Recognising the principle of good faith

The NEC Engineering & Construction main contract has a core base line “good faith” clause. “The employer, the contractor, the project manager and the supervisor shall act as stated in this contract and in a spirit of mutual trust and co-operation.” Good job it does, because under English law, there is no legal principle of good faith in contract law. Here is what a very senior judge, Lord Bingham, said 25 years ago: “In many civil law systems, and perhaps in most legal systems outside the common law world, the law of obligations recognises and enforces an overriding principle that in making and carrying out contracts parties should act in good faith.

Make no bones about it; there is deep traditional English hostility towards a doctrine of good faith being automatically injected into your contract

This does not simply mean that they should not deceive each other … ; its effect is perhaps most aptly conveyed by such metaphorical colloquialisms as ‘playing fair’, ‘coming clean’ or ‘putting one’s cards face upwards on the table’. It is in essence a principle of fair open dealing. English law has, characteristically, committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of ‘unfairness’.”

Make no bones about it; there is deep traditional English hostility towards a doctrine of good faith being automatically injected into your contract. We prefer to leave the parties to arm wrestle their own bargain. But just last week, a High Court judge in a rather smelly case gave a rousing cheer for good faith in contracts. Time, he said, for a rethink. If he is right, if it becomes a norm, you could find your disputes being decided differently.

Manchester United toiletries are at the bottom of that affair. The red boxes contain eau de toilette and deodorant. That’s in respect of the lads when they play in red shirts at home. Away matches are in the black strip, so the black boxes contain hair and body gel. It doesn’t matter for our purposes what that quarrel is all about. The judge is waxing on about good faith obligations. He reckons that in refusing to recognise an obligation of good faith we are swimming against the tide. It is recognised in Germany, France, Italy, the US, Australia and Canada. EU legislation reflects the concept too. There is much talk of “good faith and fair dealings”.

A court will say, and so too an arbitrator and so too an adjudicator, a key feature of commerce depends critically on trust. It won’t actually say that in black and white; nor need it

So, what’s expected from this notion of fair dealing? The idea is that construction contracting folk have an expectation of honesty. A court will say, and so too an arbitrator and so too an adjudicator, a key essential feature of commerce depends critically on trust. It won’t actually say that in black and white; nor need it. Nor will the contract wording be read to permit anything less than honest dealing. And if, say, a clause said that party X had no liability for deceit, it would never be read to have that meaning. In addition to honesty, there are other standards of commercial dealing which are so generally accepted that the contracting parties will reasonably take them as read. Conduct which an outsider knowing the industry would say is “improper”, “commercially unacceptable” or “unconscionable” will seriously influence what’s to be done in a dispute. Watch too for an ingredient described as “fidelity to the parties bargain”. It recognises that the language of the bargain can never specifically provide for every event that may happen. In which case look to detect the values and purposes expressed or implicit in the contract.

For example, interpret the bargain as requiring co-operation between the parties.

There is more. The contract will be read such that a person making a statement of fact intending another person to rely on it while knowing the statement to be untrue will be guilty of a deceit. A no-no in good faith and fair dealing is to say nothing so as not to disclose the true position. So go out and buy some sticky labels that say: “We believe in and practise good faith and fair dealing.” Put them on your letterhead, emails and hoardings. Then give them to those who flog beef burgers, those who do TV and radio interviews, those who run the hospitals, police, press, banks and the City and those other institutions that have been caught with their pants down. Meanwhile, a pat on the back for NEC for its “good faith” clause. It’s in all your other contract documents hidden behind the court’s or adjudicator’s door.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple