A leading set specialising in commercial, construction, insurance and property law
This was a decision of Halliwell HHJ sitting as a deputy High Court judge. The dispute arose out of the first defendant’s (‘CBRE’) decision to move its pension platform. The question discussed below was whether CBRE’s decision and its implementation constituted a breach of a duty of good faith owed to its adviser Mr Wales, the claimant.
This is a development of a line of cases stemming from Yam Seng PTE Limited v International Trade Corp Ltd  1 Lloyds Rep 526, including Bristol Groundschool Ltd v Intelligent Data Capture Ltd  EWHC 2145 (Ch), D&G Cars Ltd v Essex Police Authority  EWHC 226 (QB) and Bates v Post Office (No 3)  EWHC 606 (QB) (more on Bates below).
This topical issue is set to develop further with, perhaps its most important judicial advocate, Leggatt LJ set to take up his Supreme Court appointment in April this year.
Mr Wales was an independent financial adviser. CBRE was one of his corporate clients. Mr Wales and CBRE were parties to a contract entered into in June 1999 (the ‘CBRE Contract’), under which Mr Wales provided pensions advice to CBRE’s employees concerning pensions issued by the second defendant (‘Aviva’) under CBRE’s group pension scheme.
Aviva received premiums for pensions on the scheme and so paid commission to various intermediaries. The intermediaries accounted to Mr Wales in turn. Mr Wales’ commission included sums in anticipation of future premiums being received.
Following legislative changes, CBRE decided in November 2012 to move its employees to a new auto-enrolment pensions platform and terminate Mr Wales’ involvement. This was implemented in April 2013. As a consequence, Aviva stopped receiving premiums and so clawed back part of the future premiums commission paid to the intermediaries. In turn the intermediaries clawed back from Mr Wales. Mr Wales unsuccessfully disputed whether Aviva was entitled to do so.
Mr Wales was unprepared for the clawback and brought proceedings to recover £204,392.44. He asserted, among other matters, that the CBRE Contract contained implied terms that CBRE would “deal honestly and/or in good faith with” Mr Wales.
Mr Wales contended that the implied terms had been breached because CBRE did not notify him of the decision regarding the new platform and allowed him to carry on his business in the expectation that he would be entitled to commission from future premiums (para 81).
The loss Mr Wales claimed that he had suffered was the clawback and the value of his work continuing to advise CBRE’s employees, although the court was to find that these claims were misconceived and conceptually flawed.
The claim was dismissed for various reasons. Inter alia, the following critical issues were determined against Mr Wales:
CBRE conceded an implied obligation to act honestly. In the Court’s view the concession was rightly made (para 66), noting the decision in Yam Seng PTE Limited v International Trade Corp Ltd  1 Lloyds Rep 526. In Yam Seng Leggatt J (as he then was) had described the duty to act honestly as a “paradigm example of a general norm which underlies all contractual relationships.”
HHJ Halliwell was, however, not prepared to imply a wider term that the parties would deal with one another in good faith. He considered the question of implication on two separate grounds.
First, he considered whether good faith should be implied as a legal incident of the parties’ relationship. This depended on whether the CBRE Contract was a “relational contract,” described by Leggatt J in Yam Seng (para 142) as follows:
“[M]any contracts … involve a longer term relationship between the parties which they make a substantial commitment. Such “relational” contracts, as they are sometimes called, may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involve expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties’ understanding and necessary to give business efficacy to the arrangements. Examples of such relational contracts might include some joint venture agreements, franchise agreements and long term distributorship agreements”
In the present case, HHJ Halliwell’s judgment dealing with relational contracts leaned heavily on the judgment of Fraser J in Bates v Post Office (No 3)  EWHC 606 (QB). HHJ Halliwell considered that Fraser J’s definition of relational contracts was a narrow one and that the question was essentially factual:
“…heavily dependent upon context, as well as the terms. The circumstances of the relationship, defined by the terms of the agreement, set in its commercial context, is what decides whether a contract is relational or not.”
HHJ Halliwell described this question in orthodox terms (para 70), as:
“a function of the terms of the contract itself and outward evidence of the intentions of the parties based on the contractual terms and the factual matrix at the time they entered into the contract.”
He then turned to the matters Fraser J had considered relevant (para 71):
HHJ Halliwell concluded that there was no good reason to imply good faith on this basis. (i) More parties than just Mr Wales and CBRE were involved. CBRE’s primary duties were owed to its employees, the participants in the group pension scheme. There was no question of CBRE subordinating these primary duties to implied duties of good faith owed to Mr Wales. (ii) The CBRE Contract was “more in the nature of a contract of retainer than a joint venture with defined objects” (para 74), and was terminable on two days’ notice: not the longer term relation that Leggatt J had envisaged. For these reasons the court saw no reason to superimpose a duty of open dealing by reason of the CRBE Contract being a relational contract.
Second, the court considered whether good faith could be implied under the common law test of necessity. Recently restated in Marks & Spencer v BNP Paribas Securities Services Trust Co (Jersey) Ltd  AC 742, the test is “whether the implied term is necessary to give business efficacy to the contract or so obvious that it goes without saying” (para 79). This is a rigorous test; reasonableness is not enough.
HHJ Halliwell concluded that, having implied a duty of honesty, it was not necessary to imply the term to make the contract coherent or workable (para 79).
“The essence of the contractual arrangement was that Mr Wales would provide financial advice and services to or on behalf of CBRE and its employees in connection with the Group Pension Fund based on the information they provided to him. If CBRE was under a duty to act honestly, it was unnecessary and, indeed, inapposite to superimpose terms in relation to commercial standards or fair and open dealing.”
The Court did not express a view on the question whether the term was so obvious it went without saying.
Mr Wales’s case on breach failed on the facts. He had been notified, both implicitly and explicitly at some point between December 2012 and January 2013, that his services would not be required once CBRE moved to the new platform.
But another helpful point for practitioners was the judge’s approach to loss. If Mr Wales’s factual case on breach had succeeded, the court decided it would not have been dishonest in any event. On this point the judge applied the test from Ivey v Genting Casinos (UK) Limited  UKSC 67, Para 74: (i) what was the knowledge or belief in which Mr Wales acted; and, (ii) was his conduct honest or dishonest according to the standards of ordinary decent people. None of the allegations of dishonesty made against Mr Wales, the court decided, were capable of amounting to particulars of dishonesty (para 88).
Contractual good faith claims are becoming more and more common. But it is still far from easy to persuade a court to imply good faith into a contract. This case marks yet another recent development in the common law in respect of good faith. It is a useful illustration of the role that third party involvement plays in the question whether to imply an implied duty of good faith into a contract.
This article was written by Jack Dillon and Amy Held.
This content is provided free of charge for information purposes only. It does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.
Please note that we do not give legal advice on individual cases which may relate to this content other than by way of formal instruction of a member of Hardwicke. However if you have any other queries about this content please contact: