Good Faith Clauses

May 24, 2018 11:12 am Published by

There is no general obligation to act in good faith on contracting parties on English law, either in negotiation or performance of a contract.  This is out of line with other Civil Law Jurisdiction.   France, Germany and the Netherlands recognise the duty of good faith as do some common law jurisdictions such as Australia, Canada and the United States.

Having said that, duties of good faith can arise in specific areas of English Law, such as Agency, Insurance, Employment, Partnership and consumer contracts.

Similarly, there are situations where the law will imply that a duty of good faith exists.  However, these scenarios are rare.  In the recent case of Health & Care Management Limited versus  Physiotherapy Network Limited [2018] EWHC869 (QB) (19 April 2018) the High Court considered the relationship between an express good faith clause and a confidentiality clause which only restricted disclosure in the context of a referral agreement.   The agreement provided that the Claimant “anticipates making circa 700 referrals per month to TPN” and that it shall “act in good faith to TPN at all times”.

In considering the previous case law and the evidence before him, the Judge found that the Claimant had breached the good faith clause.  It had set up a rival business and obtained and used TPN’s database to assist with this.  It then actively diverted referrals from TPN and also misled TPN about the rival businesses target market.    It did not act truthfully in relation to its use of TPN’s database when TPN confronted it.

The Judge noted that the act of secretly using TPN’s database to create a rival business was likely to be insufficient in itself to amount to a breach of a good faith clause.  He also rejected an argument by TPN that HCML’s use of their database to set up a rival business was a breach of the confidentiality clause.  This was on the basis that the clause only restricted the disclosure of confidential information and did not restrict its use.

TPN did succeed in arguing that its database was protected under the Database Directive (96/9/EC) and HCML had infringed its rights in the database by extracting a substantial part of it on several occasions.

The Judge also found that the wording of the referral clause and specifically the words “anticipates” and “circa”, did not create a contractual obligation on HCML to make any particular number of referrals.

The case illustrates where an express good faith clause may rescue the drafting deficiencies in other express contractual terms.  Here, if there had not been an express good faith clause, TPN’s case in relation to the misuse of its data would have failed completely.  It also serves as a reminder to ensure that confidentiality clauses are drafted properly to ensure that they cover both unauthorised disclosure and misuse of relevant information.

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This post was written by Graham