When you’re running a small business, you’re constantly making deals - with customers, suppliers, landlords, freelancers, and partners.
And usually, you’re not trying to “catch” the other side out. You’re trying to build something workable that keeps cash flowing and relationships intact.
That’s where the idea of good faith in contract law comes in. In plain English, it’s about acting honestly and fairly, and not deliberately undermining what you’ve agreed to.
In the UK, though, “good faith” can be a tricky concept. Unlike some countries, English contract law doesn’t automatically impose a broad duty of good faith in every agreement. But that doesn’t mean good faith is irrelevant - far from it.
If you get this right, good faith clauses can help reduce disputes, support long-term commercial relationships, and stop someone using technical loopholes to defeat the deal’s purpose. If you get it wrong, you can end up with unclear obligations, negotiation headaches, and arguments about what “good faith” even means.
Let’s break down what good faith means in UK contract law, when it matters most, and what you can do to protect your business in contracts and negotiations.
What Does “Good Faith” Mean In Contract Law?
There’s no single all-purpose definition of “good faith” that applies to every contract in the UK. But in business-to-business contracts, “good faith” usually points to a bundle of behaviours like:
- Honesty (not lying or deliberately misleading the other side)
- Fair dealing (not acting in a way that’s commercially sharp or oppressive)
- Co-operation (especially where performance depends on both sides doing their part)
- Not undermining the contract’s purpose (e.g. not using a discretion to sabotage what the other side bargained for)
- Transparency around key issues (where the contract expects sharing information)
In real life, good faith tends to come up when one side says: “Yes, technically you complied with the wording - but you’ve behaved in a way that defeats the whole point of the deal.”
It’s also worth separating two different ideas:
- Good faith during negotiations (how you behave while discussing and finalising a deal)
- Good faith during performance (how you behave after the contract is signed)
Those two stages can be treated quite differently under UK law, so it’s important not to assume “good faith” automatically applies from first chat to final delivery.
Is There A General Duty Of Good Faith In UK Contract Law?
For most everyday business contracts in England and Wales, the starting position is simple: there is no automatic, universal duty of good faith.
That surprises a lot of business owners - especially if you’ve worked with overseas suppliers or international clients where good faith is treated as a standard baseline.
Instead, English contract law traditionally focuses on:
- What the parties actually agreed (the contract wording)
- Freedom of contract (you decide your deal terms, and the courts enforce them)
- Specific legal controls (like misrepresentation, duress, illegality, or consumer protections)
So if you want a clear, enforceable good faith obligation, the safest approach is usually to write it into the contract - in a way that makes sense for your deal.
That said, good faith can still enter the picture in UK contract law in a few important ways:
1) Express Good Faith Clauses
You can include an express clause requiring the parties to act in good faith (in negotiations, performance, or both). If drafted properly, this can be enforceable - but the detail matters (we’ll cover this below).
2) Implied Duties In Certain Contracts (Including Some “Relational” Contracts)
In some longer-term, collaborative arrangements, courts may be more willing to imply duties that look a lot like good faith (for example, duties of honesty, co-operation, or rational exercise of discretion).
This is more likely where the relationship depends on trust and ongoing collaboration - think long-term outsourcing, distribution, joint venture-style arrangements, or franchise-like relationships.
However, the “relational contract” approach is fact-specific and still developing through case law, so it’s not something you should rely on casually. If your business needs certainty, you’ll usually want well-drafted express obligations instead.
3) Good Faith By Another Name (Specific Legal Controls)
Even without a “good faith” label, UK law still polices bad behaviour through concepts like:
- Misrepresentation (false statements inducing a contract)
- Implied terms (where necessary for business efficacy or obviousness)
- Interpretation principles (courts looking at the contract’s purpose and context)
- Limits on discretion (a party often can’t exercise a contractual discretion in an arbitrary, irrational, or capricious way)
In other words: even if English law doesn’t automatically demand “good faith”, it doesn’t give a free pass to behave however you like.
And if you’re still at the stage of getting the fundamentals right, it’s worth understanding what makes a contract legally binding so your deal is enforceable before you even get to the good faith issues.
When Does “Good Faith” Matter Most For Small Business Contracts?
As a small business, you’ll usually feel the impact of good faith issues in a few repeat scenarios - especially where the contract leaves room for judgement calls.
Long-Term Supplier Or Service Relationships
If you’re dealing with a supplier over months or years, the contract can’t realistically spell out every scenario.
Good faith-type obligations can help set expectations like:
- Sharing information that affects delivery timelines
- Co-operating on forecasting, stock planning, or scheduling
- Not deliberately frustrating the other side’s ability to perform
This can be particularly helpful where you’re scaling quickly and don’t want operational surprises turning into legal disputes.
Contracts With “Discretion” Clauses
Many business contracts give one party discretion - for example:
- Setting performance targets
- Approving deliverables
- Deciding whether work is “acceptable”
- Changing processes or specifications
The risk is that discretion gets used as a weapon - e.g. to force renegotiation, to push margin back onto the other side, or to engineer a breach.
A carefully drafted good faith obligation (or a clause requiring reasonableness) can reduce that risk.
Negotiations Where You Need A Transition Period
Good faith can be relevant when you’re negotiating while still operating - for example, you’ve agreed headline terms and need a short period to finalise legal wording, transition customers, or secure approvals.
But you need to be careful: in England and Wales, an open-ended obligation to “negotiate in good faith” can be difficult to enforce if it doesn’t include a clear process or objective criteria. If you want a legally robust framework, you may be better off using clear mechanisms (like exclusivity periods, milestones, or termination rights) rather than relying on broad “good faith” language alone.
Partnership-Style Deals (Without Being A Legal Partnership)
Sometimes you’re effectively collaborating like partners - maybe you’re co-developing a product, sharing leads, or building a joint offering - without setting up a separate company.
These arrangements are prime territory for “good faith” disputes, because each party’s success depends on the other’s co-operation.
In these cases, the contract needs to do more than just say “act in good faith”. It should clearly cover roles, responsibilities, decision-making, information sharing, and exit routes.
How Do You Use Good Faith Clauses In Business Contracts (Without Creating Confusion)?
If you’re thinking of adding a good faith clause, the goal is usually practical: reduce the chance of arguments later.
Ironically, a vague good faith clause can do the opposite - it can create a new argument: “What did good faith require here?”
Here are some practical drafting tips that tend to work well for small businesses.
1) Define The Scope: What Does Good Faith Apply To?
Instead of saying “The parties must act in good faith” (and leaving it at that), consider specifying the scope, such as:
- Good faith in performing obligations under the agreement
- Good faith in exercising rights or discretions under the agreement
- Good faith in resolving disputes or agreeing variations
This helps avoid a fight about whether “good faith” was meant to apply to everything - including hard bargaining and commercial self-interest.
2) Add Examples Of What Good Faith Looks Like
Good faith is easier to enforce when it’s tied to real obligations. Depending on your deal, that might include duties like:
- Providing information reasonably required to perform the contract
- Not knowingly providing misleading or incomplete information
- Not taking steps intended to prevent or delay performance
- Co-operating in good faith to agree a practical delivery plan
These types of “behavioural” obligations often do more work than the words “good faith” on their own.
3) Make Sure Good Faith Doesn’t Clash With Other Clauses
Small businesses often use contracts that include strong “protection” clauses - for example, broad termination rights, discretion clauses, or limitations and exclusions.
If you introduce a general duty of good faith without checking how it interacts with those terms, you can create ambiguity. A common question becomes: “Does the good faith clause limit my right to terminate?”
This is where careful drafting matters - particularly around risk allocation. For example, if you’re relying on a cap or exclusion, it’s worth aligning your approach with well-structured limitation of liability clauses so the contract is internally consistent.
It’s also common to see contracts attempt to preserve priority clauses that override other wording. If that’s relevant to your contract, you’ll want to understand how notwithstanding clauses can affect the meaning and hierarchy of obligations (including good faith wording).
4) Be Careful With “Good Faith Negotiation” Clauses
Business owners often want a clause saying the parties will “negotiate in good faith” to:
- Renew the contract
- Agree pricing changes
- Resolve disputes
- Agree changes to scope
These clauses can be useful, but they can also be hard to enforce if they are too open-ended (for example, “the parties will negotiate in good faith to agree a fair price” with no mechanism for what happens if you don’t agree). In practice, clauses are more likely to be workable where they are tied to a defined process, a defined topic, and (ideally) a clear fallback if agreement isn’t reached.
A more practical approach is to pair “good faith negotiations” with a clear process, such as:
- A meeting timeline (e.g. senior representatives meet within X days)
- Information sharing obligations
- A dispute escalation procedure
- Fallback positions (e.g. independent expert determination, mediation, or a right to terminate)
5) Don’t Forget The “Paper Trail”
Good faith disputes often turn into evidence disputes. If you want to show you acted in good faith, your emails and meeting notes matter.
Practically, that means:
- Confirming key points in writing after calls
- Avoiding “we’ll sort it later” on major issues
- Being careful with informal promises that could later be treated as commitments
And if you do need to change the deal, don’t rely on casual email threads. Use a proper variation process - many businesses get caught out here. If your terms need updating, it’s worth getting the process right for amending contracts so the change is enforceable and consistent with the original agreement.
What Happens If There’s A Good Faith Dispute (And How Can You Protect Your Business)?
Good faith disputes usually don’t start with someone saying “you breached the good faith clause.” They start with something more commercial, like:
- A supplier misses deadlines and blames your lack of co-operation
- A client refuses to approve deliverables without clear reasons
- A partner withholds leads or resources but still wants their share of revenue
- A party uses termination rights strategically to force a renegotiation
At that point, “good faith” becomes part of the argument about what the contract required and whether the behaviour crossed the line.
Practical Steps If You Think The Other Side Isn’t Acting In Good Faith
If you’re in the middle of a dispute, the best next step depends on your contract and the situation - but a few practical actions can help:
- Re-read the contract carefully (including dispute resolution, termination rights, notice clauses, and any express good faith obligations).
- Gather your evidence (emails, messages, meeting notes, documents showing performance, and timelines).
- Communicate clearly and calmly about what you need them to do to get performance back on track.
- Reserve your position if needed. In some situations, a carefully drafted reservation of rights letter can help you continue discussions without giving up your legal rights.
If you’re moving toward a formal dispute, you’ll often want a structured approach before issuing proceedings. Depending on the context, a letter before action can be a sensible step to set out the legal and factual position and encourage resolution.
How To Reduce The Risk Of Good Faith Disputes In Future Contracts
The best protection is to build clear legal foundations from the start, including:
- Clear scope and deliverables (so “co-operation” has a real-world benchmark)
- Clear decision-making rules (especially if one side has “approval” power)
- Clear variation processes (so changes don’t turn into arguments)
- Clear pricing mechanisms (especially where costs fluctuate)
- Clear exit routes (termination rights that are aligned with the commercial reality)
Good faith language can support all of the above - but it shouldn’t be a substitute for them.
If you’re not sure whether your contract wording actually protects you, a proper Contract Review can help you spot gaps before they turn into costly disputes.
Key Takeaways
- In practice, “good faith” in contract law usually refers to honest, fair dealing and not undermining the purpose of the agreement, but it doesn’t have one universal definition in the UK.
- In UK contract law, there is usually no automatic general duty of good faith, so if you want clear obligations, it’s often best to address them expressly in the contract.
- Good faith issues commonly arise in long-term relationships, where one party has discretion, or where performance depends on ongoing co-operation.
- A good faith clause works best when it’s tied to specific behaviours and processes (like information sharing, timelines, approval standards, dispute escalation, or variation procedures), rather than vague statements.
- Be careful that a good faith clause doesn’t accidentally conflict with other key terms like termination rights, discretion clauses, or limitation of liability provisions.
- If you suspect a dispute is brewing, focus on the contract wording, keep a clear paper trail, and consider formal steps like a reservation of rights letter or letter before action where appropriate.
If you’d like help drafting, negotiating, or reviewing a contract (including good faith clauses that actually make commercial sense), you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.
