November 30, 2011

Good faith

It is an often repeated mantra that English law knows no doctrine of good faith. Since drafts of proposed European private law contain provisions regarding good faith or use good faith as an instrument, is its absence in English law detrimental to the possible success of these drafts?

I think the doctrine of good faith does not exist in English law on a purely semantic level. The law is shy to impose an obligation on contracting parties to operate in good faith, maybe because they fear it would be an additional burden on them. In addition to being reasonable, parties would have to negotiate in good faith, a general requirement whose scope they would be unsure of. The uncertainty argument has been used by the court in Walford v Miles. The case itself limits itself to pre-contractual situations: an agreement to use best endeavours to agree on the terms of the contract is equated to an agreement to negotiate, which courts are reluctant to enforce because it is uncertain.

But as Walford v Miles shows, this does not exclude the ‘best endeavours’ principle from applying to the performance of a contract. In that sense, it is similar to Article 1134 of the French Code Civil. In the former case it is subject to an express or implied, often by courts giving due regard to the circumstances of the contract, agreement to perform using ‘best endeavours’. In the latter case it is a State-imposed duty. Furthermore, regulation 5 of the Unfair Terms in Consumer Contracts Regulations, although only limited to B2C transactions, makes explicit reference to good faith and offers aids to interpretation in Schedule 2. Subsequent cases have shown courts are not hesitant or reluctant to effectively interpret this provision.

No overview of good faith in English law would be complete without reference to Equity. As a legal tool it is very much anchored around unconscionability, fairness and justice. Much like the notion of continental good faith.

I think, beyond the idea that strict adherence to a no-good faith policy is purely a belief, there is an economic argument. Businesses with little or poor legal advice will jump at the occasion to do business in a country which, at first hand, does not recognize a duty to negotiate in good faith, because it is a system that is portraying itself as placing paramount importance on freedom of contract.

To answer my initial question, I do not believe the absence of a notion of good faith is detrimental to a future implementation of harmonized European private law. If the argument is that good faith is too uncertain, surely it is overcome by precise definition of its content and scope in instruments such as the PECL.

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