UK: England and Wales: relational contracts and good faith

Judgment was delivered last Friday in Bates v Post Office Ltd (No 3) [2019] EWHC 606 (QB). It looks set to become one of the most significant contract and commercial law cases of the year.

The judgment contains clear acceptance of the concept of the 'relational' contract, the trial judge (Mr Justice Fraser) rejecting the view - expressed by Professor Hugh Collins in S. Degeling et. al. (eds), Contract in Commercial Law (Lawbook Co, Thomson Reuters, 2016) - that use of the label was a passing fad by the courts. Moreover, Fraser J. held that where a contract between commercial parties was relational in nature, it became subject to an implied term of good faith. To quote the trial judge (at para. [711]):

...I consider that there is a specie of contracts, which are most usefully termed “relational contracts”, in which there is implied an obligation of good faith (which is also termed “fair dealing” in some of the cases). This means that the parties must refrain from conduct which in the relevant context would be regarded as commercially unacceptable by reasonable and honest people. An implied duty of good faith does not mean solely that the parties must be honest".

The trial judge made clear that he was not stating that there was a general duty of good faith in all commercial contracts. As for which contracts would be regarded as relational, he identified the following "specific characteristics that are expected to be present" (para. [725]; direct quotation of the judge's list):

1. There must be no specific express terms in the contract that prevents a duty of good faith being implied into the contract.
2. The contract will be a long-term one, with the mutual intention of the parties being that there will be a long-term relationship.
3. The parties must intend that their respective roles be performed with integrity, and with fidelity to their bargain.
4. The parties will be committed to collaborating with one another in the performance of the contract.
5. The spirits and objectives of their venture may not be capable of being expressed exhaustively in a written contract.
6. They will each repose trust and confidence in one another, but of a different kind to that involved in fiduciary relationships.
7. The contract in question will involve a high degree of communication, co-operation and predictable performance based on mutual trust and confidence, and expectations of loyalty. 
8. There may be a degree of significant investment by one party (or both) in the venture. This significant investment may be, in some cases, more accurately described as substantial financial commitment.
9. Exclusivity of the relationship may also be present. 

The judge was hesitant to describe this list as exhaustive (para. [726]) but he did state that none of the above was determinative apart from the first; he noted, as well, that there may be other characteristics shown by relational contracts in other cases on different facts (para. [726]).