Good faith in English contract law: What businesses need to know
English contract law is often described as pragmatic and commercially focused. One key aspect of this is that there is no general duty of good faith in contract performance. Unlike many legal systems, English law prioritises freedom of contract, allowing parties to pursue their own commercial interests—even if that may sometimes appear contrary to notions of cooperation or fairness. However, the concept of good faith does play a role in specific, limited circumstances. Understanding these can help businesses better manage risk and draft clearer contracts.
1. Contractual Good Faith Clauses
Parties are free to include an express obligation to act in good faith in their contracts. These clauses are most effective when used to support specific duties, such as negotiation, dispute resolution, or performance of defined obligations.
That said, courts can be cautious when interpreting broad good faith clauses. We recommend that clients spell out the scope and expectations clearly—relying on a vague “duty to act in good faith” may lead to uncertainty and disputes.
2. Good Faith in the Exercise of Discretion
Where one party has discretion under a contract—for example, to approve a decision or vary a requirement—English law imposes a duty to act rationally and not arbitrarily or capriciously. This is sometimes referred to as a Braganza duty (from the leading case Braganza v BP Shipping Ltd).
In practice, this means a party must exercise contractual powers in line with the contract’s purpose and commercial logic, not on a whim or out of self-interest alone.
3. Implied Duties in Relational Contracts
In certain long-term, cooperative arrangements—known as relational contracts—the courts may imply a duty of good faith. These contracts often involve mutual trust, open communication, and shared goals, such as joint ventures, franchise agreements, or outsourcing contracts.
Importantly, the courts do not require this duty to be essential or obvious; it will be implied where it reflects the reasonable expectations of the parties, based on the nature of the relationship.
What this means for your business
Although English law does not impose a general good faith obligation, businesses should be aware of:
· When and how to include good faith provisions in contracts,
· The limits on contractual discretion, and
· The potential for implied duties in relational agreements.
Clear drafting is key. If you're negotiating or reviewing a contract and want to understand how good faith might affect your rights and obligations, our team can help ensure your position is well protected.
Disclaimer: This article has been co-authored with the assistance of generative AI tools and reviewed by our legal team to ensure accuracy and relevance. It is intended for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please contact a qualified solicitor.
