Bristol Groundschool v Intelligent Data Capture & Ors (2014)

Where a contract is found to be “relational” and contains an implied duty to act in accordance with good faith, this duty runs through and underpins all the obligations of the parties under the contract.

The parties’ dispute was over two agreements (in 1999 and 2001 respectively) for the production of materials by Bristol Groundschool (BG) for training courses for commercial airline pilots. Under the agreements, the first defendant, IDC, agreed to produce the artwork and animated versions of the diagrams. The agreements provided that BG owned and retained the copyright to its textual material and the static artworks but that the first defendant owned the copyright on the animated works. The second agreement was scheduled to run for five years. BG alleged that all the defendants were parties to a common design to publish materials which infringed its copyrights. It also alleged breach of contract and infringement of copyright against IDC. IDC and other defendants in turn made various counterclaims against BG and its managing director, Mr Whittingham for infringement of copyright, breach of confidence, circumventing copy protection, malicious falsehood and conspiracy to injure by unlawful means. Mr Whittingham admitted that he had downloaded materials from ICD’s system in 2009 when he became concerned that ICD might seek to disrupt BG’s business.

The High Court made various findings which included the finding that both the claimants and defendants had committed breaches of contract (as well as infringed copyright). The Court held that the 2001 agreement was “relational” which involved a longer term relationship between the parties in which they made a substantial commitment to each other. As such this agreement contained an implied duty of good faith.

The Court explained that this duty of good faith incorporated a requirement of honesty. The relevant test is that of conduct that would be regarded as “commercially unacceptable” by reasonable and honest people in the particular context. The Court observed that Mr Whittingham’s conduct (in, downloading confidential commercial information from IDC’s computers without authority) was commercially unacceptable and in breach of the requirement of honesty and hence, the duty of good faith.

The Court made particular reference to Yam Seng Pte Ltd v International Trade Corpn (2013) where the leading judgment provided that “… many contracts … involve a longer term relationship between the parties which they make a substantial commitment. Such “relational” contracts, as they are sometimes called, may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involve expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties’ understanding and necessary to give business efficacy to the arrangements. Examples of such relational contracts might include some joint venture agreements, franchise agreements and long term distributorship agreements …

However, the Court found that the claimant’s conduct did not “strike at the heart of the trust which is vital to any long-term commercial relationship”. There were extenuating circumstances, not least that Mr Whittingham’s conduct arose out of genuine concern about harm to what were (or what he believed to be) the claimant’s legitimate interests, and were not without substance. Other factors were that the steps he took were essentially precautionary, that he used the fruits of the conduct complained for limited purposes and that the financial damage caused to IDC was minimal, if not non- existent.

http://www.bailii.org/ew/cases/EWHC/Ch/2014/2145.html