Last edited 29 Sep 2016

Good faith in construction contracts

An obligation for parties to act in ‘good faith’ is not generally implied in commercial contracts.

However, both standard form construction contracts and bespoke contracts commonly include clauses that require the parties to act in ‘good faith’ or may refer to ‘mutual trust’, ‘cooperation’, ‘respect’ or ‘collaboration’, or there may be some form of collaboration charter associated with contracts such as partnering agreements. However, there are often no related express terms defining precisely what these phrases mean or how they can be complied with.

There may be an expectation that in the event of disputes, adjudicators, arbitrators or the courts will take such clauses into account when considering the behaviour of the parties, that is, they will imply a general obligation to behave in a particular way. However, good faith clauses do not modify other express terms in a contract, and so unless they are supported by specific contractual obligations, such an interpretation might not stand up.

In the 1992 case of Walford v Miles, a clause requiring negotiation to be carried out in good faith was considered ‘unworkable in practice’, but in 2002, in the case of Cable & Wireless v IBM, a requirement to act in good faith in relation to alternative dispute resolution was considered clear enough to be enforceable, as it included actions that were necessary to comply with the obligation.

In Compass Group v Mid-Essex Hospital Services NHS Trust in 2013, the NHS won their appeal against enforcement of a good faith clause as the original decision was considered to have applied the obligation too broadly, rather than to just the specific instances expressly set out in the contract. Also in 2013, in TSG Building Services Plc v South Anglia Housing Limited, the court found that a duty of good faith did not apply to a termination clause as the express terms allowed either party to terminate for any or no reason.

It seems therefore that for such clauses to be enforceable, they need to set out specific obligations that demonstrate compliance.

This is an ever-changing area of the law, and in the future the courts may give more weight to good faith clauses, however, at present, the interpretation of how clear an obligation to act in good faith needs to be is likely to be judged on a case by case basis. This brings into question whether it is the inclusion of the phrase 'good faith' that should be relied on, or just the related express terms, which would stand even without the inclusion of the phrase.

If the parties to a contract wish to enforce a particular sort of behaviour they should include express terms to that effect.

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