opposite party may seek to reopen the negotiations by offering him improved
terms”.
40
However, the principle of good faith in English law is a fundamental principle
derived from the rule pacta sunt servanda and other legal rules distinctively and
directly related to honesty, fairness and reasonableness.
41 This has definitely
reaffirmed that common law is in no way indifferent to the concept of good faith.
Duress, misrepresentation, fraud, unconscionable bargains are definitely frowned
upon in English law as clear bad faith. However, the development over time shows
good faith has more meaning than mere lack of bad faith. It is also observed that
despite a lush labyrinth of case law and opinions have shown that good faith is
evolving and has been sprinkled like vanilla or vinegar wherever the judiciary has
decided to intervene.
In Yam Seng,
42 Legatt J., opined as follows:
What constitutes fair dealing is defined by the contract and by those standards of conduct to
which, objectively, the parties must reasonably have assumed compliance without the need
to state them. The advantage of including reference to fair dealing is that it draws attention to
the fact that the standard is objective and distinguishes the relevant concept of good faith
from other senses in which the expression ‘good faith’ is used.
43
In this case, Yam Seng had not made out a claim for loss of profits, as it had failed
to prove what profit it would have made or indeed that it would have made a profit at
all if ITC had fully performed its obligations under the Agreement. However, Yam
Seng was entitled to recover damages for ITC’s breach of contract in performing the
agreement. The burden of proof lay on the defendant to show that the expenditure
would not have been recouped and would have been wasted in any event, but ITC
had not attempted to discharge the burden of showing what financial return Yam
Seng would have had if ITC had not been in breach of contract. In this case, Leggatt
J., opined that the fear of uncertainty in good faith was unjustified and that it was an
intrinsic and inherent part of contractual interpretation in the particular context. “The
fear that recognising a duty of good faith would generate excessive uncertainty is
unjustified. There is nothing unduly vague or unworkable about the concept. Its
40 Ibid.
41 Hunter (1992), pp. 172–174.
42 English law had not reached the stage where it was 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
was no difficulty, following the established methodology of English law for the implication of terms
in fact, in implying such a duty in an ordinary commercial contract based on the presumed intention
of the parties. The modern case law on the construction of contracts emphasised the contracts were
made against a background of unstated shared understandings which informed their meaning.
43 See Yamseng, [2013] EWHC 111 (QB), in so far as English law may be less willing than some
other legal systems to interpret the duty of good faith as requiring openness as “playing fair”
“coming clean” or “putting one’s cards face upwards on the table”, this should be seen as a
difference of opinion, which may reflect different cultural norms, about what constitutes good
faith and fair dealing in some contractual contexts rather than a refusal to recognise that good faith
and fair dealing are required, para 151.
Good Faith in Maritime Law Contracts
123
terms”.
40
However, the principle of good faith in English law is a fundamental principle
derived from the rule pacta sunt servanda and other legal rules distinctively and
directly related to honesty, fairness and reasonableness.
41 This has definitely
reaffirmed that common law is in no way indifferent to the concept of good faith.
Duress, misrepresentation, fraud, unconscionable bargains are definitely frowned
upon in English law as clear bad faith. However, the development over time shows
good faith has more meaning than mere lack of bad faith. It is also observed that
despite a lush labyrinth of case law and opinions have shown that good faith is
evolving and has been sprinkled like vanilla or vinegar wherever the judiciary has
decided to intervene.
In Yam Seng,
42 Legatt J., opined as follows:
What constitutes fair dealing is defined by the contract and by those standards of conduct to
which, objectively, the parties must reasonably have assumed compliance without the need
to state them. The advantage of including reference to fair dealing is that it draws attention to
the fact that the standard is objective and distinguishes the relevant concept of good faith
from other senses in which the expression ‘good faith’ is used.
43
In this case, Yam Seng had not made out a claim for loss of profits, as it had failed
to prove what profit it would have made or indeed that it would have made a profit at
all if ITC had fully performed its obligations under the Agreement. However, Yam
Seng was entitled to recover damages for ITC’s breach of contract in performing the
agreement. The burden of proof lay on the defendant to show that the expenditure
would not have been recouped and would have been wasted in any event, but ITC
had not attempted to discharge the burden of showing what financial return Yam
Seng would have had if ITC had not been in breach of contract. In this case, Leggatt
J., opined that the fear of uncertainty in good faith was unjustified and that it was an
intrinsic and inherent part of contractual interpretation in the particular context. “The
fear that recognising a duty of good faith would generate excessive uncertainty is
unjustified. There is nothing unduly vague or unworkable about the concept. Its
40 Ibid.
41 Hunter (1992), pp. 172–174.
42 English law had not reached the stage where it was 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
was no difficulty, following the established methodology of English law for the implication of terms
in fact, in implying such a duty in an ordinary commercial contract based on the presumed intention
of the parties. The modern case law on the construction of contracts emphasised the contracts were
made against a background of unstated shared understandings which informed their meaning.
43 See Yamseng, [2013] EWHC 111 (QB), in so far as English law may be less willing than some
other legal systems to interpret the duty of good faith as requiring openness as “playing fair”
“coming clean” or “putting one’s cards face upwards on the table”, this should be seen as a
difference of opinion, which may reflect different cultural norms, about what constitutes good
faith and fair dealing in some contractual contexts rather than a refusal to recognise that good faith
and fair dealing are required, para 151.
Good Faith in Maritime Law Contracts
123