Good Faith

EU Directive on Unfair Terms in Consumer Contracts

"Particular regard shall be had to the strength of the bargaining positions of the parties, whether the consumer had an inducement to agree to the term and whether the goods or services were sold or supplied to the special order of the consumer; whereas the requirement of good faith may be satisfied by the seller or supplier where he deals fairly and equitably with the other party whose legitimate interests he has to take into account."

Lord Steyn (1997) 'Contract law: fulfilling the reasonable expectations of honest men'

-Supports objectivity to give effect to reasonable expectations of honest men. -Subjectivity creates individualised justice but is too uncertain. -The law should create a framework to encourage commercial dealings. Good faith: -Subjective: the party must act honestly. -Objective: observe standard of reasonable commercial dealing. -This is workable and to some extent has been incorporated through EU Directive.

Trakman and Sharma (2014) 'The binding force of agreements to negotiate in good faith'

-Uncertainty would be eliminated if common law developed clear standards of good faith. -Discretion exists in all areas of contract law so why not allow it here? -Agreements to negotiate based on pre-existing contracts are allowed. Why distinguish? -Difficulty of calculating loss? What about other remedies like specific performance?

Campbell (2014) 'Good faith and the ubiquity of the "relational" contract'

-Writer supports the reasoning of Leggatt J in Yam Seng. -No need for general principle as specific doctrines do the same job. -Business efficacy requires implication of term of good faith in relational contracts. (Is this true under the test from Attorney General v Belize Telecom?). -This requires a case by case development of the type of contracts to which such terms are implied. (Why do this? Why not let commercial parties contract for them expressly?).

Chen-Wishart (2012) Contract Law

Agreements to negotiate: -Lock in agreements (being bound to negotiate) are void for uncertainty. -Agreements not to negotiate are allowed if there is a time limit on their duration. -Benefit of parties knowing that the other won't just walk away once time and expense on negotiations have begun. -Difficulty of quantifying damages? What about loss of chance as in Allied Maples v Simmons & Simmons? How did Longmore LJ distinguish Petromec v Petrobras (2005) from Walford v Miles? -Already a legally enforceable agreement. -The term was express rather than implied. -The substance of the term was relatively easy to ascertain. -Fraud made the breach of good faith more obvious. -Dispute resolution clause in Emirates Trading v Prime Mineral Exports (2014) was enforceable because it was within a set period of time, expressly written, and in the public interest to avoid litigation.

Spice Girls v Aprilia World Service

An example of misrepresentation.

With v O'Flanagan

Change in material fact requires disclosure.

Berg (2013)

Contents of a duty to negotiate: -Actively participate in negotiations. -Consider and put forward options. -Not take advantage of the other's known ignorance. -Not withdraw from negotiations without a truthful reason.

S2(1) Misrepresentation Act 1967

Damages for misrepresentation.

Emirates Trading v Prime Mineral Exports

Dispute resolution clause was enforceable because it was within a set period of time, expressly written, and in the public interest to avoid litigation.

Yam Seng v International Trade Corporation [2013]

Facts: -30 month contract to distribute fragrances ended after 15 months. Leggatt J: -Merits of such agreements in long term relationships such as franchise agreements. -High degree of cooperation for 'relational' contracts; no longer adversarial.

Walford v Miles [1992]

Facts: -D was negotiating to sell company to C for £2m. -Comfort letter said that C would not negotiate with anyone else for a period. -Was the lock-out agreement valid? Held: -Dismissing C's appeal. Lord Ackner: -Court cannot decide what is a good reason to terminate. -Doesn't fit the adversarial positions of parties. -However specific lock-out agreements are fine.

Petromec v Petrobras [2005]

Facts: -Parties had an agreement to negotiate in good faith with regards to the division of cots. -There was no breach of this agreement. Longmore LJ: -Admitted difficulties of uncertainty and unenforceability. -However it would be too much to have a blanket ban on agreements to negotiate. -Court should give effect to the terms which parties agree to.

Collins (2003) The Law of Contract

General principle: -Common law doesn't like to restrict freedom of contract. -This limited by specific doctrines related to good faith, but no general principle. -Argument: the sources of pre-contractual obligations derive from a general principle which gives coherence to the different legal doctrines. -There is thus a duty to negotiate with care (rather than in good faith). Misleading statements: -Misrepresentation (Spice Girls v Aprilia World Service). -Allows accurate information so that buyers can shop around/make rational decisions. -Higher duty on those who make false statements with position of knowledge (Esso v Mardon). -Damages under s2(1) Misrepresentation Act 1967. Failure to disclose information: -Very limited and reflects individualistic notions of adversaries in the marketplace. -However utmost good faith (Lambert v -Cooperative Insurance) or subsequent change in facts (With v O'Flanagan). -Incorporation of onerous terms (Interfoto Pictures Library v Stiletto). Rationale for duty to negotiate with good care: -His best argument is that it strengthens market efficiency. -May be affected by EU Directive on Unfair Terms in Consumer Contracts which imposes a general good faith duty. -Protect weaker parties who are dependent on stronger (no application to commercial?).

Esso v Mardon

Higher duty on those who make false statements with position of knowledge.

Interfoto Pictures Library v Stiletto

Onerous terms must be drawn to attention in order to be incorporated into the contract.

Bridge (2005) 'Doubting good faith'

Questions about good faith: -Mere honesty or suppression of self-interest? -Does it need its own doctrine? Is it a meta-doctrine (antithesis of freedom of contract?)? Is it a mere morality? -Should it apply to all contract 'laws' e.g. consumer and commercial, or just one? Analysing good faith: -Strong emphasis on certainty for commercial activity. -Good faith doctrine means the courts could do what they do without being disingenuous. He argues that if there is no practical difference, leave it as it is. -Summers (1982): good faith is merely the absence of bad faith. -Ordinary contract doctrines do the job e.g. mistake, interpretation, and implication of terms. -Commercial parties do due diligence so that they don't have to disclose. -Parties are free to expressly contract for a good faith clause if they wish.

Lambert v Cooperative Insurance

Utmost good faith contracts need disclosure of material facts.