1 essay question on general matters (certainty/flexibility in commercial law- role of good

faith)

(commercial contractors) Good faith and fairness or certainty and predictability in

commercial law (even if unfair in outcome)? Is good faith good value to be included in
commercial law? Domestic sales? International sales? To demonstrate view. What areas in
commercial law (e.g., DSOG; ISOG, etc.) could you use to illustrate your argument? Take a
point of view and defend it.

Essay big points:

1. First outline benefits of certainty in these contracts (god faith may be needed in
isolated scenrios): say that study used to show that trust was important, now it has
been shown modern day arm’s length contracting, not usual for face to face, don’t
know other person so well, certainty is everything. Certainty is also well established
in English law. Then talk about common case, why getting out of bad deals is not
good (if talking about fairness).
 My Lords, wise judges have often warned against the wholesale importation into
commercial law of equitable principles inconsistent with the certainty and speed
which are essential requirements for the orderly conduct of business affairs.
 The picture of the trustee or fiduciary as an old friend of the family who has
gratuitously volunteered his services is long obsolete. add to point 3.
 Talk about cases that show you can end contract as long as it Is legql and
threaten action as long as it is allowed in contract and it wont be economic
duress- Pakistan case.
 Lord Mansfield: ‘In all mercantile transactions the great object should be
certainty: and therefore, it is of more consequence that a rule should be certain,
than whether the rule is established one way or the other.’ Vallejo v Wheeler
(1774) 1 Cowp 143 at 153
 Lord Mansfield: ‘… [T]he most desirable object in all judicial determinations,
especially in mercantile ones (which ought to be determined upon natural justice,
and not upon the niceties of the law) is to do substantial justice.’ Alderson v
Temple (1768) 4 Burr 2235 at 2239.

 ‘The Codification of Commercial Law’ by RM Goode (1988) 14 Mon LR 135 at

147–155
 (b) Predictability
 The business world attaches high importance to the predictability of judicial
decisions on legal issues. The weight given by a legal system to the need for
predictability compared with equity and flexibility will, of course, vary from
jurisdiction to jurisdiction and will depend in no small measure on the volume of
business and of dispute resolution a particular State has or wishes to attract. A
reasonable degree of predictability is needed in the commercial world because
so much planning and so many transactions, standardised or high in value, are
undertaken on the basis that the courts will continue to follow the rules laid
down in preceding cases. But every businessman and his lawyer knows that there
are tides in judicial philosophy, that every action ultimately produces a reaction,
 that a form of liability denied by one generation of judges will be vigorously
developed by the next.
Bad Bargains Paul S Davies*
 Parties should generally be held to their contracts, regardless of whether they
are good or bad.
 A clear way of showing that English law respects freedom of contract is to hold
parties to contracts freely entered into. T
 Where the money spent by one party in reliance on the contract exceeds the
gross profits that would be made from the contract, that bargain can generally
be characterised as ‘bad’ for that party.
 More common, however, are bargains which become bad because of external
circumstances. E.g. Court of Canada in Churchill Falls (Labrador) Corp v Hydro-
Que´bec.22
 2. Why hold parties to ‘bad bargains’?
 In Charter Reinsurance Co Ltd (In Liquidation) v Fagan Lord Mustill said:30
Particularly in the field of commerce, where the parties need to know what they
must do and what they can insist on not doing, it is essential for them to be
confident that they can rely on the court to enforce their contract according to
its terms ... In the end ... the parties must be held to their bargain[.]
 This helps to generate (often artificial) trust in the system of contract law and
encourage parties to contract since their agreements will be enforced. Such an
approach is crucial for commerce and trade to flourish.31
 G Leggatt, ‘Negotiation in Good Faith: Adapting to Changing Circumstances in
Contracts and English Contract Law’ [2019] JBL 104, 104; N McBride, The
Humanity of Private Law (Hart 2019) 182-194. See too Vallejo v Wheeler (1774) 1
Cowp 143, 153 (Lord Mansfield).
 Moreover, judges may be ill-equipped to decide whether a bargain is ‘bad’,32
and so do not distinguish between different types of contracts in this way.
Indeed, English law only requires that consideration be ‘sufficient’ but not
‘adequate’;33 courts will not enquire into the adequacy of consideration to
determine whether a bargain was ‘fair’.34 In Skanska Rasleigh Weatherfoil Ltd v
Somerfield Stores Ltd Neuberger LJ sensibly observed that:35 Judges are not
always the most commercially-minded, let alone the most commercially
experienced, of people, and should, I think, avoid arrogating to themselves
overconfidently the role of arbiter of commercial reasonableness or likelihood.
 There is great merit in providing clear and certain rules in the commercial
context. The commercial law of England and Wales is more international in its
outlook than many other legal systems.45 A large proportion of the disputes
before the commercial courts in London involve parties with little relationship to
the jurisdiction, beyond a choice of law clause. Use this to talk about
international appeal of np good faith.
 It is perhaps significant that England is such a popular jurisdiction and does not
contain a broad doctrine of good faith. This may in fact be a competitive
advantage47 that is not lightly to be discarded;48 the absence of good faith is
often perceived to increase commercial certainty49 and the respect afforded to
freedom of contract, which is highly desirable for many commercial actors.
Indeed, the rise of good faith has even been viewed as dangerous to the stability
 of English commercial law.50 In any event, it is unclear whether in large-scale
commercial disputes there is a ‘pool of shared morality’ to which reference can
be made. That sort of concept may be appropriate in a jurisdiction with a strong
mutual cultural background, such as France and Germany, so that in practice
people do have a fair idea how the standard will be applied. But in international
trade – to which English contract law often speaks – such a strong common legal
cultural background is frequently missing, so the need for more hardedged rules
becomes greater.
 48 Cf J Hobhouse, ‘International Conventions and Commercial Law: The Pursuit
of Uniformity’ (1990) 106 LQR 530, 535.


2. Good for English law- apply SOGA international SOG. Show comparison with
international treaty. This beenfits engkish law, use stat to show that a lot of cases in
thios jurisdiction are not based here, chosen for the certainty it provides. Use
economic argument.
 46 ‘Some 70% of the cases that come before the Commercial Court, which is now
part of the Business and Property Courts, have at least one overseas party’: Shagang
Shipping Co Ltd (In Liquidation) v HNA Group Co Ltd [2018] EWCA Civ 1732, [2019] 1
Lloyd’s Rep 150 [1]. Not only moral/ethical argument but also economic argument.

United Nations Convention on International Sale of Goods 1980 (Vienna Convention)

 Art.7(1)
o “In the interpretation of this Convention, regard is to be had to its international
character and to the need to promote uniformity in its application and the
observance of good faith in international trade.”
o UNIDROIT Principles of International Commercial Contracts:
o ARTICLE 1.7 (Good faith and fair dealing) (1) Each party must act in
accordance with good faith and fair dealing in international trade. (2) The
parties may not exclude or limit this duty.
o CISG perhaps better suited to ‘market insensitive’ goods (e.g., bespoke
products and heavy machinery (made for specific buyer)) rather than ‘market
sensitive’ goods such as commodities (English law of sale better for dealing
with the latter: see Bridge, ‘A Law for International Sales’ (2007) 37 HKLJ
17)
3. Any use of equity has been seen to cause uncertainty- relational contract. A lot of
uncertainty even when introduced just a little bit. Use of equity outdated.
 Existing laws against fraud, misrep, duress etc are sufficient.
 Parties don’t necessarily want the norms they display in their day to day relationship
to be applied once the relationship is over and there is a dispute.(see Lisa Bernstein
on EGN v RPN). Argument for not applying implied term of good faith.
Good faith in real life: empirical studies of contract behaviour
 S. Macaulay, ‘Non-contractual Relations in Business: A Preliminary Study’ (1963) 28
American Sociological Review 45- went around manufacturing business and asked
about business dealings and how relationships were governed and how contract law
played minor role in relationships, mor eimportant was cooperation and maintaining
reputation. Formal contract and rushing off to lawyer showed lack of trust.
  Contractual negotiations are just one more hurdle in the way of a sale. Holding a
customer to the letter of a contract is bad for "customer relations." Suing a customer
who is not bankrupt and might order again is poor strategy.

 Demonstrates importance of business co-operation, maintaining reputation and
business relationships. Insistence on a contract regarded as showing lack of trust (cf:
Baird v M & S).
 Now there is different world. Global scale. Not dealing personally. Heavy reliance on
agents and intermediaries. In this environment contract terms much more important.
But outdated in an era of global trade where parties may be contracting more
impersonally and with heavy reliance on agents?
 Bates v Post Office- what is relational contract.

Things to read:
 Chapter 1
 Mr Justice Leggatt “Contractual duties of good faith” Lecture to the
Commercial Bar Association on 18 October 2016:
 J Morgan, Contract Law Minimalism (Camb UP, 2013) ch 4 (‘Relational
Contracting: Trust, Business and Law’ – ebook available through library).
 Yam Seng v ITC [2013] EWHC 111 paras [119]-[154]
 Bates v Post Office [2019] EWHC 606 (QB) paras [702]-[768]
 PJ Millett, ‘Equity’s place in the law of commerce’ (1998) 114 LQR 214
 David Campbell, ‘Good faith and the ubiquity of the ‘relational’ contract’ (2014) 77
MLR 475
 Paul S Davies: ‘Bad Bargains’ (2019) 72 Current Legal Problems 253

Chapter 1
 In Kum v Wah Tat Bank Ltd [1971] 1 Lloyd’s Rep 439 at 444, Lord Devlin stated that:
 The function of the commercial law is to allow, so far as it can, commercial men to
do business in the way they want to do it and not to require them to stick to forms
that they may think to be outmoded. The common law is not bureaucratic.
 5 The role of equity in commercial law
 Westdeutsche Landesbank Girozentrale v Islington London Borough Council
 [1996] AC 669, House of Lords
 Lord Browne-Wilkinson: … My Lords, wise judges have often warned against the
wholesale importation into commercial law of equitable principles inconsistent with
the certainty and speed which are essential requirements for the orderly conduct of
business affairs.
 ‘Equity’s Place in the Law of Commerce’ by Sir Peter Millett (1998) 114 LQR 214 at
214–217 (footnotes omitted)
 Three things have combined to bring about this development. First, there is the
growing complexity and professionalism of commercial life which have accompanied
the change from an industrial to a service economy and the growth of the financial
services industry. Much commerce today is based on trust; on each side of a
commercial arms’ length transaction there are likely to be relationships of trust and
confidence. As a result, the modern fiduciary is usually a professional. He expects to
be paid for his services, and he expects to be liable (and to be covered by
appropriate insurance) if he performs his duties negligently. The picture of the
trustee or fiduciary as an old friend of the family who has gratuitously volunteered
his services is long obsolete. Principles of equity designed to mitigate the severity of
its rules as they bore on the well-meaning amateur are incongruous when applied to
the paid professional.
 …
 Secondly, there has never been a greater need to impose on those who engage in
commerce the high standards of conduct which equity demands. The common law
insists on honesty, diligence, and the due performance of contractual obligations.
But equity insists on nobler and subtler qualities: loyalty, fidelity, integrity, respect
for confidentiality, and the disinterested discharge of obligations of trust and
confidence. It exacts higher standards than those of the market place, where the end
justifies the means and the old virtues of loyalty, fidelity and responsibility are
admired less than the idols of ‘success, self-interest, wealth, winning and not getting
caught’. It is unrealistic to expect that employees can be given incentives through
enormous bonuses without undermining their business ethics. It is hardly necessary
to say more on this subject in a year in which we have seen employees in the
financial services industry, enticed by the prospect of even larger bonuses, threaten
not only to leave their employer for a competitor but to take their entire teams of
junior staff with them; and in which we have seen a takeover bidder make use,
possibly of stolen documents, but certainly of confidential information belonging to
the target company, with major City firms apparently regarding such conduct as
acceptable.
 Thirdly, plaintiffs and their advisers have discovered the apparent advantages of
alleging breach of trust or fiduciary duty, with the result that a statement of claim is
considered to be seriously deficient if it does not contain inappropriate references to
these concepts which are often scattered throughout the pleadings with complete
abandon.
 At first equity lawyers looked with disdain at their common law colleagues who were
obviously using equitable concepts without any understanding of their proper scope.
More recently, however, we have been challenged to define these expressions, and
to our dismay have realised that we cannot agree on their meanings. We have been
forced to re-examine our terminology and reconsider our own concepts. The process
is a continuing one and is marked by considerable controversy. It has, however, been
greatly assisted by a number of academic monographs on particular concepts as
subrogation, fiduciary obligations, and constructive and resulting trusts, which are
required reading for anyone seriously interested in the concepts on which the
development of equity into the next century depends.
 ‘The Codification of Commercial Law’ by RM Goode (1988) 14 Mon LR 135 at 147–
155
 (b) Predictability
 The business world attaches high importance to the predictability of judicial
decisions on legal issues. The weight given by a legal system to the need for
predictability compared with equity and flexibility will, of course, vary from
jurisdiction to jurisdiction and will depend in no small measure on the volume of
business and of dispute resolution a particular State has or wishes to attract. A
reasonable degree of predictability is needed in the commercial world because so
much planning and so many transactions, standardised or high in value, are
undertaken on the basis that the courts will continue to follow the rules laid down in
preceding cases. But every businessman and his lawyer knows that there are tides in
judicial philosophy, that every action ultimately produces a reaction, that a form of
liability denied by one generation of judges will be vigorously developed by the next
…
 (d) Good faith
 The attitude of the common law to the question of good faith in contracts is
curiously ambivalent and is fashioned by English legal history. In civil law jurisdictions
the duty of good faith is inherent not only in contractual but in pre-contractual
relationships. Particularly vigorous is the general requirement of good faith
embodied in [Art] 242 of the German Civil Code, which has given rise to a mass of
doctrine and jurisprudence and is widely applied. Section 1–203 of the Uniform
Commercial Code provides that:

 Every contract or duty within this Act imposes an obligation of good faith in its
performance or enforcement.

 By contrast, good faith is not a general requirement of English law for the
enforcement of legal rights or the exercise of legal remedies. A party can exercise a
right to terminate a contract for breach even though it causes him no loss and his
sole motive is to escape the consequences of a bad bargain; and a party able to
perform a contract without need of the other party’s co-operation can in general
proceed with performance against the other party’s wishes, and even when that
party no longer has an interest in the performance, and then claim payment of the
contract sum. Where good faith does surface in commercial transactions is in a
priority dispute or where some equitable right or remedy is involved. It is surely high
time that English law adopted a general principle of good faith and cast off its
historical shackles.

 Walford v Miles: Lord Ackner

 Decision concerning whether agreement to negoitiate in good fiath was binding in
english law. Said it was not.
 ‘The reason why an agreement to negotiate, like an agreement to agree, is
unenforceable is simply because it lacks the necessary certainty … the concept of a
duty to carry on negotiations in good faith is inherently repugnant to the adversarial
 position of the parties when involved in negotiations. Each party to the negotiations is
entitled to pursue his (or her) own interest, so long as he avoids making
misrepresentations. To advance that interest he must be entitled, if he thinks it
appropriate, to threaten to withdraw from further negotiations or to withdraw in fact in
the hope that the opposite party may seek to reopen the negotiations by offering him
improved terms … A duty to negotiate in good faith is as unworkable in practice as it
is inherently inconsistent with the position of a negotiating party.’

Good faith as a ‘general organising principle’ of the common law

Klaus Peter Berger* and Thomas Arntz**

 In Yam Seng, Leggatt J rejected the traditional arguments against an overarching

good faith principle.- even in relational contracts case rejected general duty of good
faith.
 One possible effect of adopting a general principle could be that the courts rely to a
greater extent on the implication in law or doctrines of law to give effect to good
faith in commercial transactions. So far, English courts still rely to a great extent on
the implication in fact. This approach has been criticized as fictitious because it
assumes that the parties intended certain good faith duties to apply to their
contract, while in reality, they have not given a thought to that subject.58 There is
indeed a danger that, in order to reach a fair result, the courts overstretch the
conceptual limits of the implication in fact. English courts might be more willing to
recognize that certain good faith duties should be based on the law if they can rely
on the organizing principle of good faith. One step into that direction could be to
follow the Canadian Supreme Court and develop a general doctrine of honesty in
contractual performance. This would hardly be a revolutionary step. English law
already acknowledges the importance of honesty in commercial transactions. As the
High Court stated in Yam Seng, ‘it is hard to envisage any contract which would not
reasonably be understood as requiring honesty in its performance’.
 Accepting a general principle of good faith does not necessarily mean that parties to
commercial contracts will be subject to new or more extensive good faith duties. The
general organizing principle will not impose a pre-fabricated set of specific legal
duties that need to be observed by the parties. Rather, it requires the parties in
general terms to perform their contractual duties honestly and reasonably and not
capriciously or arbitrarily. What good faith requires in a particular case will still be
dependent on the factual setting of the contract and context of the dispute. As
already noted by the High Court in Yam Seng, good faith might require more from
parties to long-term contracts, because such contracts require a high degree of
cooperation than from parties to on-off contracts that involve a simple exchange.59
In the area of arbitral procedure, it may even be more appropriate not to develop
more specific rules, given the wide variety of guerrilla tactics and other non-good
faith conduct that parties in international arbitrations may adopt from time to
time.60
 In the end, it will be up to the courts to shape the content of the general principle of
good faith. English courts have already begun to do so under the piecemeal-
approach. As discussed above, it is now well-settled that contractual discretion has
to be exercised in good faith and must not be exercised arbitrarily, capriciously or
unreasonably. It is also accepted that parties to commercial contracts have to
 observe a certain standard of honesty in contractual performance. However, there is
plenty of room for further concretization of what good faith requires from
contracting parties. In Emirates Trading Agency v Prime Mineral Exports, for
example, the High Court decided that a duty to negotiate in good faith obliged the
parties to have ‘fair, honest and genuine discussions aimed at resolving the
dispute’.61 But what exactly does this require of the parties? Will they be obliged to
meet in person? Do they have to share information? As further case law emerges,
more concrete obligations will be identified. As good faith plays an important role in
international law and in most countries around the world including many belonging
to the common law family, English courts have the possibility to resort to a host of
doctrine and case law for guidance. With regard to (re-)negotiation clauses there
have already been attempts to create a ‘catalogue’ of more or less concrete and
specific obligations, such as keeping to the negotiation framework set out by the
clause, respecting the remaining provisions of the contract, having regard to the
prior contractual practice between the parties, producing the information necessary
for the adaptation process, showing a sincere willingness to reach a compromise,
avoiding unnecessary delays in the negotiation process and making a serious effort
to reach agreement.62 As helpful as such lists may be, they are not carved in stone.
They are mere starting points for determining what good faith requires in each
individual case, having regard inter alia the purpose and nature of the contract and
the interests of the parties.
 It remains to be seen whether this means that the English courts themselves are
beginning to ‘align themselves... with the ancestral continental legal tradition of civil
law jurisdictions’64 with respect to the acceptance of a general principle of good
faith. In fact, there is, no reason to believe that accepting an organizing principle of
good faith would radically change the way English courts handle disputes involving
commercial contracts. Good faith will continue to manifest itself through the specific
rules and doctrines governing contractual performance such as the implication of
terms. The principle itself acts as a standard that underlies and informs those rules.
Furthermore, the organizing principle of good faith could help to develop the law in
a more ‘coherent and principled way’ than under the traditional piecemeal
approach.65 Looking beyond the specificities of the individual case would help to
bring English law closer to commercial reality and in line with the reasonable
expectations of commercial parties. Fears that recognizing such a principle would
create uncertainty or impede freedom of contract are unjustified. The experience
from civil law countries, international legal instruments and several common law
countries like the USA shows that shaping an overarching principle of good faith is
not tantamount to palm-tree justice. The law will continue to develop in an
incremental way because the existing law will remain the ‘primary guide to future
development’.66 Also, acceptance of such an organizing principle does not call into
question the basic notion of freedom of contract, as long as the courts apply it, as
the Canadian Supreme Court phrased it in Bhasin v Hrynew, ‘in a manner that is
consistent with the fundamental commitments of the common law of contract which
generally places great we

  David Campbell, ‘Good faith and the ubiquity of the ‘relational’
contract’ (2014) 77 MLR 475

What is commercial law

} E McKendrick, Goode on Commercial Law (6th ed) 1.10: “that branch of law which
is concerned with rights and duties arising from the supply of goods and services in
the way of trade. Its scope is not clearly defined …
} Roy Goode, ‘The Codification of Commercial Law’ (1988) 14 Mon L Rev 135,
141:
} ‘Commercial law … possesses four characteristics. It is based on transactions, not on
institutions; it is concerned primarily with dealings between merchants, in the broad
sense of professionals as opposed to consumers; it is centred on contract and on the
usages of the market; and it is concerned with a large mass of transactions in which
each participant is a regular player, so that the transactions are typical and in large
measure repetitive and lend themselves to a substantial measure of standardised
treatment.’
} E.g., commodity sales between repeat traders on standard terms – discrete transactions
not dependent on any ongoing relationship
} Sale of Goods Act 1979.
} “If we view commercial law as the totality of the law’s response to the needs and
practices of the mercantile community, then, indeed, commercial law exists and
flourishes in England, adapting itself constantly to new business procedures, new
instruments, new demands.” (Goode on Commercial Law 40.03) this definition could
be important, evolves to hands off approach to contract law.

Function of law in commerce

} English judges- Facilitation of commerce rather than regulation. Freedom of contract
most important principles.
} Lord Goff: ‘We are there to oil the wheels of commerce, not to put spanners in the
works, or even grit in the oil.’ [1984] LMCLQ 382, at 391
} Lord Sumption, ‘fairness has nothing to do with commercial contracts …
[c]ommercial parties can be most unfair and entirely unreasonable, if they can get
away with it’ [2017] OUCLJ 301, 310. PIAC v Times Travel (SC 2021).

PIAC v Times Travel (UK) Ltd [2021] UKSC 40

} “… a party in a strong bargaining position, such as a monopoly supplier, may refuse
outright to enter into a contract which the weaker party desires or may impose terms
which the weaker party considers to be harsh. The courts have taken the position that
 it is for Parliament and not the judiciary to regulate inequality of bargaining power
where a person is trading in a manner which is not otherwise contrary to law” [26]
Lord Hodge
} “Against this commercial background the pressure applied by a negotiating party will
very rarely come up to the standard of illegitimate pressure or unconscionable
conduct. It will therefore be a rare circumstance that a court will find lawful act duress
in the context of commercial negotiation” [30] Lord Hodge.
} Courts attitude to monopoly and commercial supplier.
} Regulation more prevalent in B2C contract, and is the preserve of statute (Consumer
Rights Act 2015)

R Goode, ‘The Codification of Commercial Law’ by R Goode (1988) 14 Mon LR 135 at

147-155
} Party autonomy – freedom and sanctity of contract
} Predictability- conflicts with flexibility
} Flexibility
} Good faith- not much room for this.
} Encouragement of self-help
} Facilitation of security aspects
} Protection of vested rights
} Protection of innocent third parties

} Minimal role for equity

} Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, Lord
Browne-Wilkinson at 704:
} ‘My Lords, wise judges have often warned against the wholesale importation into
commercial law of equitable principles inconsistent with the certainty and speed
which are essential requirements for the orderly conduct of business affairs’.
} e.g., Lord Hoffmann, Union Eagle v Golden Achievement [1997] UKPC 5
} Agreed completion to take place by 5 on certain day other sale terminated and buyer
lost deposit. Purchaser 10 minutes late. Seller refused to accept it and kept deposit.
Purchaser applied to court for equitable remedy called relief against forfeiture. Court
said no as certainty was crucial.
} Reluctance to imply trusts and fiduciary relationships into commercial transactions
} But see PJ Millett, ‘Equity’s place in the law of commerce’ (1998) 114 LQR 214–
27
}

Debates in commercial law

} Most important value? Certainty/predictability or flexibility/justice?
} Lord Mansfield: ‘In all mercantile transactions the great object should be certainty:
and therefore, it is of more consequence that a rule should be certain, than whether the
rule is established one way or the other.’ Vallejo v Wheeler (1774) 1 Cowp 143 at 153
} Lord Mansfield: ‘… [T]he most desirable object in all judicial determinations,
especially in mercantile ones (which ought to be determined upon natural justice, and
not upon the niceties of the law) is to do substantial justice.’ Alderson v Temple
(1768) 4 Burr 2235 at 2239.
 } English commercial contract law tends towards certainty and predictability – it has
been relatively stable over a long period of time (remember all those cases from the
1800s in Contract Law …?)
} Particular importance attached to predictability in commerce: for transacting parties,
third parties and lawyers giving advice
} Ability to plan business affairs; address and allocate risks (parties and third parties)
} Easier to resolve disputes and provide reliable advice (lawyers)

} How should courts interpret contracts?

} Literalism (certainty) or contextualism (flexibility)?
} Task to discover parties’ intention as outwardly manifested in written contract
} Historically, courts took literalist approach
} Shift to a contextual approach to construction: the “commercially sensible
way” (see Investors Comp Scheme v WBBS)
} Return to plain meaning with Arnold v Britton?
} Role for good faith and idea of ‘relational contracts’?

Individualist ethic of English commercial law

} Walford v Miles: Lord Ackner
} Decision concerning whether agreement to negoitiate in good fiath was binding in
english law. Said it was not.
} ‘The reason why an agreement to negotiate, like an agreement to agree, is
unenforceable is simply because it lacks the necessary certainty … the concept of a
duty to carry on negotiations in good faith is inherently repugnant to the adversarial
position of the parties when involved in negotiations. Each party to the negotiations is
entitled to pursue his (or her) own interest, so long as he avoids making
misrepresentations. To advance that interest he must be entitled, if he thinks it
appropriate, to threaten to withdraw from further negotiations or to withdraw in fact in
the hope that the opposite party may seek to reopen the negotiations by offering him
improved terms … A duty to negotiate in good faith is as unworkable in practice as it
is inherently inconsistent with the position of a negotiating party.’
} No general duty of good faith in English law (see some exceptions to this on the
handout)
} Each party entitled to pursue self-interest provided:
} (i) they don’t breach contract
} (ii) they refrain from fraud, dishonesty, misrepresentation, duress, etc. Recall Lord
Sumption’s comment in last lecture that ‘fairness has nothing to do with commercial
contracts’.
Baird Textile Holdings v M & S plc [2001] CA
} M&S broke 30 year relationship with supplier. Repeat short term contract. Never long
term contract to govern larger busines relationship. Evidence that over 30 years
parties had dealt with each other very closely. When relationship broke off, promises
went out the window. Claimed im[lied contract that they canty leave contract without
notice. Court said no. they had chose not put their relationship into contractual
footing, the law had to reflect that.
} Individualism associated with the ‘classical’ law of contract.
} English law position out of step with other rule sets? English law outlier, Other legal
contract law ruels often reflect duty of good faith and cooperation.
 } Is that deliberate? English law designed for a certain kind of contractor and contract
(discrete transaction conducted at arm’s length between parties of broadly equivalent
bargaining power). Because of no duty of good faith, very appealing.

United Nations Convention on International Sale of Goods 1980 (Vienna Convention)

} Art.7(1)
} “In the interpretation of this Convention, regard is to be had to its international
character and to the need to promote uniformity in its application and the
observance of good faith in international trade.”
} UNIDROIT Principles of International Commercial Contracts:
} ARTICLE 1.7 (Good faith and fair dealing) (1) Each party must act in
accordance with good faith and fair dealing in international trade. (2) The
parties may not exclude or limit this duty.
} CISG perhaps better suited to ‘market insensitive’ goods (e.g., bespoke
products and heavy machinery (made for specific buyer)) rather than ‘market
sensitive’ goods such as commodities (English law of sale better for dealing
with the latter: see Bridge, ‘A Law for International Sales’ (2007) 37 HKLJ
17)
} The fact is that most traders and their legal advisors who choose to opt out of the
Convention do so not because it is advantageous to their contract but rather
because they are unaware as to what the provisions of the Convention actually
entail. If one were to delve into the substance of the Convention, and the tools
available to business people, for example, Article 6, Article 8 and Article 9 CISG they
would come to the same conclusion as the authors that the Convention is not
unsuitable for certain product markets, rather it just needs to be used effectively to
achieve its full potential.

Good faith in real life: empirical studies of contract behaviour

} S. Macaulay, ‘Non-contractual Relations in Business: A Preliminary Study’ (1963) 28
American Sociological Review 45- went around manufacturing business and asked
about business dealings and how relationships were governed and how contract law
played minor role in relationships, mor eimportant was cooperation and maintaining
reputation. Formal contract and rushing off to lawyer showed lack of trust.
} Demonstrates importance of business co-operation, maintaining reputation and
business relationships. Insistence on a contract regarded as showing lack of trust (cf:
Baird v M & S).
} Now there is different world. Global scale. Not dealing personally. Heavy reliance on
agents and intermediaries. In this environment contract terms much more important.
But outdated in an era of global trade where parties may be contracting more
impersonally and with heavy reliance on agents?
} More reliance on ‘trust’ at the level of trade organisation producing standard forms
reflecting users expectations
} English law and litigation is precisely for parties who (i) cannot rely on trust; or (ii)
whose relationship has broken down. Good faith therefore irrelevant.

Relational contracts and good faith

} Discrete transactions (single exchange) vs relational contracts (ongoing relationship)
} Some relationships not well sevred by english nature of contract law.
 } Relational contracts: based on long term relationship, require day to day cooperation,
difficult to stipulate all obligations and risks in advance. Examples – franchises,
distributorships, joint venture agreements.
} In longer term contractual relations. Expectation that the parties will
} Work together co-operatively to realise joint gains from contractual
relationship and performance
} Keep each other informed of relevant matters
} Engage in joint decision-making or at with least awareness of other’s position
} Adjust their agreement to reflect a change in circumstances if required
} Not the one-off sale or series of commodity trades

English law attitude to relational contracts

} Minimal engagement hitherto with the idea of ‘relational contracts’ in English law.
} Whetehr ongoing relationship or discreet same set of rules apply.
} Little recognition in senior/appeal courts that different types of contracting party may
require different rules (e.g., sole traders, SMEs, etc).
} Responsibility is on the parties to include duties of good faith, etc, in contract terms
which courts will uphold (sometimes): Mid Essex Hospital Services Trust v Compass
Group [2013] EWCA 200.

Change of approach?: Yam Seng (of recognising other types of contracts)

} Yam Seng Pte Ltd v ITC [2013] EWHC 111 (QB)
} 1 man companies, agreement that itc would upply yam with man u toiletries for
distribution in duty free outlets in mainly Asia. Deal anticipated to lat nuber of years.
Not comprehensive contract just short written form. Trouble in relationship. After
dispute, went to court. Yam sued itc. For misrepresentation and breach of contract.
Itc failed to make goods available and ship goods prompty, itc had provided man u
toiletiries to other outlets at lower prices. Provided false info. On goods they had
access to, goods they can ship, and their rights in regard to toiletries.
} Agreement whereby ITC would supply YS with Manchester United branded
toiletries for distribution in a number of duty-free outlets, predominantly in
Asia
} Deal anticipated to last a number of years
} Short written agreement between parties
} Stormy relationship between ITC and YS ends acrimoniously
} YS sues ITC alleging misrepresentation and various breaches of contract
} Failure to make available and ship goods promptly
} Undercutting duty free prices
} Providing false information

} Leggatt J at 134
} ‘… the relevant background against which contracts are made includes
not only matters of fact known to the parties but also shared values and
norms of behaviour. Some of these are norms that command general
social acceptance; others may be specific to a particular trade or
commercial activity; others may be more specific still, arising from
features of the particular contractual relationship. Many such norms are
 naturally taken for granted by the parties when making any contract
without being spelt out in the document recording their agreement.’

} Leggatt J at para 142

‘While it seems unlikely that any duty to disclose information in performance of the contract
would be implied where the contract involves a simple exchange, many contracts do not fit
this model and involve a longer term relationship between the parties which they make a
substantial commitment. Such ‘relational’ contracts, as they are sometimes called, may
require a high degree of communication, cooperation and predictable performance based on
mutual trust and confidence and involve expectations of loyalty which are not legislated for
in the express terms of the contract but are implicit in the parties' understanding and
necessary to give business efficacy to the arrangements. Examples of such relational
contracts might include some joint venture agreements, franchise agreements and long-term
distributorship agreements.’
} Obiter dicta: implied term of good faith necessary to give effect to these
expectations
} Lukewarm reception from CA in Mid Essex NHS Trust v Compass Group;
MSC Mediterranean Shipping Co SA v Cottonex Anstalt (per Moore-Bick LJ)
expressed cocnenrn that impleid term of good faith may undermine express
term of agreement. E.g. if contract says 1 party can terminate contract on
giving 3 months notice or 1 party can terminate when contract breached
thenthis is absolute contractual right tht party can exercise and should not be
subject to qualification that it can only be excercised in good faith. CA- party
acts in goof faith if they act ina ccordanc eiwth contract terms.
} But supported by other judges at first instance. See Bates v Post Office.
Usually in specific circumstances, no discrete contracts but contracts
involving close ongoing relationship. Bates v postoffice. New accounting
software, software produced accounting errors and shortfalls, postyoffice said
it was due to subpostmasters . Eventually took them to court, it was
relationship contract which was breache through behaviour, judge initially
agreed saying it was prime example where implied uty should apply due to
being a relational contract.

What is meant by good faith?

} Single meaning within the law or spectrum of different ideas/standards?
} Something in between fiduciary duties (which contracting parties are not expected to
display, unless also agents, partnerships, etc) and absence of dishonesty (which
contract law expects in any case)?
} ‘What good faith requires is sensitive to context’: para Yam Seng [141]
} Unlikely that the duties will be the same in different contract scenarios.

} Good faith usually described as- Observe reasonable commercial standards of fair
dealing; faithfulness to agreed purpose of the contract – not to frustrate it; act
consistently with justified expectations of the other party and considering the other’s
legitimate interests.

Will it make commercial law uncertain?

} Main fear is that a duty of ‘good faith’ will render law uncertain: what does it mean;
when will it be implied; what behaviour will it require?
 } Interferes with commercial parties’ ability to act in accordance with their own
interests, and in line with contract terms, especially over matters such as terminating
the contractual relationship or threatening to do so (PIAC v Times Travel). Bad faith
would have to be shown for economic duress. Bad faith conduct has to be severe, bar
is high. Currently on appeal to supreme court.
} But duty just reflects what commercial people ‘reasonably expect’ and is linked to
what is commercially acceptable/unacceptable in the particular trade or market.
} Parties can exclude the duty from arising by express contract terms
} Courts unlikely to allow good faith duty to intrude on contractual rights or be used to
soften the exercise of contractual rights (e.g., in case of clearly expressed termination
rights)
} Useful as a principle in an extreme case of bad faith (e.g., PO v Bates – heavy handed
response of PO to sub-postmasters’ legitimate concerns about accounting software)?
} Very unlikely to carry any weight in a complex, comprehensive and written
commercial contract between legally advised and economically-matched participants.

Is good faith duty necessary?

} Contract law just a system of defaults. Commercial contractors prefer a formal law
(with no good faith) and those that don't can contract into contextual modes of
interpretation, or alternative legal regimes: Jonathan Morgan, Contract Law
Minimalism, 2013 Cambridge UP
} Assimilate the development of implied term of good faith with the law of implied
terms – term must be necessary for business efficacy of the contract (that is, necessary
to make contract work). Law will already imply a duty of co-operation where
necessary.
} No need for separate category of relational contracts.
} Existing laws against fraud, misrep, duress etc are sufficient.
} Parties don’t necessarily want the norms they display in their day to day relationship
to be applied once the relationship is over and there is a dispute.(see Lisa Bernstein on
EGN v RPN). Argument for not applying implied term of good faith.

Then add something about why general good faith would be bad e.g. why parties should not
be saved from abd bargains due to inequal bargaining power. Can say something like-
rerturning to the case of PAIC- then explain how general duty of good faith could save a prt
from bad bargain but why this would also be bad.

Intro- can tackle extreme imstances of bad faith. Leggage judgement in lam seng is beyr pro
good faith. Talk about they can add in duty of good faith.

 Here im going to ta talk about relational contracts

 How introduced, maybe good for long term relationships and serious cases of bad
faith
 But had very little utlitisation in higher courts due to uncertainty
 If it is so uncertain for this to be applied, then how uncertain will a general good faith
principle be
 It will not be welcomed by parties use the quote.

  ‘What good faith requires is sensitive to context’: para Yam Seng [141]

} “… a party in a strong bargaining position, such as a monopoly supplier, may refuse

outright to enter into a contract which the weaker party desires or may impose terms
which the weaker party considers to be harsh. The courts have taken the position that
it is for Parliament and not the judiciary to regulate inequality of bargaining power
where a person is trading in a manner which is not otherwise contrary to law” [26]
Lord Hodge
} “Against this commercial background the pressure applied by a negotiating party will
very rarely come up to the standard of illegitimate pressure or unconscionable
conduct. It will therefore be a rare circumstance that a court will find lawful act duress
in the context of commercial negotiation” [30] Lord Hodge.
} Courts attitude to monopoly and commercial supplier.

The courts have been keen enshrine the principle of certainty, and it is for this reason that a
general duty of good faith has not been incorporated into the commercial law. For this reason,
in Westdeutsche v Islington the court warned against ‘the wholesale importation into
commercial law of equitable principles inconsistent with the certainty.’1 The repercussions of
this have allowed companies with more power to be able to threaten smaller companies, in
what could be recognised as economic duress.2 However, in commercial law such actions are
allowed as long as they do not violate the contract or constitute other crimes such as fraud.
On a closer reading of Pakistan International Airlines Corporation v Times Travel,3 this may
seem unfair. However, both the judiciary and academics have justified such actions as Lord
Mansfield stated, In all mercantile transactions the great object should be certainty.’
Similarly, Goode also argued that ‘predictability is needed in the commercial world because
so much planning and so many transactions...are undertaken on the basis that the courts will
continue to follow the rules laid down in preceding cases.’ NEED COUNTER
ARGUMENT?

The courts believe that this reflects the general attitude of commercial
contractors that they ‘can be most unfair and unreasonable, if they can get away with
it’.2
Lord Sumption, ‘A Question of Taste: The Supreme Court and the Interpretation of
Contracts’ [2017] OUCLJ
301, 310 maybe put this after talk about why good faith study not relevant anymore.

Reform to talk a bit more about Pakistan case and why good faith could potentially help.

There is also an economic argument that supports this legal argument. As explained in
Shagang Shipping Co, ‘some 70% of the cases that come before the Commercial Court...
have at least one overseas party.’4 It is my argument that this is due to the certainty that
English law provides for commercial contractors in comparison to the Vienna Convention
1

4
which could be stated as its competitor. In this convention, dealing in good faith is built into
the treaty, which could possibly detract those contractors who operate in fields which require
certainty over any principle of good faith. In the year 1963, Macaulay did a study on the role
of good faith in commercial dealings. He concluded that cooperation and maintaining a good
reputation were more important than the role of contract law in relationships as ‘holding a
customer to the letter of a contract is bad for customer relations.’5 This reasoning could be
utilised to argue that a general duty of good faith, which can be contracted out of, is just the
codification of something that contracting parties already highly value. However, I would
argue that modern day contracting often occurs at an arm’s length, especially in the case of
international contracts. The two parties often won’t know each other personally, therefore
there is no pre-existing bond of trust which may have been present more often when the
world was not so interconnected. Therefore, in the absence of pre-existing trust, certainty
becomes the key factor once again. In order to ensure this certainty, and even gain an
economic advantage over countries who are signatories of the Vienna convention, good faith
should be kept well away from the commercial law. Due to this I believe that what initially
made the principle of good faith attractive, is no longer as important in modern day
transactions. Maybe add another quote here.

It is perhaps significant that England is such a popular jurisdiction and does not contain a
broad doctrine of good faith. This may in fact be a competitive advantage47 that is not lightly
to be discarded;48 the absence of good faith is often perceived to increase commercial
certainty49 and the respect afforded to freedom of contract, which is highly desirable for
many commercial actors. Indeed, the rise of good faith has even been viewed as dangerous to
the stability of English commercial law.

 Here I would use example of ISOG or DSOG to give an example.

 Talk about backlash to relational contracts and in what uncertain way it has been
applied.

It is impractical to mention every negative effect that a duty of good faith would have.
Instead I will focus on the area of unfair contracts and whether a duty of good faith would
have a beneficial effect on this area.
 What is a bad bargain?- Where the money spent by one party in reliance on the
contract exceeds the gross profits that would be made from the contract, that bargain
can generally be characterised as ‘bad’ for that party.
 In Charter Reinsurance Co Ltd (In Liquidation) v Fagan Lord Mustill said:30
Particularly in the field of commerce, where the parties need to know what they must
do and what they can insist on not doing, it is essential for them to be confident that
they can rely on the court to enforce their contract according to its terms ... In the
end ... the parties must be held to their bargain[.]
 Is this fair, especially when there is a great inequality of bargaining power between
two companies? (even in B2B contracts) The problem is what is fair is subjective and
this would create so much uncertainty within the law.
 As Davies states ‘Moreover, judges may be ill-equipped to decide whether a bargain
is ‘bad’, and so do not distinguish between different types of contracts in this way.’

5
  If you did give judges this ability, it may widen their discretion to such an extent that
both the certainty and consistency of judgments are significantly reduced.
 Judges are not always the most commercially-minded, let alone the most
commercially experienced, of people, and should, I think, avoid arrogating to
themselves overconfidently the role of arbiter of commercial reasonableness or
likelihood.
 The uncertainty created by the introduction of relational contracts, which have not
had much judicial input demonstrate the difficulty that the introduction of any form
of good faith requires, never mind a general duty of good faith.
 Furthermore, it is a lot of trouble to go to when parties can nominate to contract in
good faith anyway- IS THIS TRUE?

Sale of Goods Act 1979, s 23 (buyer may obtain good title to the goods, notwithstanding
seller’s defect in title, provided buyer purchases in good faith and without notice of defect
New:
The courts believe that this reflects the general attitude of commercial
contractors that they ‘can be most unfair and unreasonable, if they can get away with
it’.2

A reply to bridge.
If one were to delve into the substance of the Convention, and the tools available to business
people, for example, Article 6, Article 8 and Article 9 CISG they would come to the same
conclusion as the authors that the Convention is not unsuitable for certain product markets,
rather it just needs to be used effectively to achieve its full potential.

Berger and Arntz emphasise that the implied duty will not result in commercial parties being
‘subject to new or more extensive good faith duties’12 which would render the law uncertain.

Instead, good faith requires ‘the parties to perform their contractual duties honestly
and
reasonably and not capriciously or arbitrarily’13

Could say good faith usefukl in extreme cases of bad faith- sam yates- but then demonstate
uncertaine effect that use of relational contract has had.

[2018] EWCA Civ 1732, [2019] 1 Lloyd’s Rep 150

Especially in intentional contracts, in the absence of pre-existing trust in arm’s lengths

contracting, both parties will prefer the strict application of their contractual rights to bring
certainty to their commercial transaction. despite the occasional unfair result, the principle of
certainty brings wider benefits to commercial contractors as a whole.