Making sure good faith isn’t a grey area

The question of whether there’s a general duty of good faith in the performance of contracts governed by Jersey law hasn’t yet been definitively decided. But the recent Jersey case of Hard Rock Limited v HRCKY Limited [2018] JRC 026 is useful as a guide to how and when such a contention may be raised and pleaded.

The case turned on whether a franchise agreement contained an implied term of good faith, and so the court didn’t have to decide whether an overarching duty of good faith arose as a matter of Jersey law.

In England, an implied duty of good faith simply doesn’t arise, and has resulted in a piecemeal approach by the courts.

The Jersey courts have tended to adopt a similar stance. Parties arguing that good faith is implied in a contract have to either prove that the term is normally included in such contracts, or that it’s necessary to imply a term to make sure that the contract isn’t futile, inefficacious or absurd.

In the Hard Rock case, the court decided that the allegations, connected to requests to alter some of the terms of the franchise agreement, weren’t examples of a lack of good faith. This shows that if a breach of good faith is alleged, the allegations must amount to something which is genuinely a lack of good faith and which has caused any losses claimed.

The case shows that simply declining to agree to changes in an agreement isn’t in itself a lack of good faith. But it didn’t go so far as to consider whether there’s a broader duty of good faith in Jersey law.

Anyone hoping to rely on another’s good faith should make this expressly clear in a contract or agreement and be as specific as possible in defining expectations of the other party.

If the worst happens and litigation occurs, these two requirements will certainly apply – and could make the difference between winning and losing.