Page 31

London Business Matters

February 2017 Your business 31 SPONSORED COLUMN A New Duty of Good Faith in Commercial Contracts? As English law currently stands, there is no general overriding principle of good faith in contractual performance. There are a number of relational contracts in which the UK courts have been prepared to imply a duty for parties to act in good faith e.g. employment contracts, insurance contracts and joint venture agreements. Over the last few years, the UK courts have been forced to consider the question of an overriding principle of good faith in all commercial contracts. The first time this was considered was by Mr Justice Leggatt in the case of Yam Seng Pte Limited v International Trade Corp Ltd 2013 EWHC 111 (QB). In paragraph 148 of his judgment, he highlighted that the basis of a duty of good faith is the presumed intention of the parties and meaning of their contract, and the recognition of this would not restrict them in pursuit of their own interests. It is clear that the UK courts are prepared to find that where an agreement confers a contractual discretion upon a party, that discretion must be exercised in good faith and not arbitrarily or capriciously. This approach has been most recently confirmed in the case of Braganza v BP Shipping Ltd 2015 WLR 1661. However, there has been judicial reluctance to recognise a general obligation of “good faith” in all commercial contracts e.g. in Hamsard 3147 Ltd v Boots UK Ltd 2013 EWHC 3251 (Pat) and Greenclose Ltd v National Westminster Bank plc 2014 EWHC 1156 (Ch). This reluctance appears to be based on a fear that if such a general principle were established, it could be used to undermine agreed contractual terms rather than to support the same. Given that many other jurisdictions such as France, the U.S., Canada and Australia have an overriding doctrine of good faith in all commercial contracts, there is an argument that the UK should follow suit to provide greater coherence and certainty to this aspect of commercial law. It would also provide yet another advantage to those out of the jurisdiction seeking their agreements to be governed by English law. Ruhi Sethi-Smith Ruhi has a broad commercial dispute resolution practice which includes cross border litigation. Ruhi’s cases have included breach of contract, dishonest assistance, damages for loss of reputation, sale of goods, freezing injunctions, repossession actions, consumer credit claims, conspiracy claims, defamation actions, enforcement claims, charging order applications, corporate insolvency, company law claims, shareholders’ rights, restitution, professional negligence and public authorities litigation. Ruhi’s clients include FTSE listed companies, large national banks, large national insurance companies, property development companies, logistics companies, large building suppliers, hire companies, pharmaceutical companies, NHS trusts, local authorities, professional regulators, liquidators, administrators, surveyors, accountants and company directors. 4-5 Gray’s Inn Square Gray’s Inn | London WC1R 5AH Switchboard: +44 (0) 20 7404 5252 Direct Dial: +44 (0) 20 7674 1966 rsethi@4-5.co.uk | www.4-5.co.uk Wake up call Steph Caller of LCCI member company Zebrative won a gold medal at the Wakeboard World Championships in Mexico at the end of last year adding to her haul of silver and bronze at previous elite events. Wakeboarding is a highly-skilled water sport which involves riding a thin board over water and combines the use of water skiing, snowboarding and surfing techniques. Zebrative is a dynamic creative agency founded by Steph in 2010 which offer clients online and offline design and marketing services. www.zebrative.co.uk Click/tap for more info


London Business Matters
To see the actual publication please follow the link above