Distribution Agreement in UK Law

Another aspect of good faith which overlaps with the first is what may be described as fidelity to the parties' bargain. To apply a contract to circumstances not specifically provided for, the language must accordingly be given a reasonable construction which promotes the values and purposes expressed or implicit in the contract.

Such "relational" contracts, as they are sometimes called, may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involve expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties' understanding and necessary to give business efficacy to the arrangements.

It could mean obviate or nullify the effect of a breach so that any damage already done is in some way made good. Or it could mean cure so that matters are put right for the future. To restrict the meaning of remedy to cases where all damage past and future can be put right would leave hardly any scope at all for this clause.

The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear.

In so holding, again like the judge, I regard it as appropriate to apply the test propounded by Lord Brandon in the Bank of Boston case unconstrained by the former concept, difficult to define and apply, of 'impeachment of title', which has since been replaced, or at least redefined, in terms of a cross-claim which 'flows out of and is inseparably connected with the dealings and transactions giving rise to the subject of the claim'.

The whole purpose and intent of the agency agreement was that the parties should enter into contracts for the purchase and sale of the plaintiffs' goods. In those circumstances the claim and the counterclaim are sufficiently closely connected to make it unjust to allow the plaintiffs to claim the price of goods sold and delivered without taking account of the defendants' counterclaim for damages for breach of the agency agreement.

Each case will be fact sensitive, depending upon the terms of the original contract and what has happened thereafter. But it seems to me that, while all relevant facts should be given their due weight in assessing these questions and the burden of proof rests on the person who alleges that the original contractual obligations have changed, the standard of proof is and remains the balance of probabilities throughout.