Good faith

Interfoto Picture Library v Stiletto Visual Programme, per Lord Bingham

"avoid any commitment to overriding principle in favour of piecemeal solutions in response to demonstrated problems of unfairness."

Mason suggestion:

"concretising" duty of good faith by judiciary and/or Parliament to deliver what the parties have chose for themselves.

White & Carter v McGregor (per Lord Reid)

"he ought not to be allowed to saddle the other party with an additional burden with no benefit to himself. If a party has no interest to enforce a stipulation, he cannot in general enforce it." Shouldn't penalise other party by taking one course when another is equally advantageous.

Walford v Miles, per Lord Ackner

"the duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties involved..."

White & Carter v McGregor

-3:2 split House of Lords -Agreement to display advertisements for 3 years. Advertised repudiated immediately after completion. Other party performed. -Were they entitled to execute contract and sue for payment? Leaving unpaid for 4 weeks triggered clause making whole amount due immediately. -HELD: entitled to carry out contract and claim full price. Did not have to accept repudiation and claim damages. -Lord Hodson: do not need to vary a contract just because one party wants to.

Socimer International Bank v Standard Bank London

-Agreement between sophisticated parties leaving assessment of value of the assets entirely to defendants -In the circumstances the defendant was entitled to consult its own interests in valuing retained assets. -This discretion was limited, as a matter of necessary implication and settled law, only by concepts of honesty, good faith, and genuineness, and the need for absence of arbitrariness, capriciousness, perversity and irrationality.

Yam Seng PTE v International Trade Corporation

-Claim by Y for breach/misrepresentation -Agreement to distribute fragrances with Man U brand around Asia, Africa, Australasia, and Middle East. -Relationship ended acrimoniously when Y informed I that it was terminating contract, because I was in breach. -Y argued implied term that parties would deal in good faith with each other, and that English law could and should recognise this implied duty. Judgment by Leggat J: -general principle is no duty of good faith -cites Lord Ackner in Walford v Miles -But, that case concerned position of negotiating parties, not with duties of parties who have entered into contract and thus undertaken obligations to each other. -McKendrick 3 reasons for hostility: (i) preferred English solution is to incrimentally fashion solutions in particular problems rather than enforce broad overarching principle (ii) ethos of individualism - parties free to pursue own self-interest (iii) fear of uncertainty - vague and subjective concept -acknowledges refusal to recognise general duty makes English law swim against the tide -notes strong authority for view Scots law recognises broad principle of good faith and fair dealing -commercial fair dealing not a novel concept in English law. Requirement of good faith sensitive to CONTEXT. -because context is so key, explains why must be recognised on a case-by-case basis. -presumed intention is not an illegitimate restriction on freedom of parties to pursue own interests. Open to parties to modify scope using express terms (even opt out!) -uncertainty/fear is unjustified. Nothing unduly vague or unworkable about concept. No more uncertainty than ordinary contractual uncertainty.

G4S Cash Centres v Clydesdale Bank (per Lord Clarke)

-Contractual clause required parties to negotiate in good faith -Dean of Faculty submission that construction of contract advanced by respondents unworkable was considered unsound

Socimer International Bank v Standard Bank London (per Rix LJ)

-Decision makers discretion limited -Concepts of honesty, good faith, and genuineness, and the need for absence of arbitrariness, capriciousness, perversity and irrationality = very essence of business and other relationships -Still entitled to primarily consult their own interests. Sufficient protection afforded by good faith and rationality. Good faith guards against dangers of self-interest. -Commercial contracts assume such good faith, which is why express language requiring it is so rare.

EDI Central Ltd v National Car Parks Ltd (per Lord Glennie)

-EDI and NCP had to use all reasonable endeavours to achieve the main objectives and act in good faith in respect of same -no part of Scots law that parties should act in good faith (in absence of agreement) -adopts Morgan J formulation in Berkley: saw good faith clause as "imposing on the defendants a contractual obligation to observe reasonable commercial standards of fair dealing in accordance with their actions that related to the agreement and also requiring faithfulness to the agreed common purpose and consistence with the justified expectations." -emphasises requirement on EDI, subject to qualifications, genuinely to do their best to achieve the desired result and not merely go through the motions.

Smith v Bank of Scotland

-Wife undertaking a cautionary obligation -Banks duty of good faith required it to take steps to confirm consent -Lord Jauncey: creditor must disclose to an intending cautioner circumstances known to him which are material to the risk to be undertaken but which are unlikely to be known by the cautioner. -disclosures must not be partial/misleading -creditor must not put head in sand -if aware of circumstances which suggest transaction tainted with fraud, cannot abstain from further inquiry -willful ignorance amounts to knowledge here -Lord Clyde: basic element of good faith behind the decision. Cannot mislead by silence or positive representations, this would be bad faith = unenforceable. Prefers good faith over English fictional constructive notice. Duty to give advice from good faith.

Prof Thomson sceptical view: free market idea

A must put B's interests on a par with own and vice versa undermines whole rationale of contractual freedom. Opportunity to make a bargain seriously diminished if good faith entails redressing informational balance.

MacQueen asks the question: what difference does it make to system to now declare that there is a general principle of good faith holding it all together?

Answer: articulation of the general principle enables identification and solution of problems which existing rules do not.

Continental approach: (iii) Correction

Doctrines such as undue influence, facility and circumvention, error, fraud and force can be seen as essentially based on good faith. Despite hint by Lord President Cooper in McKay v Scottish Airways, modern Scots law never developed general doctrine against extortionate/unfair bargains as such. Recent suggestions give party 2nd chance before terminating to perform.

MacQueen on Smith v Bank of Scotland

Good. Law can move on. Principle can remain relatively latent, or continue to be stated in extremely general terms, without doing too much damage to important values of certainty and predictability.

MacQueen argues rules and cases from Scots law which could be said to stem from good faith can be identified without much difficulty:

High value placed on compelling performance, can see in principle of mutuality and right of retention. Means of pressuring a contract-breaker into proper performance.

Gillespie v Russell (per Lord Curriehill)

In many business deals certain amount of 'cunning, craft, and even deceit, against which, although they may be transgressions of the strict rules of morality, the law does not protect the contracting parties, but leaves them to protect themselves'.

Comparison with reasonableness

Is reasonableness any more concrete an idea than good faith? Fact and circumstance dependent.

One commentator has pointed out that if good faith is to be of any practical utility:

It needs to provide a few clearly understandable action-guiding principles of conduct.

Continental approach: (i) Interpretation

Objective approach of determining what parties reasonably conclude from the attitude of the other. Reflects values of good faith inasmuch as contracting parties thereby protected from unfair surprise.

Continental approach: (ii) Supplementation

Party knows of and takes advantage of another party's error in forming contract. Some cases not allowed to enforce, even when no misrepresentation. Terms implied in law: i.e. compel co-operation, perform within reasonable time etc

Purpose of good faith concept in European contract law

Powerful concept. Purpose to enforce community standards of decency, fairness and reasonableness in commercial transactions.

NB SLC proposal re continental interpretation approach

Proposes court give effect to particular sense in which one party used an expression if other party knew or couldn't have been unaware of that intention.

Smith v Bank of Scotland role in good faith debate?

Really kicked off the debate. Prior to this it had been latent and inarticulate principle.

MacQueen argues mixed legal systems good faith result similar to:

The PECL.

In response to Lord Ackner in Walford v Miles:

The duty is surely not so repugnant to an industry currently characterised and actively pursuing an agenda not of adversarial relations but of collaboration.

Mason finds the duty of good faith attractive

The phrase resonates with the reader who has an instinctive grasp of what the contract is trying to do.

Scotland and South Africa

There is no general principle of good faith. Role is instead to inform and explain the rules of the law of contract. Cannot be used as basis for setting aside/amending contract.

English position on good faith

Very opposed. Refuse to resort to notions of good faith to impose more onerous obligations on a party.