Franchise Bulletin: May 2015 - Clarifying the position on Implying Terms of Good Faith

Following on from our earlier bulletin a recent case1 clarifies the importance of including express terms in contracts clarifying the nature of any good faith obligation if the parties wish to rely on one.

The case concerned the wording of a provision in a loan note issued to the claimants and whether a term that the power to modify a loan note should be exercised in good faith should be implied.

The court refused to imply this term as the contractual documentation was extensive and detailed and the clause in question was not a discretionary right which involved making an assessment or choosing from a range of options.

Word to the wise - good faith obligations should be set out clearly in your contracts and cover key points - scope, what duty covers, what it prevents a party from doing and if it requires the subordination of a party's own commercial interests to comply with it.

Myers v Kestrel Acquisitions [2015] EWHC 916 (ch)

The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.