Yam Seng Pte Ltd v International Trade Corporation Ltd [2013]

Court: House of Lords

Facts: Yam Seng Pte Ltd (C) and International Trade Corporation Ltd (D) were involved in negotiations for the sale of Manchester United fragrances. ITC granted exclusive distribution rights to Yam Seng for certain regions. Yam Seng alleged that ITC breached the contract by failing to ship orders on time, providing false information, and offering the products at a lower price elsewhere. Yam Seng sought to establish that there was an implied term of good faith in the contract and that this term had been breached.

Issue: Whether an implied term of good faith existed in the contract and if so, whether ITC’s actions constituted a breach of this implied term.

Held: The High Court held that a duty of good faith was implied in the contract and that ITC had breached this duty.

Key Judicial Statement: Leggatt J: While traditionally English law has been reluctant to recognize a broad duty of good faith due to concerns about vagueness and uncertainty, there is increasing influence from other jurisdictions and EU law. In relational contracts requiring ongoing cooperation, such as distributorship agreements, an implied term of good faith can be recognized. The duty of good faith entails honesty and fair dealing, which was breached by ITC’s actions.

💡 Leveluplaw: The case illustrates the growing acceptance of good faith as an implied term in certain contracts, particularly those requiring ongoing cooperation and trust. Although English law traditionally has been cautious about recognizing a broad duty of good faith, this case reflects a shift towards acknowledging such a duty in specific contexts, aligning with practices in other jurisdictions and EU legislation.