Good faith in construction contracts
An obligation for parties to act in ‘good faith’ is not generally implied in commercial contracts.
However, both standard form construction contracts and bespoke contracts commonly include clauses that require the parties to act in ‘good faith’ or may refer to ‘mutual trust’, ‘cooperation’, ‘respect’ or ‘collaboration’, or there may be some form of collaboration charter associated with contracts such as partnering agreements. However, there are often no related express terms defining precisely what these phrases mean or how they can be complied with.
There may be an expectation that in the event of disputes, adjudicators, arbitrators or the courts will take such clauses into account when considering the behaviour of the parties, that is, they will imply a general obligation to behave in a particular way. However, good faith clauses do not modify other express terms in a contract, and so unless they are supported by specific contractual obligations, such an interpretation might not stand up.
In the 1992 case of Walford v Miles, a clause requiring negotiation to be carried out in good faith was considered ‘unworkable in practice’, but in 2002, in the case of Cable & Wireless v IBM, a requirement to act in good faith in relation to alternative dispute resolution was considered clear enough to be enforceable, as it included actions that were necessary to comply with the obligation.
In Compass Group v Mid-Essex Hospital Services NHS Trust in 2013, the NHS won its appeal against enforcement of a good faith clause as the original decision was considered to have applied the obligation too broadly, rather than to just the specific instances expressly set out in the contract. Also in 2013, in TSG Building Services Plc v South Anglia Housing Limited, the court found that a duty of good faith did not apply to a termination clause as the expressed terms allowed either party to terminate for any or no reason.
It seems therefore that for such clauses to be enforceable, they need to set out specific obligations that demonstrate compliance.
This is an ever-changing area of the law, and in the future, the courts may give more weight to good faith clauses, however, at present, the interpretation of how clear an obligation to act in good faith needs to be is likely to be judged on a case by case basis. This brings into question whether it is the inclusion of the phrase 'good faith' that should be relied on, or just the related express terms, which would stand even without the inclusion of the phrase.
If the parties to a contract wish to enforce a particular sort of behaviour they should include express terms to that effect.
[edit] Related articles on Designing Buildings
- Alternative dispute resolution.
- Adjudication.
- Arbitration.
- Best endeavours v reasonable endeavours.
- Construction contracts.
- Duty.
- Duty of care.
- Duty to warn.
- Good faith – good grief.
- Good will.
- Implied terms.
- Joinder.
- Negligence.
- Reasonable skill and care.
- Record keeping.
- TSG Building Services Plc v South Anglia Housing Limited.
- Utmost good faith.
Featured articles and news
Designing sustainability and performance into buildings
Specifying and selecting sustainable resilient timber products.
Modifying wood to improve resistance to decay and movement.
A last minute, long look for built environment professionals.
The architecture of creative reuse. Book review.
Installing solar panels on listed structures.
Sustainable development global goals, history in progress?
"Unless we act now, the 2030 Agenda will become an epitaph for a world that might have been."
Mike Kagioglou FCIOB named CIOB President
'Sustainable Development Goals must be focus for construction'
BSRIA training; a look at what's on offer
From energy management to compliance training.
TESP video warns to beware of rogue trainers.
Highlighting the slippery tactics of non-approved providers.
New Building Safety Wiki launched
Boosting awareness and understanding of the new fire safety regime.
New playbook on AI in construction published by CIOB
How to get to grips with, and the best from AI.
Digital Construction Report NBS
BIM, cloud, off-site, immersive tech, AI, twins and sustainability.
ECA learning zone and industry focus video series
From updates and amendments to circular economy, emergency lighting and much more.
The Building People Communities Network
Celebrating and amplifying voices of the under-represented, this refugee week and pride month.
Pride of Place: queer heritage
Acknowledging and taking pride in LGBTQ histories.
Comments
[edit] To make a comment about this article, or to suggest changes, click 'Add a comment' above. Separate your comments from any existing comments by inserting a horizontal line.