Good Faith at Chelsea Barracks

Contracting parties occasionally agree to act with "good faith" or "the utmost good faith" in carrying out their obligations. This is common in joint ventures and where the future conduct by one party may trigger a payment to another. But what the phrase means is not clearly defined. The concept was considered in the recent case of CPC Group Limited v Qatari Diar Real Estate Investment Company.
 
In 2008 the MoD (represented by Michelmores) sold the Chelsea Barracks site for just under £1billion, making it Britain's most expensive residential development site. The land was acquired by a JV company but the parties fell out, and in the CPC case the Court of Appeal opined that: 

• In acting with utmost good faith, a party must adhere to the spirit of the contract and be faithful to the agreed common purpose.
• Despite the use of the word "utmost", a reasonable standard of commercial fair dealing was all that was required. (For example, in this case where a payment was to be triggered by the granting of planning consent, consulting with the other party on a fresh strategy for obtaining consent once it appeared likely that the initial planning application would be refused was sufficient - even though agreement was not reached.)
• Each party must act in a manner consistent with the justified expectations of the other.

So while the context in which the phrase appears, and the background at the time of the contract, are always relevant to each case, "good faith" is becoming a clearer concept. However, it should still be used with care and where any steps to be taken (or prohibited) can be identified, it remains sensible to set them out expressly to maximise certainty.

Tom Brearley is a Solicitor in Michelmores' Property Team. For more information on the issues raised in this article, please contact Tom at tom.brearley@michelmores.com