What does it mean to 'act in good faith'? It is a surprising question in many ways, because most people instinctively have a feel for the concept on a moral level, and yet the legal definition still lags some way behind. One reason for this is lack of familiarity. Many jurisdictions automatically imply a duty to act in good faith into general contract terms, and are therefore quite comfortable with interpreting and applying the idea into general business practice. However, the UK has only recently started to recognise the term, in part due to the influence of EC law.
In a recent case, the courts commented that 'acting in good faith' does not necessarily just mean being honest - it also entails being open in your dealings with the other party. Moreover, breaching the duty does not necessarily require you to be dishonest - you can be acting other than in good faith without lying, stealing or other extreme behaviour. In fact, you can breach the duty to act in good faith simply by, for example, neglecting to mention something important to the other contracting party.
It is becoming more common to see the requirement to 'act in good faith' in contractual documentation, and therefore it is important to ensure that you fully understand the nature of this duty. In particular, it is important to note that mere honesty is not always enough, and that there may be a duty of disclosure of any material facts towards the other side.
In the course of our work we find it helpful to explain this concept as simply 'playing fair', turning this European concept into one which every British business person should understand.