Introduction
English contract law has long been characterised by its traditional opposition to a general, overriding duty of good faith. The principles of freedom of contract and contractual certainty have been prioritised, allowing commercial parties to pursue their own interests within the bounds of what they have expressly agreed. This approach is famously contrasted with many civil law systems and other common law jurisdictions which embrace good faith as a core principle. However, the traditional English view has faced significant challenge in recent years, particularly in the context of long-term commercial contracts, often termed ‘relational contracts’. These agreements, which depend on ongoing cooperation and trust between the parties, do not always fit comfortably within the adversarial model that underpins classical contract theory. This essay will argue that while the caution towards a universal duty of good faith is well-founded due to the risk it poses to commercial certainty, the incremental recognition of an implied duty of good faith in specific categories of long-term relational contracts represents a necessary and pragmatic evolution in the law. However, this development is not without its difficulties, and the courts should continue to proceed with caution to avoid creating undue uncertainty.
The Traditional Hostility Towards Good Faith
The conventional starting point for any discussion of good faith in English contract law is the House of Lords’ decision in Walford v Miles (1992). In this case, the court firmly rejected the notion that there could be a legally binding duty to negotiate in good faith. Lord Ackner famously stated that such a duty was “unworkable in practice” as it is “inherently inconsistent with the position of a negotiating party” (Walford v Miles, 1992, p. 138). His Lordship’s view was that each party to negotiations is entitled to pursue their own interests, and this includes the right to withdraw from negotiations at any time and for any reason. To impose a duty of good faith would be to force a party to act against their own self-interest, creating a standard that is too vague and uncertain for the commercial world to rely upon. This judgment cemented the idea that English law values certainty and individual autonomy over abstract notions of fairness.
This hostility, however, does not mean that English law is entirely unconcerned with fairness or honest dealing. Instead of a single, overarching principle, the law has developed a series of specific doctrines, often described as ‘piecemeal solutions’, which address conduct that might be considered ‘bad faith’ in other jurisdictions (McKendrick, 2020). For example, the doctrines of misrepresentation and duress regulate improper conduct during negotiations. The law on implied terms, particularly terms implied by statute such as those in the Sale of Goods Act 1979, imposes standards of quality and fitness for purpose that protect parties’ reasonable expectations. Furthermore, equitable doctrines like promissory estoppel can prevent a party from going back on a promise where it would be unconscionable to do so. In Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd (1989), Bingham LJ even suggested that English law had “developed piecemeal solutions in response to demonstrated problems of unfairness” which, taken together, hinted at an underlying principle of fair and open dealing. Despite this, the courts have consistently stopped short of using such observations to create a general duty of good faith that would apply to all contracts. The dominant judicial view has remained that it is for the parties to protect themselves through careful negotiation and drafting, not for the courts to improve their bargain for them later.
A Shift in Approach: Good Faith and Relational Contracts
The traditional position established in Walford v Miles (1992) has been significantly re-examined in the twenty-first century, largely driven by cases concerning long-term, relational contracts. These are contracts that require a high degree of communication, cooperation, and predictable performance over a long period. Examples include joint ventures, franchise agreements, and long-term distribution agreements. The nature of these relationships means that the parties cannot anticipate and provide for every eventuality in a written document, and instead rely on a spirit of mutual trust.
The landmark case in this area is the High Court decision in Yam Seng Pte Ltd v International Trade Corporation Ltd (2013). In this case, Leggatt J (as he then was) challenged the traditional English hostility to good faith. He argued that the suspicion was “misplaced” and that a duty of good faith could, and should, be implied into certain contracts. He suggested that such a duty was not being imposed by the court against the parties’ will, but was instead being implied as a matter of fact to reflect the parties’ presumed intentions. This duty would be particularly relevant in relational contracts, where the parties’ expectations of honesty and cooperation are high. Leggatt J stated, “the relevant background against which contracts are made includes not only matters of fact and knowledge shared by the parties, but also shared values and norms of behaviour” (Yam Seng, 2013, para 135). In the context of the specific distribution agreement in Yam Seng, he found that there was an implied duty on the defendant not to knowingly provide false information on which the claimant would rely.
While Yam Seng was only a first-instance decision, its influence has been considerable. The concept of implying a duty of good faith into relational contracts was further developed and applied in the significant case of Bates v Post Office Ltd (No 3) (2019). This was part of the group litigation brought by sub-postmasters regarding the faulty Horizon IT system. Fraser J held that the contracts between the Post Office and the sub-postmasters were relational contracts and, as such, contained an implied duty of good faith on both sides. He identified a non-exhaustive list of characteristics typical of a relational contract, including that it is a long-term agreement, that the parties’ relationship involves a high degree of trust and confidence, and that the parties intend their roles to be performed with integrity and in a spirit of cooperation (Bates, 2019, para 725). This was a powerful application of the principles from Yam Seng, showing a willingness to use the concept of a relational contract to provide a remedy for what was seen as systemic corporate misconduct.
However, it is important to note that the higher courts have remained cautious. The Court of Appeal in MSC Mediterranean Shipping Company S.A. v Cottonex Anstalt (2016) expressed reluctance to embrace a general organising principle of good faith, with Moore-Bick LJ warning that such a step would be a “significant intrusion into the traditional freedom of contract” (MSC, 2016, para 45). Therefore, the current position appears to be one of tension. The High Court has shown an increasing willingness to imply a duty of good faith into contracts identified as relational, but the appellate courts have not yet given their full approval to a broader principle, preferring to keep the development contained within the established doctrine of terms implied in fact.
Evaluating the Case for a Broader Duty
The debate over recognising a broader duty of good faith in long-term commercial relationships centres on the fundamental conflict between certainty and fairness. There are compelling arguments on both sides.
The primary argument in favour of a broader duty is that it better reflects the commercial reality of long-term relationships. As Collins (2001) has argued, many modern commercial arrangements depend on collaboration and trust, not adversarial posturing. A legal framework that recognises and supports these expectations of honest and cooperative behaviour is more likely to facilitate successful commercial ventures. It can provide a remedy against conduct that is opportunistic or commercially unacceptable but does not fall foul of specific doctrines like misrepresentation. Furthermore, embracing good faith would bring English law more into line with international commercial norms and the legal systems of many of our major trading partners, such as Germany, France, and the United States (under its Uniform Commercial Code), potentially making English law more attractive for international contracts.
Conversely, the arguments against a broader duty remain powerful, with the chief concern being uncertainty. Critics argue that “good faith” is an inherently vague concept. What one judge considers to be “good faith” another might not, leading to unpredictable court decisions. Lord Hobhouse in Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (2001) warned that it could become an “invitation to judges to substitute their own notions of fairness for the spirit of the contract” (p. 36). Commercial parties value certainty above almost all else; they need to know what their rights and obligations are so they can plan their affairs and manage risk. Introducing a broad duty of good faith could undermine this by creating a situation where a party’s clear contractual rights could be challenged on the basis that exercising them was not in “good faith”. This could increase the volume and cost of litigation, as parties seek to test the limits of this new duty. It also arguably undermines the principle of freedom of contract, as it allows a court to impose standards of behaviour that the parties themselves did not expressly agree to.
Conclusion
In conclusion, the question of whether English contract law should recognise a broader duty of good faith in long-term commercial relationships reveals a central tension within the law. The traditional hostility, epitomised by Walford v Miles, prioritises certainty and the freedom of parties to pursue their self-interest. This position remains commercially attractive and provides a clear framework for many contracts. However, the development of the “relational contract” category in cases like Yam Seng and Bates shows a clear judicial recognition that this traditional model is not always suitable for complex, long-term agreements that rely on mutual cooperation.
The current, incremental approach of implying a duty of good faith into specific relational contracts on a case-by-case basis seems to be a pragmatic compromise. It avoids the radical step of introducing a universal principle that could destabilise the certainty of all commercial contracts. Instead, it offers a targeted solution for situations where the parties’ presumed intentions include an expectation of honest and fair dealing. While this approach does create some uncertainty regarding which contracts will be deemed “relational”, it is arguably a more contained uncertainty than would be created by a general duty. Therefore, English law should continue on this cautious path. It should resist calls to introduce a general, overarching duty of good faith for all contracts, but remain open to implying such a term into long-term commercial relationships where the facts clearly demonstrate that the parties’ bargain was predicated on a foundation of trust and cooperation.
References
Cases
Bates v Post Office Ltd (No 3) [2019] EWHC 606 (QB)
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433
Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [2001] UKHL 1; [2003] 1 AC 469
MSC Mediterranean Shipping Company S.A. v Cottonex Anstalt [2016] EWCA Civ 789
Walford v Miles [1992] 2 AC 128 (HL)
Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB)
Books and Articles
Collins, H. (2001) ‘Is a Relational Contract a Legal Concept?’, in Campbell, D., Collins, H., and Wightman, J. (eds) Implicit Dimensions of Contract. Hart Publishing.
McKendrick, E. (2020) Contract Law: Text, Cases, and Materials. 9th edn. Oxford University Press.
