Ireland: court implies duty of good faith and fair dealing in shareholder agreement

Last Thursday judgment was given in Flynn v Breccia [2015] IEHC 547 by Mr Justice Haughton in the Irish High Court. In a case involving, amongst other things, a claim for breach of a shareholders' agreement, the trial judge held that it was appropriate to imply a duty of good faith and fair dealing in a shareholders' agreement. The decision is, however, relevant across a much wider range of contracts but much will depend on whether other judges follow the lead taken by Mr Justice Haughton.

In recognising the existence of such a duty, and as the following extract makes clear, Haughton J drew heavily (but not exclusively) upon the approach adopted by Mr Justice Leggatt in the English decision Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB):

[159] The case for a wider implication of a term of good faith and fair dealing in ordinary commercial contracts based on the presumed intentions of the parties put forward by Leggatt J. in Yam Seng is persuasive, and on the level of principle there is much to recommend his approach. While it has certainly not received universal acceptance in the UK High Court, it has not been rejected by any clear cut authoritative decision of a higher court, and it appears to have some support from the Court of Appeal.

[160] In principle, but with certain caveats that Leggatt J. enunciates, I see no reason why this Court should not follow his lead in an appropriate case. Implying such a term is heavily dependent on context, and may only be appropriate in a “relational” type contract where there is a long term commitment. I also agree with Andrews J. in Greenclose where she said that such a term will be more readily implied in a situation where a contracting party is given a discretion such that 'the discretion should not be exercised in bad faith or in an arbitrary or capricious manner'."