Introduction
English contract law has long resisted the imposition of a general duty of good faith in contractual performance, distinguishing itself from most civilian systems and, increasingly, from other common law jurisdictions. The question of whether a broader duty should be recognised in long-term commercial relationships is not merely academic: it engages fundamental tensions between party autonomy and co-operative norms, between certainty and fairness, and between judicial restraint and commercial reality. This essay argues that English law should recognise a more structured — though not unlimited — duty of good faith in long-term relational contracts, but that the form of recognition matters critically. A sweeping, open-ended duty of the kind found in German or French law would be neither desirable nor compatible with English legal culture. However, the current position, in which good faith operates sporadically and without transparent doctrinal foundations, is itself a source of incoherence and uncertainty. The stronger path is a principled mid-ground: an implied term of good faith in contracts that are objectively relational in character, operating as a default rule subject to contrary agreement. This position finds support in recent case law, in the conceptual work of relational contract theory, and in the practical demands of long-term commercial dealing. Nevertheless, the objections — principally those concerning certainty, party autonomy and institutional competence — are serious and must be addressed rather than dismissed.
The Orthodox Position: Freedom of Contract and the Rejection of Good Faith
The traditional starting point is that English law does not recognise a general doctrine of good faith in contract (McKendrick, 2024). The classical model prioritises party autonomy: contracting parties are entitled to pursue their own interests, and the law’s role is to enforce the bargain as struck, not to impose extraneous standards of fair dealing. As Lord Ackner stated in Walford v Miles [1992] 2 AC 128, a duty to negotiate in good faith is “inherently repugnant to the adversarial position of the parties” in pre-contractual negotiations. Although Walford concerned negotiation rather than performance, the reasoning has been treated as reflecting a broader suspicion of good faith obligations in English law.
This orthodoxy is reinforced by several structural features. First, the doctrine of consideration and the objective theory of agreement emphasise that contractual obligations arise from bargained-for exchange, not from general norms of fairness (Treitel, 2020). Second, the law of implied terms — governed by the tests in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72 — sets a high threshold: a term will be implied only where it is necessary to give the contract business efficacy or is so obvious that it goes without saying. Third, English law traditionally relies on specific doctrines — misrepresentation, duress, undue influence, estoppel, the duty not to derogate from grant — rather than a single overarching principle of good faith, to address particular forms of unfairness (Brownsword, 2006).
The result is what Steyn described as a regime of “piecemeal solutions in response to demonstrated problems of unfairness” (Steyn, 1997). The question is whether this piecemeal approach remains adequate in the context of long-term commercial relationships, or whether its gaps and inconsistencies now justify a more structured response.
The Relational Contract Problem: Why Long-Term Relationships Differ
The case for a broader duty of good faith draws its strongest impetus from the particular characteristics of long-term commercial contracts. As Macneil’s foundational work on relational contract theory observed, classical contract law is modelled on discrete, one-shot transactions, but much of the commercial world operates through ongoing relationships in which the parties cannot specify every contingency at the outset (Macneil, 1978). Long-term supply agreements, joint ventures, franchise arrangements, distribution agreements and outsourcing contracts all exhibit relational features: they are of extended duration, involve repeated performance, require mutual co-operation, depend on trust, and are subject to unforeseen contingencies that demand flexible adjustment (Campbell, 2001).
The difficulty is that classical contract doctrine provides limited tools to govern these relationships. Parties in long-term contracts are vulnerable to opportunistic behaviour — what economists term “hold-up” — where one party exploits the rigidity of contractual terms or the incompleteness of the contract to extract advantages not contemplated by the original bargain (Williamson, 1985). The absence of a good faith duty may leave the exploited party without remedy, particularly where the opportunistic conduct does not amount to breach of an express term, misrepresentation or duress.
This gap is not merely theoretical. In Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB), Leggatt J (as he then was) identified the core problem: many commercial contracts, particularly those of a relational character, depend on expectations of honest dealing and co-operation that are not captured by express terms but are essential to the bargain. His Lordship held that, in such contracts, a duty of good faith could be implied as a matter of fact, grounded in the presumed intention of the parties and the nature of the contractual relationship. This reasoning was explicitly informed by the distinction between discrete and relational contracts, and represents the most significant judicial engagement with Macneil’s relational theory in English law.
The relational contract argument does not, however, support an unlimited duty. Macneil himself distinguished between different norms applicable at different points along the relational spectrum (Macneil, 1983). The argument is that the more relational the contract — the longer its duration, the more interdependent the parties, the more incomplete the terms — the stronger the case for an implied duty of good faith as a default norm. This is a calibrated, context-sensitive claim, not a demand for a single universal principle.
Yam Seng and the Emergence of a Relational Good Faith Duty
The decision in Yam Seng [2013] EWHC 111 (QB) marked a turning point. Leggatt J held that English law already contained the building blocks for a duty of good faith, scattered across doctrines such as the implied duty of co-operation, the prohibition on prevention of performance, and the obligation not to exercise contractual discretions in an arbitrary or capricious manner. His Lordship argued that these could be synthesised into a broader principle, at least in relational contracts, without departing from orthodox implied terms methodology.
Crucially, Leggatt J framed good faith not as an external moral standard imposed on the parties, but as a reflection of the reasonable expectations arising from the nature of the relationship. The content of the duty was not fixed in the abstract: it depended on context, and at minimum encompassed an obligation of honesty, fidelity to the purpose of the bargain, and consistency of conduct (Collins, 2014). This contextual approach avoids the objection that good faith is too vague to be workable, because its content is derived from the contract and the relationship rather than from an open-ended judicial discretion.
Subsequent case law has both developed and limited this reasoning. In Bristol Groundschool Ltd v Intelligent Data Capture Ltd [2014] EWHC 2145 (Ch), the court accepted that good faith could be implied in a relational contract, though it emphasised the need to identify the specific relational characteristics that justified implication. In Al Nehayan v Kent [2018] EWHC 333 (Comm), Leggatt LJ (as he had become) reiterated that good faith obligations were not alien to English law but were a “natural inference” from the nature of certain contractual relationships.
The most significant recent authority is Bates v Post Office Ltd (No 3) [2019] EWHC 606 (QB), in which Fraser J held that the Sub-Postmasters’ contracts were relational in character and that a duty of good faith was to be implied. Fraser J set out a non-exhaustive list of factors indicative of relational contracts, including: long-term duration, mutual trust and confidence, a degree of exclusivity, heavy investment by one or both parties, and the absence of detailed express terms governing every eventuality. This decision is notable for its attempt to provide structured criteria for identifying relational contracts, thereby reducing the indeterminacy that critics associate with good faith.
However, the courts have not spoken with one voice. In MSC Mediterranean Shipping Co SA v Cottonex Anstalt [2016] EWCA Civ 789, Moore-Bick LJ rejected the suggestion that good faith was a general organising principle of English contract law, reaffirming the orthodox position. In Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396, Beatson LJ expressed scepticism about the utility of recognising a separate category of “relational contracts” with distinctive implied terms. These tensions remain unresolved. The Supreme Court has not yet directly addressed the status of implied good faith duties in relational contracts, and the law therefore remains at an intermediate stage of development.
The Case for Recognition: Co-operation, Completeness and Commercial Expectation
Three principal arguments support the recognition of a broader good faith duty in long-term commercial relationships.
First, long-term contracts are structurally incomplete. Parties cannot foresee every eventuality over a ten- or twenty-year relationship, and the attempt to do so through exhaustive express terms is both costly and frequently unsuccessful (Collins, 2003). A duty of good faith operates as a gap-filling default rule, reflecting the reasonable expectations of the parties where their contract is silent. This is not paternalism; it is a recognition that the parties’ bargain, properly understood, encompasses norms of co-operative dealing that are left implicit precisely because they are assumed. As Leggatt J observed in Yam Seng, a party entering a long-term distribution agreement would reasonably expect the other to act with honesty and fidelity to the common purpose, even if no express term says so.
Second, the piecemeal approach, while historically serviceable, generates gaps and inconsistencies in the context of relational contracts. English law already implies a duty of co-operation under Mackay v Dick (1881) 6 App Cas 251 and a duty not to prevent performance under Stirling v Maitland (1864) 5 B&S 840. It recognises a duty to exercise contractual discretions honestly and in good faith under Braganza v BP Shipping Ltd [2015] UKSC 17. It controls penalty clauses, imposes duties of disclosure in insurance contracts, and restricts the exercise of termination rights in some contexts. These doctrines collectively embody a norm of fair dealing, but their fragmented application means that functionally identical forms of opportunistic behaviour may or may not attract a remedy depending on the doctrinal classification of the claim (Peel, 2015). A structured duty of good faith in relational contracts would rationalise this landscape without displacing the specific doctrines that already operate.
Third, comparative experience suggests that a good faith duty is both workable and commercially beneficial. German law’s Treu und Glauben (§242 BGB) has operated for over a century without undermining commercial certainty, and indeed is regarded as essential to the functioning of long-term commercial relationships (Zimmermann and Whittaker, 2000). The UNIDROIT Principles of International Commercial Contracts (Article 1.7) and the Principles of European Contract Law (Article 1:201) both impose duties of good faith, and the UN Convention on Contracts for the International Sale of Goods (Article 7(1)) requires regard to good faith in international trade. Australian law has recognised an implied duty of good faith in the performance of commercial contracts since Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, and the development has not produced the commercial disruption that sceptics predicted (Paterson, 2015).
Nevertheless, this comparative argument must be handled with caution. The civilian good faith duty operates within a fundamentally different doctrinal architecture — one that includes general clauses, abuse of rights doctrines, and a more interventionist judicial tradition (Whittaker and Zimmermann, 2000). Transplanting a civilian norm into a common law system carries risks, and the success of good faith in one jurisdiction does not guarantee its success in another. The more persuasive comparative point is not that English law should adopt the German model wholesale, but that the experience of other systems demonstrates that good faith can be given workable content and that the fear of unmanageable uncertainty is overstated.
The Case Against Recognition: Autonomy, Certainty and Institutional Competence
The objections to a broader duty of good faith are serious and must not be understated.
The autonomy objection holds that commercial parties are entitled to arrange their affairs as they see fit, and that the law should not impose obligations that the parties have not agreed to. This is not a formal point about contract doctrine; it reflects a substantive commitment to commercial freedom and to the efficiency of allowing parties to allocate risks through their bargain (Fried, 1981). If a party wants protection against opportunistic behaviour, it can negotiate for express terms — including an express duty of good faith — and the absence of such a term should be respected as a deliberate choice. Lord Sumption, writing extra-judicially, has argued that the distinctive virtue of English contract law in the international market lies precisely in its respect for what parties have actually agreed, and that introducing good faith would compromise that virtue (Sumption, 2017).
This objection has force, but it is not decisive. It assumes that the absence of an express good faith term reflects a deliberate decision to exclude such a duty, when in many relational contracts it simply reflects the impossibility of foreseeing and providing for every contingency. Moreover, the autonomy argument proves too much: English law already implies terms in fact and in law, already controls the exercise of contractual discretions, and already imposes duties of co-operation. If these interventions are compatible with party autonomy, it is unclear why a structured good faith duty in relational contracts would not be equally compatible — particularly if it operates as a default rule that parties can exclude by contrary agreement.
The certainty objection holds that good faith is inherently vague and that its recognition would introduce unacceptable unpredictability into commercial dealings. As Lord Ackner stated in Walford v Miles, good faith is “inherently repugnant” to adversarial commercial conduct because it has no settled meaning and would leave parties uncertain about the standard to which they are held. The concern is that litigation would increase, that outcomes would depend on judicial intuition rather than principled reasoning, and that sophisticated commercial parties would be deterred from using English law as their governing law.
This objection carries significant weight but is also overstated. The content of good faith need not be left at large. In Bates v Post Office Ltd (No 3), Fraser J demonstrated that the duty can be given structured content by reference to the specific characteristics of the relational contract and the reasonable expectations of the parties. At a minimum, the duty encompasses honesty, fidelity to the bargain’s common purpose, and a prohibition on conduct that is arbitrary, capricious or aimed at undermining the other party’s legitimate contractual expectations. These are not amorphous standards; they are capable of principled application. Furthermore, the existing law is not itself a model of certainty in this area: the piecemeal approach produces unpredictable results precisely because functionally similar problems receive different treatment depending on which specific doctrine is engaged (Courtney, 2019).
The institutional competence objection contends that the development of a good faith duty should be a matter for Parliament rather than the courts. Judicial implication of a good faith term involves significant policy choices about the allocation of risk in commercial contracts, and these choices are better made through legislative processes that allow for broad consultation and democratic input. The Law Commission has previously considered and declined to recommend a general duty of good faith, and this legislative restraint should be respected (Law Commission, 2017).
This objection has some merit, but it underestimates the capacity of the common law to develop incrementally. The courts are not being asked to impose a statutory duty; they are being asked to develop the implied terms doctrine in a way that reflects the reasonable expectations of parties in relational contracts. This is precisely the kind of incremental, case-by-case development that the common law excels at, and it preserves the flexibility to adjust the duty’s content to the circumstances of individual relationships. Indeed, the common law’s capacity for calibrated development may be an advantage over a rigid statutory duty.
The Content and Limits of a Relational Good Faith Duty
If a broader good faith duty is to be recognised, its content must be defined with sufficient precision to meet the certainty objection. The emerging case law and scholarly literature suggest that the duty would encompass at least the following elements: honesty in performance, fidelity to the purpose of the bargain, consistency of conduct, co-operation in the face of unforeseen contingencies, and a prohibition on the exercise of contractual rights for purposes unrelated to or inconsistent with the parties’ common venture (Leggatt, 2016). The duty would not require altruism or self-sacrifice; it would not prevent a party from acting in its own commercial interest, provided that it did so honestly and consistently with the relationship’s underlying purpose.
Equally important are the limits. The duty should apply only to contracts that are objectively relational in character, identified by reference to the criteria set out by Fraser J in Bates: long-term duration, mutual trust and confidence, significant investment, a degree of exclusivity, and the absence of exhaustive express provision. It should operate as a default rule, subject to contrary agreement: parties who wish to exclude the duty, or to define its content by express terms, should be free to do so. This preserves the primacy of party autonomy while recognising that, in the absence of contrary indication, long-term commercial partners can reasonably be taken to have assumed an obligation of fair dealing.
The duty should not extend to pre-contractual negotiations, where the adversarial model remains appropriate and where Walford v Miles continues to represent the law. Nor should it override express contractual terms: a party who has bargained for a right of termination on notice, for example, should not be prevented from exercising that right merely because the other party considers the exercise to be unfair. The duty should supplement the express terms, not supplant them. This distinction is critical: the good faith duty fills gaps in incomplete relational contracts; it does not rewrite bargains that the parties have deliberately made.
On this analysis, the duty of good faith is not a radical departure from existing law. It is better understood as a rationalisation and extension of doctrines that already exist — the duty of co-operation, the Braganza duty, the duty not to derogate from grant, the obligation not to prevent performance — brought together under a unifying principle and applied to the specific context of relational contracts. As Collins has argued, the recognition of good faith in relational contracts is less a revolution than a “crystallisation of existing practice” (Collins, 2014, p. 297).
The Risk of an Overly Broad Duty and the Importance of Calibration
The greatest danger in recognising a broader duty of good faith is not the principle itself but its potential over-extension. If the duty were applied indiscriminately to all commercial contracts, regardless of their relational character, the objections concerning certainty and autonomy would become much more powerful. A one-off sale of goods between sophisticated parties does not call for the same norms of co-operative dealing as a twenty-year franchise agreement. The calibration of the duty to the relational character of the contract is therefore not a secondary consideration; it is the central mechanism by which the competing values of fairness and certainty are reconciled.
The risk of judicial overreach is real but manageable. The criteria identified in Bates provide a structured basis for determining whether a contract is relational, and the implied terms methodology — which requires the court to consider the specific contract and its context — provides a disciplined framework for determining the content of the duty. The courts have extensive experience in calibrating implied obligations to the circumstances of particular relationships, as the development of implied terms in employment law, agency law and partnership law demonstrates. There is no reason in principle why the same calibrated approach cannot be applied to relational commercial contracts.
Moreover, the concern about deterring parties from choosing English law as their governing law may be overstated. Sophisticated commercial parties frequently include express good faith clauses in their contracts, particularly in joint venture agreements, long-term supply contracts and outsourcing arrangements (Schwartz and Scott, 2003). The recognition of an implied duty in relational contracts would bring the default position closer to what many parties already stipulate expressly, reducing transaction costs rather than increasing them. Parties who wish to exclude the duty would remain free to do so, and the availability of this opt-out mechanism should reassure those who fear that recognition would compromise commercial freedom.
The Unresolved Question: Supreme Court Authority
The current position is unsatisfactory in one critical respect: the Supreme Court has not yet addressed the status of implied good faith duties in relational contracts. The lower court decisions in Yam Seng, Bates and related cases represent a significant development, but they remain first-instance authorities and do not bind the Court of Appeal or Supreme Court. The Court of Appeal’s reluctance in Globe Motors and MSC Mediterranean Shipping to endorse a distinct category of relational contracts with special implied terms creates doctrinal tension with the High Court decisions. Until the Supreme Court resolves this tension, the law will remain in an intermediate and uncertain state.
This uncertainty is itself an argument for recognition. The current position, in which good faith duties may or may not be implied depending on which court hears the case and how it characterises the contract, is less certain than a clear statement from the Supreme Court that relational contracts carry a default duty of good faith, subject to contrary agreement and defined by reference to structured criteria. The choice is not between certainty and uncertainty; it is between two forms of uncertainty, and the structured approach is the more predictable of the two.
The decision in Braganza v BP Shipping Ltd [2015] UKSC 17 provides a potential doctrinal foundation. In Braganza, the Supreme Court held that a contractual discretion must be exercised honestly, in good faith, and not in an arbitrary, capricious or irrational manner. Lady Hale’s judgment drew on public law principles of reasonableness and applied them to the exercise of contractual power. The reasoning in Braganza is compatible with a broader duty of good faith in relational contracts, because both are concerned with controlling the exercise of power within an ongoing relationship. The extension from Braganza to a general relational good faith duty is not a small step, but the conceptual foundations are already in place.
Good Faith and the Implication of Terms: Methodological Considerations
A persistent concern is whether the recognition of a relational good faith duty is compatible with the implied terms methodology confirmed in Marks and Spencer plc v BNP Paribas [2015] UKSC 72. Lord Neuberger’s judgment set a deliberately high threshold for terms implied in fact: the term must be necessary to give business efficacy to the contract, or so obvious that it goes without saying. Critics argue that a duty of good faith fails both tests in many relational contracts, because such contracts are capable of functioning — however imperfectly — without it (Morgan, 2017).
This objection is important but not insurmountable. There are two possible routes to implication. The first is implication in fact under the Marks and Spencer test, applied to the specific relational contract. The argument is that, in a contract characterised by long-term mutual dependence and significant incompleteness, a duty of good faith is necessary to give the contract business efficacy, because without it the parties’ reasonable expectations would be defeated by opportunistic conduct that exploits gaps in the express terms. This argument is strongest in the most intensely relational contracts, and weaker in contracts that are only partially relational.
The second route is implication in law: recognising that contracts belonging to the category of relational contracts carry a duty of good faith as an incident of that contractual type, analogous to the implied terms in employment contracts, tenancy agreements and contracts of carriage. This route requires the courts to recognise “relational contract” as a distinct contractual category — a step that Fraser J took in Bates but that the Court of Appeal has been reluctant to endorse. Implication in law has the advantage of providing a more stable and predictable basis for the duty, because it does not depend on the court’s assessment of the specific circumstances of each individual contract. However, it requires a clear definition of the category, and the criteria identified in Bates, while helpful, remain non-exhaustive and open to interpretation.
On balance, implication in law is the preferable route. It provides greater certainty, it avoids the artificial exercise of determining the hypothetical intentions of the parties in each individual case, and it reflects the reality that the duty of good faith arises not from the subjective expectations of the particular parties but from the objective character of the relationship. The recognition of relational contracts as a distinct category is a significant doctrinal step, but it is no more radical than the recognition of other contractual categories — employment, agency, partnership — that carry distinctive implied obligations.
Conclusion
English contract law should recognise a broader duty of good faith in long-term commercial relationships, but the recognition must be calibrated, structured and subject to clear limits. The strongest case for recognition rests on the structural incompleteness of relational contracts, the inadequacy of the piecemeal approach in addressing opportunistic behaviour, and the fact that existing doctrines already embody norms of fair dealing that a good faith duty would rationalise rather than introduce de novo. The objections concerning certainty and autonomy are serious, but they are met by confining the duty to objectively relational contracts, defining its content by reference to the specific characteristics of the relationship, and treating it as a default rule that parties can exclude by contrary agreement.
The most important unresolved question is not whether a duty should be recognised, but how — specifically, whether it should be implied in fact on a case-by-case basis or implied in law as an incident of a recognised contractual category. The latter approach is preferable for its greater predictability and doctrinal transparency, though it requires the courts to take the step of recognising relational contracts as a distinct type. The foundations for this step are present in the existing case law, and the Supreme Court, when the opportunity arises, should build upon them. What English law needs is not a revolution, but a rationalisation: an honest acknowledgement that long-term commercial relationships depend on norms of co-operative dealing, and that the law should reflect this dependence openly rather than through a proliferation of ad hoc doctrines whose underlying unity remains unacknowledged.
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