In a decision earlier this year, the High Court refused to imply a duty of good faith in relation to a contractual right to amend a loan note instrument: Myers and another v Kestrel Acquisitions Ltd (Kestrel) and others  EWCH 916 (Ch).
The judge cited the fact that the contractual documentation was “extensive and detailed” and the parties were professionally advised and at arm’s length with one another. If they had intended that there should be a duty of good faith, they would have said so expressly but, instead, they agreed other provisions that protected the claimants’ interests. This suggested that no such duty was intended.
The judge also drew a distinction between (a) a discretion that involves an assessment being made or a choice from a range of options and (b) a binary choice as to whether or not to exercise an absolute contractual right. The decision suggests that a duty of good faith is unlikely to arise in the latter situation.
This is one of a number of recent cases in which the courts have been invited to imply a duty of good faith into a contract. On some occasions, the courts have been willing to do so – see for example our posts on the decisions in Yam Seng Pte Ltd v International Trade Corporation, Bristol Groundschool Limited v Intelligent Data Capture Limited and MSC Mediterranean Shipping Company S.A. v Cottonex Anstalt.
This latest decision goes in the opposite direction and fuels the debate as to the circumstances in which a duty of good faith will be implied. While this debate continues, litigants can be expected to test the parameters of the duty and, in light of this decision, possibly also the distinction between decisions that are binary and those involving a range of options, which in practice may not always be easy to draw.
In view of the continuing uncertainty as to the scope of implied duties of good faith, it is advisable for contracting parties wishing to include such a duty to define the nature and extent of the duty in express terms. Conversely, if contracting parties do not wish to be subject to a duty of good faith, it may be advisable to exclude it expressly.
Gregg Rowan, a partner in our disputes team, and Corina Demeter, a trainee solicitor, consider the decision further below. Continue reading