Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111

KEY POINTS

• The test of good faith is objective, meaning that it does not depend on the parties' perception of whether the conduct is improper but on whether the conduct would be regarded as commercially unacceptable by reasonable and honest people in the particular context. While the requirements of good faith are sensitive to context, the ultimate determination is based on objective standards.
• The contract in question had a duty to perform in good faith when executing the agreement. The defendant violated this by providing the claimant with false information, which they knew the claimant would depend on.
• This breach was repudiatory, allowing the innocent party to terminate the agreement. The defendant had not undercut the domestic prices, which would have been a violation of good faith.

FACTS

• Claimant Yam Seng PTE Ltd ("Yam Seng") is a company based in Singapore that entered into a distribution agreement with Defendant International Trade Corporation Ltd ("ITC"), a company based in England.
• The distribution agreement was for ITC to distribute Yam Seng's products in specified territories in the Middle East, Asia, Africa, and Australasia. The agreement included clauses relating to mutual trust and good faith, as well as provisions for the termination of the agreement.
• Yam Seng sued ITC for breach of contract, including late deliveries, refusal to make agreed products available, and generally failing to perform the contract in good faith.
• Yam Seng claimed that ITC had breached the implied duty of good faith and that the parties had intended this duty to be part of their contract.

COMMENTARY

• In accordance with English law, it was not yet acceptable to impose an obligation of good faith on all contracts as a legal matter. However, the customary principles of implied terms based on factual circumstances may result in specific contracts having obligations of good faith.
• Thus, if a reasonable observer could conclude that the parties intended to include a duty of good faith, such an obligation would be implied as a contractual term.