3 Application of Good Faith in Maritime Contracts
At common law, it was believed that the doctrine of good faith has not spilled
beyond the perimeter of the law of marine insurance. Scholars take cue from the fact
that definition of good faith is not available in any of the statutes in English law
jurisdictions. Only in marine insurance contracts has good faith been recognized to
an extent by including the duty of disclosure and making true representations as its
essential ingredients. We shall observe and analyse if such treatment has been meted
out to other contracts in general and maritime contracts specifically.
In Carter v. Boehm,
34 Lord Mansfield pronounced that there may be circumstances in which an insurer, by asserting a right to avoid for non-disclosure, would
himself be guilty of want of good faith. This was held to be an unprecedented
statement of common law.
35 Section 17 of the Marine Insurance Act, 1906 embodied
good faith. This section attracted further attention in 1985, when Hirst J. in The
Litsion Pride
36 held that the insurer might have a defence to the claim based upon
lack of good faith.
However, when it comes to general contracts, in the absence of a doctrine of good
faith, English law has had to resort to the implication of terms depending upon the
nature of the contract e.g., an implied duty to cooperate where the contract cannot be
performed without cooperation, or by reason of special circumstances of a particular
contract. The special facts, upon which the contingent chance is to be computed, lie
most commonly in the knowledge of the insured only; the under-writer trusts to his
representation, and proceeds upon confidence that he does not keep back any
circumstances within his knowledge, to mislead the underwriter into a belief that
the circumstance does not exist, and to induce him to estimate the risque, as if it did
not exist”.
37
An era has passed since Lord Ackner pronounced that negotiations in good faith
were not enforceable in English law.
38 In Walford v. Miles,
39 the defendants refused
to negotiate and consequently, the contract remained undecided although there was a
contract to negotiate between the parties. The House of Lords affirmed that the
English law does not recognize a contract to negotiate or a contract to contract, and
there could be no duty to negotiate in good faith. “The central theme of English law
that is ‘adversarial’ at its core, implies that each party to the negotiations is entitled to
pursue his (or her) own interest, so long as he avoids making misrepresentations. To
advance that interest he must be entitled, if he thinks it appropriate, to threaten to
withdraw from further negotiations or to withdraw in fact in the hope that the
34 [1746] E. R. 89.
35 http://pryan2.kingsfaculty.ca/pryan/assets/File/Watterson_2008_on_Carter_v_Boehm_1766.pdf.
36 Black King Shipping Corporation and Wayang (Panama) S.A. v. Mark Ranald Massie [1985]
1 Lloyd’s Rep. 437 (The Litsion Pride).
37 Steyn (1991), pp. 131–141.
38 Walford v. Miles [1992] 2 A.C. 128.
39 Ibid.
122
S. Choudhury and P. Das
At common law, it was believed that the doctrine of good faith has not spilled
beyond the perimeter of the law of marine insurance. Scholars take cue from the fact
that definition of good faith is not available in any of the statutes in English law
jurisdictions. Only in marine insurance contracts has good faith been recognized to
an extent by including the duty of disclosure and making true representations as its
essential ingredients. We shall observe and analyse if such treatment has been meted
out to other contracts in general and maritime contracts specifically.
In Carter v. Boehm,
34 Lord Mansfield pronounced that there may be circumstances in which an insurer, by asserting a right to avoid for non-disclosure, would
himself be guilty of want of good faith. This was held to be an unprecedented
statement of common law.
35 Section 17 of the Marine Insurance Act, 1906 embodied
good faith. This section attracted further attention in 1985, when Hirst J. in The
Litsion Pride
36 held that the insurer might have a defence to the claim based upon
lack of good faith.
However, when it comes to general contracts, in the absence of a doctrine of good
faith, English law has had to resort to the implication of terms depending upon the
nature of the contract e.g., an implied duty to cooperate where the contract cannot be
performed without cooperation, or by reason of special circumstances of a particular
contract. The special facts, upon which the contingent chance is to be computed, lie
most commonly in the knowledge of the insured only; the under-writer trusts to his
representation, and proceeds upon confidence that he does not keep back any
circumstances within his knowledge, to mislead the underwriter into a belief that
the circumstance does not exist, and to induce him to estimate the risque, as if it did
not exist”.
37
An era has passed since Lord Ackner pronounced that negotiations in good faith
were not enforceable in English law.
38 In Walford v. Miles,
39 the defendants refused
to negotiate and consequently, the contract remained undecided although there was a
contract to negotiate between the parties. The House of Lords affirmed that the
English law does not recognize a contract to negotiate or a contract to contract, and
there could be no duty to negotiate in good faith. “The central theme of English law
that is ‘adversarial’ at its core, implies that each party to the negotiations is entitled to
pursue his (or her) own interest, so long as he avoids making misrepresentations. To
advance that interest he must be entitled, if he thinks it appropriate, to threaten to
withdraw from further negotiations or to withdraw in fact in the hope that the
34 [1746] E. R. 89.
35 http://pryan2.kingsfaculty.ca/pryan/assets/File/Watterson_2008_on_Carter_v_Boehm_1766.pdf.
36 Black King Shipping Corporation and Wayang (Panama) S.A. v. Mark Ranald Massie [1985]
1 Lloyd’s Rep. 437 (The Litsion Pride).
37 Steyn (1991), pp. 131–141.
38 Walford v. Miles [1992] 2 A.C. 128.
39 Ibid.
122
S. Choudhury and P. Das