Good faith In the English legal system

Good faith in the English Legal System

I hereby confirm that this dissertation represents my own authentic work primarily done during the 2019/20 academic year.

Chapter 1: Introduction and Background

In the recent decades, the principle of good faith in a contractual performance has encountered undivine attention as it has continuously been a key argument in the European contract law. There has been a developed consensus that the presence that the role of the principle of good faith has a pivotal role in the modern contractual obligations. The principle of good faith flows throughout the civil legal systems of the Member states of the European union and is becoming increasingly more part of the English law. Since the implementation of European Directives such as the Directive on Unfair Terms in Consumer Contracts, every legal system within the European Union now faces the practical challenge of coming to terms with a general notion of good faith. The concept of good faith has been taken on board by many countries such as the United States, Australia, France, Germany and Italy, where the principle of good faith has been acknowledged that in performing and agreeing contracts that parties involved should act in good faith. Whereas the English civil law has been reluctant to recognise the concept of good faith to be implied on contracting parties to perform their obligations.

The purpose of this paper will to be discuss and analyse the impact of the principle of good faith treatment under the English common law in comparison to other jurisdiction such as the united states, Italy, France, Germany and Australia. In the first part of this paper will be a general overview of the history and the origin of the concept of good faith underlining the meaning and importance of this concept. Chapter 2 of this paper will discuss what good faith means, the principles that good faith points out and performing in good faith and what it suggests. Chapter 3 will subsequently present an insight into countries that have acknowledge and adopted good faith in their legal system compared to the English legal system. Chapter 4 of this paper will discuss the case law in which good faith is shown to identify if the concept is accepted or rejected by the courts. The last chapter will conclude the paper on whether the concept of good faith has been acknowledging under the English law. The analysis of this paper will be developed through focusing on differences arising from doctrines of contract law such as pre-contractual liability, performance and interpretation. As in the English law, where the principle of good faith does not have general obligation, arguments for and against good faith will be presented in relation to the English common law.

The principle of good faith is an argument for a debate, as its significance has been considered from the earliest of years and been developed through out. The concept of good faith as it pertains to Western contract law has existed since the Roman Republic. Cicero a roman legal scholar stated “ Ut inter benos bene agier oportet et sine fraudatione” – one must act well, as among good men without fraudulence. The roman law shows that they acknowledge the concept of bona fides (good faith) where no more western civilisations have developed their legal systems in which good faith is required to a certain degree between contracting parties.

For roman lawyers good faith; bona fides means fidelity to promise. In the common law its usually asked what a reasonable person would take the parties to have meant at the time of their agreement. Civil law nations such as Germany have a codified the obligations of good faith, in which the united states have also in its Uniform Commercial code. However, this acceptance of good faith has not been as easily accepted by its civil peers like the United Kingdom. The UK have not legal placed a document of the concept of good faith however through recent years and cases the judicial decisions made shows that good faith is being recognises.

This section will introduce the notion of good faith in the aspects of its development. Good faith has existed for decades, even centuries. The concept of good faith resides back to the Roman Twelve Tables; the roman legislation that stood as the foundation of the roman law. It decreed that anyone that contracts a legal obligation by making a verbal statement or an agreement shall have the force and effect of law .

The principle origins in a primitive human community, being a member of a group that involved obligations and membership must have rules of the performance of the members. Amongst the communities a basic rule regarding the obligations of keeping promises must have existed and the dictum pacta sunt servanda (Latin for ‘agreements must be kept’) describes the obligation which arises from such a principle . The relationship of pacta sunt servanda with ‘faith’ comes from the origins in the ancient roman era . The fides ( faith) of an individual had developed the bona fides ( good faith) in the roman law . During this era the influence of the magistrate court was very limited compared to now in the modern society as the roman law was dominated by the strict formalism of legis action (the actions). During the second and third centuries BC, Roman society thought it was necessary to allow certain claims based on contracts of sale, hire and service to be upheld by the legal system. The principle adopted, (iudicia bonae fidei; keep good faith) added an element to iudicia stricti iuris( strict law regulation) which enabled a court to take into account circumstances, defences and considerations of fairness which might otherwise have been excluded in the past. The purpose of it was to free magistrates from the strict formalism of the legis actiones and allow them to accord an iudicium (trial) with a formula which directed judges to deliver judgment which is shown in practice now in the modern society where as in those years the magistrates where bound to the strict statutory law but according to the principle of contractual faith.

Cicero wrote about the evolution of bona fides in his De Officiis treat, where he demonstrates the existences of bona fides, “it was debated for a long time whether bona fides formed a new source of obligations or whether it merely supplemented” the old civilian law . This is a clear to an extent as on first bases on the claim of bona fides could “ only be enforced through [a] formulary procedure, as they had no statutory basis. ” However the concept of good faith evolved as Roman judes consider the claims that were made on the bases of bona fides alone, in which they determined for themselves whether the claim is substantial enough.

Chapter 2: what does performing in good faith suggest?

In the previous chapter it deomsyatrated the early stages of the notion of good faith with in a legal and how its was adopted. Within this next chapter I will be looking at what performing in good faith could suggest with in the legal system.

From the years of when good faith had been noticed, it has been difficult to give a definition of the concept valid for interpretation in multiple legal systems, which brings the concept of good faith to be subjected to different interpretations. The term ‘good faith’ has given rise to several strands with respect to its meaning.

Before looking into what good faith performance suggest, we’ll start looking at what does good faith mean.

To society good faith would mean honesty or sincerity of intention. In the legal aspect what would good faith mean there is no universal meaning. But in the means of a commercial contract it would depends on the contract in question and its industrial context. It has been held to evolve an obligation to conform to the intent of the contract, to analyse acceptable contractual practises for fair dealing, remain true to the negotiated commonplace motive, behave accordingly with the other parties legitimate expectations, discourage action that frustrates the purpose of the agreement and allow the other party to be aware with all relevant facts.

First of all, performing in good faith could be considered a duty to act fairly and equitably towards the other parties involved. Second of all, it could be a duty and confidence and issue of trust between the parties involved. Thirdly, it may see the establishment of a set of standards of reasonable behaviour in contractual relations. Lastly, it could be defined to a set of examples of ‘bad faith’. Therefore, according to different jurisdictions, and the scopes of the term, nowadays it would be differently associated. For example, ‘fairness’, ‘fair dealing’, ‘duty of loyalty’, ‘reasonableness’ these terms of word are used in the legislation in the English and Swedish law, ‘not acting in bad faith’ used in the American law and ‘taking into account the other party’s interests’ used in the German and Dutch law. As a result, any possible definition is subjective and reflects a specific origin, history and function of the concept in different states. In taking into account these considerations in the article good faith in international law by J.F. O’Connor he states that;

The principle of good faith in international law is a fundamental principle from which the rule pacta sunt servanda and other legal rules distinctively and directly related to honesty, fairness and reasonableness are derived, and the application of these rules is determined at any particular time by the compelling standards of honesty, fairness and reasonableness prevailing in international community at that time.

This shows assumptions in O’Connor has taken on borad on the concept of good faith to create a general definition of good faith. In this article O’Connor outlines his overarching goal early in the novel when it comes to establishing a basic principle of good faith. He makes two theories (ch 1, p 11). The first is that all concepts of good faith would follow the principles of contract law pacta sunt servanda to contain elements of ‘ honesty, justice, to reasonableness.’ The second ‘ is that the fundamental ethical substance of good faith must represent a significant part of the “normal” laws of every legal system.

In the case of Cater v Boehm 1766 Lord Mansfield suggesred that good faith should be ‘applicable to all contracts and dealings’. Good faith has been accepted in insurance law however not in the English contract law. Under the English law the concept of good faith has no general clause or principle which applies in the area of the English law. As discussed in ‘good faith in English law; by O’Connor is states “ many rules of English law expressly refers to good faith, and many rules reflect the substantive of the principle, but it is submitted that these ‘normal’ rules are not properly subsumable under the principle. The function of the principle can hardly be to provide a common denominator for a large number of the ‘ordinary’ rules of English law” . It is clear that the concept of good faith has no requirement under the English law. This was also discussed by Lord Bingham in the case of Interfoto Picture Library v. Stiletto Visual Programmes drew attention to the fact that many civil law have accepted the concept of good faith, where he stated that “ In many civil law systems, and perhaps in most legal systems outside the common law world, the law of obligations recognises and enforces an overriding principle that in making and carrying out contracts parties should act in good faith. This does not simply mean that they should not deceive each other, a principle which any legal system must recognise; its effect is perhaps most aptly conveyed by such metaphorical colloquialisms as “playing fair” , “coming clean” or ‘putting one’s cards face upwards on the table’ . It is in essence a principle of fair and open dealing…English law has, characteristically, committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of unfairness.”

y civil law systems, and perhaps in most legal systems outside the common law world, the law
of obligations recognises and enforces an
This does not simply mean that they should not deceive each other, a principle which any legal system must recognise; its effect is perhaps most aptly conveyed by such metaphorical colloquialisms as ‘playing fair’, ‘coming clean’ or ‘putting one’s cards face upwards on the table’. It is, in essence a principle of fair and open dealing. In many civil law systems…the law of obligations recognises and enforces an overriding principle that in making and carrying out contracts parties should act in good faith… English law has, characteristically, committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of fairness.” This attitude is clearly shown in contract law where the approach is to enhance commerce. One main feature of the English contract law is the protection of freedom of contract principle. Where parties shown by Atiyah in ‘ the rise of the fall of freedom of contract should be able to deal with each other ‘at harm’s length’ and should be able to contract without any interference from the state and allowed to place terms and conditions. This principle should be considered a fundamental point of the English contract law. Under the English law, the absence of the concept of good faith is reflected in stages of the contract law where the duty to perform in good faith is not completely required. As parties are entitled to exercise their rights under the law of breach of contract or under the contract.

Within (Roman) civil jurisdictions in Europe, a duty of good faith is common, albeit not universally nicely understood, and English attorneys learnt the language of fairness, first inside the Unfair Contract Terms Act 1977 , and, extra recently, inside the Unfair Terms in Consumer Contract Regulations 1999 .

Unfair contract term can be seen to the first stages of the concept of good faith. Considering the act of Unfair contract term what is justified as an unfair term. A term in the consumer contracts is unreasonable if it creates a substantial difference in the rights and obligations of the parties under the contract to the detriment of the consumer, contrary to the presumption of good faith . Also, transparency is also important to fairness. The act specifies that a written word be expressed in a plain and intelligible language in a consumer contract and that it be legible . This is followed by a more general requirement that consumers have a good chance to see and appreciate all words that might work to their disadvantage before entering into a contract . For the unfair act there is fairness test. Broadly speaking, the implications of the fairness test are that language is more likely to satisfy the law if it is written and interpreted in a manner which respects the legitimate interests of consumers. ‘Good faith’ refers to both the content of the words and their way of presenting them. This is focused on the general principle ‘fair and open dealing’ concept where terms are thoroughly simply and legibly articulated and proper regard for the interest of the consumers . Consumers argeements should not include hidden loopholes or traps and sufficient attention should be given to terms which may harm the consumer. A corporation should not abuse the insecurity of consumers when it comes to determining what their rights and responsibilities will and should look like. Enterprises ought to work equally with consumers taking into account their legitmate interests into account.

The act requires fairness to take into account:
• The nature of the subject matter of the contract
• All the circumstances exisiting when the term was agreed
• All the other terms of the contract; and
• All the terms of another contract on which the contact depends

Consumer righs act 2015 business to business settings

When negotiations take place it forms a valid contract. English courts have developed a set of strategies for dealing with the actions of the parties during the negotiating process as actions relevant to the nature and substance of the contract . Therefore what is said or done at the negotiating stage by the contracting parties may have an effect on the construction and validity of the contract; i.e. Defining the terms of the contract or whether mistake or misrepresentation has impaired the interpretation of the contractual intentions of the parties or caused the parties to lose their contractual intentions. When negotiations break without an agreement there is no special rule in the Enlgish law of pre- contravtual liability . It should also be pointed out from the outset that, contrary to all these other major European legal structures, contractual liability under English law is limited by the need for a contract to be based on an exchange of benefits / detriments in order to be binding (the doctrine of consideration), unless it is an arrangement made under seal . Good faith in consumer contracts is part of English law today as much as it is of EU consumer law; the Unfair Contract Terms Directive and the remainder of the acquis communautaire in consumer protection law have been fully adopted into UK national law .

Yet the issue of the position of good faith in English law remains contentious in the wider sense of banking and other commercial contracts; And therefore this issue has a direct effect on the law of pre-contractual agreements, as any provision of good faith in such agreements will not be necessary in the absence of a comparable condition in the execution of a legal contract.

Chapter 3 : Case where good faith is shown and how the courts accept or reject it

The courts have also started to see that good faith can be implied Into a contract but in limited cases. For many reasons that the English court have had a difficult time in outlining the duty of good faith if it could or should be implied into the English contract law. A leading commentary noted that:

… in keeping with the principles of freedom of contract and the binding force of contract, in English contract law there is no legal principle of good faith of general application, although some authors have argued that there should be.

Under English law, those in a fiduciary relationship owe obligations in good faith which may occur as a consequence of a statutory term specifically agreed upon . Relevant contractual arrangements (e.g. partnership, business, employment or insurance contracts) that indicate a duty of good faith but, as a general rule, English courts would not indicate a duty of good faith in a contract .

Other countries that will be looked into further in the next chapter have taken onboard the concept of good faith being implied into their common law. Where on the other hand the English courts, have taken a long outstanding time to the approach of good faith in the law. A demonstrated change from the courts was demonstrated by Lord Leggatt in Yam Seng v International Trade Corp Ltd [2013] EWHC 111 the “hostility” of the English courts of the concept of good faith in contracts.

“I respectfully suggest that the traditional English hostility towards a doctrine of good faith in the performance of contracts, to the extent it still persists, is misplaced. ”

The idea that contracting parties owe each other a duty of good faith in the execution of their contractual obligations is widely accepted by jurisdictions around the world. As shown in the previous chapter in the United States, the principle is enshrined in the uniform Commericial Code which states that “every contract or duty within this act imposes an obligation of good faith in its performance or enforcement.” Specific provisions are contained in most civil law jurisdictions ‘ legal codes, and common law courts like Australia and Canada are gradually accepting a specific standard of good faith and fair dealing . England stands out as one of the few countries that did not accept between contracting partners an implicit obligation of good faith. A leading report on the matter mentions that;

… in keeping with the principles of freedom of contract and the binding force of contract, in English contract law there is no legal principle of good faith of general application, although some authors have argued that there should be

Good faith in the English law can be implied in specific contractual relationship. But this position is changing. As demonstrated by lord leggat in yam seng v international trade

In this case the claimant Yam Seng, entered an agreement of distribution agreement with the defendant International Trade Corp in terms of which the international Trade Corp granted Yam Seng the right to distribute certain Manchester United branded fragrance in specific area in the Middle East, Asia, African and Australia. Lord Leggatt illustrated that the two companies have created a contract between them in the business nature as it is essentially between two controlling individuals this started as a warm relationship which led to July 2010 where Yam Seng stated that international trade Corp were in breach agreement in which Yam Seng accepted leading to the agreement being terminated . The reasons into why the contract has been terminated was due to late shipments and the cutting passes and providing false information about their ability to supply products to them. However the shortness of time of the agreement meant that the allegations made could not be tied to any particular express obligations. Yam Seng this claimed that the international trade corp where in breach of the implied term of the parties would handle with each other in good faith.

Lord Leggatt illustrated in the case that there were implications in previous English case law of good faith in contracts, the courts demonstrated that the concept of the duty of good faith should be implicated in the long term of the agreement between any parties involved. This case is a landmark and beginning era of good faith in the English contract law. When looking into the reasoning behind the decision made of the case the judge began with that there is an implied contractual obligation of honesty where its stated “ a matter of construction it is hard to envisage any contract which would not reasonably be understood as requiring honesty in its performance”` And noting that such a requirement satisfies the standard criteria for the meaning of a word such that I it is so obvious that it goes without stating and (ii) commercial transactions ought to be granted market efficacy.

The judge expanded this implicit concept to include a requirement to conform with “certain trade provisions so widely agreed that contracting parties could fairly be expected to interpret them without expressly stating them in their contractual agreement. ” The judge acknowledged conformity with these requirements is a vital feature of good faith. Leggatt then clarified that another element of good faith which can be readily inferred in contractual contracts applying the conventional standards “is what may be described as fidelity to the parties ’ bargain” In this regard, the judge observed that contracts should never directly account for any occurrence that may arise and that, in situations not clearly provided for, contractual language must be granted a fair structure which supports the values and purposes stated or implied in the contract, in compliance with well-established principles. The judge found that he understood an inherent obligation of good faith and fair treatment that was neither novel nor foreign in English law. The term may be implied not as a matter of law but as a matter of fact, that is, it is based on the parties ‘ presumed intentions. It is also a matter of contract construction and it was determined on a case-by-case basis.

Following the consideration of Yam Seng, it has identified some approving judgements this is shown are the court of appeal as they prove the analysis of which Lord Leggatt identifies. Through the years the concept of good faith history show that there is no general documentation of good faith in contract law. In Greenclose Ltd v National Westminster Bank PLC 2014 Andrews J held that

“[T]here is no general doctrine of good faith in English contract law and such a term is unlikely to arise by way of necessary implication in a contract between two sophisticated commercial parties negotiating at arms’ length.”

it was noted that the more discretion afforded to a party, the more readily the court
will imply an obligation that the discretion should not be exercised in bad faith or in an arbitrary or capricious manner, although it would be heavily dependent on context.
Furthermore, in Bristol Groundschool Ltd v Intelligent Data Capture Ltd and others [2014] EWHC 2145 (Ch), one of the questions before the court was if there was an inherent obligation of good faith in the contract and, if so, if the complainant had infringed the obligation by accessing materials from the IT networks of the defendants without authorisation

Through the years the English courts view on.’ Good faith have developed where the provisions have ‘deliberately and expressly’ agreed on by parties on which they have been held in the courts enforceable and relate to any future conduct under the contract.

Express to act in good faith
The cases listed below show the pattern of the English courts have taken to give the effect to express good faith in contracts as long as there is performance of some obligations. The tables shows the extent the courts will upheld depending on the wording of the clause

Berkeley Community Villages Ltd v F Pullen [2007] “In all matters relating to this agreement the parties will act with the utmost good faith towards one another and will act reasonably and prudently at all times” This was held to be an obligation “to observe reasonable commercial standards of fair dealing in accordance with their actions which related to the agreement and also requiring faithfulness to the agreed common purpose and consistency with the justified expectations of the [other party].”
CPC Group Limited v Qatari Diar Real Estate Investment Company [2010] “shall both act in the utmost good faith towards each other in relation to the matters set out in this Deed” and “use all reasonable but commercially prudent endeavours to enable the achievement of the various threshold events and Payment Dates”. “the obligation of utmost good faith in the [contract] 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 “

This was interpreted to be an obligation to:
• observe reasonable commercial standards of fair dealing;
• be faithful to the agreed common purpose; and
• act consistently with the parties’ justified expectations.
Gold Group Properties Limited v BDW Trading Limited (formerly known
as Barratt Homes Limited) [2010] “observe and perform their respective obligations” and “at all times act in good faith” for any transaction entered between the parties The court held that “whilst requiring the parties to act in a way that will allow both parties to enjoy the anticipated benefits of the contract, [the good faith obligation] does not require either party to give up a freely negotiated financial advantage clearly embedded in the contract”.
The claimant was found not to be in breach of the good faith obligation in refusing to accept or even negotiate proposals which were of no financial interest to it.
Had it refused to negotiate where it was unaffected financially by the changes and where the negotiations were necessary to permit the agreement to be performed as envisaged, it might well have been in breach of the obligation.
Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a Medirest) [2013] “The Trust and the Contractor will co-operate with each other in good faith and will take
all reasonable action as is necessary for the efficient transmission of information and instructions and to enable the Trust or, as the case may be, any Beneficiary to derive the full benefit of the Contract.” Overturning the High Court decision, the Court of Appeal held that, although the good faith clause was valid and the demanded payments were excessive, the obligation did not stretch to all conduct under the contract and did not constrain the operation of the payment mechanism. Instead, it was an obligation to work together honestly endeavouring to achieve the two stated purposes.
The judgment concluded: “care must be taken not to construe
a general and potentially open-ended obligation such as an obligation to “co-operate” or “to act in good faith” as covering the same ground as other, more specific, provisions, lest it cut across those more specific provisions and any limitations in them.”
*As a Court of Appeal case, this is the leading case on good faith obligations in English law.
TSG Building Services plc v South Anglia Housing Limited [2013] “The Partnering Team members shall work together and individually in the spirit of trust, fairness and mutual co-operation for the benefit of the Term Programme, within the scope of their agreed roles, expertise and responsibilities as stated in the Partnering Documents, and all their respective obligations under the Partnering Contract shall be construed within the scope of such roles, expertise and responsibilities”. The court found that the good faith clause did not extend to acting reasonably when terminating the contract; the good faith obligation was restricted to those expressly listed actions. Co-operation was required for the performance of the contract, not its termination and the good faith obligation did not cut across the unqualified and unconditional express right to terminate.
Fujitsu Services Limited v IBM United Kingdom Limited
[2014] All dealings should be “open, honest, clear and reliable” and that the parties should “Work together to achieve a The court held that there was no express duty of good faith in the clauses relied upon by Fujitsu and that the partnering principles lacked contractual certainty. The parties agreed only to “have regard to” those principles, which the court considered were “aspirational and motivational”. The parties appeared to have chosen deliberately to avoid an express agreement that they would owe a duty of good faith and that choice should be respected.

Looking at the table above it shows that when looking to identify the effect of express good faith obligation, the English courts show to examine the wording of the agreement. In which they willingly hold the wording to be binding to the parties that have expressed their obligation and not at the contract as a whole.

In the case of Yam Seng, the judge ruled that what good faith entails is “sensitive to context” but definitely contains “core value of honesty ” The judge defined the test of good faith as an empirical question: if, in the specific case, fair and reasonable individuals will find the actions to be commercially inacceptable. The central principle of integrity from the judge poses tough reach issues. The judge stated that the obligation of integrity goes to an obligation not intentionally to make untrue claims, and suggested that it may be unethical, “depending on the context,” to avoid answering a question, to give an evasive answer, or even to refuse to correct an answer that was mistakenly believed to be accurate at the time, or that has since become incorrect, while accurate at the time. The judge also addressed the question of whether the burden of integrity produced a constructive responsibility to include voluntary information related to the success of the contract but ruled that it was inappropriate for him to make a judgement on the evidence before him.

…
OTHER CASES ONWARDS \

This is shown in the case of Globe Motors v TRE…. judgement made in global motors rectifies The concept of good faith as an obligation it is simply a form of an implied terms

Chapter 4: English law compared to other common law countries of good faith being implied

The concept of good faith has influenced the contract law in the legal system. The concept is shown to have different importance in other commonwealth countries such as the United States, Australia, France, Germany and Italy. In this chapter I will give an overview of these countries that have taken onboard good faith as a principal in their common law.

In the United States of America the concept of good faith doctrine came about in the twentieth century through scattered cases, mainly in New York. Good faith gained notoriety as a general principle of the Contract law, following the opinions of the New York Court of Appeal in the case of Kirke La Shelle Co.v. Paul Armstrong Co. following New York other jurisdiction developed much law on the concept of good faith. 19 years later the concept of good faith was codified in the Uniform Commercial code. In Kirke La Shelle Co.v. Paul Armstrong Co the court of appeal of New York held that the plaintiff was entitled to the shares of profits from the sound films sale which became a movie layout that did not exist while the contract become formed. Relying on current precedent, the court mentioned that the 2 parties “assumed a fiduciary relationship” once they signed the contract, and that it imposed upon them the duty of utmost good faith .” However, the court did not find good faith to be claim that could be standing on its own. This showed that neither parties could act in a certain manner that would injure to destroy the right of the other to receive a benefit of the contract.

In 1981 the Obligation to perform in good faith is virtually implied in every contract in the united states. Restatement (second) of Contracts states:

Every Contract imposes upon each party a duty of good faith and Fair dealing in its performance and enforcement

Likewise, the Uniform Commercial Code provides:

Every contract or duty within [ the Uniform Commercial Code ] imposes an obligation of good faith in its performance and enforcement.

Professor E Allan Farnsworth and Robert S Summers wrote the first influential law review article in 1963 and 1968 on the performance of good faith. In an 1885 case illustrated the requirements of good faith in a contract.
due in part to the limited definition of good faith by the U.C.C. and the contradictions in common law, agreement has not been established on what behaviour violates the implied covenant of good faith. Scholars have created two key theories of good faith relating to American contract law: Summer’s excluder thesis and Burton’s recapture
thesis. The excluding theory was proposed by Professor Robert Summers in his articles “Good Faith” in General Contract Law and the Sales Provisions Uniform Commercial Code and The General Duty of Good Faith – Recognition and Conceptualization.
Under the excluding thesis, the concept of good faith can only be interpreted as excluding conduct that is incompatible with good faith “common standards of decency, fairness, and reasonableness, and with the parties’ agree- upon common purposes and justified expectations. ”

Many commentators of the common law of England have stated that there is no general duty of good faith in the common law. This can be assumed to be misleading but true as the objections of the duty of good faith in the English common law is to do with the concept of good faith and fair dealing whereas the American law is of good faith in performance.
Professor Burton makes the point that the good faith performance doctrine is ‘a relative newcomer to American Law’. English law develops much later however the decision made by Leggatt J in Yam Seng received mixed responses. As Yam Seng illustrates the uncertainty of the English Law.

Germany is a lead example of the civil law system which codified the principle of good faith
In Germany the contractual obligations is subjects to the standards of good faith, this is
connected with the notion of Treu und Glauben; good faith. Good faith is a legal principle to which one contractual partner has to take accountability of the legitimate interests of others, behaving in manner that is illustrated by honest and decent individuals in the same predicament. According to § 242 of the Bürgherliches Gesetzbuch (BGB) it sets forth that

“ The debtor is obliged to perform the service in the manner required by good faith with due regard for the traffic.”

In a simpler form of the statute may lead one to believe that it would only apply to specific legal relationships. However the German courts shaped it into the principle that “ has to be obeyed by anybody when exerting his rights and fulfilling his duties.” Just like the Roman law “effectively grants the judge a wide discretion to determine the consequences of partial invalidity according to the reasonable interests of the parties.”

In ‘Good Faith in European Contract Law’ by Whittaker and Zimmermann it explains the notion:

“Treue…signifies faithfulness, loyalty, fidelity, reliability; Glaube means belief in the sense of faith or reliance. The combination of ‘Treu und Glauben’ is sometimes seen to transcend the sum of its component and is widely understood as a conceptual entity. It suggests a standard of honest, loyal and considerate behaviour, of acting with due regard for the interests of the other party, and it implies and comprises the protection of a reasonable reliance. Thus is not a legal rule with specific requirements that have to checked but may be called an ‘open’ norm. Its content cannot be established in an abstract manner but takes shape only by the way in which it is applied”.

Good faith has had a significant impact on the development of German contract law as the courts had created obligation to ensure that there has be faithful performance such as the duties of parties to cooperate and protect each other’s interests.

Under the Italian law good faith plays an important role as it is considered as the fundamental pillar of the system. The Italian Civil Code enshrines good faith through different stages of a contractual relations this is shown is several code articles;

Art. 1175 provides that ‘the debtor and the creditor shall behave according to rules of fairness’;
Art. 1337 provides that ‘parties must behave in provides that parties must behave in good faith during the pre-contractual bargaining and contract drafting’;
Art. 1366 provides that ‘contract must be interpreted in good faith’;
Art. 1375 provides that ‘contract must be executed in good faith’;
Art. 1460 provides that ‘in contracts providing for mutual counter-performance

Parties in the agreement are able to perform their obligations if the other parties does not also . Good Faith is a valued key principle of the Italian social and legal regime. Unlike the other countries good faith does not only imply to a certain type of behaviour in a contract but rather a general requirement of positive or negative behaviours. // Whereas in other legal systems – particularly the German one – the reference to good faith principle allows the legislator to adapt the application of law to those justice requirements particularly felt by social awareness; contrarily under Italian law the legal application of the principle has met certain difficulties, mainly due to misunderstanding of its meaning and value. //

In France, the civil code that relates to the contracts implentations also includes good faith as a provision, article 1134, para. 3 of the French Civil Code states ;

They must be performed in good faith.

This indicates that contracts are to be performed in good faith. However the French courts have not given concept of good faith much weight of importance like Germany. General theory of abus de droit ( abuse of rights) which was developed in the 19th century which is based on good faith. as abus de droit is a legal concept which is linked with moral rights. Performing in good faith is interpreted by implying two duties of the contracting parties (i) a duty to act loyally (obligation de loyaute’) and (ii) a duty to cooperate (devour de cooperation). However in the English common law system is not based on a civil code like these other countries. This shows that the position of good faith is not as clear in the English and that it is dependent on a precedent.

Within Switzerland according to article 2 of the Swiss Civil Code:

I. Acting in good faith
1 Every person must act in good faith in the exercise of his or her rights and in the performance of his or her obligations.

Every individual are bound to exercise their rights and fulfil their obligations in respect of good faith. within article 3

II. Good faith
1 Where the law makes a legal effect conditional on the good faith of a person, there shall be a presumption of good faith .

it is presumed that good faith comes into play when the existence of a right is dependent on the observance of good faith. the concept of good faith been incorporated in the laws can also be found in Israel, The Netherlands, United States, Australia, Belgium, Brazil and China.

The last common law country that stands in the particularly in the same position as the English courts is Australia, where they both do not have good faith incorpoparted as much into their legal system. The use of’ good faith’ in commercial contracts is an field of law that has grown in Australia over the last 20 years and remains unsettled due to the absence of any conclusive decisions of the High Court . Case law from the respective intermediate courts of appeal and trial courts has made decisions concerning the interpretation and application of’ good faith’ to contractual relationships. Each of these decisions continues to examine the reach and application of good faith in various commercial contexts, in an ad hoc and less than satisfactory manner, gradually establishing jurisprudence in this field.

Austrlia development to the idea of good faith stsrks through case law. In Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service .

The New South Wales (NSW) Court of Appeal held with respect to good faith that:
– The meaning of the [good faith] clauses can be understood by constructing the parties ‘ language within the sense in which the clauses appear. They are contractual terms, to be considered like any other
– The notion of good faith in the execution of contracts is one developed by a variety of cases in this court and is well recognised to the rule of both common law and civil systems. It was a part of the merchant’s rules. It takes root in international conventions
– The normal substance of the duty in good faith may be derived from Renard Constructions (ME) Pty Ltd v Minister in Public Works… as follows;
– obligations to act honestly and with a fidelity to the bargain
– Obligation not to behave dishonestly and not to behave in such a manner as to weaken the arrangement entered into or the content of the contractual gain agreed.
– An obligation to behave reasonable and equally taking into account the interests of the parties (which will necessarily clash at times) and the contracts terms, goals and purposes, objectively defined.