Good Faith
What is ‘good faith’?
General meaning:
⎯ Transparency
⎯ Open
⎯ Honesty
⎯ Fairness
⎯ Don’t withhold information from other party
⎯ Look after/consider the other party’s interests
⎯ If parties have said that they will not act in good faith with each other, the courts will generally
not impose that obligation on them
⎯ English law does not impose a general good faith obligation on parties
⎯ No general requirement for good faith
⎯ There is a problem around the subjective nature
⎯ In the commercial context, ‘good faith’ might mean different things to different people
⎯ Does not necessarily have a consistent meaning
, (1) General Principle: no good faith obligation in English Law:
‘Harmonisation’ principles (not binding in England):
♦ Commercial people got together and came up with general principles which can apply to commercial
transactions which parties can adopt if they want to
♦ Principles of European Contract Law (1998):
o Art 1:201 Good Faith and Fair Dealing
♦ UNIDROIT PICC:
o Art 1.7 Good Faith and Fair Dealing
♦ In both of these examples, there are terms which require both parties to act in good faith in some
way
♦ If you adopt these principles, you cannot exclude
Other jurisdictions:
× In other legal jurisdictions, they are much more in favour of good faith
× Much more likely to require commercial parties to act in good faith when they transact
× US:
o Restatement (Second) of Contracts: s205 Duty of Good Faith and Fair Dealing
▪ In their contract law code, they have requirement of good faith and dealing
× Canada:
o Supreme Court of Canada has also recognised a general principle of good faith and said
that good faith is the ‘general organising principle’ (Bhasin v Hrynew), which underpins
the way they interpret a contract
× German Civil Code:
o In their commercial codes, there are again requirements of good faith
× In different jurisdictions around the world, good faith is a recognised principle
, Compare to English Law:
⇒ Opposite approach to most jurisdictions
⇒ English law does not want to enforce this concept of good faith on parties
⇒ English law is generally hostile when it comes to good faith obligations and don’t impose any
obligations
⇒ Carter v Boehm (1766):
o Lord Mansfield suggested good faith should be ‘applicable to all contracts and dealings’
▪ Suggested that good faith should be at the heart of English commercial law
transactions
▪ Should be applicable to all contractual dealings
o Although it has been accepted in insurance law (disclosure of information), good faith is
not accepted into English law generally
o It is relatively un-controversial that in insurance law there should be an obligation to
disclose certain information (underpinned by good faith)
⇒ English law contains no general requirement that contracting parties act in good faith because:
o Freedom of contract:
▪ If parties have said that they don’t want this, the courts shouldn’t then impose it
on them
o Party autonomy:
▪ Parties should be allowed to look after their own interests
▪ Parties should be able to prioritise themselves and what is in their commercial
interests without having to worry about the party they are dealing with
⇒ **KEY CASE** Interfoto v Stiletto (1989):
o Explains how most other jurisdictions have this obligation
o Explains good faith as being:
▪ “playing fair”
▪ “coming clean”
▪ “putting one’s cards face upwards on the table”
▪ “it is in essence a principle of fair open dealing”
o English law has no such “overriding principle”
What is ‘good faith’?
General meaning:
⎯ Transparency
⎯ Open
⎯ Honesty
⎯ Fairness
⎯ Don’t withhold information from other party
⎯ Look after/consider the other party’s interests
⎯ If parties have said that they will not act in good faith with each other, the courts will generally
not impose that obligation on them
⎯ English law does not impose a general good faith obligation on parties
⎯ No general requirement for good faith
⎯ There is a problem around the subjective nature
⎯ In the commercial context, ‘good faith’ might mean different things to different people
⎯ Does not necessarily have a consistent meaning
, (1) General Principle: no good faith obligation in English Law:
‘Harmonisation’ principles (not binding in England):
♦ Commercial people got together and came up with general principles which can apply to commercial
transactions which parties can adopt if they want to
♦ Principles of European Contract Law (1998):
o Art 1:201 Good Faith and Fair Dealing
♦ UNIDROIT PICC:
o Art 1.7 Good Faith and Fair Dealing
♦ In both of these examples, there are terms which require both parties to act in good faith in some
way
♦ If you adopt these principles, you cannot exclude
Other jurisdictions:
× In other legal jurisdictions, they are much more in favour of good faith
× Much more likely to require commercial parties to act in good faith when they transact
× US:
o Restatement (Second) of Contracts: s205 Duty of Good Faith and Fair Dealing
▪ In their contract law code, they have requirement of good faith and dealing
× Canada:
o Supreme Court of Canada has also recognised a general principle of good faith and said
that good faith is the ‘general organising principle’ (Bhasin v Hrynew), which underpins
the way they interpret a contract
× German Civil Code:
o In their commercial codes, there are again requirements of good faith
× In different jurisdictions around the world, good faith is a recognised principle
, Compare to English Law:
⇒ Opposite approach to most jurisdictions
⇒ English law does not want to enforce this concept of good faith on parties
⇒ English law is generally hostile when it comes to good faith obligations and don’t impose any
obligations
⇒ Carter v Boehm (1766):
o Lord Mansfield suggested good faith should be ‘applicable to all contracts and dealings’
▪ Suggested that good faith should be at the heart of English commercial law
transactions
▪ Should be applicable to all contractual dealings
o Although it has been accepted in insurance law (disclosure of information), good faith is
not accepted into English law generally
o It is relatively un-controversial that in insurance law there should be an obligation to
disclose certain information (underpinned by good faith)
⇒ English law contains no general requirement that contracting parties act in good faith because:
o Freedom of contract:
▪ If parties have said that they don’t want this, the courts shouldn’t then impose it
on them
o Party autonomy:
▪ Parties should be allowed to look after their own interests
▪ Parties should be able to prioritise themselves and what is in their commercial
interests without having to worry about the party they are dealing with
⇒ **KEY CASE** Interfoto v Stiletto (1989):
o Explains how most other jurisdictions have this obligation
o Explains good faith as being:
▪ “playing fair”
▪ “coming clean”
▪ “putting one’s cards face upwards on the table”
▪ “it is in essence a principle of fair open dealing”
o English law has no such “overriding principle”
