HT-2022-000255 - [2025] EWHC 1434 (TCC)

In respect of both the Consortium Agreement and the Collaboration Agreement, ABM relies entirely on alleged breaches of the express term of good faith for its principal claim.

The core meaning of a duty of good faith is to act honestly. However, bad faith may include conduct which would be regarded as commercially unacceptable to reasonable and honest people, even if not necessarily dishonest: see Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 at [141], [144] and [147], as applied in Mid-Essex Hospital Services NHS Trust v Compass Group [2013] EWCA Civ 200 at [1150]. See also Chitty on Contracts, 35^th edition at 2-060. The content of the duty is heavily conditioned by its context: see Mid-Essex Hospital Services NHS Trust v Compass Group [2013] EWCA Civ 200 at [109].

In Mid-Essex, Beatson LJ cautioned at [154] that, where a contract makes specific provision for eventualities, care must be taken not to construe potentially open-ended obligations, such as to use good faith, in a manner which cuts across those specific provisions. That point, to which my attention was drawn, perhaps matters less in this case because the good faith obligations in both the Consortium Agreement and the Collaboration Agreement were themselves tied to the performance of the obligations provided for elsewhere.

Both parties drew my attention to the recent guidance in Re Compound Photonics Group Ltd [2022] EWCA Civ 1371. ABM summarised the principles established by that case as follows:

The following passages from the Court of Appeal’s judgment, given by Snowden LJ, are material:

“The general approach

147.

In approaching the interpretation of clause 4.2, the first, and most important, point to emphasise is that like any question of interpretation of a contract, an express clause in a contract requiring a party to act in “good faith” must take its meaning from the context in which it is used.  That point has been made very clearly in many cases, including by Jackson and Beatson LJJ in Compass Group UK and Ireland Ltd (t/a Medirest) v Mid-Essex Hospital Services NHS Trust [2013] EWCA Civ 200 (“Compass Group”) at [109] and [150]- [151]. 

148.

The second, and related, point is that when considering the interpretation and meaning of an express good faith clause in context, cases from other areas of law or commerce, which turn upon their own particular facts, may be of limited value and must be treated with considerable caution.  That point was made very clearly by Auld LJ in Street v Derbyshire Unemployed Workers’ Centre [2004] EWCA Civ 964  (“Street”) at paragraph [41], which was cited with approval by Jackson LJ in Compass Group at [110],

“Shorn of context, the words “in good faith” have a core meaning of honesty. Introduce context, and it calls for further elaboration. Thus in the context of a claim or representation, the sole issue as to honesty may just turn on its truth. But even where the content of the statement is true or reasonably believed by its maker to be true, an issue of honesty may still creep in according to whether it made with sincerity of intention for which the Act provides protection or for an ulterior and, say, malicious, purpose. The term is to be found in many statutory and common-law contexts, and because they are necessarily conditioned by their context, it is dangerous to apply judicial attempts at definition in one context to that of another.” (Emphasis is that of Snowden LJ)

 …

In summary, ABM submits that the content of a contractual duty of good faith is Protean, and can only be determined by reference to the relevant commercial context and the terms of the contract in which the duty is to be found. It will comprise at least a duty to act honestly but may, depending on the factual background, extend to wide obligations of fidelity to the bargain which had been made, not undermining that bargain or the substance of the commercial benefit, and prohibit cynical reliance on the black letter of the agreement. In an appropriate case, the obligations may be wider enough to limit a party’s freedom to act in its own best interests.

ABM referred also to Al Nehayan v Kent [2018] EWHC 333, a case about an implied term of good faith, in which Leggatt LJ summarised the usual content of the obligation of good faith:

“175.

… as an obligation to act honestly and with fidelity to the bargain; an obligation not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for; and an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively ascertained.”

In the particular context of Joint Ventures, Leggatt LJ had said:

The latest edition in respect of the same text of Hewitt says at 11-17:

“principles relating to good faith seem to fit a relationship between parties to a joint venture where mutual trust and commitment are crucial to the success of the venture – and often explicit in the terms establishing the relationship at the outset. (Indeed, irrespective of the formal legal analysis as to enforceability, one should not underestimate the importance of such expressions of trust, good faith and commitment to the relationship between the parties)…good faith and fair dealing are concepts that at root seem entirely appropriate to the very many joint venture relationships...”

I have set these submissions out in full because I understood them to be uncontroversial and, in any event, I consider them to be correct. The one qualification which Mr Lewis KC, for Matière, was keen to emphasise was that, by reference to Re Compound Photonics Group Ltd at [173], merely acting in self-interest or without fidelity to the bargain would not amount to a breach of duty of good faith unless the effect of it was to undermine or substantially reduce the value of the contract (my emphasis). I do not agree that breach can be assessed by reference to its actual effect if that was the intent of the submission. As Mr Streatfeild-James KC submitted, that would confuse the obligation with breach and causation. In fact, [173] says:

“Vos J then referred to the New South Wales case of Overlook v Foxtel [2002] NSWSC 17 (“Overlook”).  As a preliminary matter, Vos J commented at paragraph 238 that the particular relevance of the Overlook case was that it dealt with the inter-action between an obligation of good faith and the parties’ pursuit of their own commercial or other interests.  As Vos J subsequently pointed out in paragraph 243 of his judgment, this raised a particular type of issue as to the extent to which a good faith clause might inhibit the defendant’s ordinary freedom to act in its own interests if to do so might render the contract worthless or significantly less valuable for the claimant.” (my emphasis)

Thus, in circumstances where fidelity to the bargain, or adherence to the spirit of the agreement, falls within the ambit of the good faith obligation, a relevant consideration may be whether the action complained of might, at the time, be expected to render the contract worthless or less valuable. Consideration of the subsequent actual effect would not be material to the question of breach.