To what extent is the ‘piecemeal’ approach to problems of unfairness in English contract law satisfa
In a recent High Court decision, Justice Leggatt stated that based on the presumed intention of commercial parties, an implied duty to act in ‘Good Faith’ could be recognised in ‘relational contracts’. Although, accepting English law is unlikely to import an overarching doctrine soon, he likened the resistance to ‘swimming against the tide’ in a legal ocean which has embraced the idea. This suggests a synchronised doctrine flowing ubiquitously in interpretation and function against which English law is foundering. Rather, this essay finds, ‘maelstrom’ is a more fitting metaphor within which the ‘piecemeal form’ of English contract law buoyantly swirls alongside other jurisdictions. Further, empirical evidence and cases grappling with the notion of good faith without needing to crystallise any choate general principle to find fair remedy, suggest the good faith maelstrom debate is no more than a storm in a tea-cup.
‘Classical’ English contract law fosters ‘freedom of contract founded upon the centrality of the individual […] and a restricted role of intervention for either the court or the state’. This favours an objective approach to contract construction to understand what it means to 'a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract'. This is not to say the court will never imply terms into an agreement, but it cannot ‘make it fairer or more reasonable and is concerned only to discover what the
In 2015, Lord Neuberger opined it would be ‘dangerous to reformulate’ classic criteria, suggesting a retreat from implying terms, the following year Arcadis v AMEC demonstrated this lines harshness. Conversely, civil law jurisdictions generally interpret agreements subjectively aiming to realise the true intention behind parties and meaning of words as they understand them. Yet, the objective/subjective legal perspective is reversed when pondering an obligation of ‘Good Faith’. Auld LJ has noted that ‘Shorn of context, the words “in good faith” have a core meaning of honesty. Introduce context, and it calls for further elaboration’.  This suggests objective moralising of contractual relations may seek; and find different outcomes to the subjective. The dichotomy in part arises from challenges in defining morals in pluralist societies and suggests substantive ‘fairness’ may be unworkable in a free marketplace. Notably, Atiyah rejects this view, but only because he believes objective fairness appropriated by English law, in fact leads to substantive fairness.
Since 1942, several civil law jurisdictions have extended a duty to negotiate in good faith, a concept ‘inherently repugnant to the adversarial position of the parties’ in English contract law. Conversely, where applied in common law states, the doctrine is generally limited to ‘performance or enforcement’.  Almost all international private law refers to a doctrine of ‘good faith’, the Vienna Convention on Contracts for the International Sale of Goods, states regard is to be had, inter alia, to the ‘observance of good faith in international trade law’, yet the doctrine is anarchic in expression particularly where linguistic nuances achieve a different scope in translation, note the French PECL states ‘compliance with the requirement of good faith’, whilst the English version mentions ‘good faith and fair dealing’.
These intricacies led European scholar Hessilink to describe good faith as an ‘open norm’ which depends ‘on the circumstances of the case in which it is applied’. As a result, he claims ‘most lawyers from a system where good faith plays an important role, agree these differences in theoretical conception do not matter very much […] What really matters is the way in which good faith is applied by the courts: the character of good faith is best shown by the way it operates.
Justice Leggatt, therefore overstates the contrast between English Law and jurisdictions recognising a doctrine of good faith; the difference ‘more one of technique than result’. Roger Brownsword, suggests this encourages ‘pragmatic neutrality towards good faith’, a view supported by judicial and extra-judicial commentary. In 1997, Lord Steyn wrote, ‘I have no heroic suggestion for the introduction of a general duty of good faith […] It is not necessary’, whilst the Interfoto judgement illustrates that despite the absence of a general principle, the courts are well acquainted with the concept, developing ‘piecemeal solutions in response to demonstrated problems of unfairness’. Yam Seng, after all found satisfaction through breach of agreement and breach of exclusivity
Moreover, an implied duty to act in good faith does operate in some areas of English contract law: the doctrine of uberrimae fidei in insurance contracts, Employment law, Partnership Law and fiduciary relationships. The courts will address ‘bad faith’ or dishonesty in commercial relations through doctrines of Duress, Unjust Enrichment and Restitution, the penalty for which ‘can be very firm (possibly even harsh)’.
Furthermore, terms deemed substantively unfair in consumer relations and business contracts are now codified in domestic law through EU directives.
Case-by-case and often in harmony with legislation, the courts mitigate unfairness through promissory estoppel, consideration, frustration, mistake and misrepresentation. Whilst remaining faithful to contract construction, the doctrine of caveat emptor and force majeure clauses through a narrow application of these doctrines. Frustration rejects ‘expense or delay or onerousness [relieving] contracting parties of the normal consequence of imprudent commercial bargains’. Whereas, The Great Peace case decided where common law finds no relief from mistake, neither will equity.
Lord Wilberforce suggests this commitment to ‘a rather technical and schematic doctrine of contract’, forces ‘facts to fit uneasily into the marked slots […]. Consideration, for example need only be sufficient; not adequate between parties illustrating a lack of concern with contract imbalance in the absence of fraud or other misconduct. However, converse to mistake, the scope of consideration has widened conferring practical benefit to a creditor. Still, those who advocate an objective doctrine of good faith claim applying such ‘piecemeal remedies’ on a case-by-case basis uses ‘contortions or subterfuges in order to give effect to their sense of the justice of the case’.
Enforcing express terms of good faith in contracts does not necessarily require ‘either party to give up freely negotiated financial advantage clearly embedded in the contract’. However, In Berkeley Community Villages Ltd v Pullen, Morgan J construed a clause to act in ‘utmost good faith’ as ‘imposing on the Defendants a contractual obligation to observe reasonable commercial standards of fair dealing in accordance with their actions. This decision was followed in CPC Group Ltd v Qatari Diar gaining approval in Mid-Essex Hospital Services NHS Trust v Compass Group UK. Alongside the Yam Seng ‘good faith’ proposition, the court in Mid-Essex considered an implied duty that an employer will not exercise contractual discretion in an ‘arbitrary, irrational or capricious manner’. However, Jackson LJ reiterated that commercial common sense ‘does not favour a general overarching duty to co-operate in good faith’. Moreover, express terms should be narrowly construed unless the contract construction shows otherwise. This approach was followed in TSG Building Service Ltd.
Since Yam Seng, an implied obligation of good faith in commercial contracts has been applied in several instances. However, the case has also been distinguished and most recently limited. In Monde v. Westernzagros Ltd, Richard Salter QC rejected that a long-term or relational contract is ‘of itself, sufficient to justify such an implication’ holding no implied term not to terminate a contract in ‘bad faith’. Further, the Court of Appeal reversed part of Justice Leggatt’s first instance judgement in MSC Mediterranean. Moore-Bick LJ sought to constrain the development of a general principle stating that if it ‘were established it would be issued as often to undermine as to support the terms in which the parties have reached agreement’. This echoes arguments for the limitation of mistake and frustration (although, it is noteworthy that in MSC the contract was frustrated). Moore-Bick further cited Lord Bingham’s ‘piecemeal’ approach with approval, supporting a return to traditional case-by-case analysis of good faith.
Pursuant to Recital 11 of the Rome 1 Regulation (593/2008), the ‘freedom to choose the applicable law should be one of the cornerstones of the system of conflict-of-law rules in matters of contractual obligations’. In 2014, an ICC study evaluated over 4000 international contracts involving around 12,000 parties. They showed English and Swiss jurisdictions are chosen three times more often than their closest competitors and yet the differences ‘with respect to contract interpretation and enforcement are striking’. Switzerland, adopts a principle of good faith where courts may imply terms they decide parties should have included. Further, if relations break down prior to contracting culpa in contrahendo protects parties. As earlier established, English law rejects this approach; neither will it recognise a general rule of disclosure in contract law.
Published the same year, an article in GAR suggests the absence of a general principle of good faith means English law ‘is singularly ill-suited to international arbitration’ often leading to ‘nasty surprises’ for contracting parties. It claims for reasons of neutrality, linguistic bias and geography ‘English law wins – almost by default’. Yet, crossing the Atlantic, the opposite is observed. Although U.S. common law recognises good faith in performance, there is individual state jurisdiction. In 2009, an empirical study of U.S. domestic contracts involving publically held companies revealed New York dominated the market for large commercial contracts with 46% of 2,800 surveyed, while California was chosen in only 8% of cases. Analysis concluded the essential difference between them was ‘found in their respective rules on interpretation and enforcement of contracts’ characterising New York judges as ‘formalists’ with ‘little tolerance for attempts to rewrite contracts to make them fairer or more equitable,’ whereas California judges are noted to ‘reject contracts in the service of morality or public policy’. This evidence suggests the attractiveness of ‘good faith’ in commercial contract law ebbs and flows across the Atlantic, yet may indicate its presence is a side-effect rather than a choice. Conversely, ‘certainty’ is not only appealing; but considered necessary in the pursuit of commercial relations.
It is noteworthy that whilst suggesting the absence of good faith in English law is problematic, the GAR article offers no preferred jurisdiction for commercial contracts. Neither are the reasons posited for English laws appeal supported by the European ICC study, where no particularity could be deduced.
Evidence indicates no general principle of good faith in contract law is required, and that far from foundering in an ocean of competitors, English law is surfing the wave. The extent to which Yam Seng will be followed is unclear, but even if good faith reaches shore it seems likely it will operate as another ‘piecemeal’ remedy rather than an overarching principle. For now, commercial parties who wish to imply a duty of good faith across performance of the contract would be wise to use express clauses to that effect.
Atiyah, Patrick, ‘The Rise and Fall of Freedom of Contract’ (Oxford University Press, 1979)
Beatson, Jack & Friedman, Daniel ‘Good Faith and Fault in Contract Law’ (Oxford University Press, 2002)
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Collins, Hugh, ‘Is a Relational Contract a Legal Concept?’ in Simone Degeling, James Edelman, James Goudkamp (ed), ‘Contract in Commercial Law’ (Lawbook Co, Thomson Reuters 2016)
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Hart, H.L.A., ‘Positivism and the Separation of Law and Morals’ (1958) 71 Harvard Law Review 593
Hayek, F.A., The Mirage of Social Justice in ‘Law, legislation and Liberty: A new statement of the liberal principles of justice and political economy’, (Routledge, London & N.Y., 2003, 1st edn. 1979) Vol. 2
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Steyn, Johan ‘Contract Law: Fulfilling the Reasonable Expectations of Honest Men’ (1997) 133 Law Quarterly Review 433, 439).
GAR Live: ‘This house believes that arbitrating in London is full of nasty surprises (more so if the contract is governed by English law). 7th May, 2014
Cohen, Paul and Farina, Gabrielle, ‘Rue Britannia: Why English law is a poor choice for international arbitration’, (2014) Global Arbitration Review 9(2).
Bibliography - On-line resources
Banakas, Stathis, ‘Liability for Contractual Negotiations in English Law: Looking for the Litmus Test, InDret 1/2009
Corbin, Arthur, ‘The Common Law of the United States’ (1938), Faculty Scholarship Series. Paper 2853 http://digitalcommons.law.yale.edu/fss_papers/2853
Cuniberti, Gilles, ‘The International Market for Contracts: The Most Attractive Contract Laws’, Northwest Journal of International Law & Business, Vol. 34 Issue 3, Spring
Eisenberg, Theodore, & Miller, Geoffrey, The Flight to New York: An Empirical Study of Choice of Law and Choice of Forum Clauses in Publicly-Held Companies’ Contracts, 30 Cardozo L. Rev. 1475 (2009)
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Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) - http://eur-lex.europa.eu/legal-content/en/ALL/?uri=CELEX%3A32008R0593
Bibliography - Works Consulted
Brownsword, Roger, ‘Contract Law: Themes for the Twenty-First Century’ (Oxford University Press, 2nd edn, 2009)
O’Sullivan, Janet & Hilliard, Jonathan ‘The Law of Contract’, (Oxford University Press, 7th edn, 2016)
Peel, Edwin, ‘Treitel: The Law of Contract’ (Sweet & Maxwell, 14th edn, 2015) Chapters, 1-004, 6-042-6-045
Bibliography - Law Firm Articles consulted
‘Good Faith in English Contract Law’ http://www.guildhallchambers.co.uk/uploadedFiles/Good_Faith_in_English_Contract_Law.pdf
‘Good Faith Obligations in English Law’
‘The Good Faith Movement – ‘Swimming against the tide’
 Yam Seng Pte Ltd v. International Trade Corporation Ltd  EWHC 111 (QB) para. 142, henceforth referred to as Yam Seng.
 ‘Hugh Collins, ‘Is a Relational Contract a Legal Concept?’ in Simone Degeling, James Edelman, James Goudkamp (ed), ‘Contract in Commercial Law’ (Lawbook Co, Thomson Reuters 2016)
 Ibid, Yam Seng, para. 131
 Ibid, Yam Seng, para. 124
 ‘Good Faith and Fault in Contract Law’ (Oxford University Press, 2002 ed. Beatson & Friedmann), p. 7
 Investors Compensation Scheme Limited v. West Bromwich Building Society  1 WLR 896, para. 912
 see Chitty on Contracts, (2015, 32nd edn.), Vol. 1 para. 2-120. Also, WN Hillas & Co Ltd v. Arcos Ltd  UKHL 2 – binding agreement despite absence of price.
Wells v Devani  EWCA Civ 1106 - terms will not be implied into an incomplete contract
 Attorney General of Belize v. Belize Telecom Ltd,  UKPC 10 (Lord Hoffman) para. 16
 Marks and Spencers plc v. BNP Paribas Securities Services Trust Company (Jersey) Ltd & Ors,  UKSC 72, Referring to Lord Simon in the Privy Council case BP Refinery (Westerport) Pty Ltd v. Shire of Hastings  UKPC 13, para. 18 - Lord Neuberger held an implied term: must be reasonable and equitable, necessary to give business efficacy to the contract, so obvious it goes without saying, capable of clear expression, must not contradict and express term.
 Arcadis Consulting (UK) Ltd v AMEC (BSC) Ltd  EWHC 2509 (TCC) simple contract prior to terms agreed. Despite all terms proposed including a liability limit, no binding agreement in respect of the proposed version was found.
 Street v. Derbyshire Unemployed Worker’s Centre  EWCA Civ 964,  4 All ER 839
 see H L A Hart, ‘Positivism and the Separation of Law and Morals’ (1958) 71 Harvard Law Review 593 and in response see L L Fuller, ‘Positivism and Fidelity to Law – A Reply to Professor Hart’ (1958) 71 Harvard Law Review 630
 F.A. Hayek, The Mirage of Social Justice in ‘Law, legislation and Liberty: A new statement of the liberal principles of justice and political economy’, (Routledge, London & N.Y., 2003, 1st edn. 1979) Vol. 2
 Stathis Banakas, ‘Liability for Contractual Negotiations in English Law: Looking for the Litmus Test, InDret 1/2009 p,7 http://www.raco.cat/index.php/InDret/article/viewFile/124354/172327 - last viewed 12/03/2017
 Introduced in Italy
 Portugal, Greece, Germany, Switzerland and most recently in the newly revised French civil code (Article 1104). Belgium and Luxembourg have not established such a requirement.
 Walford v Miles  2 AC 128, para. 29. (Lord Ackner)
 USA, Australia and Canada. Although, there is a ‘duty to negotiate with care’ in American Law, see the US Code, S. 158. H. Collins, ‘The Law of Contract, (LexisNexis, 2003, 4th edn.) p, 179.
 U.S.A. Uniform Commercial Code S. 1-304 and the US Restatement (Second) of Contract S. 205
 The UK has signed but not ratified the agreement.
 United Nations Convention on Contracts for the International Sale of Goods, Vienna, signed 11 April 1980, entry into force 1 January 1988, 1489 UNTS 3, Article 7.
 Principles of European Contract Law
 Legiscompare, Good Faith Chapter 5, http://www.legiscompare.fr/web/IMG/pdf/13._CH_5_Good_faith.pdf
 M.W. Hesselink, ‘The Concept of Good Faith’ in Towards a European Civil Code, (Kluwer Law International, 3rd edn. 2004), p. 474.
 Ewan McKendrick, ‘Contract Law’ (Macmillan, 2015, 11th edition), p.219
 Roger Brownsword, ‘Two Concepts of Good Faith’ (1994) 7 JCL 197
 Johan Steyn, ‘Contract Law: Fulfilling the Reasonable Expectations of Honest Men’ (1997) 133 Law Quarterly Review 433, 439).
 Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd  QB 433
(per Lord Bingham)
 Ibid, Yam Seng, para. 173
 the doctrine of uberrimae fidei, ‘Utmost good faith’ which enforces an obligation to disclose all relevant facts in order to avoid misrepresentation. This judgement was partially codified in the Marine Insurance Act 1906. See discussion of insurance law by Lord Mustill in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd  3 All ER 581;  1 AC 501 and more recently Lord Hoffman’s comments in HIH Casualty v. Chase Manhattan Bank  UKHL 6