Trade Corp Ltd (ITC) was in breach of contract for providing false information and
for undercutting the set prices with third parties. The issue was whether the defendant ITC failed to act in good faith.
52 The Court held that English law had not yet
reached the stage where it was ready to recognise a requirement of good faith as a
duty implied by law into all commercial contracts, not even as a default rule;
however, there could be an implied duty of good faith in an ordinary commercial
contract based on the presumed intention of the parties.
53
Evidently, there has been little support for this proposition. In her decision in
Greenclose Ltd. v. National Westminster Bank Plc,
54 Madam Justice Andrews DBE
did not accept that there was a general principle of good faith. Concerning the
implied duty of good faith in commercial contracts, she held that, such a term is
“[U]nlikely to arise by way of necessary implication in a contract between two
sophisticated commercial parties negotiating at arms’ length.” In contrast, in his
judgement in Yam Seng Pte Ltd v. International Trade Corp Ltd Sir George Leggatt
had this to say in relation to the implication of such a duty:
[M]ore recently, in Attorney General for Belize v. Belize Telecom Ltd [2009] 1 WLR 1988 at
1993-5, the process of implication has been analyzed as an exercise in the construction of the
contract as a whole. . . Importantly for present purposes, the relevant background against
which contracts are made includes not only matters of fact known to the parties but also
shared values and norms of behaviour. Some of these are norms that command general social
acceptance; others may be specific to a particular trade or commercial activity; others may be
more specific still, arising from features of the particular contractual relationship.
55
Be that as it may, under current judicial circumstances, it is apparent that the Yam
Seng decision does not constitute persuasive authority under English law. The
general position of courts on the implied duty of good faith is that it only applies
in cases where the contract in question is a relational one, or one of the contracting
parties has relatively less bargaining power such as in the case of employment
contracts. A wider implication of duty of good faith is not well accepted; in several
cases where the parties sued alleging breach of an implied duty of good faith and
relying on the Yam Seng decision, did not succeed.
One was MSC Mediterranean Shipping Co v. Cottonex
56 where the consignee
who had title to the goods, refused to collect them from the shipowner’s containers
which were impounded by customs. Since the containers could not be returned to the
shipowner within a certain time, the shipper was liable for container demurrage
accruing each day. The shipper’s failure to return the containers amounted to a
repudiation by him, but instead of accepting it, the shipowner chose to keep the
contract alive and claim container demurrage. The containers remained stuck in the
52 [2013] EWHC 111 (QB); [2013] B.L.R. 147.
53 Leggatt (2016). See Sect. 2.2 in this Chapter where, “presumed intent” is stated to be a standard
for an implied term.
54 [2014] EWHC 1156 (Ch); (2014) 158(17) S.J.L.B. 37.
55 [2013] EWHC 111 (QB) para. 134.
56 [2015] EWHC 283 (Comm); [2016] EWCA Civ 789.
324
S. Jia and H. Yu
for undercutting the set prices with third parties. The issue was whether the defendant ITC failed to act in good faith.
52 The Court held that English law had not yet
reached the stage where it was ready to recognise a requirement of good faith as a
duty implied by law into all commercial contracts, not even as a default rule;
however, there could be an implied duty of good faith in an ordinary commercial
contract based on the presumed intention of the parties.
53
Evidently, there has been little support for this proposition. In her decision in
Greenclose Ltd. v. National Westminster Bank Plc,
54 Madam Justice Andrews DBE
did not accept that there was a general principle of good faith. Concerning the
implied duty of good faith in commercial contracts, she held that, such a term is
“[U]nlikely to arise by way of necessary implication in a contract between two
sophisticated commercial parties negotiating at arms’ length.” In contrast, in his
judgement in Yam Seng Pte Ltd v. International Trade Corp Ltd Sir George Leggatt
had this to say in relation to the implication of such a duty:
[M]ore recently, in Attorney General for Belize v. Belize Telecom Ltd [2009] 1 WLR 1988 at
1993-5, the process of implication has been analyzed as an exercise in the construction of the
contract as a whole. . . Importantly for present purposes, the relevant background against
which contracts are made includes not only matters of fact known to the parties but also
shared values and norms of behaviour. Some of these are norms that command general social
acceptance; others may be specific to a particular trade or commercial activity; others may be
more specific still, arising from features of the particular contractual relationship.
55
Be that as it may, under current judicial circumstances, it is apparent that the Yam
Seng decision does not constitute persuasive authority under English law. The
general position of courts on the implied duty of good faith is that it only applies
in cases where the contract in question is a relational one, or one of the contracting
parties has relatively less bargaining power such as in the case of employment
contracts. A wider implication of duty of good faith is not well accepted; in several
cases where the parties sued alleging breach of an implied duty of good faith and
relying on the Yam Seng decision, did not succeed.
One was MSC Mediterranean Shipping Co v. Cottonex
56 where the consignee
who had title to the goods, refused to collect them from the shipowner’s containers
which were impounded by customs. Since the containers could not be returned to the
shipowner within a certain time, the shipper was liable for container demurrage
accruing each day. The shipper’s failure to return the containers amounted to a
repudiation by him, but instead of accepting it, the shipowner chose to keep the
contract alive and claim container demurrage. The containers remained stuck in the
52 [2013] EWHC 111 (QB); [2013] B.L.R. 147.
53 Leggatt (2016). See Sect. 2.2 in this Chapter where, “presumed intent” is stated to be a standard
for an implied term.
54 [2014] EWHC 1156 (Ch); (2014) 158(17) S.J.L.B. 37.
55 [2013] EWHC 111 (QB) para. 134.
56 [2015] EWHC 283 (Comm); [2016] EWCA Civ 789.
324
S. Jia and H. Yu