Good faith: Helping commercial parties or creating an unnecessary burden?

• Main Author: ONG, Ee-Ing
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2015
• Subjects: Commercial contracts; good faith; negotiations; Asian Studies; Commercial Law; Contracts
• Online Access: https://ink.library.smu.edu.sg/sol_research/1922; https://ink.library.smu.edu.sg/context/sol_research/article/3874/viewcontent/GoodFaith_2015_Law2_0_OngEeIng.pdf
• Institution: Singapore Management University

One of the challenges facing Asian legal systems in the coming years is whether the courts should impose a general duty of good faith in contracts. The doctrine of good faith has been making inroads in various common law jurisdictions, most recently in Canada where the Supreme Court held in Bhasin v. Hrynew, 2014 SCC 71 that there was a duty of honest performance in all contracts. The idea behind imposing a duty of good faith in all contracts is to ensure that parties essentially “play fair” in contract negotiations and/or performance. However, is such a duty really necessary for all contracts? In particular, is it necessary in the context of commercial contracts between sophisticated parties? The paper will look at examples of caselaw involving such contracts, comparing cases in common law jurisdictions which have accepted (or are considered receptive towards) a requirement of good faith in contracts, such as the UK (e.g. Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB)) and Canada (e.g. Bhasin v. Hrynew), against cases in jurisdictions which have appeared less receptive to it, such as Singapore (e.g. Ng Giap Hon v Westcomb Securities Pte Ltd [2009] 3 SLR(R) 518) and Hong Kong (e.g. GDH Ltd v. Creditor Co Ltd [2010] HKEC 818). This paper will argue that, based on the caselaw, while imposing a general duty of good faith may be helpful in some instances, it is unnecessary and even unhelpful in cases of contracts between sophisticated parties. In such situations, parties often know exactly what they want, have legions of lawyers working for them, and generally end up with a contract that reflects exactly what they intended. To impose a duty of good faith in such situations is extraneous and possibly even goes against the parties’ intentions at the time of contracting.