The previously emerging principle of implied good faith continues to struggle to find a sympathetic audience in the Court of Appeal. In 2016 we discussed the Court of Appeal's negative reception to arguments based on the doctrine of implied good faith (that article can be found here).

Now, in the recent judgment of the Court of Appeal in Ilkerler Otomotiv and Another -v- Perkins Engines Company Ltd [2017] EWCA Civ 183 the Court of Appeal, whilst recognising the High Court's willingness to contemplate the possibility of a general good faith term, dismissed the legal authority relied upon as "interesting and informative" but nothing more and certainly not sufficient in supporting the Appellants' case for implied good faith terms.

Implied Terms Imposing Good Faith

Broadly, the Appellants sought to rely on implied terms, founded in good faith, which in effect would restrain the other party's ability to terminate in accordance with the clear provision allowing termination for convenience. The High Court was cited as having given short shrift to such arguments and the Court of Appeal was steadfast in upholding that position. In dismissing the appeal, Lord Justice Longmore relied upon (1) the inconsistency of the implied term with the express terms of the contract, (2) the fact that the implied terms introduced an entirely new concept; and (3) the fact that parts of the implied term were unnecessary (largely due to common law liabilities) or "hopelessly vague".

The leading case in support of implied good faith is Yam Seng Pte -v- International Trade Corporation [2013] 1 All ER (Comm) 1321. The Court of Appeal also seemingly agreed that there is a distinction to be drawn from the operation of good faith in the performance of the contract (as in Yam Seng) as opposed to in relation to the termination of the contract. This meant that the Court of Appeal were satisfied that the good faith requirements of communication and cooperation would fall into a "different realm altogether" when considered in the context of termination provisions and therefore did not apply.

Comment

Whilst the Court of Appeal acknowledged the High Court's willingness to "contemplate the possibility of a general good faith term" and did not question the legal reasoning of such a possibility, it quickly dismissed that it could apply in the circumstances.

Interestingly the ground for appeal was based (in part) on an alleged error of law in that the judge incorrectly merged the concepts of good faith and dishonesty. Disappointingly the Court of Appeal failed to address that point in its judgment so the role of dishonesty in evidencing a case of conduct lacking good faith went unanswered.

In some respects, the Court of Appeal's decision is helpful in articulating the narrowing of the application of the principle of implied good faith. It does however still fall short of providing a comprehensive authority on implied good faith and until such time, the position will remain piecemeal and a claim or defence based on such principle will remain speculative at best.

Contracting parties will always be best protected by express terms which clearly set out the intentions of the parties. If a party has expectations that its counterpart should act in good faith in its contractual dealings between them, it should make it an express provision of the written contract that it will do so and, importantly, the contract should define what acting in good faith means; what the obligations are, and the circumstances in which good faith must be applied.