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Articles from the Silver Shemmings Ash Team on contractual matters, recent case law changes and items of interest in the construction and property world

(Good) Faith No More? by Laughlan Steer

July 15, 2018 | Silver Shemmings

Despite the position in several of our European neighbour’s legal systems, there is not in the UK a common law obligation to act in good faith. This perhaps explains the rather extensive caseload which legal practitioners such as myself have encountered in recent times.

English courts have been loath to imply an obligation to act in good faith into contracts which come before them. This reluctance, it has been argued, can be attributed to distain for the nebulous or broad on the one hand and doctrinal approbation for “freedom of contract” on the other.

What of the standard forms?

Unlike the NEC, neither JCT nor FIDIC in their standard form explicitly require the parties to act in good faith. NEC requires that the parties act “in a spirit of mutual trust and co-operation.” As the cynics among you will no doubt agree, despite its prominent placement within the contract, the obligation hasn’t historically carried much weight. The construction industry is not, after all, one renowned for its collaborative practices.

Recent case law

While the Courts of England and Wales tend not to imply good faith obligations, that does not mean they refuse to give effect to them. Our Courts have adopted a narrow application when enforcing good faith provisions; rather than extending any such obligations to cover the whole contract, the Courts have tied the obligation to specific activities. There are three recent cases which illustrate this methodology: “Medirest”, TSG Building Services and Fujitsu Services.

In Medirest, the Court was asked to consider the following:

“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, as the case may be, any Beneficiary to derive the full benefit of the Contract.” 

The Court of Appeal (thereby meaning that this case is currently the highest authority on the subject) overturned the finding at first instance and concluded that the clause obligated the parties to achieve two stated purposes, while working honestly together. The judgement was clear that such obligations did not extend beyond the stated purposes, concluding that “care must be taken not to construe a general and potentially open-ended obligation such as an obligation to “co-operate” or “to act in good faith” as covering the same ground as other, more specific, provisions, lest it cut across those more specific provisions and any limitations in them.”

In TSG Building Services the Court was asked to consider the following wording:

“The Partnering Team members shall work together and individually in the spirit of trust, fairness and mutual co-operation for the benefit of the Term Programme, within the scope of their agreed roles, expertise and responsibilities as stated in the Partnering Documents, and all their respective obligations under the Partnering Contract shall be construed within the scope of such roles, expertise and responsibilities”.

The Court held that the above good faith obligation extended only to the parties’ defined actions and responsibilities, concluding that the obligation had no effect on the unusually free termination procedure.

In Fujitsu Services, the Court was asked to consider the following:

“[The Parties will] work together to achieve a relationship of mutual respect and trust” and that all dealings be “open, honest, clear and reliable”.

The Court here concluded that the obligations lacked specificity; rather, they were “aspirational and motivational” and so drafted to avoid an absolute and overriding obligation of good faith.

Good faith as an implied obligation

In Yam Seng the Court was asked to consider the position where the parties had agreed a short form distribution agreement, absent a good faith clause. When Yam Seng Pte Ltd commenced proceedings, it also contended there had been a breach of the implied obligation for the parties to act in good faith.

Not dissimilarly to the cases discussed above, the judge in Yam Seng construed (albeit by implication) a narrow good faith obligation in relation to two key activities: the provision of information between the parties and the product pricing strategy.

What this case demonstrates is that defining obligations narrowly assists parties insofar as it enables them to better understand the extent of their contractual commitments as well as potentially stymieing the suggestion of an implied obligation of good faith.

Conclusion

One explanation for the paucity of NEC-related good faith (or otherwise) cases could be that it deals with the matter explicitly in its standard forms. Perhaps in the next revision of the JCT suite, we might expect to see some analogous provisions.

Full citations

Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a Medirest) [2013] EWCA Civ 200

TSG Building Services plc v South Anglia Housing Limited [2013] EWHC 1151 (TCC)

Fujitsu Services Limited v IBM United Kingdom Limited [2014] EWHC 752 (TCC)

Yam Seng Pte Limited v International Trade Corporation [2013] EWHC 111 (QB)

Author Laughlan Steer is a Solicitor specialising in Construction and Real Estate law, his experience spans non-contentious as well as contentious matters. He has led a number of adjudications and is well-versed in both Part 7 and Part 8 litigation proceedings and Mediation.  Laughlan has also acted on a number of complex commercial matters within the energy and renewables sector, where his professional life began.

He enjoys servicing a diverse client-base, from sub-contractors, to architects and high net worth individuals and he regularly presents seminars and lectures to the public, local authorities, consultancies and construction companies of all sizes.

At Silver Shemmings Ash, we provide seminars and training alongside our core activities in contentious and non-contentious matters, the purpose if these is to facilitate a greater knowledge and understanding of construction and property law. There remains a considered lack of training in such areas for companies and one to which we look to address.


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