We thought that it may be interesting to consider the notion of “good faith” which is a term that can be used in supply contracts, but especially in the Facilities Management world.
Although there is not generally any implication that there is an obligation for the contracting parties to act in “good faith”, contracts can still include the phrase, or may refer to “mutual trust”, “cooperation”, “respect” or “collaboration”. Similarly partnering agreements may have some form of collaboration charter associated with these contracts.
A problem can arise where there are no express terms to define exactly what these phrases mean and how they are complied with. And it is important to consider that clauses that refer to “good faith” or similar will most probably not modify other express terms that are clearly defined, should a dispute end up in arbitration or the courts.
There are some classic examples. In 1992 the case of Walford v Miles the “good faith” clause, which required negotiation to be carried out in good faith – was deemed unworkable in practice. However, in the 2002 case of Cable & Wireless v IBM, because the required actions were clearly defined – making it clear how the parties should comply with “good faith” in their obligations in relation to dispute resolutions – then the clause was deemed enforceable.
In 2013 the NHS won an appeal against enforcement of a good faith clause, as the original decision was considered to have applied the obligation too broadly – rather than to specific instances set out in the contract. And again in 2013, in the case of TSG Building Services v South Anglia Housing Association, the court found that good faith did not apply to a termination clause, as the express terms allowed either party to terminate for any or no reason.
When our network of ERA specialists are specifying, negotiating and reviewing proposals from potential suppliers, it may be that good faith clauses are included, or other similar phrases, which imply a certain level of behaviour in respect to quality and service. Whilst these are often included with the very best of intentions, especially by enthusiastic applicants to our ever-growing supplier database, they cannot be fully relied upon to provide the certainty of performance that is required by our clients, and that we are obligated to work to achieve for them.
Wherever possible, if you come across good faith clauses in a contract, request clarification from the supplier (or the client if that is the case)– and reform them to become express terms – which will provide the provision of service and behaviour intended, and would stand, even without the inclusion of the good faith clause.
This clarity will serve all parties well, and enables suppliers to demonstrate empirically what they intended all along… to provide a professional and ethical quality of service and goods that meet all the required specifications. And it is by achieving this certainty that makes them welcome additions to our network of suppliers.
To read the full article, please visit Designing Buildings.