Is there an obligation of good faith in commercial contracts?
On 8 January 2020, the High Court confirmed in Wales v CBRE Managed Services Limited and Aviva Administration Limited that a duty of good faith will only be implied in a commercial contract in very limited circumstances.
Background
Mr Wales was an independent financial adviser who, pursuant to a contract with Sesame Limited (an intermediary), sought to introduce insurance and pension business to clients of Sesame. Sesame would receive commission from those clients, which would be shared with Mr Wales.
Mr Wales introduced CBRE’s pension business to one of Sesame’s clients, Aviva. For many years, Mr Wales provided advice to CBRE in relation to its pension scheme. Sesame and Mr Wales were paid commissions on premiums paid by CBRE and its employees to Aviva. Following the introduction of the auto-enrolment of employees into pensions, CBRE took advice on its pensions arrangements and decided to move to a new pension platform, dispensing with the services of Mr Wales.
Although Mr Wales received contractual notice, he was not specifically informed that his services would not be required following the move to the new platform. Mr Wales brought a claim against CBRE for breach of contract, alleging that CBRE owed him an implied duty to deal with him in good faith.
Decision
The High Court decided that there was no implied term of good faith. The contract between CBRE or Aviva and Mr Wales was not relational – it was not a relationship which required mutual trust and confidence. Accordingly, there was no reason to imply a duty to act in good faith and it was not necessary to do so in order to give business efficacy to the contract.
Comment
This case is a reminder that a duty of good faith will only be implied in commercial contracts in exceptional and very limited circumstances. Generally in commercial contracts, the parties are entitled to perform the contract in the manner that is most beneficial to them. If a party considers that they need the added protection of an obligation of good faith (for example so that the other party is obliged to inform them of their future intentions), an express term to that effect should be included in the contract.
