UK: The Contractual Duty Of "Good Faith" ... And Joint Ventures

Increasingly, contracting parties are including an express duty of "good faith" in their contracts. The purpose of this update is to make clients aware of the rights and obligations that inclusion of this duty may entail, with a particular focus on joint ventures.


  • On the law as it stands, English courts will not generally imply a duty of good faith, but will give effect to an express duty of good faith in the contract.
  • Because there is no common law duty of good faith, care must be taken as to how the duty is expressed to operate in the particular contract to avoid unwanted surprises.
  • The manner in which the duty will operate will depend on the particular contractual circumstances. No hard and fast rules can be provided.
  • Nevertheless, some recent judicial comment indicates that parties bound by an obligation of good faith may be obliged to (depending on the circumstances, and amongst other things):

(a) Observe reasonable commercial standards of fair dealing;

(b) Disclose facts which would be material to the other party; and

(c) Adhere to the spirit of the contract, and/or the agreed common purpose, rather than relying on a strict interpretation of rights and obligations.

  • Parties should be aware that the inclusion of a duty of good faith may result in ambiguity, and make it more difficult for parties to rely on the strict wording of a contract. Depending on the circumstances, potentially this may have the effect that a party could be prevented from relying on a technical breach to terminate the contract.


The "common law" is a term used to refer to the unwritten English law. The concept of good faith is not generally recognised in the common law relating to contracts. It is recognised in English legislation in specific cases, such as insurance, consumer protection, and property law. Nevertheless, if the parties agree to include the duty of good faith in the contractual documentation, the courts will seek to give effect to it.

In very general terms, the duty is a standard of fair dealing. The inclusion of the duty in contractual documentation can give a party comfort in that the "spirit" of the cooperative relationship relating to the particular undertaking (the business purpose or objective) may be reflected in the contractual documentation. This may therefore be attractive to joint venture participants ("Joint Venturers") who do not know what the future will hold, but have a relationship of mutual trust and dependence. It is not necessary to spell out how the duty of good faith will operate in the relevant circumstances (although the parties could do so if they wished, thereby limiting the application of the duty). This may be contrasted to the usual position under English law where a party's rights and obligations tend to be strictly interpreted in accordance with the wording of the contract. The "black letter of the law" will restrict a party's duties and entitlements. Generally, if a party has not expressly provided for a particular protection in the contractual terms, that party will not be afforded such a protection.

The inclusion of the duty of good faith is not always helpful. First, the duty has been subject to only limited English judicial consideration, so the nature and extent of the duty remains unclear. Great care should therefore be taken with drafting to ensure the parties do not get other than what they bargained for. Secondly, the duty is often expressed to mutually bind the parties. This means that both parties must abide by the provision, which "cuts both ways". In the circumstances, this may prove to be onerous, and restrict a party from rigorously pursuing its own commercial interests at the potential expense of the other party.

Good Faith in English Law

The English courts have been traditionally hostile to finding that a general duty of good faith exists in the common law. The reasons for this may be broadly summarised by the following two principles:

  1. Parties should be entitled to pursue their own self interest; and
  2. Parties should have freedom to contract as they desire. In other words, they should be entitled to expressly provide for their own rights and remedies, without interference from the courts.

Nevertheless, where the contract binds the parties by an express duty, the English court will give effect to the intentions of the parties and seek to enforce that duty. The necessity to anticipate what the duty of good faith will entail in practice then arises.

A duty of good faith is one well recognised in a number of broadly similar guises in continental European jurisdictions. It is also recognised in limited circumstances in US and Australian law. The nature and scope of the duty in English law, although containing some commonalities with these, will be strongly influenced by the particular contractual circumstances. On the law as it stands, no precise definition can be formulated. However, judicial comment in a number of cases can throw some light on the usual nature of the duty.

In Horn & Others [2011] a loan agreement included a clause that; "...each party shall act in absolute faith towards each other". In the particular circumstances it was not necessary to decide the meaning of contractual good faith in order to make an award for the Plaintiff. Nevertheless the judge, Smith J, set out his conclusions on the issue in the event it became relevant on appeal. These comments are not binding on future judges, but may have persuasive value (i.e. it is "obiter" commentary).

Smith J said that if the meaning of good faith had been required to be interpreted, he would have held that the obligation imports a duty to disclose facts which could be material to the other party. Such facts would include those which would influence whether the other party would enter into the relevant transaction. It is not necessary or relevant to ask whether full disclosure would have changed the particular Claimant's decision to proceed with the transaction.

It has previously been held that good faith is consistent with acting honestly (see Central Estates [1971]). However, Smith J found that dishonesty is not a prerequisite to establishing a breach of the duty of good faith. A person may act honestly, but yet still be in breach of the duty.

Smith J also found that where a commercial contract contains an express duty of good faith, it is not necessary to find an overriding fiduciary duty. A fiduciary relationship is one that arises where one party, Party A and the other, Party B, agree that Party A will act on behalf of or for the benefit of Party B in circumstances where Party B relies on Party A in a relationship of trust and confidence. One example would be the duties owed by a Director to his company. Where the courts can find that such a relationship exists, they will imply that Party B is afforded certain protections against Party A's breach of such trust. The implication of Smith J's decision is that it will not be necessary to imply a fiduciary relationship and associated protections where an express obligation of good faith requires the parties to act fairly in relation to one another.

In CPC Group Limited [2010] the judge, Vos J, helpfully made the following obiter comments: "..the content of the obligation of upmost good faith...was to adhere to the spirit of the contract....and to observe reasonable commercial standards of fair dealing, and to be faithful to the agreed common purpose, and to act consistently with the justified expectations of the parties".

Vos J also referred to the persuasive Australian case of Overlook v Foxtel [2002] in which it was stated; "...the party subject to the [obligation of good faith] is not required to subordinate [its] own interests, so long as the pursuit of those interest does not entail unreasonable interference with the enjoyment of the benefit conferred by the express contractual terms so that the enjoyment [could become]... "nugatory, worthless or perhaps seriously undermined"".


Joint Venturers should also note the case of Elliot v Wheeldon (1992). In that case the contractual documentation did not include an express duty of good faith. The Court of Appeal held that although it is well established that a director owes important duties (including fiduciary duties) to his company, he may also owe an implied duty of good faith to his co-Joint Venturers or co-directors.

This decision was only obiter, but may indicate that there is a general duty of good faith in English law between Joint Venturers or directors of small companies. This may particularly be the case where an individual is exposed due to guaranteeing the liabilities of the joint venture. This is clearly a restricted application of the duty of good faith, but nevertheless significant.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.