Does English Law Recognise a Duty to Bargain in Good Faith?

Based on the reliance model, the law protects those who reasonably rely, to their detriment, on the misleading statements of others by imposing a duty of reasonable care, breach of which can give rise to rescission or damages. This wide doctrine is subject to complicated limits. Excluded classes of ‘misleading statements’ include statements of law (except where there is a disbalance of knowledge; or a standard form contract); opinion (except where the opinion is impliedly based on fact; or where the opinion is one of an expert) and future conduct (except where this includes false simultaneously implied statements of fact). The Trade Descriptions Act 1968 also imposes criminal liability for misleading statements made to consumers (Robertson v Dicicco).

In furtherance to the above mechanisms, the law has developed doctrines of estoppel, unilateral contracts and collateral contracts to protect those who reasonably rely on promises. Where there is an express promise, English courts have been reluctant to allow pre-contractual reliance to give rise to remedies, except in relation to land (Crabb v Arun District Council). Some other common law jurisdictions, notably the United States and Australia, allow promissory estoppel to give rise to actions in certain circumstances, which may suggest a future direction for English law. Where the courts can find some semblance of consideration or exchange, they have implied collateral contracts based on implied promises to protect reliance loss. In Esso v Marden, the Court of Appeal found breach of an implied collateral warranty that revenue forecasts would be accurate. Even in the absence of identifiable exchange, English law can imply unilateral contracts. In Blackpool Aero Club, the defendant invited tenders to operate an airfield, specifying a precise deadline. The plaintiff’s tender was received late as a result of the defendant’s own negligence so was not considered. Lord Bingham found them in breach of an implied unilateral contract to consider all timely tenders, and awarded damages. These doctrines all seem intended to protect parties who rely in good faith on the promises or statements of others to their detriment.

A final ‘piecemeal solution’ to encourage pre-contractual good faith has been the courts’ use of restitution or unjust enrichment. Where one party confers a benefit on the other in anticipation of a contract which never materialises, he is entitled to recover the value of the benefit. This was applied in British Steel Corpn v Cleveland Bridge and Engineering where the dispute arose over goods delivered before the final contract had been concluded.

This complex body of common law and statute, when viewed in concert, seems to suggest some vague notion of a duty to bargain in good faith. At best, however, it can only amount to a ‘theme’ because it lacks some of the fundamental attributes of an underlying doctrine. It has no general application: fiduciary relations and consumer contracts are subject to more stringent application. It leaves gaps: Walford v Miles and Regalian Properties would undoubtedly been decided differently against a general principle. Its justifications remain uncertain: some rules seem to safeguard market integrity whilst others look to protect detrimental reliance. In any case, a duty to bargain in good faith has some way to go. Consequently, we need to assess the merits of such a duty.

III

Should English Law Recognise a Duty to Bargain in Good Faith?

As Brownsword suggests, English law is predicated on adversarial self-interest dealing. Fundamentally, a degree of ‘bad faith’ is essential to a profit-making capitalist economy. If parties were bound to disclose all material information before contracting, there would be no incentive to obtain that information in the first place. Without market information, exchanges take place at a sub-optimal level and resources do not efficiently migrate to where they are most needed. Lock Ackner in Walford v Miles dismissed ‘good faith’ as “inherently repugnant to the adversarial position of the parties”. Anthony Kronman suggests a work-around, by requiring general disclosure of information except where resources have been expended to acquire it. Although the economics of this are sound, in practice distinction would be impossible and therefore unenforceable.

A more convincing rebuttal of the above would be to perceive ‘good faith’ in its moral context: a norm predicated on the ‘reasonableness’ of the contemporary ordinary man. When applied in a capitalist state, therefore, ‘reasonableness’ takes on a meaning which accepts ‘bad faith’ capitalist profiteering but does not extend to sharp practice or anti-competitive activities which threaten market integrity. This way we can reconcile optimal exchanges with moral principles. This perhaps explains why a general principle of good faith has been operable in Italy and Israel: both states with economies not unlike our own.

Note also, as Hugh Collins points out, that the law frequently regulates self-interested action (for example, where it causes direct physical harm to another). Advocating non-interference in self-interest action is therefore an exception to the law, rather than a continuation.

Another criticism levelled at the ‘good faith’ principle is that it is too vague, and this will lead to legal uncertainty. On the contrary, however, a patchwork of smaller doctrines each with complicated limits and exceptions in all probability creates far greater uncertainty that a single umbrella doctrine with well-trodden boundaries. This greater doctrinal approach allows judges to ‘fill in the gaps’ where a situation is not covered by an existing solution, and also dispenses with the temptation to create bad precedent to reach a fair and just result in a particular case. Of course this gives greater liberty to judges by widening the scope of their powers, but is a world apart from judicial licence.

This widening of judicial powers provokes a further response that general principles imposing duties in pre-contractual negotiations undermines the autonomy of parties to decide whether or not to contract, impairing their ability to ‘shop around’ and formulate Pareto exchanges, and thereby lowering the productivity of the market. This reasoning fails, however, to take account of the power of a general ‘good faith’ principle to increase parties’ faith in one another, encouraging them to move away from defensive dealing within a limited class of trusted associates. To this end, it has the utility of liberating market exchanges, thereby making them more efficient.

Finally, ‘good faith’ is criticised because it fails to recognise the plurality of contractual contexts, noting that in some markets, opportunism is openly tolerated. Here again, we can counter by suggesting that a general principle better equips the courts to respond to variable contexts and rule in accordance with the reasonable expectations of the parties. Lord Steyn notes that ‘good faith’ carries both an objective standard (reasonableness and fairness) and a subjective standard (the expectations of the parties) giving it both the flexibility and normative qualities needed to govern this aspect of commercial life.

IV

Conclusion

We have seen that a general ‘theme’ of good faith pervades the current law, but not a principle nor a duty. Hugh Collins summarises it as a ‘duty to negotiate with care’ which alternates dependent on the context of the parties’ relationship. The ‘piecemeal’ approach has created legal uncertainty, and in some cases, unjust results. We have analysed the arguments put forward against a duty to negotiate in good faith, and found them largely defective when closely scrutinised. Imposing such a duty will liberalise markets, largely increase efficiency and further the consistency of application of the law.

Lord Steyn notes that “in the new jus commune of Europe there is a general principle that parties must negotiate in good faith”. It features in the Unidroit Principles of International Commercial Contracts and the US Uniform Commercial Code. As a centre of international commerce, therefore, it is doubtful that English law can continue to resist the spread of the duty to negotiate in good faith.

Peter Brogden.

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Bibliography

Statutes

Consumer Credit Act 1974

Trade Descriptions Act 1968

Unfair Terms in Consumer Contracts Regulations 1993

Cases

Attorney-General v Blake [2001] 1 AC 268

Blackpool and Fylde Aero Club v Blackpool Borough Council [1990] All ER 25

Box v Midland Bank Ltd [1979] 2 Lloyd’s Rep 391

British Steel Corpn v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504

Cornish v Midland Bank [1985] 3 All ER 513

Crabb v Arun District Council [1976] Ch 179

Curtis v Chemical Cleaning and Dyeing Co Ltd [1951] 1 KB 805

Drennan v Star Paving Co 51 Cal 2d 409, 333 P 2d 757 (1958)

Esso Petroleum Co Ltd v Marden [1976] QB 801

Faruqi v English Real Estates Ltd [1979] 1 WLR 963

Hoffman v Red Owl Stores Inc 26 Wis 2d 683, 133 NW 2d 267 (1965)

Hurley v Dyke [1979] RTR 265

Interfoto Picture Library v Stiletto Visual Programmes Ltd [1989] QB 433

Lac Minerals Ltd v International Corona Resources Ltd [1990] FSR 441

Lambert v Co-operative Insurance Society Ltd [1975] 2 Lloyd’s Rep 485

Lloyds Bank Ltd v Bundy [1975] QB 326

Re Scottish Petroleum Co (1883) 23 Ch. D. 413

Regalian Properties plc v London Docklands Development Corp [1995] 1 WLR 212

Robertson v Dicicco (1972) 70 LGR 589

Seager v Copydex Ltd (No.1) [1967] FSR 211

Smith v Land & House Property Corpn (1884) 28 Ch D 7

Walford v Miles [1992] 2 AC 128

Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

Other Materials

Beale, H. G., Bishop, W. D. & Furmston, M. P. Contract: Cases and Materials (4th Ed). London: Butterworths, 2001.

Brownsword, R. Contract Law: Themes for the Twenty-First Century. London: Butterworths, 2000.

Collins, Hugh. The Law of Contract (4th Ed). London: Butterworths, 2003.

Kronman, A. T. & Posner, R. A. The Economics of Contract Law. Boston: Little, 1979.

Rt Hon Lord Steyn, ‘Contract Law:  Fulfilling the Reasonable Expectations of Honest Men’ (1997) 113 LQR 433.

Waddams, S M, ‘Pre-contractual Duties of Disclosure’ in P Cane and J Stapleton (ed.). Essays for Patrick Atiyah. Oxford, Clarendon, 1991.

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