DUTY TO ACT IN GOOD FAITH - THE FOOTBALLER, THE FOOTBALL CLUB AND THE CHOCOLATE MOUSSE

THE FOOTBALLER

Contracts can sometimes be the source of misunderstanding and frustration. Just ask Luis Suarez, the Liverpool player, who is currently letting it be known that he has a rather different understanding of a particular clause in his contract than his employer.

The clause apparently deals with a situation where a bid is received from another club for more than £40 million. Liverpool F.C. view bids over £40 million as a signal for them to start negotiations but Mr Suarez, and his advisers, regard it as meaning that they can enter into negotiations directly with any interested clubs.

Do Liverpool F.C. and Luis Suarez have a duty to act in good faith to each other in respect of these negotiations which may be protracted?



WHAT IS THE DUTY OF GOOD FAITH?

Using a sporting term, it means ‘playing fair’. Good faith is subjective and depends on the overall terms of the contract and the factual and commercial context, aka ‘the factual matrix’.

In fiduciary contracts such as employment contracts, the Courts will imply a duty of good faith. This can be contrasted to the position of there being no general obligation of good faith in English law as it is thought that a general requirement of good faith would create too much uncertainty. Therefore, if the parties to a contract wish to impose such a duty, they must do so expressly.

The Courts would not rush to imply a term of good faith to clauses that involve an element of discretion. However, it is possible that it may apply to a situation where there are a range of options to which the interests of both parties are relevant.


THE CHOCOLATE MOUSSE

A recent case earlier this year - Compass Group UK and Ireland Ltd V Mid Essex Hospital Services NHS Trust is worthy of consideration on the readiness of the Court of Appeal to imply a term of good faith where one already existed in the contract.

The parties entered into a long - term facilities contract under the terms of which Compass agreed to provide catering services to the Trust. The contract contained a duty to co-operate in good faith at clause 3.5, which stated:

‘The Trust and the Contractor will co-operate with each other in good faith and will take all reasonable action as is necessary for the efficient transmission of information and to enable the Trust, or as the case may be, any beneficiary to derive the full benefit of the Contract.’

The Court had to decide the extent to which this clause provided an overwhelming obligation on the parties to co-operate with each other in good faith even though there was no stand-alone express term to this effect in the contract.

The contract was detailed and the obligations of the parties and the consequences of any failures were explained. The obligation to act in good faith specifically focused on the obligation to take all reasonable action as was necessary for the efficient transmission of information and instructions.

The Court of Appeal decided that there was no need to imply a further duty to co-operate in good faith and as a result the Trust was not prevented from awarding service failure points as these were expressly provided for in the contract. This included the ability for the Trust to deduct £84,540 for a one - day out-of-date chocolate mousse!


CONCLUSION

First, the existence of an obligation to act in good faith in a contract does not necessarily guarantee that the parties will act in good faith. ‘Money talks’ as the saying goes and, in football over recent years, it positively screams. A clause, such as the one which is reported to be the subject of differing views between Mr Suarez and Liverpool F.C., only serves to demonstrate that any express or implied duty good faith clause in a contract will not prevent both parties trying to achieve their ultimate commercial aims. It may at least give pause for thought.

Second, the Courts will not interfere with express terms of a contract to imply a duty of good faith where to do so would be inconsistent with the natural and ordinary meaning of the language of the contract.

Third, parties need to be aware that the inclusion of an express good faith clause in a contract may, if carefully drafted in respect of all other parts of the contract, ‘raise the bar’ as to how other actions might be measured by a Court.

This article contains general advice and comments only and therefore specific legal advice should be taken before reliance is placed upon it in any particular circumstances.