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FMLC paper on good faith

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Jason Rix

PSL Counsel

London

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05 November 2022

This blog has a keen (some might say unhealthy) interest in good faith. If you share this affliction, then please make some time for a paper that the Financial Markets Law Committee has put together on the topic.

The paper has a comparative law analysis of good faith and looks at the factors that lead to good faith having a such an important role in civil law systems. It looks at the development of good faith in key common law systems but the core analysis is on the position under English law. It concludes, in the words of the executive summary,

  1. that English contract law does not apply a generally applicable duty of good faith, nor is good faith a general organising principle;
  2. duties of good faith can affect a contract executed on the wholesale financial markets either by way of an implied term or by way of express contractual agreement, but an implied term is likely to be rare; and
  3. in particular, the courts are only likely to imply a duty of good faith into a “relational contract”. This is typically a long term contract requiring continuing trust and collaboration between the parties. Very few wholesale financial markets contracts are likely to be relational. 

The paper also considers the related duty of “rationality” as it applies to the exercise of a contractual discretion. Also known as the Braganza duty, as readers of this blog will know, it has been the subject of extensive judicial discussion. The paper has a handy examination of a number of situations in which this duty has been found to exist and where it has not. 

Paper: Duties of Good Faith in Wholesale Financial Contracts