Good faith

1. English law recognises no general duty of good faith but it has a diverse range of doctrines and principles (‘piecemeal solutions’) which address contraventions of good faith.

2. The meaning of good faith is controversial, but to have independent content it must mean more than the absence of good faith, ie some restraint on self-interested conduct and regard for the other party’s interests.

3. Many specific legal principles, rules and doctrines are motivated by good faith. There are numerous examples at all stages of the contract, including formation (eg the objective test of intentions, no acceptance by silence, protection of reasonable reliance), vitiation (eg misrepresentation, mistaken assumptions, duties of disclosure, duress, undue influence, non-commercial guarantees, unconscionable bargains), determining the contents of the contract (eg the terms-representation distinction, the incorporation rules, the implication of terms, the contra proferentem rule, rectification for unilateral mistake, restrictions on discretionary powers, frustration and express legislative control) and the selection of remedies (eg bars to specific performance and limits on affirmation, termination and damages and the enforcement of agreed remedies).

4. Good faith has an explanatory, legitimizing and creative role; it explains and legitimizes specific doctrines and may lead to future development of the common law.

5. Good faith is imposed by the law and does not merely reflect the parties’ intentions, ie it is ‘external’, imposing exogeneous standards, rather than ‘internal’. The view of good as based on ‘implied terms’ and ‘reasonable expectations’ is unrealistic and obscures the courts’ role.

6. Good faith protects autonomy interests (demonstrated by regulation of procedural unfairness), but also, more controversially, welfare interests (evident through restraints on substantive unfairness). Specific requirements of good faith can include refraining from certain conduct or seeking certain remedies, but also taking certain positive action.

7. The consequences of breaching good faith are varied, including the contract or a particular term being set aside, remedies being denied or damages awarded, or additional obligations being imposed.

8. Good faith is context-specific; the strength of any duty will be determined by the nature of the parties’ relationship. Its particular demands will depend on the seriousness of the interests affected, the degree of inequality of bargaining power and the nature of the contractual relationship (ie where it falls on the relationship ‘spectrum’; whether it is arm’s length, ‘relational’ or fiduciary or between any of these categories).

9. The arguments in favour of English law recognising a general doctrine of good faith include that (i) it already does so, (ii) it would promote transparency and coherent development of the law, (iii) good faith is recognised in other jurisdictions, (iv) it is justified by reference to the parties ‘reasonable expectations’ and (v) the law should impose good faith duties to avoid an unfair contest, promote social justice and ensure minimal welfare.

10. The arguments against good faith include (i) interference with freedom of contract, (ii) development is for Parliament, not the courts, (iii) it would cause uncertainty, (iv) it would make English law less internationally attractive and (v) it would contravene common law’s approach of cautious incrementalism.

11. If the cautious incrementalism approach is adopted, the law might develop in a number of ways, including recognition of a duty to negotiate in good faith, alteration of the thresholds for vitiating factors, certain duties such as cooperation, loyalty or commercially acceptable conduct being required in appropriate circumstances and changes in relation to the selection and availability of remedies.