High Court again confirms its reluctance to imply a term of good faith into a commercial contract
The High Court has again confirmed its reluctance to imply a term of good faith into a commercial contract unless it relates to the exercise of a discretion.In Myers and another v Kestrel and others
The High Court has again confirmed its reluctance to imply a term of good faith into a commercial contract unless it relates to the exercise of a discretion.
In Myers and another v Kestrel and others [2015] EWHC 916, the High Court was asked to consider whether the defendant's contractual right to modify a loan note instrument had to be subject to an implied duty to act in good faith. The High Court refused to imply such a term because the overall documentation was extensive and detailed and in this context the court was being "asked to conclude that the parties omitted to include an important term". There were other technical reasons which were relevant to the operation of this type of financial instrument, but with regard to the duty of good faith when exercising a discretion, the High Court referred to existing authority that draws a distinction between a discretion which involves a simple decision whether or not to exercise an absolute contractual right, and a discretion which involves making an assessment or choosing from a range of options. If a contractual duty of good faith is intended to apply to party's decision whether or not to exercise a contractual right, the scope of the obligation should be expressly set out in the contract.
This judgment is of interest to franchisors and other businesses engaged in commercial relationships - the High Court's decision is consistent whether the general direction of travel which has been established in recent judgments following the watershed judgment in Yam Seng.
In Myers and another v Kestrel and others [2015] EWHC 916, the High Court was asked to consider whether the defendant's contractual right to modify a loan note instrument had to be subject to an implied duty to act in good faith. The High Court refused to imply such a term because the overall documentation was extensive and detailed and in this context the court was being "asked to conclude that the parties omitted to include an important term". There were other technical reasons which were relevant to the operation of this type of financial instrument, but with regard to the duty of good faith when exercising a discretion, the High Court referred to existing authority that draws a distinction between a discretion which involves a simple decision whether or not to exercise an absolute contractual right, and a discretion which involves making an assessment or choosing from a range of options. If a contractual duty of good faith is intended to apply to party's decision whether or not to exercise a contractual right, the scope of the obligation should be expressly set out in the contract.
This judgment is of interest to franchisors and other businesses engaged in commercial relationships - the High Court's decision is consistent whether the general direction of travel which has been established in recent judgments following the watershed judgment in Yam Seng.