The Journey of Good Faith: Where Does It belong in General Contract Law?
| Author | Elizabeth Barrett |
| Position | University of Southampton |
| Pages | 64-91 |
[2019] Vol.9
64
The Journey of Good Faith: Where Does It belong in General Contract Law?
Elizabeth Barrett
University of Southampton
Abstract
This piece considers the doctrine of good faith and its existence in contract law which began with Lord
Mansfield’s judgment in Carter v Boehm. Then, reconsiders the general contract law approach in
reluctance to establishing an overriding duty of good faith. Parallels are drawn from the operation of
the pre-contractual duty of good faith in insurance contracts to demonstrate that an overreaching
principle is workable in contract law. The overarching theme of this thesis contends that the
assumption that a good faith duty would bring disarray to certainty and will frustrate contractual
parties’ intentions, is inaccurate. The overall proposal for good fait h is to estab lish a good f aith r egime,
similar to the workings of insurance contract. A post-contractual duty has been rejected since it has
been difficult to consolidate within the insurance contract realm. What we will see is the potential for
harmonisation between insurance contract and general contract.
Introduction
he concept of good faith was first articulated by Lord Mansfield in his monumental judgment
in Carter v Bohem.1 Whilst this is an insurance case, Mansfield observed that good faith is
the ‘governing principle… applicable to all contracts and dealings’. 2 Here is where the
journey began and the catalyst for much development and debate surrounding the role of good faith.
Most notably, the importance of this judicial statement was recognised in the realm of insurance
contracts. The foundation of Lord Mansfield’s judgment was placed on statutory footing in the Marine
Insurance Act 1906, which created a legal obligation on insurance contract parties to act in ‘utmost
good faith’.3 Furthermore, if this was not observed, ‘the contract may be avoided by the other party’.4
Subsequently, this has been repealed in s14 of the Insurance Act 2015; the notion of good faith still
1 (1766) 3 Burr 1905, 1910.
2 ibid [1164] (Lord Mansfield).
4 ibid.
T
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applies, but the strict remedy of avoidance has been mitigated with more proportionate remedies.5
However, an equivalent duty was not established in the regulation of any other contract. Lord
Hobhouse commented on the different route general contract law has taken:
Lord Mansfield’s universal proposition did not survive. The commercial and mercantile law of
England developed in a different direction, preferring the benefits of simplicity and certainty which
flow from requiring those engaging in commerce to look after their own interests.6
For insurance contracts, the thread which underpins the reasoning for a pre-contractual duty is the
asymmetry of knowledge between the contracting parties7, and the whole basis of the contract is what
the insured presents to the underwriter, which allows them to evaluate the risk and choose whether to
accept it, or not. Lord Mansfield expressed that the nature of such relationship between the underwriter
and assured was one which necessitates a unique protection, in his judgment he stated:
Insurance is a contract of speculation. The special facts upon which the contingent chance is to be
computed lie most commonly in the knowledge of the assured only; the underwriter trusts to his
representation, and proceeds upon confidence that he does not keep back any circumstance ...8
Thus, illustrating the basis of an utmost good faith requirement in insurance was to protect the trust
and confidence of the contract upon which performance is relying on. Therefore, the intention of the
legislation favouring a good faith approach is to rebalance the dissimilarity of knowledge to remove
the likelihood of fraud. On the face of it, insurance contracts appear to be a unique relationship with a
discrete functioning to facilitate negotiations which are deemed unfairly imbalanced due to the
inevitable inequality of knowledge.9 It is presumed that the same cannot be said for other contracts.
Instead, they are perceived as the epitome of equal bargaining and full freedom to determine terms of
the exchange and performance. 10 It follows, the existence of inequality of knowledge is not
5 Rob Merkin and Özlem Gürses, “The Insurance Act 2015: Rebalancing the Interests of the Insurer and the Assured”
(2015) 78 MLR 6 1004, 1015.
6 Manifest Shipping v Uni-Polaris (The Star Sea) [2001] UKHL 1 [45], [2003] 1 AC 492–493.
7 Francis D Rose, “Information asymmetry and the myth of good faith: back to basis” [2007] LMCLQ 181.
8 Carter v Boehm (1766) 3 Burr 1905, 1909.
9 Peter MacDonald Eggers Simon Picken and Patrick Foss, Good faith and Insurance Contracts (First published 1998, 4th
edn Routledge 2017) 47.
10 Jim Mason, “Contracting in Good Faith- Giving the Parties What They Want” (2007) 23(6) CLJ 436, 439.
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