The first substantial judgment in this high profile group litigation between the Post Office and a group of sub-postmasters has covered a wide a range of contractual issues1.

Good faith

Fraser J held that the concept of "relational contracts" is now established in English law and identified a non-exhaustive list of the types of factors which may assist in identifying whether a contract is relational:

“1. There must be no specific express terms in the contract that prevents a duty of good faith being implied into the contract.

2. The contract will be a long-term one, with the mutual intention of the parties being that there will be a long-term relationship.

3. The parties must intend that their respective roles be performed with integrity, and with fidelity to their bargain.

4. The parties will be committed to collaborating with one another in the performance of the contract.

5. The spirits and objectives of their venture may not be capable of being expressed exhaustively in a written contract.

6. They will each repose trust and confidence in one another, but of a different kind to that involved in fiduciary relationships.

7. The contract in question will involve a high degree of communication, co-operation and predictable performance based on mutual trust and confidence, and expectations of loyalty.

8. There may be a degree of significant investment by one party (or both) in the venture. This significant investment may be, in some cases, more accurately described as substantial financial commitment.

9. Exclusivity of the relationship may also be present.”

Other Issues

Other issues Importantly, Fraser J made it clear that where contracts are “relational” this does not merely mean that a term to act in good faith can be implied in fact if the context requires. Rather it means that once you have a “relational contract” then, as a matter of law, various implied terms arise as a consequence of this. In the instant case he identified 17 terms which should be implied into the relevant contract.

Fraser J’s judgment also provides a useful restatement of the following aspects of contract law:

  • Where a clause is unduly onerous, unusual and is of severe effect, unless clear and conspicuous notice of the clause is provided, it will not be incorporated into a contract; and
  • The Courts will be reluctant to determine that a clause fails to pass the "reasonableness" test under UCTA where the parties to a contract are commercial entities of more or less equal bargaining power. In this case, the parties were far from equal and various clauses were struck down on the grounds of unreasonableness.

Stephenson Harwood comment

Of particular note in this decision is the finding that a duty of good faith (involving not just honesty but integrity) will be implied into relational contracts (potentially alongside a number of other terms). This significantly widens the scope of potential claims in relation to breach of contract for parties involved in long-term, joint venture-type arrangements.

It is important to ensure that contracts are as fully negotiated and documented as possible. Where appropriate, an explicit exclusion of any implied duty of good faith should be considered.