In a few cases an implied term in contracts to act in good faith has been recognised by judges. Partnering arrangements involve a duty of good faith and fair dealing. If this trend develops it could have a significant effect on all aspects of consultants' appointments – from the negotiating process to termination. The difficulty, of course, is knowing what a duty of good faith entails, but such cases as there have been do shed some light.
Until last year case law indicated that there was no duty to negotiate in good faith. Then a judge refused to strike out an argument that the defendant, Lloyd's, was subject to an implied obligation to negotiate in good faith. In his view, because Lloyd's was acting in the public interest within a statutory framework, "there was some limitation on their freedom of action" similar to that imposed on local authorities where the courts can review their decisions. There may, therefore, be an implied duty on such bodies to negotiate in good faith and they may now have to think twice before they walk away from negotiations without good cause. If they do so, they may be vulnerable to an action for damages for wasted costs and loss of opportunity.
Partnering arrangements also incorporate an implied duty of good faith or of trust and confidence, even though underpinned by traditional contracts. It is already recognised that partnering implies an obligation to work together to resolve problems rather than litigate. It could, however, go further than this. In another recent case the judge held that a non-binding partnership charter was clearly intended to provide standards by which the parties were to conduct themselves. This included a duty to promote an environment of trust, integrity, honesty and openness and to promote clear and effective communication.
Thus, the judge said he would not expect the parties to adopt a rigid attitude to the underlying building contract and that if one party thought the other party had agreed to something it ought not to have accepted, the first party should have said so. Further, the judge said he would expect questions arising under the building contract itself in relation to extensions of time and deductions of damages for delay to be dealt with sympathetically if caused by a relevant event within the building contract or for reasons beyond the contractor's immediate control.
A similar principle was adopted in an earlier case and in relation to a traditional construction contract. The judge held that the employer was not only bound to act honestly but was also bound by the contract to act fairly and reasonably in the matter of exercising its judgment in relation to determining extensions of time and the amount finally due to the contractor.
- A duty of good faith may give consultants some protection from unreasonable employers
- For their part, consultants may be required to disclose errors in return
Similar obligations might be implied in consultants' partnering arrangements or where there is an express duty in the appointment to act in good faith. It could also result in a change to the obligation on a consultant to disclose errors should they arise.
At present there is no general duty to disclose errors except in fairly limited cases, such as where defects in a design appear during construction, or where there could be health and safety implications (see my article of 31 October 1997, page 36). But, in a relationship that is meant to involve good faith, there could be a duty of disclosure, and consultants may have to seek their professional indemnity insurers' consent before any disclosure is made.
The NEC's Professional Services Contract has already gone some way down this route, with an obligation on both parties to act in a "spirit of mutual trust and co-operation" and with a duty on the consultant to disclose a "defect", whether or not it has been caused by the consultant's negligence or has any consequences for the employer or the works.
It also appears that in some circumstances, judges will imply a general duty to act in good faith, even though there is no express obligation. This could fetter the hitherto absolute right of an employer to terminate an appointment at will if this right was included in the contract. In a recent case, the judge held that even though a contract gave a supplier the right to terminate on one month's notice, it should not be exercised without demonstrable reason for doing so.
The supplier (BT) was a "dominant supplier", a fact that was of considerable importance to the judge. However, this principle might in time extend to other contracts, particularly where one of the parties is in a dominant position and could act capriciously in terminating the appointment of its consultant.
Postscript
Rachel Barnes is partner in solicitor Beale and Co.
