Horn v Commercial Acceptances Ltd [2011] EWHC 1757 (Ch)

The Claimant and Defendant had entered in to a loan agreement which provided that “each party shall act in absolute faith towards the other”. The Claimant argued that, by bringing in another financier and not providing all of the required funds itself, the Defendant had breached the express duty of good faith contained in the contract.

Although it was not necessary for the Court to decide the exact meaning of the clause requiring good faith, as the Claimant succeeded on other issues of interpretation, the judge did set out what he would have held, had he been required to decide the issue.

An express duty of good faith requires the parties to disclose all material facts to each other. In this case, the Defendant’s decision to bring in a third party financier was material, as it deprived the Claimant of the opportunity to make a fully informed decision as to how it would participate in the funding. It was not necessary to consider whether full disclosure would have caused the Claimant to alter its decision to proceed with the transaction.  

The judge stated that there is no requirement of dishonesty for breach of a contractual duty of good faith. In this case the Defendant had acted honestly, but he had still acted in breach of contract. The judge also noted that, where a contract contains an express duty of good faith, there is no need for a finding of an overriding fiduciary duty.  

It should be noted that the judge’s comments on the contractual duty of good faith are not binding. They may, however, be persuasive in future cases.