Relational contracts can be identified by looking for these characteristics:
- no express terms preventing an implied duty of good faith*
- long-term contract in context of a long-term business relationship
- parties intend to perform their roles with integrity and fidelity to the bargain
- parties are committed to collaborating in performing the contract
- the spirit and objectives of the venture may not be capable of being exhaustively written into the contract
- the parties have trust and confidence in each other
- the contract requires high degree of communication, cooperation and predictable performance (based on mutual trust and confidence and expecations of loyalty)
- potentially, significant investment by one or both parties
- potentially, an exclusive relationship.
This list is NOT exhaustive. The only item which is determinative is the first!
The court said that B2B (commercial contracts) can be relational contracts eg a private finance initiative contract, one with a long duration. If a contract is considered relational then the English courts may imply a duty of good faith.
What should you do?
Consider whether the projects you get involved with might result in relational contracts. Construction projects, which by their nature require long-term collaborative performance, will often be relational.
If so, you need to understand the extent of your duty of good faith.
Case: Bates & Ors v Post Office Ltd (No 3) [2019] EWHC 606 (QB) at [725, 726]