On the 15th March 2013 the Court of Appeal gave judgement in the appeal by the Trust in Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (Trading as Medirest). The Court found in favour of the Trust, who had appealed against the earlier finding it had breached an implied term not to act in an arbitrary, capricious or irrational manner in its application of contractual provisions.
The Court of Appeal concluded that where a party has a discretion to exercise which will potentially impact upon the other party's contractual rights and entitlements it may impose implicit limits. In contract though where what has happened is in essence a misinterpretation of a contract term, and not a dishonest act, the deductions made by the Trust did not breach the contractual duty to act in good faith, and no implied terms warranted.
The Court also observes that there is no general duty of good faith in English contract law- so if you want to have that in a contract it needs to be expressly set out in the contract.
The Mid Essex decison indicates the Courts find it difficult to decide what to do how to interpret in good faith clauses, but it is perhaps a bit clearer that merely misunderstanding how to use contract terms may not be a breach of good faith.
Earlier case law also suggests the Courts take into account good faith clauses when weighing up the evidence it is asked to review and determining whose evidence it prefers.