Many jurisdictions expressly include in their civil codes references to the concept of good faith in commercial dealings. In that regard, an obligation to act in good faith in the making and performance of a contract becomes an express obligation on all parties.
It also should be noted that the recognition of a general doctrine of good faith is not limited to just civil and Latin law jurisdictions. For instance, Australian courts have been known to imply broad duties of good faith into commercial contracts along with business dealings, and the Supreme Court of Canada recently recognized a new common law duty of honest performance. Those working in the construction industry will be aware that many standard forms of contract used domestically include obligations that could be commonly construed as good faith-type obligations. If the term is not expressly defined in a contract, parties will have scope for argument about what an obligation of good faith in a specific context means. Where parties have expressly included good faith obligations in their contract, the general approach is that the courts will seek to give effect to those express provisions which relate to the actual performance of a particular obligation. However, whether a party can successfully rely on such a provision will depend to a great degree on the specific wording of the particular clause. The usual principles of contractual interpretation will apply.
Often in cases where there is an express clause incorporating an obligation of good faith, parties seeking to rely on the clause have attempted to argue that the duty is a general one that can apply across other provisions of the contract. The courts have generally favoured a narrow interpretation of express contractual obligations of good faith, and in cases where the duty relates to a specific provision, they have been hesitant to imply a wider overarching contractual duty. In circumstances where a party argues that an implied term based on the concept of good faith applies, the term would still need to meet strict implications tests. In practice, this means that a term of this nature would be unlikely to be implied unless a party could properly demonstrate that the contract would lack commercial or practical coherence without it.
In summation, if a party wants to rely on a good faith obligation in a contract, it should expressly provide for one. Where a party chooses to do this, it is important that the scope and substance of that obligation is made clear to avoid any ambiguity as to what it means or to which provisions of the contract it applies. Certainty is key. Parties should remember that good faith will not trump an absolute contractual right. The strongest argument for good faith is that it would bring contract law into line with international norms. Article 7(1) of the Vienna Convention on Contracts for the International Sale of Goods states the importance of promoting ‘good faith’ in international trade. While it is true that contract is dominant in international commercial transactions, it does not exist in a complete vacuum. Contract law must adapt to the norms of the internationally globalized economy so that it continues to remain relevant.
Furthermore, it is important to note that common law jurisdictions have enforced good faith agreements. In the United States, the Uniform Commercial Code states in Section 1-304 that 'every contract or duty…imposes an obligation of good faith in its performance and enforcement’. Determining whether English contract law should imply good facts rests on how one perceives of the role of contract law in society. Should the courts enforce higher standards of fairness in contracts, or promote a laissez-faire attitude to business dealings? How far should the judiciary and parliament intervene in business life? These are value judgments and cannot objectively be decided one way or the other.
However, it is worth noting that contract law already regulates attempts to deal with ‘bad faith’ dealing. The concepts of misrepresentation, estoppel, and duress in contract law all exist to ensure that contracting parties do not get away with making unfair deals. If one accepts that these concepts have value and that the courts have a role in regulating dealing in ‘bad faith’ then it seems logical that the courts should address this problem directly by adopting a principle of good faith.
