Looking for a better rationalisation of good faith in English commercial law: its inconsistency with implied Terms and alternative institutionalisation

Abstract

Good faith is poorly understood and applied in English commercial law. An emerging decade of case law on this topic since Yam Seng Pte Ltd v International TradeCorporation Ltd has yielded a wealth of evolutionary thinking and analysis, but has left some basic questions about the nature of this duty unresolved. In that case, Leggatt J purported to justify that a general term of good faith, which was further articulated through specific implied terms in fact, should be incorporated into a so-called ‘relational contract’ to manifest the presumed intentions of the contracting parties. The speeches by his Lordship in Yam Seng, however, exhibit an ambivalence on a fundamental question that calls for further clarification, namely whether English commercial law is truly concerned with a new obligation that is implied as a term in fact. If not, could it be alternatively justified as an implied term in law imposed in ‘relational contracts’ for broad policy reasons? Since the exact features of good faith were not pinpointed with clarity in Yam Seng, it is therefore important to engage in a productive discussion as to what it exactly matters and why precisely it is distinct in modern commercial law.While individual judgments are frequently committed to these two contrasting views, this thesis argues that the application of good faith could not be rationalised under either model because both are obviously lacking in rigour. Recognising the fundamental inconsistency between good faith and implied terms, however, does not render good faith categorically redundant in English commercial law. Given that there is a gap that has not been filled so far in terms of policing the misconduct of contracting parties that is not part of their contract terms, this thesis claims that good faith could be reformulated as a free-standing legal duty to address the ‘non-breach’ wrongs in ‘relational contracts’, and seeks to institutionalise it on a different basis in the law of obligations. On the basis of insisting on the inwards-facing view of good faith in English common law rather than looking outwards towards civilian jurisdictions where this duty is intrinsic to the very essence of every contract, this thesis will argue that it should be re-characterised as a sui generis field of liability, akin to the doctrine of voluntary assumption of responsibility. Both do not derive from the contract agreements between the parties, but nonetheless rely on the voluntary undertaking in some ‘special relationships’, which consequently justify the imposition of liabilities for broad policy reasons. This reformulation will not only pave the way for rationalising why the defendants in ‘relational contracts’ are under a legal obligation of good faith to have the claimants’ commercial interests in contemplation when considering how to act, but also clarifying which set of underlying policies should guide its interpretation and future development.

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Identifiers

ORCID for Jingchi Wen: orcid.org/0009-0006-0015-1345

ORCID for Andrea Lista: orcid.org/0000-0002-4234-0914

ORCID for Ainhoa Campas Velasco: orcid.org/0000-0002-9557-5194

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