Does the term "good faith" mean anything when used in a contract governed by English law? And, if so, what effect is a "good faith" obligation likely to have in practice?
Historically, the English courts have tended to be hostile to the concept of good faith. However, a duty of good faith has long been implied into contracts of partnership, agency and other agreements involving fiduciary obligations. More recently, the English courts have shown themselves willing to give effect to express obligations to act in good faith in a wider range of commercial contracts (see below). In some instances, they may even be prepared to imply such a duty.
For example, in Yam Seng v International Trade Corporation (2013), the judge suggested that, in some cases, a duty of good faith might need to be implied into other commercial contracts, such as franchise, joint venture and long term distribution agreements where “a high degree of communication [and] co-operation” is required to make the relationship work.
What does good faith mean?
There is as yet no widely accepted definition of good faith in a contractual context, although the courts have often emphasised honesty and fair dealing and, in several cases, fidelity to the parties’ bargain. Its meaning and effect are therefore likely to vary considerably depending on the context (see examples below).