"Relational" contract benefits from implied duty of good faith

In the case of Bates v Post Office Ltd (No.3) [2019] EWHC 606 (QB) (15 March 2019),  sub-postmasters' contracts with the Post Office have been held to be "relational contracts" and in turn benefited from an implied obligation of good faith. As a result of the implied obligation neither party could exercise its express contractual rights in a way that reasonable and honest people would consider commercially unacceptable.

The contracts were entered into upon the basis of the Post Office's written standard terms of business. The High Court found that some of the terms invoked by the Post Office were too unusual and onerous to be incorporated into the contracts, unless they were in the signed document or the Post Office brought the terms fairly and reasonably to the attention of the sub-postmasters. Although sub-postmasters may have signed the Post Office’s standard terms, the High Court considered that the unusual and onerous terms were incorporated into the contract but then failed the reasonableness test set out in the Unfair Contract Terms Act 1977.

This case reflects a very rare occasion where the Court was willing to imply a duty of good faith into a contract and in turn strike down terms of a contract for being unreasonable.

This article has been published as part of the latest issue of our Commercial Brief, detailed within the In Brief section. To view the other articles within our Commercial Brief click here, alternatively view the other In Brief articles below:

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