Yam Seng v ITC

The strong language of Lord Ackner, expressing his hostility to the concept of duties of pre-contractual good faith in Walford v Miles, 1 rings in the ears of English lawyers when asked to consider English law’s attitude to good faith obligations. His Lordship declared such a concept to be “unworkable” and “inherently repugnant to the adversarial position of the parties when involved in negotiations”.2 Contrary to the robust reputation bestowed by his Lordship’s words, however, the true position of English law in relation to good faith is more nuanced. Important distinctions should be drawn between a good faith duty which governs pre-contractual relations and that which concerns contractual performance, as well as between terms which expressly formulate the imposition of a duty of good faith and those which have to be implied to do so.3 In light of this complexity, the High Court decision in Yam Seng Ptd Ltd v International Trade Corp Ltd 4 is noteworthy for Leggatt J’s comment, as a matter of secondary importance in the case, that there is “no difficulty, following the established methodology of English law for the implication of terms in fact, in implying such a duty [of good faith] in any ordinary commercial contract based on the presumed intention of the parties”.5 Notwithstanding the Court of Appeal’s subsequent allusion to the case,6 the judgment of Leggatt J—and indeed the concept of good faith in English contract law generally—would benefit from closer scrutiny.

Pursuant to a contract (the “Agreement”) drawn up by the parties themselves, International Trade Corp Ltd (“ITC”) granted Yam Seng Pte Ltd (“Yam Seng”) the exclusive rights to distribute certain deodorants, fragrances and toiletries bearing the brand name “Manchester United” in a number of specified territories. The rights were mainly limited to duty free sales but extended to “domestic” sales in Hong Kong, Macau and two