Good faith: High Court decides to swim with the tide

Good faith: High Court decides to swim with the tide

Published:

Author: Vicki Duvivie

In the recent case of Yam Seng Pte Limited v International Trade Corporation Limited, the High Court decided to swim with the tide and recognise an implied duty of good faith and fair dealing.

The facts

Yam Seng entered into a distribution agreement with ITC. Under it, Yam Seng was granted exclusive rights to distribute certain fragrances bearing the Manchester United brand name. In July 2010, the relationship between the parties ended sourly, with Yam Seng terminating the agreement on the basis of ITC's alleged breaches.

Among Yam Seng's arguments for breach of contract was its claim that an implied term of the agreement was that the parties would deal with each other in good faith. The High Court had to consider whether there was such a duty in the context of the agreement between the parties.

The High Court's findings

In reaching its decision, the High Court compared the English law position - namely that there is no general legal principle of good faith - against the recognition of such a principle in other jurisdictions.

Justice Leggatt commented that English Courts were "swimming against the tide" in refusing to recognise a general requirement of good faith in the performance of contracts.

On the facts of this particular case, the High Court had no difficulty in finding that there was an implied duty of good faith and fair dealing. As part of that duty, the High Court found that there was an implied term of the agreement that ITC would not knowingly provide false information on which Yam Seng was likely to rely.

The High Court decided that a breach by ITC of this implied term amounted to a repudiatory breach, giving Yam Seng the right to terminate the agreement and claim damages.

Conclusions

Whilst the High Court implied a duty of good faith and fair dealing in this case, the case does not establish an English law duty to act in good faith in all contractual relationships. Whether there is such an implied term will depend on the nature of the contract and its context.

It is interesting to see that in reaching its decision, the High Court was influenced by the concept of good faith that exists in other jurisdictions.

And it leaves us pondering how the judgment will be applied in other cases.