Good Faith and the Ubiquity of the ‘Relational’ Contract

DOIhttp://doi.org/10.1111/1468-2230.12075
Publication Date01 May 2014
AuthorDavid Campbell
Good Faith and the Ubiquity of the ‘Relational’ Contract
David Campbell*
The judgment of Leggatt J in Yam Seng Pte Ltd vInternational Trade Corporation Ltd shows the
common belief that the English law of contract does not have a doctrine of good faith to be
mistaken. That law does not have a general principle of good faith, but its doctrine of good faith,
articulated through numerous specific duties, is more suitable for the interpretation of contracts
according to the intentions of the parties than a general principle which invites the imposition of
exogenous standards. That Yam Seng involved a relational contract does not mean that paternal-
istic exogenous standards should be imposed. It means that the good faith obligations essential
even to a commercial contract of this sort must be implied in order to give efficacy to the
fundamentally co-operative contractual relationship.
INTRODUCTION
Yam Seng Pte Ltd vInternational Trade Corporation Ltd1(Yam Seng) maps out a
direction for the development of a doctrine of good faith in the English law of
contract which, it is submitted, should be followed. Leggatt J’s judgment has
quickly attracted considerable attention2largely because the prospect of a har-
monised European law of contract gives impetus to the resolution of the
perceived conflict between the absence of good faith in the English law and its
presence in civilian laws. A number of European and international expressions of
a general doctrine of good faith3are now hailed as potential remedies for an
absence which has long been identified as ‘at once the most remarkable and the
most reprehensible feature of the English law of contract’.4
Yam Seng will frustrate those who see the issues this way. It shows that the
English law recognises specific duties which do the useful part of the work of
*Lancaster University School of Law. I am grateful to Jay Feinman, Catherine Mitchell, Adrian Salter,
and an anonymous referee for their comments.
1 [2013] EWHC 111 (QB). Judgment was handed down on 1 February 2013. As of 6 March 2014,
Yam Seng had been considered in Hamsard 3147 Limited (t/a Mini Mode Childrenswear) and another
v Boots UK Ltd [EWHC] 3251(Pat); in Mid Essex Hospital Services NHS Trust vCompass Group UK
and Ireland Ltd (t/a Medirest) [2013] EWCA Civ 200, [2013] BLR 265 (it could have no influence
on the first instance judgment of Cranston J ([2012] EWHC 781 (QB)), which preceded Yam Seng
by some 11 months and in TSG Building Services plc v South Anglia Housing Ltd [2013] EWHC 1151
(TCC). It had been cited without discussion in a number of other cases.
2 As of 6 March 2014, this Queen’s Bench judgment had been reported no less than five times:
[2013] 1 All ER (Comm) 1321, [2013] 1 Lloyd’s Rep 526, [2013] BLR 147, [2013] 1 CLC 662
and (2013) 146 Con LR 39, and digested in [2013] All ER (D) 227 and [2013] Bus LR D53.
3 Principally the draft Common Frame of Reference: C. von Bar et al (eds), Principles, Definitions and
Model Rules of European Private Law: Draft Common Frame of Reference (Outline Edition) (Munich:
Sellier, 2009) bk III, 1:103.
4 R. M. Goode, Commercial Law (Harmondsworth: Penguin Books, rev ed, 1985) 117. This criticism
has been retained in E. McKendrick, Goode on Commercial Law (London: Pengun Books, 4th ed,
2010) 125. See also n 41 below.
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David Campbell
© 2014 The Author. The Modern Law Review © 2014 The Modern Law Review Limited. 475(2014) 77(3) MLR 460–492
good faith and there is no need for a general doctrine. It also gives weight to the
argument that the English law should recognise the ‘relational’ contract as part of
its understanding of good faith. It does all this whilst, unlike a number of other
significant judgments of recent vintage, actually striving to reach the right
decision about liability on the facts.
OPTIMISM AND OPPORTUNISM IN
CONTRACTUAL NEGOTIATION
Following negotiations between Yam Seng Pte Ltd (YSL) and International
Trade Corporation Ltd (ITC) begun on 23 January 2009, on 12 May 2009 ITC
granted YSL the exclusive right to distribute certain cosmetics under the brand
name of Manchester United, ITC maintaining that it had a licence ‘to manu-
facture and sell Manchester United fragrances’.5A warm business relationship
cooled largely because ITC repeatedly failed to supply merchandise as agreed, so
that YSL itself repeatedly made commitments to retailers that it could not meet,
and because ITC’s explanations of its failures and assurances of improved per-
formance justifiably came to be regarded as implausible or outright false. YSL
eventually terminated the agreement, and sued for breach of contract or, in the
alternative, misrepresentation.
At the hearing, the only two witnesses of fact were the ‘controllers’ of the
companies, who had written the contract without benefit of legal advice, and
personally conducted the business relationship, Mr Sunil Tuli of YSL and Mr
Roy Presswell of ITC. Whilst Mr Tuli was a credible witness, Mr Presswell was
quite the other thing, and Leggatt J was unable ‘to attach any credence to his
testimony’.6Proof of fraud is, of course, not necessary for proof of breach. It is
also settled law7that fraud is and should be difficult to prove in relation to
misrepresentation, and YSL did not base its misrepresentation claim on fraud but
on the catch-all of section 2(1) of the Misrepresentation Act 1967. Leggatt J did
not find Mr Presswell to have been deceitful, even when his testimony about his
conduct was blatantly contradicted by documentary evidence and when there
may have been a strong motive for deceit. Rather he found him to be possessed
of ‘a striking ability to treat wishful thinking as fact’.8
Though we shall return to this finding,9one example of Mr Presswell’s
conduct will convey the merits of the dispute. At the very outset, Mr Presswell
claimed that ITC had ‘recently signed’ the licence ‘to manufacture and sell
Manchester United fragrances’. But ITC was then merely in negotiation over
this licence, which was granted, and then only in part, on 5 May 2009,10 almost
4 months after the start of the negotiations and only a week before the agreement
with YSL. Leggatt J concluded that Mr Presswell ‘undoubtedly’ made ‘a false
5 n 1 above at [14].
6ibid at [9].
7 Going back at least to Derry vPeek (1889) 14 App Cas 337 (HL).
8 n 1 above at [16].
9 See the text accompanying n 86 below.
10 n 1 above at [27].
Good Faith and the Ubiquity of the ‘Relational’ Contract
© 2014 The Author. The Modern Law Review © 2014 The Modern Law Review Limited.
476 (2014) 77(3) MLR 460–492

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