the contract.141

These duties are often referred to as the duties of good faith

including the duty of loyalty, the duty to cooperate, the duty to protect and the duty to provide

information. The same function was identified in the application of good faith in practice as

141

Hesselink, supra note 15, p. 624-627.


good faith modifies contents of contracts by providing the same ancillary duties found in good

faith’s supplementation function.142

In comparison to English law, these good faith duties take the form of implied terms and we

have seen in the past discussion that English courts in some situations supplement the terms of

the contract with implied terms involving the duties of good faith such as the duty to

cooperate as seen in the Mackay v. Dick,143

and duty to exercise discretion consistent with

honesty and in good faith as a limitation to a party’s unfettered discretion granted under the

contract144

among others. In this respect, good faith seems to share the same function in both

European civil law systems and English law.

There is however a limitation in the supplementation function of good faith in English law,

that is, that implied terms can never go against expressed terms of the contract which does not

exist in civil law systems. 145

B. English Law’s Persistent Reluctance against Good Faith

As stated in Interfoto, English law still maintains the orthodox view that there is no such thing

as good faith in its legal system except for very special and specific situations.

One of the most common reasons behind English law’s apparent hostility towards a general

principle of good faith is its adherence to the will theory which means that the courts will not

interfere with the agreement of the parties and the latter’s freedom of contract by providing

duties or terms not agreed upon by the parties. We have seen earlier that the English law’s

adoption of the will theory is largely dictated by the market economy in the 19th

century

wherein production became the main method for the distribution of wealth. Due to this, the

principles of party autonomy and self-reliance were encouraged. It is however the position of

many scholars that the market conditions of the 19th

century no longer exists today and the

current state of economy is led by globalization and enterprises with more complex business

142

Ibid, p. 630-631. 143

Mackay v. Dick, supra note 115, p. 145, 263 (Lord Blackburn) 144

Paragon, supra note 112; The Product Star, supra note 113. 145

Collins, supra note 80, p. 238.


frameworks that require more cooperation and goodwill. Hence, the shift in the attention of

modern contract law against party autonomy and towards promoting party loyalty and

cooperation, the protection of reasonable reliance and protection against unfairness and

dominant positions.146

In fact, the English courts’ practice of implying terms incorporating

said new values shows that English law is moving away from the will theory.147

Another stereotypical reason of the English courts’ disapproval of a general doctrine of good

faith is the need for English law to be certain. Lord Ackner in Walford v. Miles clearly

indicated English law’s contempt for uncertainty and good faith being perceived as a vague

and imprecise concept is repugnant to English law’s need for certainty in commercial

transactions. England, being the world’s leading financial centre, needs predictability and

certainty in the outcome of legal cases. Goode stressed that this requirement of predictability

to ensure that commercial transactions forged by businessmen will not be meddled with by

the courts is given more importance in English law than absolute justice.148

However, it is

equally argued that English law’s doctrine of implied terms is extremely open and flexible as

the concept of good faith but the former is duly accepted. 149

C. Acceptance of Good Faith

by Other Common Law Jurisdictions

Although they started at the same point as English law, other common law jurisdictions have

already accepted the general duty of good faith in their legal systems and this shift in position

has prompted more literature in English law to carefully examine whether an express

recognition of the good faith obligation in contract law will better English law. Until this

question is answered, the value that can be taken from good faith’s acceptance by other

common law jurisdictions is that English law’s apprehension against such general duty seems

to enjoy less prominence than before.150

146

Zimmerman, The Civilian Tradition Today, supra note 6, p. 174; see also Beale, Bishop, & Furmston, supra

note 3, p. 10-11; Collins, supra note 80, p. 14-19. 147

Ibid. 148

Roy Goode, “The Concept of ‘Good Faith’ in English Law”, Speech delivered at the Saggi, Conferenze E

Seminari 2, Roma 1992, p. 9, hereinafter as “Goode”. 149

Zimmerman, The Civilian Tradition Today, supra note 6, p. 176-177. 150

Chesire, Fifoot & Furmston, supra note 84, p. 33-34.


In the United States of America (US), the acceptance of the good faith duty is provided for

under the Uniform Commercial Code (UCC), Section 1-203, also referred to as one of the

principal sources of the obligation in the US, which states:

“Every contract or duty within this Act imposes an obligation of good faith in its

performance and its enforcement.”

Another source of good faith in the US is found in the Restatement of Contracts (2nd

), Section

24 of the American Law Institute which imposes the duty of good faith and fair dealing in the

performance and enforcement of every contract.151

Although the Restatement does not have

the force of legislation, it is particularly important to the development of good faith especially

for cases not covered by the UCC.

A third source of good faith is the Vienna Convention on Contracts for the International Sales

of Goods (CISG) which was ratified by the US. However, in terms the development of the

doctrine of good faith in the US, it is said that the CISG had played a little role.152

Anent the meaning of good faith, Farnsworth in his work entitled “Good Faith in Contract

Performance” stated that good faith has been given so many meanings in US law one of

which is good faith’s significance in implication of terms by Farnsworth himself.153

Another

meaning is by Robert Summers portraying good faith as an “excluder” which means that good

faith has no real meaning by itself but serves to exclude many forms of bad faith behaviour.154

Finally, the meaning by Professor Steven Burton suggests that good faith should be captured

in terms of “forgone opportunities of the parties” which means that it is contrary to good faith

for a party to recapture opportunities forgone in the contract at the expense of performance.155

In the end, Farnsworth noted that good faith in US law means all of the above and much

more.

In case of the UCC (Section 1-201[19]), good faith means “honesty in fact in the conduct or

transaction concerned.” This meaning is expanded in case of merchants under

151

Ibid, p. 34. 152

E. Allan Farnsworth, “Good Faith in Contract Performance”, Jack Beatson and Daniel Friedmann (eds),

Good Faith and Fault in Contract Law, Oxford University Press 1995, p. 153-170, hereinafter as

“Frarnsworth”. 153

Ibid, p. 161. 154

Ibid, see also Robert S. Summers, “The Conceptualisation of good faith in American contract law: a general

account”, in Zimmerman and Whittaker (eds), supra note 9. 155

Ibid, p. 162


Section 2-103(1)(b) which states that good faith is “honesty in fact and the observance of

reasonable commercial standards of fair dealing in trade.”156

In performance and enforcement of contracts, according to Robert Summers:

“Good faith in performance or enforcement of a contract emphasizes faithfulness to an

agreed common purpose and consistency with the justified expectations of the other

party; it excludes a variety of types of conduct characterized as involving ‘bad faith’

because they violate community standards of decency, fairness and reasonableness.”157

In application, US courts have applied good faith in performance of contracts in a wide

variety of situations including good faith as a restraint of a party’s sole discretion conferred in

the contract, as a requirement for withholding consent under the contract and termination of

contracts, as a duty to cooperate and not to prevent the achievement of the object or purpose

of the contract.158

As to scope, while the duty of good faith is treated as an implied covenant in the performance

and enforcement of all contracts, US law does not apply the duty during pre-contractual

negotiations unless there is a valid agreement to negotiate in good faith. The Restatement of

Contract (2nd

) however is said to cover certain forms of bad faith during contract

negotiations.159

Notwithstanding this, it is undeniable that the codification and the many court

decisions in the US implementing the general obligation of good faith show its due

acceptance in this jurisdiction.

In another common law jurisdiction, Australia, it is now accepted that the duty of good faith

exists in contract law. In Reinard Constructions (ME) Pty Ltd v. Minister of Public Works,

Priestley JA declared that the standard of fairness as well as the consistent standard of good

faith and fair dealing in performance of contracts is the current prevailing standard.160

156

Robert S. Summers, “The Conceptualisation of good faith in American contract law: a general account”, in

Zimmerman and Whittaker (eds), supra note 9, p. 136, hereinafter as “Summers”. 157

Ibid, p. 136, Emphasis supplied. 158

Farnsworth, supra note 152, p. 159-163. 159

Summers, supra note 156, p. 118-137. 160

Chesire, Fifoot & Furmston, supra note 84, p. 34, citing Reinard Constructions (ME) Pty Ltd v. Minister of

Public Works (1992) 33 Con LR 72.


This view was further upheld in succeeding court decisions in Australia161

and the Federal

Supreme Court of Australia confirmed the existence of the duty of good faith in the cases of

Hughes Aircraft Systems International v. Air Services Australia and Pacific Brands Pty Ltd v.

Underworks Pty Ltd.162

The source or methodology used to impose the duty of good faith in Australia is through

implication of terms in the performance of obligations and the exercise of rights in executed

contracts.163

Due to good faith’s advance development in Australia, there is even a debate on

the proper way of attributing good faith in contract performance, whether it should be through

implied terms in law or implied terms in fact,164

or whether the implication of terms method is

redundant since good faith being intrinsic to the law of contracts does not need to be implied

but can be reflected through proper contract interpretation.165

In terms of content of the obligation of good faith, Australian law sees good faith’s meaning

as dependent on context on which it is used.166

It has identified two core requirements of good

faith, namely, honesty and reasonableness.167

Australian courts have ruled that parties have

the following resulting duties in the performance of contracts pursuant to the duty of good

faith: not to act capriciously;168

not to prevent the performance of the contract or withhold the

contract’s benefits, or to seek further ulterior purpose other than intended by the contract;169

to

cooperate to achieve contractual objectives (loyalty to the promise itself);170

to comply with

161

Robert McDougall, “The Implied Duty of Good Faith in Australian Contract Law”, citing Hughes Bros Pty

Ltd v. Trustee of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91, Burger King

v. Hungry Jacks Pty Ltd [2001] NSWCA 187, Overlook Management BV v. Foxtel Management Pty Ltd [2002]

NSWSC 16,http://www.lawlink.nsw.gov.au/lawlink/Supreme_Court/ll_sc.nsf/vwPrint1/SCO_mcdougall210206

(accessed 16 May 2013), hereinafter as “McDougall”. 162

Hughes Aircraft Systems International v. Air Services Australia (1997) 76 FCR 151 and Pacific Brands Pty

Ltd v. Underworks Pty Ltd [2005] FCA 288. 163

McDougall, supra note 161. 164

Ibid. 165

John Carter and Elisabeth Peden, “Good Faith in Australian Contract Law”, Sydney Law School Research

Paper No. 06/55, 2003 Journal of Contract Law, Vol. 19, p. 156, http://ssrn.com/abtract=947352 (accessed 16

May 2013), hereinafter as “Carter & Peden”. 166

McDougall, supra note 161. 167

Carter & Peden, supra note 165, par. 1, citing Reinard Constructions (ME) Pty Ltd v. Minister of Public

Works (1992) 26 NSWLR 234 and Burger King Corp v. Hungry Jack’s Pty Ltd [2001] NSWCA 187. 168

McDougall, supra note 161, citing Garry Rogers Motors Aust Pty Ltd v. Subaru (Aust) Pty Ltd (1999) ATPR

41-703 (Finkelstein J). 169

Ibid. 170

McDougall, supra note 161, citing Sir Anthony Mason’s Cambridge Lectures (1993), also see Sir Anthony

Mason, “Contract, Good Faith and Equitable Standards in Fair Dealing”, 2000, 116 LQR 66.

http://www.lawlink.nsw.gov.au/lawlink/Supreme_Court/ll_sc.nsf/vwPrint1/SCO_mcdougall210206

http://ssrn.com/abtract=947352


the honest standards of conduct; to comply with standards of conduct that are reasonable

having regard to the interests of the parties.171

On the matter of scope, the duty of good faith is implied in commercial contracts.172

In the

case of Overlook Management BV v. Foxtel Management Pty Ltd, good faith was declared a

legal incident of every commercial contract.173

However, the duty to negotiate in good faith

just like in the US is also not accepted in Australia unless there is an express agreement of the

parties to this effect.

In the other common law territories such as New Zealand, the acceptance of good faith is

currently on the rise and it will not be long until the principle is accepted as a general one

similar to Australia and perhaps in the US.

D. Recent Developments in English Law

D.1. Yam Seng v. ITC

The long accepted practice of implying terms of good faith in contracts by English law and

the growing acceptance of the general duty of good faith in other common law countries have

paved the way for the recent decision of the High Court by Mr. Justice Leggatt (Leggatt)

which may serve as a basis for the development of a general duty of good faith in English law

in the case of Yam Seng Pte Limited v. International Trade Corporation Limited.174

The case was filed by Yam Seng Pte Ltd (Yam Seng) against International Trade Corporation

Limited (ITC) for damages against alleged breach of the Distribution Agreement dated 12

May 2009 between the parties wherein ITC granted Yam Seng exclusive rights to distribute

fragrances in specified territories.175

In July 2010, Yam Seng terminated the contract with ITC

because of the latter’s alleged repudiatory breach of the contract consisting undercutting of

171

Ibid. 172

Ibid. 173

Ibid, citing Overlook Management BV v. Foxtel Management Pty Ltd [2002] NSWSC 17 (Barret J) par. 62. 174

[2013] EWHC 111 (QB), hereinafter as “Yam Seng”. 175

Ibid, par 1.


the prices agreed with Yam Seng, providing false information and misrepresentation among

others. Part of Yam Seng’s pleading in the case is that there was an implied term under the

contract that the parties shall deal with each other in good faith and that ITC had breached this

implied duty.

In resolving whether the implied duty of good faith exists in the subject contract and whether

ITC has breached the same, Leggatt recalled the general view that there is no legal principle

of good faith in English law reiterating the seminal pronouncements in Interfoto176

and

Walford v. Miles.177

He stated the three main reasons why English law is so averse to the good

faith doctrine, namely: (1) the incremental solution preferred by English law to solve

particular problems instead of general doctrines; (2) the ethos of individualism embodied in

English law whereby parties are free to pursue their own self-interest not only in negotiating

but also in performing contracts; and (3) the fear of uncertainty which may result in

recognising a general duty of good faith in the performance of contracts.178

Despite the foregoing, Leggatt stated that English law’s refusal to recognize the general

obligation of good faith is tantamount to “swimming against the tide”179

considering the

widespread acceptance of the such general obligation in most civil law systems, because good

faith has already infiltrated the English legal system via EU legislation with the Unfair Terms

in Consumer Contracts Regulation and anticipates more harmonisation measures to come. He

also debunked the so-called fundamental divide between civil law and common law systems

by citing the acceptance of good faith in the US, Canada and Australia and its strong influence

in New Zealand and Scotland.180

He acknowledged that at present state of English law, the implication of the duty of good faith

only exists in certain types of contracts and has not reached the stage that it recognizes said

duty as an implied term in contracts as a general principle. Nevertheless he stated that he saw

no difficulty following the English law established methodology of implication of terms in

176

Interfoto, supra note 1. 177

Walford v. Miles, supra note 87. 178

Yam Seng, supra note 174. 179

Ibid, par. 124. 180

Ibid, par. 124-130.


fact, to imply the duty of good faith in any ordinary commercial contract based on the

presumed intention of the parties.181

He explained that apart from the traditional tests for implication of terms in fact, recent

analysis reveals that the process of implication of terms is an exercise of the construction of

the contract as a whole182

which takes into account the contract’s relevant background of not

only matters of fact known to the parties but also shared values and norms of behaviour.183

These norms encompass accepted community standards, standards specific to a particular

trade or commercial activity or those that may arise from features of specific contractual

relationships which are normally not expressed in the contract itself. 184

One of these norms

which serve as a foundation of all contractual relations is the “expectation of honesty” that is

“essential to commerce and depends critically on trust” as already affirmed by present English

case law. 185

In view thereof, Leggatt implied the duty of honesty in the subject contract for such norm is

so basic in all contractual relations that it is hard to envisage any contract without it. He

stated that such construction also complies with the traditional two principal criteria for

implication of terms in English law since “to behave honestly is so obvious that it goes

without saying” and such interpretation is “necessary to give business efficacy to commercial

transactions.”186

Another aspect of good faith which Leggatt implied into the contract is “fidelity to the

bargain” which he stated has long been accepted in English law as shown in cases implying

the duty to cooperate in contracts.187

Leggatt emphasised that the requirements of good faith are “sensitive to context”. At its core

is honesty but depending on contractual context, other types of commercial contracts may

181

Ibid, par. 131. 182

Ibid, par. 132, citing Attorney General for Belize v. Belize Telecom Ltd [2009] 1 WLR 1988, 1993-5. 183

Ibid, par. 134. 184

Ibid, par. 135. 185

Ibid, citing HIH Casualty v. Chase Manhattan Bank [2003] 2 Lloyd’s Rep. 61 (Bingham LJ) “Parties

entering into a commercial contract… will assume the honesty and good faith of the other; absent such an

assumption they will not deal.” (Hoffman LJ) “…. in the absence of words which expressly refer to

honesty, it goes without saying that underlying the contractual arrangements of the parties there will be

common assumption that the persons involved will behave honestly.” 186

Ibid. 187

Ibid, par. 139.


even include the duty to disclose information or share relevant information for the

performance of the contract depending on the relevant background expectation of the parties.

One of these contracts, he believed, are “relational contracts” wherein it is implicit in the

parties’ understanding and in order to give business efficacy to the contract that a “high

degree of communication, cooperation and predictable performance based on mutual trust and

confidence as well as expectations of loyalty are required of the parties involved.”188

He

stated that examples of these contracts are joint ventures, franchise agreements and long term

distributorship agreements. As the contract involved in the case is a distribution agreement,

Leggatt found that both parties are therefore under the duty to communicate effectively and

cooperate with each other in the performance of the contract.

In line with the established process of construction in English law, he added that the content

of the duty of good faith is based on an objective test rather than a subjective one. The

question to be addressed in the process of construction is “whether in the particular context

the conduct would be regarded as commercially unacceptable by reasonable and honest

people” rather than if the conduct involved would be improper based on either party’s

perception. 189

Leggatt stated that good faith in the manner he had described is nothing new in English law

but is merely an extension of an already accepted principle in English contract law identified

by Lord Steyn which is to protect the reasonable expectations of the parties.190

He supported

this view by stating that English law in previous cases had already recognised the implied

duty of good faith through the implied duty of cooperation in performance of contracts, the

requirement that the power to make decisions conferred to one party of the contract must be

exercised honestly and in good faith consistent with its purpose, and the implied term that

consent may not be withheld unreasonably.

Finally, Leggatt disagreed with the reasons given by English law against implying a general

duty of good faith. He stated that there is no need to adopt a civilian law approach for English

law to accommodate the principle of good faith as the content of good faith is heavily

dependent on context and is determined by a process of construction of contracts which is

188

Ibid, par. 141-142. 189

Ibid. 190

Ibid, par. 144-145, citing First Energy (UK) Ltd v. Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep

194, (1997) 113 LQR 433.


entirely consistent with the common law approach. As the basis of the duty will be the

presumed intention of the parties, such implied duty will not hinder the parties’ freedom of

contract and they remain free to modify the scope or exclude the implied duty by express

stipulation. The duty of good faith can be described as one of good faith and fair dealing. The

latter being an objective standard defined by contract and by standards of conduct which are

expected in the regular course of matters does not involve the imposition of the court’s view

of what is substantially fair upon the parties. English law’s reservation in interpreting good

faith with the openness described in Lord Bingham in Interfoto is more of a difference of

opinion of what constitutes good faith due to different cultural norms rather than a clear

refusal to accept the said principle. Lastly, the fear that recognizing the duty of good faith

will create uncertainty is unjustified as there is nothing vague and unworkable about the

concept as its “application involves no more uncertainty than is inherent in the process of

contractual interpretation.”191

Leggatt then ended by saying, “the traditional English hostility towards the doctrine of good

faith in the performance of contracts, to the extent that it still persists is misplaced.”192

In view thereof, ITC was found in breach of the implied duty of good faith by knowingly

providing false information relative to the domestic retail price in Singapore which

information ITC knew Yam Seng will rely on. Such act of providing false information

equated to dishonest behaviour which strikes at the heart of trust that is vital in long term

commercial relationships. Considering the foregoing, Yam Seng could not be expected to

continue business with ITC.

Yam Seng is a very important decision that could start the change to English law’s long-

standing refusal to accept the general duty of good faith. The judgment by Leggatt is very

well reasoned and draws on various lines of authority in English law already imposing the

implied duty of good faith or its various elements in the performance of contract and from

other common law jurisdictions which have accepted the general principle of good faith. We

have seen in the previous chapter that English law has implied or referred to these duties not

only in special contracts or relationships but also in ordinary commercial contracts in order to

191

Ibid, par. 147-152. 192

Ibid, par. 153-154.


protect the reasonable expectations of the parties or to give business efficacy to the contract.

Hence, Leggatt’s position on English law’s existing acceptance of good faith is well-founded.

Moreover, to state that good faith’s content is dependent on context which may expand or

contract depending on the relevant background expectation of the parties provides a wide

scope of the good faith duty. He however capped good faith’s scope through the use of the

objective test for implication of terms in construction of contracts in accordance with the

established method in English law which looks to the standard of what conduct is will be

deemed commercially acceptable by reasonable and honest men and not just any subjective

standard such as a party’s perception. Another limit to the scope of the duty of good faith

stated by Leggatt is to describe the duty of good faith as including one of “fair dealing’” since

the constitution of fair dealing is defined by contract and by expected standards in the normal

conduct of parties.

By implying the duty of good faith in the manner of Yam Seng, Legatt has therefore

established that the recognition of the general duty of good faith in English law insofar as

performance of contracts are concerned may fit into the existing English legal framework and

will not cause too much uncertainty, at least not more than what English law already accepts.

There are however some critics who claim that the pronouncements in Yam Seng only apply

to relational contracts such as joint ventures and distribution agreements considering the

emphasis given by Leggatt on the contextual background of the contract involved.193

Others

claim that the implication of the duty of good faith in the performance of contracts may only

apply to skeletal contracts since it is easier to imply such a duty of good faith where the

contract omits many important obligations of the parties.194

Moreover, some commentators

193

Roger Kennell, "An Implied Duty of Good Faith and English Law: No Longer Heresy?", 15 April 2013,

http://www.brownrudnick.com/news-resources-detail/2013-03-an-implied-duty-of-good-faith-and-english-law-

no-longer-heresy (accessed 04 May 2013); Wragge & Co, "An implied duty of good faith in commercial

contracts?", 28 February 2013,

http://www.legalmax.info/members2/conbook/acknowle.htm#an_implied_duty_of_good_faith_in_commercial_c

ontracts.htm (accessed 04 May 2013); Jumana Rahman, Latham & Watkins LLP, "Do contractual parties have

to act in “good faith”? If so, what does that mean?", 15 April 2013,

http://www.mycorporateresource.com/index.php?option=com_content&view=article&id=126345:latham-a-

watkins-do-contractual-parties-have-to-act-in-good-faith-if-so-what-does-that-mean-&catid=3398:yam-seng-pte-

limited-a-implied-duty-of-good-faith&Itemid=211039 (accessed 05 May 2013). 194

Ibid.


are still waiting if the ruling by Leggatt will be affirmed by the higher courts considering that

it is merely a judgment in the first instance.195

D.2. Mid Essex v. Compass Group

In just a few weeks after Yam Seng, another case discussing the duty of good faith was

decided by the Court of Appeal and the commentators have hoped to find the answers to the

foregoing questions in this new case of Mid Essex Hospital Services NHS Trust v. Compass

Group UK and Ireland Ltd.196

Mid Essex is an appeal filed by Mid Essex Hospital Services NHS Trust (Trust) against the

judgment of Mr. Justice Cranston (judge) holding among others that Trust breached its

express duty to cooperate in good faith with Compass Group UK and Ireland Ltd (Contractor)

under the contract of services between them, which reads:

“The Trust and the Contractor will co-operate with each other in good faith and will

take all reasonable action necessary for the efficient transmission of information and

instructions and to enable the Trust…to derive the full benefit of the Contract.”197

This dispute concerns the contract of services wherein Trust engaged the services of the

Contractor to provide certain hospital services such as catering and help desk. In the contract,

Contractor’s service was subject to service level standards and non-compliance with which

allows Trust to allocate failure points to the Contractor resulting in the corresponding

deduction to the service price that the Contractor will receive for services rendered. Later, a

dispute arose because the Contractor claimed that Trust allocated to it excessive failure points

resulting in excessive deductions to its service fee. After much discussion between the

parties, Trust acknowledged the excessive failure points as well as returned to the Contractor

any excessive deductions from its service fee. Notwithstanding this, the Contractor sued

Trust for breach of contract including the breach of the aforementioned express duty of good

faith.

195

Ibid. 196

[2013] EWCA Civ 200, hereinafter as “Mid Essex”. 197

Ibid, par. 14 (Jackson LJ).


Contractor advanced a wide interpretation of the express duty of good faith stating the acts of

Trust including its unreasonable imposition of excessive failure points plus excessive

deductions constituted a violation of said duty and therefore entitled Contractor to terminate

the contract and claim payment for substantial losses arising from said breach. On the other

hand, Trust advanced a limited interpretation of the duty of good faith by stating that the

express duty limits its scope to the purposes stated in the contract provision itself which are to

ensure efficient transmission of information and instructions and to enable the Trust to derive

the full benefit of the contract and nothing more. Trust argued that a wide scope of the

express provision of good faith cannot be implied against the express terms of the contract.

The judge accepted the view of the Contractor noting that the nature of contract between the

parties being a long-term one which would require continuous cooperation between them calls

for the imposition general obligation to cooperate in good faith pursuant to commercial

common sense.

In resolving the issue, Jackson LJ first stated that there is no such thing as a general doctrine

of good faith in English contract law and in fact quoted the relevant portions of the Yam Seng

decision concerning this point. He stated that if the parties wish to include such duty in the

contract they should have expressly done so.198

He then ruled in favour of the interpretation

given by Trust stating that the duty to cooperate in good faith under the contract specifically

focuses on the two purposes stated therein and is not a general one which reinforces all

obligations of the parties in all situations where they interact.199

On the context of the duty to cooperate in good faith, he affirmed Yam Seng that the same is

“heavily conditioned by its context” and has a core meaning of honesty. 200

On the subject

contract, the express duty to cooperate in good faith according to Jackson LJ means that, “the

parties will work together honestly endeavouring to achieve the two stated purposes.” 201

With this finding, Jackson LJ ruled that the awarding of excessive failure points or the

deduction of excessive amounts by Trust did not breach the subject duty although it did

breach other provisions of the contract. The main reason for this is that the meaning and

scope of the duty to cooperate in good faith in the contract was specifically limited by its

198

Ibid, par. 105. 199

Ibid, par. 106. 200

Ibid, par. 109. 201

Ibid, par. 112.


express purposes and the awarding of service points or making deductions to the payment of

the Contractor is totally irrelevant to those purposes. Moreover, the judge had no finding that

Trust was acting dishonestly, as opposed to mistakenly applying the complicated provisions

of the contract.202

Beatson LJ in his observations affirmed the pronouncements of Leggatt that the duty of good

faith is indeed sensitive to context and is subject to an objective test which is established

through the process of construction. However, he stated that said considerations are also

relevant in interpreting an express obligation to act in good faith found in the subject

contract.203

The scope of the express obligation of good faith must be construed in light of

other clauses in the contract and certainly the stated purposes for such duty.204

He went on

further to state that the contract involved in this case is a very detailed one which has many

specific provisions to cover various situations. In case of such detailed and specific contracts,

he cautioned against implying a general duty of good faith with a potential open-ended texture

to avoid cutting across more specific provisions and limitations of the duty expressed in the

contract.205

As observed, Mid Essex did not specifically overturn the pronouncements of Yam Seng and in

fact, confirmed Leggatt’s approach to good faith, namely, that the obligation is subject to

context, that honesty is one of its core elements and that the test of implying such term in the

contract is an objective test arrived through the process of construction. It also did not answer

the looming questions whether such general duty applies only to relational commercial

contracts or all other types of commercial contracts. Instead, it emphasized that in cases of

very detailed contracts which specifies eventualities for different situations, caution must be

taken in implying an overarching duty of good faith contrary to the express provisions of the

contract.

A key difference between Mid Essex and Yam Seng however, is that the former contained an

express duty of good faith while the latter did not. From the reading of the express duty of

good faith in the Mid Essex, the interpretation given by the Court of Appeal appears

reasonable that the duty’s content is limited to its purposes stated in the contract. In Yam

202

Ibid, par. 114-116. 203

Ibid, par. 150 (Beatson LJ). 204

Ibid, par. 151. 205

Ibid, par. 154.


Seng, there is no such express duty which therefore required Leggatt to undertake a

construction of the contract to reflect the true intention of the parties which he felt was not

truly reflected in the contract given its minimalist form. In the process of construction, he

considered the entirety of the contract including the relevant background and attendant norms

and he determined the context of the implied duty of good faith in terms of the type of

contract and relationship involved therein. In view of the “relational” nature of the contract,

he concluded that the duty of good faith in the contract went beyond the core norm of honesty

and extended to the duty of disclosure and provision of information. Due to this, the good

faith duty in the Yam Seng was construed in a wider sense as opposed to Mid Essex wherein

the express duty of good faith was capped by the express limitations of the duty under the

contract itself. In any case, it should be noted that the Court of Appeal did not expressly

disagree with the pronouncements in Yam Seng.

Hence, the question on whether the general obligation of good faith in the performance of

contracts as provided in Yam Seng applies to only relational contracts or also other

commercial contracts still remains unanswered. However, the ruling by Leggatt clearly stated

that he had no problem implying the general duty of good faith to any other commercial

contracts to reveal the true intention of the parties. This means that the pronouncement on the

implied general duty of good faith in contract performance insofar as ordinary commercial

contracts is concerned remains relevant.

We noticed however from Mid Essex that in case of an express duty of good faith with stated

limitations, the context of the duty of good faith has to be subservient to the express terms of

the contract. This is nothing novel in English law since it is a fundamental principle in

implying terms that such cannot be inconsistent with an express term of the contract. This

however does not also answer the question whether the implication of the general duty of

good faith undertaken in Yam Seng only applies to skeletal agreements as raised by some

commentators especially if the contract although detailed does not contain contrary provisions

to such general duty.

Finally, although the Court of Appeal stated that the duty of good faith in the Mid Essex case

is limited to its purposes expressed under the contract, it can be inferred from the decision by

Jackson LJ that he also applied the duty outside of said purposes, namely, by determining

whether there was a finding that the Trust was “dishonest” in computing excessive failure


points and in withholding excessive sums which matters are clearly outside the stated

purposes of the duty of good faith in the contract.

E. Conclusion

From the foregoing discussion, we have seen the distinctions in the treatment of the good faith

between civil law countries in Europe and English law. We have also seen, in a general

sense, the treatment of the good faith obligation by the other common law jurisdictions of the

US and Australia which have accepted the principle.

The principle of good faith predominantly applied by civil law countries in Europe plays the

role of a general principle in contract law and beyond. Its overarching application informs the

entire of contract law, and every contract or legal act is judged with the standard or

requirements of good faith. Both in pre-contractual negotiations and in performance of

contracts, good faith plays a general role and the parties’ conduct in both instances is required

to comply with good faith.

In contrast, we have seen that English law has not come forth with a general principle of good

faith. For the most part, English law has only applied good faith in special contracts and in

consumer contracts via Unfair Terms in Consumer Contracts Regulations. However, despite

popular belief, there have been cases wherein English law has applied good faith to ordinary

commercial contracts in order to protect the reasonable expectations of the parties and achieve

business efficacy of the contracts through implied terms. We have seen this in several cases,

The Product Star, Mackay v. Dick and the Paragon to name a few.

The 2013 cases of Yam Seng and Mid Essex take the implication of the duty of good faith

further in English law and Yam Seng has implied the duty in ordinary commercial contracts

using the well-established doctrine of English law of contract construction and implication of

terms as the source or methodology to assimilate the obligation in the contract. It is

noteworthy that Med Essex did not expressly overrule Yam Seng on this point.


On the meaning of good faith, Yam Seng pointed out that “honesty” is the core of good faith

which Mid Essex confirmed. Both cases further agreed that good faith is largely dependent on

the context to which it operates and is subject to the objective test.

Finally, as to the scope of good faith, Yam Seng implied the duty of good faith to an ordinary

commercial contract and Leggatt’s ruling on this point seems to infer that such implication of

term applies to all other commercial contracts. On the other hand, Mid Essex did not rule on

this point since the case involved the evaluation of an express duty to cooperate in good faith.

All Mid Essex stated is that caution must be undertaken in implying such a sweeping duty of

good faith in a detailed contract when it runs the risk of going against an express term in the

contract.206

All told, it is now the opportune time to answer the crucial question of whether or not English

law, considering the discussed developments, is going towards the general notion of good

faith.

If one is to compare the current state of good faith in English law against its current state in

European civil law countries, although there is a similarity in the role of good faith in the two

systems in the aspect of contract supplementation or the modification of the contract’s

contents, namely, wherein good faith brings forth ancillary obligations to supplement or

modify the contents of the contract, the answer will certainly be that English law is still very

far from accepting a general notion of good faith akin to that of the European civil law

systems. We simply do not see, at this point, good faith playing the overarching role in

English contract law as it does in European civil law systems as shown in the foregoing

discussion.

However, if one is to use another perspective, another point of comparison which is closer to

English law, namely, other common law jurisdictions such as the US and Australia, one may

see traces of a forward development towards a general notion of good faith in English law.

Looking at the meaning, scope and source or methodology used in Yam Seng to embrace the

duty of good faith in the contract, which as stressed is not novel and in fact supported by

206

Mid Essex, supra note 193, par. 154 (Beatson LJ).


authority in English law, one can see strong parallels between the development of the general

principle of good faith in English law with those of other common law systems like the US

and Australia. Let us look at these aspects one by one for better appreciation.

Regarding the source or methodology used to impute the obligation of good faith in contracts,

English law uses contract construction through implied terms and this is the same method

used in Australian law albeit the level of discussion in this area is at a deeper level at this

point considering the more advanced state of good faith’s acceptance in the latter jurisdiction.

As to US law, good faith’s leading source is the UCC and the Restatement of Contracts (2nd

)

and we can see that this is very different from English law. However, note that in

performance of contracts, US law takes good faith to mean faithfulness to an agreed common

purpose and consistency with justified expectations of the parties which are very similar to the

grounds used to imply the term of good faith in English law, namely, to protect reasonable

expectation of the parties and to achieve business efficacy of the contract.

On the scope of good faith, Yam Seng pronounced that duty of good faith can be implied in

ordinary commercial contracts as English law has done in past cases while Australian law has

now generally accepted good faith to be inherent in commercial contracts similar to the US.

As to the meaning of good faith, all three jurisdictions agree that honesty is a core element of

good faith. The US and Australia accepted a few more elements but both Australian law and

English law agree that good faith’s content is dependent on context which may expand or

contract depending on relevant background and parties’ expectations.

In light of the foregoing, viewing English law’s current level of acceptance of good faith and

its corresponding application in terms of source, meaning and scope, it can be concluded that

English law is moving towards a general notion of good faith following the direction and

perspectives of other common law countries which have declared the acceptance of such

general notion.

Certainly, English law still needs further development in this respect but if it will continue to

follow the steps taken by Australia, the US and other common law countries, we may be just

waiting for time to pass before English law openly declares that it has accepted the general

notion of good faith. Such a state is not completely impossible for English law is known to


adapt to the needs of the times and the economy. With the current economy heavily reliant on

global trade and insofar as Europe is concern, the European internal market, the principles of

good faith will continue to penetrate English law which will eventually accept the principle

due to its dynamic feature.

Insofar as the reasons raised against the acceptance of the general duty of good faith, we are

now seeing English law moving away from the will theory as it continues to impute

obligations of good faith in contracts such as the duty of cooperation, fidelity to the bargain

and protection of the weaker party through implied terms or statutes such as the Unfair Terms

in Consumer Contracts Regulations. On the remaining argument of certainty, Yam Seng has

introduced as solutions to this problem the limitation of the content of the good faith

obligation to the objective test of contract construction and by imposing the standard of

fairness with good faith.

Finally, if we are to adopt the statement by Goode which provides that the interests of

commerce is the ultimate moving force behind English contract law,207

then the current global

economy and its future vision of further globalisation already solves this issue for English law

which will continue to adapt to the needs of the market. Perhaps, with these considerations,

we will eventually see English law “catching-up with the tide” of good faith.208

207

Goode, supra note 148. 208

In contrast to the statement by Mr. Justice Leggatt in Yam Seng who stated that English law is “swimming

against the tide”, Yam Seng, supra note 174, par. 124.


Bibliography

A. Literature

- J.F. O’Connor, Good Faith in English Law, Darmouth Publishing Company Limited

1990.

- J.F. O’Conner, Good Faith in International Law, Darmouth Publishing Company

Limited 1991.

- Arthur Hartkamp, Martijn Hesselink, Ewoud Hondius, Chantal Mark & C. Edgar du

Perron, Towards a European Civil Code, 4th

Revised and Expanded Edition, Kluwer

Law International BV 2011.

- Rienhard Zimmerman and Simmon Whittaker, Good Faith in European Contract

Law, Cambridge University Press 2000.

- H. Beale, B. Fauvarque-Cosson, J. Rutgers, D. Tallon and S. Vogenauer, Cases,

Materials and Text on Contract Law, Second Edition, Hart Publishing 2010.

- B.S. Markesinis, W.Lorenz and G. Dannemann, ‘The Principle of Good Faith (With

special emphasis on the doctrine of Wegfall der Geschäftsgrundlage), The German

Law of Obligations Vol. I, The Law of Contracts & Restitution: A Comparative

Introduction, Reprinted 2001, Oxford University Press.

- Danny Busch, Ewoud Hondius, Hugo van Kooten, Harriët Schelhaas and Wendy

Schrama, The Principles of European Contract Law and Dutch Law, A Commentary,

Ars Aequi Libri 2002.

- Stefan Grundmann and Martin Schauer (eds), The Architect of European Codes and

Contract Law, Kluwer Law International 2006.

- Reinhard Zimmerman, Roman Law, Contemporary Law, European Law, The

Civilian Tradition Today, Oxford University Press 2001.

- Hugh Collins, The Law of Contract, 4th

Edition, LexisNexis UK 2003.

- Michael Furmston, Chesire, Fifoot & Furmston, Law of Contract, 16th

Edition, Oxford

University Press 2012.

- H.G. Beale, Chitty on Contracts, Volume 1 General Principles, 30th

Edition, Thomson

Reuters [Legal] Limited 2008.

- Michael H. Whincup, Contract Law and Practice, The English System, with Scottish,

Commonwealth, and Continental Comparisons, 5th

Edition, Kluwer Law International

BV 2006.


- Leone Niglia, The Transformation of Contract in Europe, Kluwer Law International

2003.

- Jackson Beatson and Daniel Friedmann, Good Faith and Fault in Contract Law,

Oxford University Press 1995.

- Stefan Grundmann and Martin Schauer, The Architect of European Codes and

Contract Law, Private Law in European Context Series, Volume 8, Kluwer Law

International BV 2006.

- Stefan Grundmann and Dennis Mazeaud, General Clauses and Standards in European

Contract Law, Comparative Law, EC Law and Contract Law Codification, Kluwer

Law International BV 2006.

- Edwin Peel, Treitel, The Law of Contract, 13th

Edition, Sweet & Maxwell 2011.

- Richard Stone, The Modern Law of Contract, 8th

Edition, Routledge-Cavendish 2009.

- H.G. Beale, W.D. Bishop, & M.P. Furmston, Contract, Cases & Materials,

5th Edition, Oxford University Press 2008.

- Richard Lawson, Exclusion Clauses and Unfair Contract Term, 8th Edition, Sweet &

Maxwell 2005.

- Hugh Collins, The European Civil Code, The Way Forward, Cambridge University

Press 2008.

B. Articles and Electronic Sources

- Martijn W. Hesselink, “The Concept of Good Faith”, in Arthur Hartkamp, Martijn

Hesselink, Ewoud Hondius, Chantal Mark & C. Edgar du Perron, Towards a

European Civil Code, 4th

Revised and Expanded Edition, Kluwer Law International

BV 2011.

- Bea Verschagen, “The Dutch Civil Code and its Precedents (1990-1992)” in Stefan

Grundmann and Martin Schauer (eds), The Architect of European Codes and Contract

Law, Kluwer Law International 2006.

- Hugh Beale, “The Impact of the Decisions of the European Courts on English

Contract Law: The Limits of Voluntary Harmonization”, European Law Review of

Private Law 3-2010 [501-526], Kluwer Law International BV.

- Maud Piers, “Good Faith in English Law - Could a Rule Become a Principle”,

26 Tul. Eur. & Civ. L.F. 123 (2011) 141-143,

http://heinonline.org/HOL/Page?handle=hein.journals/teclf26&div=7&g_sent=1&coll

ection=journals (accessed 16 April 2013).




- Vanessa Sims, “Good Faith in English Contract: Of Triggers and Concentric

Circles”, Ankara Law Review Vol. 1 No.2, Winter 2004, 213-232.

- Matthias E. Storme, “Good Faith and The Contents of Contracts in European Private

Law”, Vol 7.1 Electronic Journal of Comparative Law, March 2003,

http://www.ejcl.org/71/art71-1.html (accessed 10 May 2013).

- John Carter and Elisabeth Peden, “Good Faith in Australian Contract Law”, Sydney

Law School Research Paper No. 06/55, 2003 Journal of Contract Law, Vol. 19, p. 156,

http://ssrn.com/abtract=947352 (accessed 16 May 2013).

- Robert McDougall, “The Implied Duty of Good Faith in Australian Contract Law”,

http://www.lawlink.nsw.gov.au/lawlink/Supreme_Court/ll_sc.nsf/vwPrint1/SCO_mcd

ougall210206 (accessed 16 May 2013).

- Roger Kennell, "An Implied Duty of Good Faith and English Law: No Longer

Heresy?", 15 April 2013, http://www.brownrudnick.com/news-resources-detail/2013-

03-an-implied-duty-of-good-faith-and-english-law-no-longer-heresy (accessed 04 May

2013).

- Wragge & Co, "An implied duty of good faith in commercial contracts?", 28 February

2013,

http://www.legalmax.info/members2/conbook/acknowle.htm#an_implied_duty_of_go

od_faith_in_commercial_contracts.htm (accessed 04 May 2013).

- Jumana Rahman, Latham & Watkins LLP, "Do contractual parties have to act in

“good faith”? If so, what does that mean?", 15 April 2013,

http://www.mycorporateresource.com/index.php?option=com_content&view=article&

id=126345:latham-a-watkins-do-contractual-parties-have-to-act-in-good-faith-if-so-

what-does-that-mean-&catid=3398:yam-seng-pte-limited-a-implied-duty-of-good-

faith&Itemid=211039 (accessed 05 May 2013).

C. Laws and Statutes

- Bürgerliches Gesetzbuch [German Civil Code].

- Swiss Federal Civil Code.

- Burgerlijk Wetboek [Dutch Civil Code].

- Code Civil [French Civil Code].

- Marine Insurance Act of 1906.

- Council Directive (EC) 86/653/EEC on the coordination of the laws of the Member

State relating to self-employed commercial agents (1986).

http://www.ejcl.org/71/art71-1.html


- The Unfair Terms in Consumer Regulations of 1994 (SI 1994/3159), effective 01 July

1995.

- Unfair Terms in Consumer Contracts Regulations of 1999 (SI 1999/2083), effective

01 October 1999.

- Council Directive (EC) 93/13/EEC on unfair terms in consumer contracts (1993).

- Sale of Goods Act 1979 as amended by the Sale and Supply Goods Act 1994.

D. List of Cases

- Carter v. Boehm [1766] 3 Burr 1905.

- Walford v. Miles [1992] 2 AC 128.

- Petromec Inc. v. Petroleo Brasileiro SA Petrobas [2005] ECWA Civ 891.

- Pitt v. P.H.H. Asset Management Ltd [1994] 1 W.L.R. 327.

- Interfoto Picture Library Ltd. v. Stilleto Visual Programmes Ltd [1987] EWCA Civ 6.

- Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 A.C. 501.

- Bristol and West Building Society v. Mothew [1998] Ch.1, 18.

- Simpson v. Hardwood Hutton [2008] EWHC 1376.

- Johnson v. Unisys Ltd [2003] 1 A.C. 518.

- Imperial Group Pension Trust Ltd. v. Imperial Tabacco Ltd. [1991] 1 WLR 589.

- Paragon Finance Plc (formerly National Home Loans Corp) v. Nash [2001] WL

1135217, [2001] EWCA CIV 1466.

- Abu Dhabi National Tanker Co v Product Star Shipping (The Product Star) (No.2),

[1993] 1 Lloyd's Rep. 397.

- Downsview Nominees Ltd v. First City Corp. Ltd [1993] AC 295 (Privy Council).

- Medforth v. Blake & Others [1999] 3 WLR 922.

- Mackay v. Dick [1881] 8 R. (H.L.) 37.

- Conlon v. Simms [2008] 1 W.L.R. 484.

- Director General of Fair Trading v. First National Bank Plc [2001] WL 1171932,

[2001] UKHL 52.

- Reinard Constructions (ME) Pty Ltd v. Minister of Public Works (1992) 33 Con LR

72.

- Yam Seng Pte Limited v. International Trade Corporation Limited [2013] EWCH 111

(QB).

- Mid Essex Hospital NHS Trust v. Compass Group UK [2013] EWCA Civ 200.


- Hughes Bros Pty Ltd v. Trustee of the Roman Catholic Church for the Archdiocese of

Sydney (1993) 31 NSWLR 91.

- Burger King v. Hungry Jacks Pty Ltd [2001] NSWCA 187.

- Overlook Management BV v. Foxtel Management Pty Ltd [2002] NSWSC 17.

- Hughes Aircraft Systems International v. Air Services Australia (1997) 76 FCR 151.

- Pacific Brands Pty Ltd v. Underworks Pty Ltd [2005] FCA 288.

- Garry Rogers Motors Aust Pty Ltd v. Subaru (Aust) Pty Ltd (1999) ATPR 41-703.

E. Speeches

1. Roy Goode, “The Concept of ‘Good Faith’ in English Law”, Saggi, Conferenze

Seminari 2, Roma 1992.

Documents

Towards a General Notion of Good Faith in English Contract Law