Good Faith

I am posting my revision note for MSc Construction Law and Dispute Resolution at King's College London.

Good Faith

Good faith obligations are not generally implicitly imposed in England and Wales. An attempt By Lord Mansfield in Carter v Boehm to adopt good faith obligations as a general principle in all contracts in the UK was not successful. However, for some types of contracts, good faith obligations may be imposed by law. For instance, good faith may be implied in (a) consumer contracts, (b) insurance contracts, contracts about (c) the sale of land, (d) the sale of company stocks and shares, and (e) employment law. The English courts favour an incremental approach in respect to good faith rather than being general rules or overriding principles. The English courts view that imposing good faith obligation seems to be an (unnecessary) interference of the freedom of contract and the courts have other means to deal with unfairness without good faith. These include (a) misrepresentation (b) promissory estoppel not to mislead another party during the negotiation (c) equity (d) contra proferentem principle for onerous terms, and (e) statutes such as the Unfair Contract Terms Act 1977. Therefore, there are a number of ways that the English courts imply aspects of the duty of good faith into contracts without there being a general doctrine of good faith in that regard.

A construction contract does not impose good faith obligations otherwise expressly stipulates to do so . With that said, parties can expressly incorporate good faith obligations into a contract. Some standard forms of contracts, especially relational or collaborative contracts, expressly impose good faith to parties during the performance of contracts. However, the provisions regarding good faith will be interpreted narrowly. And good faith does not require a party to relinquish a freely negotiated financial advantage embedded in the contract except where there is an unfair term.

Good faith obligations may function in two stages, i.e. good faith obligations that are expected to be followed during negotiation, and good faith obligations that are expected to be followed during the performance of the contract. Good faith during the negotiation stage is mainly concerned with non-disclosure of information and imbalance of knowledge. In general, in the UK there are no general obligations to disclose information held by one party to another party as long as the one party avoids making misrepresentations. During the performance stage, mutual trust, cooperation and collaboration approaches are required if good faith obligations are imposed. In general, contract administrators have an implied obligation to be impartial. And the parties (the employer and contractor) may have implied duties of cooperation on site.

Long-term and relational contracts may imply good faith. Traditionally, it was not implied in such contracts, but the recent case of Yam Seng may indicate the shift of tide that such contracts may imply good faith obligations.

Good faith obligations are generally imposed in civil law jurisdictions. The US and other common law jurisdictions may impose good faith obligations into all commercial contracts. The English courts may review the doctrine of good faith under other legal systems. 

1.The English courts’ approach to implying good faith and other means used by the English courts to achieve an equivalent outcome

1.1.           Not general rules or overriding principles but incremental approach

The debate regarding good faith commenced from Carter v Boehm (1766) 3 Burr 1905. Carter was the Governor of Fort Marlborough, built by the British East India Company. Carter sought an insurance policy with Boehm against the fort being taken by a foreign enemy. It was revealed during the hearings Carter was aware that the fort was built to resist attacks from natives but would be unable to prevent European enemies, and Carter knew the French were to be expected to attack. The French attacked successfully, but Boehm refused to honour the insurance policy and promptly sued against Carter. Lord Mansfield, in Carter, held 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”. The current UK position is laid down by Bingham L.J. in Interfoto v Stiletto [1987] EWCA Civ 6 holding that “English law has, characteristically committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of unfairness” It is not recognised as a rule or principle.

1.2.           Implied terms in a nutshell

The doctrine of freedom of contract may limit the role of the courts to strict enforcement of contracts. Consequently, objective interpretation of the party's intentions when entering into a contract has become important in order for the courts to safeguard the contracting party’s promise. The leading case with respect to the construction of contracts is ICS v WBBS [1998] 1 W.L.R. 896. Lord Hoffmann in ICS stated; “Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background which would reasonably have been available to the parties in the situations in which they were at the time of the contract.” However, difficulties arise when express terms do not fully encompass a party’s objective intentions. Lewison states that “In some cases that intention is collected merely from the express words of the contract and the surrounding circumstances.” Difficulties like these have stimulated the development of “implied terms”, which were used to aid in interpretation of a party’s objective intentions. There are three channels that are used for determining the implications of terms a contract holds. These are: 

·                 common law; 

·                 statutes; or 

·                 customs.  

1.2.1. Implied by Common Law 

Common law references two types of implied terms. These are: (a) implied terms in law and (b) implied terms in fact.  

1.2.2. Implied terms in law  

Terms are implied in law as a consideration of policy and are factored into all contracts of a particular type irrespective of the parties’ intentions. For example, in an employment contract, there is an implied obligation of good faith, which is considered a ‘necessity incident’ used to protect the interests of a contract’s weaker party. 

1.2.3. Implied terms in fact 

The courts may decide that terms are implied because there is a necessity to ensure all contracts of a particular type operate. In addition, terms can be implied due to a need for business efficacy, which can only be ensured if a standard set of procedures or rules are associated with particular types of contract. And terms are implied if these terms reflect the parties assumed intentions (as understood by a reasonable person):Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10. In Belize, the essential question to determine the existence of implied terms in fact was “what would the contract, read as a whole against the relevant background, reasonably be understood to mean?” The initial test used by the courts to establish implied terms in fact was known as the ‘officious bystander test’, although it should be noted that more recent modifications have been made to this test. In the recent case of Marks and Spencer v BNP Paribas [2015] UKSC 72, the claimant claimed an implied right to recover money paid in advance when the contract terminates. The courts set up an alternative test that was termed the ‘business necessity and obviousness test’. However, it should be noted that the courts have been cautious in imposing implied terms since the omission of an express term could be construed as a deliberate act. 

1.3 Is good faith obligation implied in commercial contracts in the UK?

The default position of English law does not recognise a general duty to perform contracts in good faith: Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] Q.B. 433, and Walford v Miles [1992] 2 A.C. 128. In Yam Seng v ITC [2013] EWHC 111(QB) Leggatt J summarised the “traditional English hostility towards a doctrine of good faith” in conjunction with three reasons: (a) preference of piecemeal approach rather than broad overarching principles (b) unnecessary interference of the freedom of contract (c) uncertainty of good faith. It was held that: 

“123. Three main reasons have been given for what Professor McKendrick has called the "traditional English hostility" towards a doctrine of good faith: see McKendrick, Contract Law (9th Ed) pp.221-2. The first is the one referred to by Bingham LJ (Interfoto v Stiletto [1987] EWCA Civ 6) in the passage quoted above: that the preferred method of English law is to proceed incrementally by fashioning particular solutions in response to particular problems rather than by enforcing broad overarching principles. A second reason is that English law is said to embody an ethos of individualism, whereby the parties are free to pursue their own self-interest not only in negotiating but also in performing contracts provided they do not act in breach of a term of the contract. The third main reason given is a fear that recognising a general requirement of good faith in the performance of contracts would create too much uncertainty. There is concern that the content of the obligation would be vague and subjective and that its adoption would undermine the goal of contractual certainty to which English law has always attached great weight.”

1.4 Other means used by the English courts to achieve an equivalent outcome

English Courts view that imposing good faith obligation seems to be a (redundant) interference of the freedom of contract and the courts have other means to deal with unfairness without good faith. These include (a) misrepresentation (b) promissory estoppel not to mislead another party during the negotiation (c) equity (d) contra proferentem principle for onerous terms, and (e) the Unfair Contract Terms Act 1977. Therefore, there are a number of ways that the English courts imply aspects of the duty of good faith into contracts without there being a general doctrine of good faith in that regard.

2.         The treatment of express good faith wording in standard forms of contract

In the UK, several standard forms of construction contracts expressly state the collaborative project management or good faith obligations in the stage of execution. NEC4 clause 10. 2: “The Parties, the Project Manager and the Supervisor shall act in a spirit of mutual trust and cooperation”. PPC2000 clause 1.3 provides that “The Partnering Team members shall work together and individually in the spirit of trust, fairness and mutual cooperation for the benefit of the Project, within the scope of their agreed roles, expertise and responsibilities as stated in the Partnering Documents”. JCT SBC/Q 2016 Schedule 8 clause 1: “The Parties shall work with each other and with other project team members in a co-operative and collaborative manner, in good faith and in a spirit of trust and respect. To that end, each shall support collaborative behaviour and address behaviour which is not collaborative”. The legal question arises whether these declarations are enough to impose the duty of good faith.

2.1.           The narrow construction of express good faith

The leading case for construction of express good faith is Compass Group v Mid Essex Hospital NHS Trust [2013] EWCA 200 Civ. The Court of Appeal had to consider the meaning of clause 3.5 which expressly imposed a duty to cooperate in good faith:“3.5 The Trust and the Contractor will co-operate with each other in good faith and will take all reasonable action as is necessary for the efficient transmission of information and instructions and to enable the Trust or ... any Beneficiary to derive the full benefit of the Contract.” Under clause 3.5 there are two scopes: firstly the specific scope related to “efficient transmission of information” and secondly the broad scope of enabling the contracting party or any beneficiary to derive the full benefit of the contract. A good faith provision was narrowly construed in Compass Group limiting its effect to the clause dealing with “efficient transmission of information” in the contract. In Fujitsu v IBM [2014] EWHC 752 (TCC) the courts found that partnering principles contained in the contract were aspirational and motivational only, and not giving rise to fiduciary duties.

3.         The impact of good faith during the negotiation of the contract

The leading case regarding the implied duty of good faith in the course of negotiation is Walford v Miles [1992] 2 AC 128. Lord Ackner in Walford held that implying “a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties” and that each party is “entitled to pursue his (or her) interests as long as he avoids making misrepresentations.” But, good faith in negotiations may be enforceable under certain circumstances. When multi-tier dispute resolution clauses require the parties to negotiate in good faith before escalating the dispute, the clause may be enforceable. In Alstom Signalling v Jarvis Transport Information Solutions [2004] EWHC 1232 (TCC) HH Judge Rees QC held that “Neither party could thwart [an] obligation [to make reasonable endeavours to agree on pain/gain provisions] by refusing to negotiate in good faith or refusing to allow an Adjudicator or TCC judge to resolve the issue.” There is still the requirement for good faith by way of full disclosure in insurance contracts: Carter v Boehm.  There may also be a requirement to notify particularly onerous contract terms. In Interfoto v Stiletto [1987] EWCA Civ 6, Bingham LJ’s judgment in favour of defendants “because the plaintiffs did not do what was necessary to draw this unreasonable and extortionate clause to [the defendants’] attention.” However, it is worth noting that in ING Bank v Ros Roca [2011] EWCA Civ 353 there is “no obligation in general to bring difficulties or defects to the attention of a contract partner or prospective contract partner” In light above, it is difficult to make a single conclusion as to good faith obligation in the course of negotiations.

4.          The impact of good faith on the role of the contract administrator and general duties of cooperation on site

4.1. The impact of good faith on the contract administrator

In modern building contracts, the role of the certifier is invariably to act impartially between the employer and the contractor. It should be noted that this is distinct from the other role of the engineer or architect as the employer’s agent when they must act as an agent in the best interests of their principal. The contract administrator under most traditional forms of contract including JCT and FIDIC has a “dual responsibility” for acting as an agent and certifier, which is subject to many criticisms. The role of certifier was clarified in the case of Sutcliffe v Thackrah [1974] AC 737A: “ The building owner and the contractor make their contract on the understanding that in all such matters the architect will act in a fair and unbiased manner and it must therefore be implicit in the owner’s contract with the architect that he shall not only exercise due care and skill but also reach such decisions fairly, holding the balance between his client and the contractor.” In Costain v Bechtel [2005] EWHC 1018 (TCC), the contractor claimed an injunction to restrain alleged improper interference by Bechtel with their employees acting as project managers for the purpose of disallowing contractor’ costs in payment certificates under an NEC contract. While refusing the injunction for other reasons, the courts made a statement: it was"unable to find anything which militates again the existence of a duty to act impartially in matters of assessment and certification." In Scheldebouw v St James Homes [2006] EWHC 89 (TCC), judgment drew a distinction between the “agency function” and the “decision-making function” which requires independence, impartiality, fairness and honesty. It was held that:

“when performing his decision-making function, the decision-maker is required to act in a manner which has variously been described as independent, impartial, fair and honest. These concepts are overlapping but not synonymous. They connote that the decision-maker must use his professional skills and his best endeavours to reach the right decision, as opposed to a decision which favours the interest of the employer... in my judgement, exactly the same analysis applies... to most if not all of the standard contract forms in this field."

4.2. The impact of good faith on the employer and contractor

The leading case for implied obligations by the contractor and employer is London Borough of Merton v Leach (1985) 32 BLR 51, Vinelott J held that: “There is an implied contract by each party that he will not do anything to prevent the other party from performing a contract or to delay him in performing it” and an implied “duty to do whatever is necessary in order to enable a contract to be carried out”.  In Balfour Beatty v DLR (1996) C.L.C. 1435, the Court of Appeal held that an extensive power of certification by the employer was restrained by a duty of good faith. It was held:

“The parties' respective rights and obligations were governed by the contract. Under cl. 44.4 and 60.5 the contractor's entitlement depended on the employer's judgement. Although that judgement was not expressed to be binding and conclusive, there was no agreed means of challenging it nor any objective standard by which the contractor's entitlement was to be assessed. The court could only give fair effect to what the parties had agreed.

The employer was nevertheless under a duty to act honestly, and bound by the contract to act fairly and reasonably. If, therefore, the contractor could prove a breach of that duty it would be entitled to a remedy.”

In the UK, these implied contractual duties (those may be directly related to good faith obligations or not) include:

∙       Implied terms for an employer to give possession of the site to a contractor within a reasonable time: London Borough of Merton v Leach (1985) 32 BLR 51;

∙       Implied terms for an employer to give instruction and information at a reasonable time;

∙       Implied terms for a contractor to carry out their work with proper skill and care (in a workmanlike manner);

∙       Implied terms for a contractor provide goods and materials to be good quality and reasonably fit for purpose: Young & Marten Ltd v McManus Childs Ltd [1969] 1 A.C. 454;

On the other hands, the courts have viewed that no terms are implied in particular situations. These include: 

∙       No implied terms for a contractor progress the work regularly and diligently: Leander Construction Limited v Mullaley and Company Limited [2011] EWHC 3449 (TCC).

∙       No implied warranty by an employer for the nature or suitability of the site or subsoil, or as to the practicality of the design: Thorn v London Corp (1876) 1 App. Cas. 120

∙       No implied warranty by a contractor for fitness for the finished product when the contractor builds in accordance with detailed instructions by an employer: Lynch v Thorne [1956] 1 ALL ER 744

5.         The possibility of giving up contractual rights?

Good faith does not require a party to give up a freely negotiated financial advantage rooted in the contract except where there is an unfair term which “causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer in a manner or to an extent which is contrary to the requirement of good faith.” And a good faith clause did not create any constraint on the right of termination at will in TSG Building Services v South Anglia Housing [2013] 1151 (TCC), despite being part of a long-term “TPC2005” Partnering Contract.

6.          The relevance of long-term/relational contracts?

There is no special requirement for “trust and confidence” arising by reason only of a long-term relationship (e.g. for highway maintenance and repair): Bedfordshire County Council v Fitzpatrick [1998] 62 Con LR 64 (TCC) However, in Yam Seng v ITC [2013] EWHC 111(QB) good faith, at least obligation to be honest, was implied in relational contracts. The dispute related to the termination of a distribution agreement for Manchester United fragrances. Yam Seng, the distributor, alleged that ITC had provided false information regarding the availability of products and when they would be supplied and had undercut duty-free prices offered to Yam Seng in breach of an implied duty of good faith. In Yam Seng, Leggatt J applied the principles in ICS v WBBS [1998] 1 W.L.R. 896 and Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10 to reach a conclusion as to the implication of good faith obligations. It was held that:

“131. Under English law a duty of good faith is implied by law as an incident of certain categories of contract, for example contracts of employment and contracts between partners or others whose relationship is characterised as a fiduciary one. I doubt that English law has reached the stage, however, where it is ready to recognise a requirement of good faith as a duty implied by law, even as a default rule, into all commercial contracts. Nevertheless, there seems to me to be no difficulty, following the established methodology of English law for the implication of terms in fact, in implying such a duty in any ordinary commercial contract based on the presumed intention of the parties.

 137. As a matter of construction, it is hard to envisage any contract which would not reasonably be understood as requiring honesty in its performance. The same conclusion is reached if the traditional tests for the implication of a term are used. In particular the requirement that parties will behave honestly is so obvious that it goes without saying. Such a requirement is also necessary to give business efficacy to commercial transactions.”

Leggatt J held that there was a duty to be honest, which is part of good faith, and that ITC had made a repudiatory breach of contract.

Harvey (2018) suggests Yam Seng may open up a subjective interpretation which renders the law uncertain, which is against the objective interpretation adopted in the UK. Implying a term in fact, rather than in law, which was clarified in Belize, seems to adopt a purposive approach which is seen as a radical departure from the literal rule. Hudson recognises that the implication of the Yam Seng as to implied by terms in fact does not seem as radical as it first sounds, because firstly, it is based on the presumed intention of the parties as in Belize, secondly, implied terms may not override the express terms, thirdly, the courts will narrowly interpret (express) good faith as in Compass. Hudson at para 1-053 states:

 “This suggestion ought to be less radical than it first appears, for two reasons. First, because it is based upon presumed intention of the parties, it cannot develop, except to the extent businesses, individuals and public bodies in fact evince any such intention. Thus the fact that academic lawyers or judges have become interested in the concept of good faith will not justify imputing such an intention, whereas the choice of the parties to use partnering arrangements may do so. Secondly, the rules for the implication of terms into a complicated contract such as most construction and engineering contracts require, that a good faith obligation which cuts across the other terms of the contract either cannot be implied or at the very least will often be severely restricted by them. Furthermore, this suggestion must now be read in the light of the recent Court of Appeal decision of Mid-Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd, in which the Court of Appeal, reversing the trial judge, was careful (with respect rightly) to observe all the normal rules of construction (including the rule that the express terms can exclude any implied term) when considering an implication of good faith into a termination clause, and also into a payment and performance clause. As a result the Court held that the express terms of the specific payment and termination clauses excluded any such implication.”

It is worth noting that, as per Hudson and Yam Seng, the choice of the parties to use partnering arrangements may imply good faith. Therefore, it should be carefully measured whether there's likely to be the implication of good faith in long-term/ relational contracts.

7.         The impact and interpretation of civil codes

Leggatt J in Yam Seng compared and contrasted the good faith obligations in the UK and other jurisdictions.

“123. Three main reasons have been given for what Professor McKendrick has called the "traditional English hostility" towards a doctrine of good faith: see McKendrick, Contract Law (9th Ed) pp.221-2. The first is the one referred to by Bingham LJ (Interfoto v Stiletto [1987] EWCA Civ 6) in the passage quoted above: that the preferred method of English law is to proceed incrementally by fashioning particular solutions in response to particular problems rather than by enforcing broad overarching principles. A second reason is that English law is said to embody an ethos of individualism, whereby the parties are free to pursue their own self-interest not only in negotiating but also in performing contracts provided they do not act in breach of a term of the contract. The third main reason given is a fear that recognising a general requirement of good faith in the performance of contracts would create too much uncertainty. There is concern that the content of the obligation would be vague and subjective and that its adoption would undermine the goal of contractual certainty to which English law has always attached great weight.

124. In refusing, however, if indeed it does refuse, to recognise any such general obligation of good faith, this jurisdiction would appear to be swimming against the tide. As noted by Bingham LJ in the Interfoto case, a general principle of good faith (derived from Roman law) is recognised by most civil law systems – including those of Germany, France and Italy. From that source references to good faith have already entered into English law via EU legislation. For example, the Unfair Terms in Consumer Contracts Regulations 1999, which give effect to a European directive, contain a requirement of good faith. Several other examples of legislation implementing EU directives which use this concept are mentioned in Chitty on Contract Law (31st Ed), Vol 1 at para 1-043. Attempts to harmonise the contract law of EU member states, such as the Principles of European Contract Law proposed by the Lando Commission and the European Commission's proposed Regulation for a Common European Sales Law on which consultation is currently taking place, also embody a general duty to act in accordance with good faith and fair dealing. There can be little doubt that the penetration of this principle into English law and the pressures towards a more unified European law of contract in which the principle plays a significant role will continue to increase.

125. It would be a mistake, moreover, to suppose that willingness to recognise a doctrine of good faith in the performance of contracts reflects a divide between civil law and common law systems or between continental paternalism and Anglo-Saxon individualism. Any such notion is gainsaid by that fact that such a doctrine has long been recognised in the United States. The New York Court of Appeals said in 1918: "Every contract implies good faith and fair dealing between the parties to it": Wigand v Bachmann-Bechtel Brewing Co, 222 NY 272 at 277. The Uniform Commercial Code, first promulgated in 1951 and which has been adopted by many States, provides in section 1-203 that "every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement." Similarly, the Restatement (Second) of Contracts states in section 205 that "every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement."

126. In recent years the concept has been gaining ground in other common law jurisdictions. Canadian courts have proceeded cautiously in recognising duties of good faith in the performance of commercial contracts but have, at least in some situations, been willing to imply such duties with a view to securing the performance and enforcement of the contract or, as it is sometimes put, to ensure that parties do not act in a way that eviscerates or defeats the objectives of the agreement that they have entered into: see e.g. Transamerica Life Inc v ING Canada Inc (2003) 68 OR (3d) 457, 468.

127. In Australia the existence of a contractual duty of good faith is now well established, although the limits and precise juridical basis of the doctrine remain unsettled. The springboard for this development has been the decision of the New South Wales Court of Appeal in Renard Constructions (ME) Pty v Minister for Public Works (1992) 44 NSWLR 349, where Priestley JA said (at 95) that:

"... people generally, including judges and other lawyers, from all strands of the community, have grown used to the courts applying standards of fairness to contract which are wholly consistent with the existence in all contracts of a duty upon the parties of good faith and fair dealing in its performance. In my view this is in these days the expected standard, and anything less is contrary to prevailing community expectations."

128. Although the High Court has not yet considered the question (and declined to do so in Royal Botanic Gardens and Domain Trust v Sydney City Council (2002) 186 ALR 289) there has been clear recognition of the duty of good faith in a substantial body of Australian case law, including further significant decisions of the New South Wales Court of Appeal in Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, Burger King Corp v Hungry Jack's Pty Ltd [2001] NWSCA 187 and Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15.

129. In New Zealand a doctrine of good faith is not yet established law but it has its advocates: see in particular the dissenting judgment of Thomas J in Bobux Marketing Ltd v Raynor Marketing Ltd [2002] 1 NZLR 506 at 517.

130. Closer to home, there is strong authority for the view that Scottish law recognises a broad principle of good faith and fair dealing: see the decision of the House of Lords in Smith v Bank of Scotland, 1997 SC (HL) 111 esp. at p.121 (per Lord Clyde).

From the above findings, it may be safe to say that good faith obligation is generally imposed in civil law jurisdictions. The US and some common law jurisdictions may impose good faith obligations into all commercial contracts. In international arbitration, the English courts may be able to review the general doctrine of good faith obligations under other legal systems as in Dallah v GOP. In Dallah, the arbitral tribunal’s views were divided when deciding the application of good faith to determine whether the non-signatory (GOP) was bound by the arbitration agreement.

“Dr. Mahamassini also concluded that ‘the requirements of good faith and morality’ demanded that the GoP be bound by both the Agreement and the arbitration agreement. However, the FPA records that Justice Dr. Shah and Lord Mustill were ‘not convinced’ that a duty of good faith could operate ‘to make someone a party to an arbitration who on other grounds could not be regarded as such.’” [H.C. para. 51]

In the English Court, Aiken J supported the view of Dr. Shah and Lord Mustill saying:

“If, on whatever principles are applicable, it is found that the GoP was a party to the arbitration clause and the agreement, good faith adds nothing. If, on the other hand, it is found that the GoP is not a party, then I hold, on the French law evidence before me, that the invocation of a general principle of good faith in commercial relations and international arbitration is insufficient to make it a party.” [H.C. para. 130]

Interestingly, the Paris Court of Appeal held that GOP was bound by the arbitration agreement after the English Supreme Court’s decision, which the arbitral tribunal had no jurisdiction.

8.         Takeaway

(1)  Good faith is not generally imposed on construction contracts in the UK.

(2)  For certain types of contracts, good faith obligations may be imposed by law such as insurance contracts.

(3)  The English courts favour an incremental approach in respect to good faith rather than it being general rules or overriding principles.

(4)  The English courts view that imposing good faith obligation seems to be an (unnecessary) interference of the freedom of contract and the courts have other means to deal with unfairness without good faith.

(5)  Express good faith can be expressly incorporated, but it requires to be specific because express good faith to be interpreted narrowly. Good faith does not require a party to relinquish a freely negotiated financial advantage in the contract except where there is an unfair term.

(6)  Good faith during the negotiation stage is mainly concerned with non-disclosure of information and imbalance of knowledge. In general, in the UK there are no general obligations to disclose information held by one party to another party as long as the one party avoids making misrepresentations. However, the party may be in breach if not notifying another party the existence of onerous terms.

(7)  During the performance stage, mutual trust, cooperation and collaboration approaches are required if good faith obligations are imposed. In general, the contract administrator has an implied obligation to be impartial. And the parties may have certain kinds of implied duties of cooperation on site.

(8)  Long-term/relational contracts may or may not implicitly impose the duty of good faith.

(9)  In international arbitration, the English courts may be able to review the general principle of good faith obligation under other legal systems. It seems that there is no global consistency as to the implications of good faith.

(10) It is still a kaleidoscope as to good faith in the UK hence it may not a useful tool for risk allocation management.