Published on: 11th June 2026
Authored by: Samuel Xavier Oliveira
De Montfort University Dubai
Introduction:
In recent times, the principle of good faith has become a significant aspect in modern day contract law. Often defined as the standards of honesty, integrity, fairness and fidelity, good faith has come to the forefront of contractual agreements between parties. Although many civil law jurisdictions recognise the significance of good faith, the English common law has historically resisted the broad principle. English law often prioritises certainty, freedom of contract, and the parties’ rights to their own commercial interests, whilst avoiding the imposition of overreaching moral obligations on contracting parties apart from the terms expressly agreed upon. [1]
Despite these traditional views, recent legal developments suggest a gradual evolution of the principle of good faith in English law. The increasing complexity and long-term business relationships have shed light on the constraints of a purely adversarial approach to contracting. Most modern arrangements, such as joint ventures, franchise agreements and outsourced contracts require cooperation and mutual trust. Thus, there has been a gradual judicial shift towards the duties of good faith in certain relational contracts where cooperation is a necessity to achieve the contractual purpose.
This gradual shift on the perspective of good faith reflects international interests, especially through broader trends. The UNIDROIT Principles of International Commercial Contracts recognise good faith as a fundamental principle governing the performance of contractual relationships.[2] As the standards of international commercial contracts have become interconnected, the English law is pressured to align itself further with the international objectives of fairness and ethical dealing.
This article will outline the advantages and significance of good faith in commercial contracts while considering its criticisms and developing role in English and international commercial law.
The Traditional View:
Historically, English law has declined to recognise the general duty of good faith. It has primarily focused on emphasising the parties’ interests provided that they fall under the terms of the contract. Traditionally, the law has always prioritised commercial certainty and party autonomy over ideals of good faith.
The main judicial authority as an example for judicial resistance towards good faith in England is Walford v Miles [1992]. The House of Lords held that an agreement to negotiate in good faith was unenforceable on the grounds that it had no certainty.[3] Lord Ackner’s observation stating that good faith negotiations are adversarial in nature and the parties would be entitled to withdraw from them at any time “to pursue their own commercial interests” captured courts’ concern that the imposition of such vague obligations would undermine certainty in commercial exchanges.[4]
This hesitation to introduce a broad doctrine was closely linked to the doctrine of freedom of contract. The courts stood firm on the assumption that parties to a contract are capable of protecting their own interests through negotiations and drawing up their own contract. As a result, the courts have been reluctant to impose obligations that the parties themselves have not expressly agreed.[5]
This view however, contrasts with many civil law authorities internationally, such as France and Germany, where they recognise good faith as a fundamental norm of contractual relations. The English courts historically view such obligations as being unpredictable and inconsistent with the need for commercial certainty.
Nevertheless, while English courts have formally rejected the general/broad duty of good faith, the courts have recognised such duties in narrower contexts for similar concerns. For example, the Unfair Contract Terms Act 1977 explain doctrines relating to misrepresentation, duress, unconscionability and implied terms show judicial attempts to prevent unfair practices in contractual relationships.[6]
The Rise of Good Faith in Contractual Relationships:
The receptive approach to “good faith” in contract law as signalled by some recent case law, is the result of the courts recognising the difference between “relational contracts” and one-off contracts.
Relational contracts are long-term contracts where the parties are obliged to cooperate closely. The relationship between the parties is built upon a degree of trust and reciprocity and is quite different to “one-off” commercial transactions where the parties are expected to negotiate and bargain freely.
In Yam Seng Pte Ltd v International Trade Corp Ltd [2013], Leggatt J held that good faith duties may be implied in certain commercial contracts.[7] The judgment implied that there was scope for the equitable principle of good faith to inform fundamental expectations in commercial contracts, without the law developing good faith which would impinge upon contractual certainty.
Leggatt J noted that there were certain kinds of contracts (relational contracts) where it was reasonable to expect that the parties would act honestly and cooperate. It was equally reasonable to expect that the parties should not act in a way that undermined the relationship between the parties. Importantly, he recognised that there were circumstances where it was reasonable to expect the parties to act honestly because of the nature of the relationship between the parties.
The approach in Yam Seng was followed and extended in Bates v Post Office Ltd [2019], a landmark case arising from the Horizon IT scandal. Here, the High Court held that a post office-subsidiary relationship was a relational contract where duties of good faith, transparency, cooperation, and fair dealing were implied. [8]
The recognition it is reasonable to expect that the parties to a relational contract will act honestly and cooperate has been justified by the fact that the relationship between the parties is built on trust and reciprocity and that the parties are in an unequal bargaining position.
Commercial Importance of Good Faith:
The emergence of good faith in contract law can be best understood through the practical and legal benefits it provides.
- Promoting Trust and Cooperation
Good faith promotes honesty and fidelity among parties throughout the course of their relations but also promotes trust and mutual cooperation within and among parties which is vital for long term contractual relations. Businesses are likely to invest resources and maintain productive relationships with parties they have a good understanding of trust and cooperation with.
The implementation of good faith discourages any opportunistic conduct. Parties with a strong bond through good dealing are likely to steer away from exploiting technical loopholes, abusing contractual power or deliberately frustrating the contract under the wording of the agreement for their benefit. Thus, good faith acts as a safeguard against any potential abusive commercial practices.
- Controlling Contractual Discretion
It is often seen in commercial contracts that one party is granted discretionary powers that affect pricing, performance standards, allocation of benefits or even termination. These discretionary powers are meant to be used with rationality and honesty, as suggested and mandated by the courts.
The case of Braganza v BP Shipping Ltd [2015] established the principle, where the Supreme Court held that contractual discretion should not be used arbitrarily or irrationally.[9] Though this case did not expressly mention the implied duty of good faith, it showed the judicial willingness to control any unfair use of contractual powers to ensure fair and just dealings. Similarly, Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989], established a clear limitation on incorporating unexpected or harsh terms into a contract through standard documentation.[10] This case is often referred to when explaining common law doctrine on fairness in contract formation.
As such, these limitations on discretion are significant as they promote fairness in contractual relations while preserving the autonomy of parties. Thus, businesses are prevented from abusing discretionary powers which are seen to undermine the expectations of the other party.
- Balancing Inequalities of Power
Obligations of good faith can help in addressing imbalances in bargaining power among parties in contractual relationships.[11] Often, the parties with stronger bargaining power may tend to leverage their stronger position and exploit the weaker parties through unfair conduct. This could be seen in contracts relating to supply chains, franchise agreements, or employment-related commercial contracts.
The decision held in Bates v Post Office Ltd [2019] illustrates the idea of vulnerable parties being protected through practices of good faith within long term arrangements. Through the requirement of transparency and fair dealing, the courts can mitigate the risk of abuse without fundamentally undermining the freedom of contract.
Criticisms and Challenges:
Although good faith proposes numerous advantages, it is still widely controversial in English contract law. The primary concern stems from legal certainty. Unlike most contractual obligations, good faith lacks a standardised universal definition. Courts often define good faith in accordance to the case facts that they are met with rather than having a clear and definitive description, thus making commercial outcomes less predictable. Most businesses rely on the certainty of obligations, and the flexible applicability of good faith can be seen as undesirable.
This concern was emphasized in MSC Mediterranean Shipping Co SA v Cottonex Anstalt [2016], wherein the court of appeal warned against the recognition of a broad and undefined doctrine of good faith.[12] The court argued that English law traditionally relies on specified implied terms rather than abstract obligations of fair dealing.
Critics often argue that imposing duties of good faith can undermine contractual freedom. Parties usually negotiate agreed terms for allocating risks and responsibilities based upon their commercial interests. However, the imposition of additional judicial obligations may interfere with such negotiations that are deliberately undertaken.
Furthermore, the broad implications of good faith and its subjectivity can encourage judicial subjectivity. Due to the undefined nature of good faith, judges may decide on what is fair based upon their own moral perception rather than the clear legal principles. This impacts commercial certainty in litigation.
Consequently, English courts have generally preferred a cautious and incremental approach. This allows the courts to imply such obligations wherever necessary rather than recognising a universal duty of good faith, making the law more certain in commercial contexts.
International Influence and Future Developments:
International commercial law has heavily influenced the role of good faith within English law. The UNIDROIT Principles of International Commercial Contracts expressly impose duties of good faith and fair dealing, particularly under article 1.7.[13]
As these international stances on commerce expand, English law is increasingly pressured to harmonise with the global standards. International commercial contracts and cross-border transactions involve parties of other jurisdictions which recognise good faith as fundamental to contractual arrangements. Such relationships may gradually encourage the application and acceptance of these principles of good faith in English law.
However, looking into how English law operates, it is unlikely that it will fully adopt such a broad framework but there may be future developments in specific contexts through incremental judicial recognition.
The courts are likely to develop tests for identifying relational contracts to determine the scope of implied good faith obligations. This would help balance fairness with the need for commercial certainty.
Conclusion:
Good faith has emerged as a growing concern in modern commercial contracts; the foregoing analysis clearly demonstrates the extent to which English law has resisted the imposition of a general duty of good faith.
Recent developments suggest that this resistance is waning, and that modern courts are keener to imply a duty of honesty, cooperation and fair dealing in relational commercial contracts, as exemplified by the cases of Yam Seng and Bates. These cases also demonstrate the gradual development of English law towards recognising the importance of trust and cooperation in long-term commercial relationships, whilst cautioning against undermining certainty and freedom of contract through the imposition of duties that are too broad or poorly defined.
Finally, the trend towards good faith is not an English phenomenon, but is instead a global trend in commercial law, particularly regarding ethics and fairness in commercial transactions. And whilst recognition of the doctrine of good faith in commercial contracts will not be as pervasive in English law as it is in civil law jurisdictions, its importance will continue to shape the ways in which English courts interpret and develop English commercial law.
Bibliography
Primary Sources:
Bates v Post Office Ltd [2019] EWHC 606
Braganza v BP Shipping Ltd [2015] UKSC 17
Consumer Rights Act 2015
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433
MSC Mediterranean Shipping Co SA v Cottonex Anstalt [2016] EWCA Civ 789
Unfair Contract Terms Act 1977
Walford v Miles [1992] 2 AC 128
Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB)
International Instruments:
UNIDROIT Principles of International Commercial Contracts (UNIDROIT 2016)
Secondary Sources:
Chen-Wishart M, Contract Law (7th edn, Oxford University Press 2022)
McKendrick E, Contract Law: Text, Cases, and Materials (11th edn, Oxford University Press 2024)
[1] Ewan McKendrick, Contract Law: Text, Cases, and Materials (11th edn, Oxford University Press 2024)
[2] UNIDROIT Principles of International Commercial Contracts (2016) art 1.7
[3] Walford v Miles [1992] 2 AC 128 (HL)
[4] Walford v Miles [1992] 2 AC 128 (HL) 138
[5] Mindy Chen-Wishart, Contract Law (7th edn, Oxford University Press 2022)
[6] Unfair Contract Terms Act 1977
[7] Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111
[8] Bates v Post Office Ltd [2019] EWHC 606
[9] Braganza v BP Shipping Ltd [2015] UKSC 17
[10] Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433
[11] Consumer Rights Act 2015, s 62
[12] MSC Mediterranean Shipping Co SA v Cottonex Anstalt [2016] EWCA Civ 789
[13] UNIDROIT Principles of International Commercial Contracts (UNIDROIT 2016) art 1.7
