In shipping and international trade, parties and practitioners are accustomed to uncompromising enforcement of contract terms, emphasis on purposive interpretation and recognition of arm’s length negotiation, autonomy and certainty.  Most will feel content in reading that a “case represents commerce, red in tooth and claw” as prelude to consideration of a CP anti-technicality clause (the “LI HAI” [2005] EWHC 735 (Comm)) and Court of Appeal disinclination towards “an increasing recognition in the common law world of the need for good faith in contractual dealings” amid the demurrage contest in MSC v Cottonex Anstalt ([2016] EWCA Civ 789).

Similarly, many will point to recent changes in the insurance arena. Here bona fides has long been a touchstone, with the utmost good faith still the basis of a marine insurance contract: Marine Insurance Act 1906 section 17, even as amended by the Insurance Act 2015. However, other changes brought in (from 12 August 2016) by the 2015 Act seek to adjust perceived imbalance in pre-contract disclosure, and in the “DC MERWESTONE” ([2016] UKSC 45), the Supreme Court overturned 90 years of jurisprudence in ruling 4:1 that fraudulent devices – collateral lies, as they are now known – no longer automatically defeat a claim.

So, statute and an emphatic senior court seem to be relegating the concept of implied good faith.

Yet it persists.  This is despite the apparently settled English law position that there is no general duty of good faith between contracting parties unless they are in a fiduciary relationship, resistance to changing that (restricting Yam Seng v International Trade Corporation ([2013] EWHC 111 (QB)), which was an attempt to establish a wider duty) and the mantra that such should be confined to particular contexts and where the contract would otherwise be unworkable.

Recent rehabilitation of Yam Seng, in fact by the same judge, appears however in Al Nehayan v Kent [2018] EWHC 333 (Comm).

The case decides that a duty of good faith can be implied into contracts where the parties commit to (typically long term) collaboration “in ways which respect the spirit and objectives of their venture but which they have not tried to specify [in writing]”. These so-called relational contracts “involve trust and confidence … different … from that … in fiduciary relationships”.

The precise nature of the duty is not defined and would depend on the circumstances, as an “obligation of fair dealing [which] is not … demanding … and does no more than require a party to refrain from conduct which in the relevant context would be regarded as commercially unacceptable by reasonable and honest people.”

There is no suggestion that Bs/L, spot CPs, sale contracts or LCs are shortly to be viewed as “relational” contracts, and for example, it has been decided that an aircraft lease is not. But term contracts such as time and bareboat charters, COAs and certainly joint ventures are common in shipping and related commerce.  It may now be time to review these principles and seek to avert difficulty by specific clausing, thereby avoiding gaps that later could be filled with something unintended.

The Canadian Supreme Court recently issued a decision in this area of good faith in contract law.  Here is a link to an in-depth and useful analysis of the Churchill Falls v Hydro-Quebec decision from Canadian law firm, DeMarco Spillane s.e.n.c.

If you would like to discuss anything arising from this commentary please contact Ed Floyd at and +1 (917) 999 6914 or Luke Zadkovich at and +1 (917) 868 1245 / +44 (20) 8068 6844.  This article is to be considered general commentary only and not to be relied upon as legal advice for any particular circumstances.

Subscribe for our updates

If you need guidance on any legal or commercial issues, then please contact us.