Good Faith In English Law: How To Draft And Manage Contracts

If you’ve heard people say “act in good faith” and wondered what that actually means for your contracts, you’re not alone. Unlike some other legal systems, English law doesn’t have a sweeping, one‑size‑fits‑all duty to act in good faith in every commercial deal. But that doesn’t mean it never applies.

For UK small businesses, “good faith” crops up in two ways: it can be written into your agreement as an express clause, or it can be implied by the courts in certain types of “relational” contracts or when a party is exercising a contractual discretion. Understanding when it applies - and how to draft for it - can save you from disputes and protect your bargaining position.

In this guide, we break down what good faith means under English law, when courts imply it, how to use an express good faith clause properly, the clauses it interacts with, and what it looks like in day‑to‑day scenarios for SMEs.

What Does Good Faith Mean In English Law?

There isn’t a general duty of good faith in English contract law. Instead, the default position is freedom of contract: the parties can set their own obligations, limits and remedies. That said, English law will recognise good faith in three main ways:

• Express agreement: you can include an obligation to act “in good faith” or “with utmost good faith” in your contract, often paired with specific behaviours (for example, cooperating to deliver the project, sharing information, or not deliberately undermining the bargain).
• Implied duties in certain relationships: courts sometimes imply a duty of good faith into long‑term “relational contracts” (think multi‑year distribution, franchise, joint venture or outsourcing arrangements) where trust, cooperation and open communication are essential.
• Duties when exercising discretion: if a party has a contractual discretion (e.g. to award a bonus, approve a subcontractor, or decide if performance is satisfactory), the law generally requires that discretion to be exercised rationally, honestly and for proper purposes - often called a “Braganza‑type duty”.

So, while you won’t automatically be bound by an overarching duty of good faith in every commercial deal, the concept still has real bite in the right context - particularly in longer, collaborative relationships and where one side holds decision‑making power.

When Are Good Faith Obligations Implied Into Business Contracts?

English courts are cautious about implying terms. They don’t rewrite your bargain - they fill gaps only when necessary. However, the case law recognises that some contracts are built on cooperation and loyalty over time. In these “relational contracts,” a duty of good faith may be implied to govern how parties perform and communicate.

Factors that point towards a relational contract can include:

• A long‑term relationship, often open‑ended or multi‑year.
• High levels of cooperation, communication and trust to achieve the contract’s objectives.
• Significant investment or commitment by one or both parties.
• An expectation of loyalty to the agreed purpose and shared goals.
• Complex performance where not every situation can be spelled out at the start.

Typical examples include distribution, franchise, joint venture, facilities management, IT outsourcing and framework supply agreements. Many SMEs operate on this basis, especially where you lock in a strategic supplier or service provider for the medium to long term.

Even if the contract doesn’t use the words “good faith”, courts may still imply obligations like:

• Honesty in fact - not lying or knowingly misleading the other side.
• Cooperation - taking reasonable steps to enable each other’s performance.
• No “bad faith” behaviour - not acting to undermine the deal or take advantage of gaps in a way that defeats the agreed purpose.

Importantly, implied duties won’t override clear, express wording. If you expressly reserve a right or carve something out, a court is unlikely to imply a term that contradicts it. This is one reason careful drafting really matters.

How To Use Express Good Faith Clauses (And Make Them Work)

Many businesses include an express good faith clause to encourage collaboration and head off game‑playing. Done well, it can help the relationship run smoothly. Done poorly, it can create uncertainty or expand your obligations in ways you didn’t intend.

Be Specific About What “Good Faith” Requires

Rather than a vague promise to “act in good faith,” spell out what the parties will actually do. For example:

• Share key information relevant to delivery timelines and risks.
• Attend regular governance meetings and escalate issues promptly.
• Not unreasonably withhold or delay approvals.
• Use reasonable endeavours to agree a change request in defined scenarios.
• Cooperate to implement a mitigation plan if milestones are at risk.

Clear behavioural commitments are easier to follow and enforce. They also reduce the risk that “good faith” becomes an open‑ended obligation that a disappointed counterparty can stretch.

Avoid Conflicts With Hard‑Edged Rights

Express good faith duties should sit comfortably alongside your core commercial protections. If you promise to “act in good faith at all times,” but elsewhere retain the right to suspend services or terminate for convenience, you risk a clash. Make clear that good faith does not prevent you exercising express rights where conditions are met.

This also connects to your other risk controls - like a robust Limitation of Liability and clear service credits or liquidated damages. Good faith should support delivery, not dilute agreed remedies.

Consider Where You Need It (And Where You Don’t)

Good faith obligations can be helpful in a Master Services Agreement, framework supply, distribution or JV‑style arrangement, where the parties will work together over time. They’re less useful in one‑off sales or simple, transactional agreements. Apply them selectively, and limit them to specific processes like governance, approvals or change control if that’s all you need.

Be Careful With “Negotiate In Good Faith”

Agreements to agree are generally unenforceable unless the process and criteria are sufficiently certain. If you need an interim document before the final contract, consider using a clear Heads of Agreement or a short‑form deal with binding terms now and a roadmap for later phases. Where parties truly want a non‑binding stage, use an MoU - and make sure you understand the differences set out in MOU vs Contract.

Drafting Tips: Clauses That Interact With Good Faith (Risk Controls)

Because “good faith” touches how parties behave, it often intersects with your key risk and governance clauses. Here’s how to keep your contract coherent and predictable.

1) Discretionary Decisions

Where your contract gives one side a discretion (e.g. to approve a subcontractor, set a KPI score, or determine whether a deliverable meets specification), draft the decision criteria and process. State the factors to be considered, set timelines, require reasons in writing, and allow a route to escalate or review. This aligns with the general duty to exercise discretion rationally and reduces the scope for disputes about what good faith requires in practice.

2) Termination And Suspension

Good faith should not block your ability to suspend or terminate if the other party breaches the deal. Draft termination triggers clearly, include cure periods where appropriate, and clarify that nothing in any cooperation or good faith clause restricts the exercise of termination rights. If the relationship ends, it’s sensible to have a clean‑up plan or a Deed of Settlement mechanism to resolve any outstanding issues.

3) Change Control

Relational contracts evolve. A good change control process sets out how parties raise changes, evaluate impact (time, scope, cost), and give approvals. If you include a duty to “negotiate in good faith” about scope changes, pair it with a timeline and objective decision factors. That reduces the risk that a court views it as too uncertain to enforce.

4) Exclusivity And Restraints

Distribution, franchising and JV deals often involve territory protection or no‑poach/no‑deal clauses. These should be reasonable and proportionate. Over‑broad restraints can cut against the spirit of good faith and risk being unenforceable. If you need post‑termination protection of your business, draft any Non‑Compete Clauses carefully (scope, duration, geography) so they’re more likely to hold up.

5) Liability, Remedies And Service Levels

Don’t rely on a good faith clause to keep the relationship on track - anchor performance in measurable service levels, acceptance criteria, and clear remedies. Your Limitation of Liability should carve out truly non‑excludable losses, cap the rest, and align with your insurance. These hard‑edged terms sit alongside cooperative duties so everyone knows what happens if targets are missed.

6) Price Increases And Renewals

For long‑term or subscription arrangements, price review and auto‑renewals can be flashpoints. A transparent mechanism with reasonable notice supports a good faith relationship and reduces regulatory risk, especially in B2C contexts where the Consumer Protection Laws and fairness tests apply. If you operate on subscriptions, it’s also worth understanding the rules around auto‑renewal and cancellations.

7) Entire Agreement And “Notwithstanding” Clauses

Use an entire agreement clause to control what’s in (and out of) the contract. If you must include a broad good faith statement, consider clarifying how it interacts with specific rights using precise carve‑outs and carefully placed “notwithstanding” wording. As a drafting tool, “notwithstanding” can resolve conflicts between clauses when used deliberately - here’s a deeper dive on Notwithstanding Clauses.

8) Privacy And Transparency

While “good faith” is a contract concept, the idea of fair and transparent dealings also appears in regulation. If you collect personal data, the UK GDPR and Data Protection Act 2018 require transparency and lawfulness in how you handle it; make sure your public‑facing terms and Privacy Policy reflect that approach so your operational reality matches your contractual promises.

Practical Scenarios For SMEs: What Good Faith Looks Like Day‑To‑Day

Here are common situations where good faith obligations are tested - and how to handle them confidently.

Long‑Term Service Outsourcing

Imagine you’ve signed a three‑year IT support deal. Over time, your needs change and you ask the provider to support a new app. If your agreement includes a good faith cooperation duty and a change control process, both sides should:

• Share enough information for a proper impact assessment.
• Meet within a set timeframe to discuss scope, timing and pricing.
• Try to agree a reasonable change proposal in line with pre‑agreed pricing mechanisms.

From your side, you still want hard protections in the baseline contract - clear KPIs, acceptance criteria, and caps on liability - the kind of building blocks you’d normally find in a robust SaaS Contract or managed services arrangement.

Distribution Or Franchise Relationships

Distribution and franchise deals are classic relational contracts. A good faith obligation here usually means not undermining the network, sharing accurate sales forecasts, and following brand standards. On the supplier side, it means keeping pricing and product information current, giving reasonable notice of major changes, and operating the territory rules in the spirit of the relationship (while still enforcing clear performance targets).

If your business model relies on post‑termination restraints, get the restraint drafting right and support it with evidence (e.g., training, confidential know‑how provided, customer introductions). That way, a court is more likely to enforce well‑written Non‑Compete Clauses if things end badly.

Exercising A Contractual Discretion

Suppose your contract says you may “approve or reject any subcontractor in your absolute discretion.” In practice, you should still act rationally and on proper grounds (e.g., inadequate qualifications, security risk, capacity concerns). Record the reasons in writing. If your agreement includes a good faith obligation, that paper trail helps show you acted consistently, promptly and honestly.

Renegotiating During Market Shifts

Costs spike, a key input becomes scarce, or customer demand shifts. Good faith doesn’t force you to accept uneconomic terms, but it does encourage transparent, timely discussions. A short written amendment (or a well‑structured Heads of Agreement leading to a formal variation) helps keep performance on track while you document the commercial fix.

Customer‑Facing Terms And Fairness

In consumer contracts, “good faith” as a label is less important than fairness and transparency. The Consumer Rights Act 2015 requires consumer terms to be fair and understandable. Unclear or one‑sided terms (for example, hidden auto‑renewals, vague fees, or unobtainable disclaimers) might be unenforceable. If you sell to consumers, make sure your pricing changes, cancellation rights and key limitations are front‑and‑centre - aligning your approach with the standards set by Consumer Protection Laws is not just legally safe, it builds trust.

Pre‑Contract Stages And NDAs

Before the main contract is signed, parties often share sensitive information. Confidentiality obligations set the ground rules early, and a clear NDA or Non‑Disclosure Agreement supports the spirit of good faith by ensuring neither side misuses what’s shared while talks are ongoing.

How To Decide If You Need A Good Faith Clause

Ask yourself these questions when you’re structuring a deal:

• Will we be working together for more than a year, with evolving requirements?
• Do we both have to share information and cooperate to hit shared goals?
• Does either party have discretionary power that could significantly affect the other?
• Are there approval processes, change mechanisms or governance forums where “reasonable behaviour” needs to be explicit?
• Would a clear cooperation promise reduce the risk of tactical behaviour that derails delivery?

If the answer to one or more is “yes”, consider an express good faith obligation - but define it tightly, pair it with practical processes (governance, change control, approvals), and preserve your hard protections (termination rights, remedies, caps and exclusions). Getting that balance right is key.

Getting Your Contract Stack Right From Day One

Good faith is only one piece of a well‑built contract stack. For most SMEs, the essentials often include a tailored Service Agreement or MSA, clear scopes/SOWs, strong IP ownership and confidentiality, sensible liability settings, fair payment terms, and practical dispute resolution. If you’re still at the pre‑contract stage, start with a suitable short‑form deal or HoA that captures the commercial must‑haves while you finalise the long‑form.

Avoid generic templates. The decisions you make in the first draft - where good faith fits, how discretion is exercised, and how remedies work - can determine your leverage in a dispute months or years later.

Key Takeaways

• There’s no general duty of good faith in English law, but duties can be implied in “relational contracts” and when a party exercises contractual discretion.
• If you want a good faith obligation, define it: focus on concrete behaviours like sharing information, cooperating in governance, giving timely approvals and escalating issues.
• Make sure good faith duties don’t conflict with hard‑edged rights. Preserve your termination triggers, remedies and a well‑calibrated Limitation of Liability.
• Use clear processes for discretion and change control to reduce disputes and align with the requirement to act rationally and on proper grounds.
• In B2C contexts, focus on fairness and transparency in line with the Consumer Rights Act 2015 - hidden or one‑sided terms risk being unenforceable.
• Pick the right tool for pre‑contract stages: a binding Heads of Agreement, a non‑binding MoU or a solid NDA, depending on what you need.
• Set your legal foundations early. Tailored contracts that integrate cooperation, governance and strong protections will help you grow confidently and avoid costly disputes.

If you’d like help drafting or reviewing your contracts - including whether and how to include good faith obligations - you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no‑obligations chat.