"The Foundation of Justice is Good Faith" - Cicero
English common law (which is routinely adopted by the Cayman Islands and BVI courts) has long refused to imply terms into a contract that the parties have not themselves expressly stipulated.
Save where the term is:
- necessary to make the contract work, or
- so obvious as not to require express stipulation.
In particular, the courts have, until recently (and save where the parties are in a fiduciary relationship), resisted the implication of a duty of good faith owed by the parties to each other in relation to the performance of the contract. Each party is entitled to look to its own interests, unencumbered by a duty of good faith to the other.
A significant inroad was made in the 2013 case of Yam Seng Pte Ltd v International Trade Corporation Ltd, where a duty of good faith was held to be implied into a distribution agreement for football branded goods. Subsequent cases have sought to limit the duty to specific obligations, rather than accepting an implied over-arching duty of good faith.
However, in the 2018 case of Al Nehayan v Kent, Lord Justice Leggatt (the same judge in Yam Seng) held that an over-arching duty of good faith would be implied where the conduct of an investor in an oral joint venture with a friend was found to be "furtive and opportunistic". The implication of such a duty must still pass the above test of necessity or obviousness, but will readily be implied into so-called "relational contracts", namely those involving a high degree of trust, confidence and loyalty, such as franchise agreements, long-term distribution agreements, and those requiring long-term collaboration.
Due to the developing uncertainty over whether such a term might in any given case be implied, and the serious consequences of a breach, parties to a contract may wish to address the issue head on by including an express term that either imposes or excludes a duty of good faith. However, neither approach is without risk. On the one hand, if included, "good faith" is an imprecise concept and a fertile ground for dispute. On the other hand, to seek to exclude it may send the wrong message at the negotiation stage.
A safer approach is to ensure that the contract spells out, precisely and in full, the parties' rights and obligations in relation to steps they may or may not take in specified circumstances, particularly where the parties foresee that difficulties may arise in the performance of the contract or that they may wish to exit the joint venture.