Law Recognise a Duty to Bargain in Good Faith

English courts have persistently repudiated a general principle of good faith in English law. Naturally, this 'caveat emptor' approach has caused problems – particularly in pre-contractual negotiations – and the courts have responded in a typically English fashion with, in Lord Bingham's words, "piecemeal solutions in response to demonstrated problems of unfairness"1. This paper will analyse these 'piecemeal solutions' in an attempt to extrapolate a duty to bargain in good faith, and will then seek to critically assess the merits of such a duty.

II Does English Law Recognise a Duty to Bargain in Good Faith? It must first be stated that English law does recognise a duty to bargain in good faith where the parties are in a fiduciary relationship. This can occur where the parties are in a position of trust, for example, the relationship between financial advisor and client requires full disclosure and good faith (Lloyds Bank v Bundy).

A significant imbalance in the knowledge of the parties can also give rise to fiduciary duties: insurance contracts are held to be 'uberrimae fidei' ('of the utmost good faith') and will be voidable without full disclosure (Lambert v Co-operative Insurance Society). The law also takes an economic perspective in requiring full disclosure of contract terms, the rationale being to encourage parties to compare and negotiate terms and so formulate efficient contracts.

In Interfoto v Stiletto, one of the parties failed to point out a particularly onerous term in a hire contract. Lord Bingham found that the English rules yielded "a result not very different from the civil law principle of good faith"2, and refused to enforce the term. Statutory controls3 also go some way to requiring disclosure of contract terms, especially in consumer contracts. Unlike many civil law jurisdictions, English law does not require disclosure of material facts in pre-contractual negotiations.

This is a reflection of the Western view of information as a commodity, valuable to the efficient operation of the market at it provides incentive for goods to be quickly moved to those who value them the most. Although along this view disclosure is tantamount to expropriation, English law does require disclosure of a fact where a party implies that it does not exist (Faruqi v English Real Estates); misrepresents something by conduct and fails to disclose the truth (Hurley v Dyke); or omits to disclose an important change of circumstances (Re Scottish Petroleum).

These exceptions suggest that the law is operating to protect the integrity of markets. English law also steps in to prevent parties misusing information given confidentially during negotiation to their own advantage, encouraging parties to negotiate frankly and formulate efficient contracts. This doctrine was applied to pre-contractual relations by the Canadian Supreme Court in Lac Minerals. Applying the doctrine in Seager v Copydex, Lord Denning identified "the broad principle of equity that he who has received information in confidence shall not take unfair advantage of it.

The doctrine has also been extended to the wider legal context by the English courts in Attorney-General v Blake, perhaps reflecting the way in which this sharply correlates with our perceived moral notions of 'good faith'. Based on the reliance model, the law protects those who reasonably rely, to their detriment, on the misleading statements of others by imposing a duty of reasonable care, breach of which can give rise to rescission or damages. This wide doctrine is subject to complicated limits.

Excluded classes of 'misleading statements' include statements of law (except where there is a disbalance of knowledge5; or a standard form contract6); opinion (except where the opinion is impliedly based on fact7; or where the opinion is one of an expert8) and future conduct (except where this includes false simultaneously implied statements of fact9). The Trade Descriptions Act 1968 also imposes criminal liability for misleading statements made to consumers (Robertson v Dicicco).

In furtherance to the above mechanisms, the law has developed doctrines of estoppel, unilateral contracts and collateral contracts to protect those who reasonably rely on promises. Where there is an express promise, English courts have been reluctant to allow pre-contractual reliance to give rise to remedies, except in relation to land (Crabb v Arun District Council). Some other common law jurisdictions, notably the United States10 and Australia11, allow promissory estoppel to give rise to actions in certain circumstances, which may suggest a future direction for English law.

Where the courts can find some semblance of consideration or exchange, they have implied collateral contracts based on implied promises to protect reliance loss. In Esso v Marden, the Court of Appeal found breach of an implied collateral warranty that revenue forecasts would be accurate. Even in the absence of identifiable exchange, English law can imply unilateral contracts. In Blackpool Aero Club, the defendant invited tenders to operate an airfield, specifying a precise deadline.

The plaintiff's tender was received late as a result of the defendant's own negligence so was not considered. Lord Bingham found them in breach of an implied unilateral contract to consider all timely tenders, and awarded damages. These doctrines all seem intended to protect parties who rely in good faith on the promises or statements of others to their detriment. A final 'piecemeal solution' to encourage pre-contractual good faith has been the courts' use of restitution or unjust enrichment.

Where one party confers a benefit on the other in anticipation of a contract which never materialises, he is entitled to recover the value of the benefit. This was applied in British Steel Corpn v Cleveland Bridge and Engineering where the dispute arose over goods delivered before the final contract had been concluded. This complex body of common law and statute, when viewed in concert, seems to suggest some vague notion of a duty to bargain in good faith. At best, however, it can only amount to a 'theme' because it lacks some of the fundamental attributes of an underlying doctrine.

It has no general application: fiduciary relations and consumer contracts are subject to more stringent application. It leaves gaps: Walford v Miles and Regalian Properties would undoubtedly been decided differently against a general principle. Its justifications remain uncertain: some rules seem to safeguard market integrity whilst others look to protect detrimental reliance. In any case, a duty to bargain in good faith has some way to go. Consequently, we need to assess the merits of such a duty.