One of the best-known standard form contract clauses appears in the NEC suite of contracts. This is clause 10, which states that the Employer, the Contractor, the Project Manager and the Supervisor "shall act as stated in this contract and in a spirit of mutual trust and cooperation". The same clause can be found in the NEC3 Professional Services Contract, again at clause 10.1.
You may well come across this obligation in a contract that you have entered into or are going to enter into, or possibly something with similar wording. For example, the JCT Constructing Excellence Contract Project Team Agreement 2011 states that the parties confirm their intention to work together with each other and with all other Project Participants "in a co-operative and collaborative manner in good faith and in the spirit of trust and respect".
Obligations to act in a spirit of mutual trust and cooperation and good faith obligations like this are very popular and increasingly common. Do they, however, actually mean anything in practice? Are they enforceable as contractual obligations in their own right or are they merely a bit of fluff inserted into the contract to make everyone feel better? In short, what are you taking on if you sign up to this sort of obligation?
Good faith arises in the context of consumer law regulations but also has a separate existence in commercial contracts. It has been decided that a requirement to negotiate in good faith was too uncertain to be enforceable (Walford v Miles [1992]) but in Cable & Wireless Plc v IBM United Kingdom Limited [2002], the Court found that an obligation to negotiate any disputes in good faith and then use ADR in good faith to resolve any dispute was sufficiently certain because it detailed the steps the parties had to take in order to comply. If these steps had not been detailed but there had simply been an obligation to "attempt in good faith to resolve the dispute or claim" then it would not have been enforceable. In other words, the obligation needs to be tied to specifically foreseeable consequences in order to stand a chance of being enforced by the Courts.
This highlights one of the main problems with a good faith obligation: what exactly do you have to do in order to comply with it? It has been argued that there is actually very little difference between the objective requirement of good faith and the reasonable expectations of the parties entering into the contract so that if you behave as you should do and carry out your obligations under the contract having a good faith obligation (or an obligation to act in a spirit of mutual trust and cooperation) doesn't take matters very much further. Perhaps not surprisingly, each case tends to be judged on its own facts and Courts avoid making statements of principle in this area.
One of the best known cases involving the obligation to act in a spirit of mutual trust and cooperation is Birse Construction Limited v St David's Limited [1999]. The obligation arose in the context of a partnering charter. The Court decided that the charter was not legally binding in itself but that it would provide standards by which the conduct and attitude of the parties were to be measured. This does seem to be slightly inconsistent: the charter itself was not legally binding and hence the mutual trust and cooperation obligation contained in it wasn't either however, in some unspecified way it was expected that any subsequent Court or arbitrator would take this obligation into account when considering the parties' behaviour.
This case therefore might suggest that there is an increased scope to argue for implied obligations of good faith or mutual cooperation beyond the express terms of the contract, but this might be a tricky route to follow. It would be more likely in practice that you would look to the more certain terms of the contract, whether express or implied, to enforce your rights.
In Gold Group Properties Limited v BDW Trading Limited [2010] it was held that where there is an express duty of good faith spelt out in the contract the Court will apply and enforce it to the extent that the obligation has sufficient certainty. A good faith obligation does not modify the contractual terms where they confer a freely negotiated advantage on one party but subject to that it may modify a party's behaviour ancillary to the performance of the contract so that if a party acts in a way that deprives the other party of the anticipated benefit of the contract, that might breach a good faith obligation.
To summarise, it is relatively clear that there is no generally implied term of good faith in commercial contracts, but an express obligation will be enforced if it is sufficiently clear. Other jurisdictions such as Australia and the USA have developed this concept further but in England and Wales at the moment there is a fair amount of uncertainty about when the obligation is breached and the extent to which a party has to abandon or depart from activities in its own best interests in order to comply. Furthermore, if the other terms of the contract are available to enforce your contractual rights, why bother with such an uncertain term?
Notwithstanding these concerns, such obligations remain commonplace in both bespoke and standard form contracts and it seems only a matter of time before there are further developments in this area of the law that might provide some answers to these questions. In the meantime, bear in mind that whilst there may not be much necessity to call upon the provisions of such clauses, they are here to stay and they are not without force.
