The courts interpret narrowly an express duty to act in good faith. They are unlikely to imply a good faith duty where the contract expressly states how the parties will co-operate with each other.
South Anglia Housing (S), a housing authority, entered into a contract with TSG Building Services (T), under which T agreed to provide gas servicing and other works to S’s housing stock. The contract allowed either party to terminate on three months’ notice. It contained this clause:
‘The Partnering Team members shall work together and individually in the spirit of trust, fairness and mutual cooperation for the benefit of the Term Programme, within the scope of their agreed roles, expertise and responsibilities as stated in the Partnering Documents, and all their respective obligations under the Partnering Contract shall be construed within the scope of such roles, expertise and responsibilities, and in all matters governed by the Partnering Contract they shall act reasonably and without delay.’
S served notice on T to terminate the contract on three months’ notice. In adjudication proceedings, T was awarded almost £400,000 plus interest for losses related to the termination. S applied to the court for declaratory relief and two of the issues before the court were whether: (1) the clause required S to act reasonably and in good faith when terminating the contract, and (2) there was an implied duty on S to act in good faith in connection with the contract, including its termination.
The judge construed the clause narrowly, holding that it did not apply to termination. He also refused to imply a good faith duty. The parties had expressly set out in the clause how they would work together. Even if a duty to perform the contract in good faith were implied, it wouldn’t apply to termination. Each party had, when they entered the contract, voluntarily undertaken the risk that the other would terminate before the end of the term.
This case, together with Mid Essex Hospital Services NHS Trust v Compass Group (see our last update), suggests that the courts will narrowly construe express duties to act in good faith. The judge also reviewed Yam Seng v International Trade Corporation (also covered in our last update), where the court implied specific terms based on a general duty to act in good faith. The judge distinguished this case from Yam Seng: here, there was no suggestion of dishonesty or lack of fidelity and the clause already set out how the parties should co-operate.