It wasn’t considered in precisely those terms. But the Court of Appeal today gave its ruling in respect of the existence or not of an obligation of good faith and fair dealing and Irish contract law.
The purpose of this article is not to analyse the law as set out in considered detail by Ms Justice Finlay Geoghegan and Mr Justice Hogan in respect of the specific facts of this case. Rather it is to review the general principle, as it applies in Ireland and as it can be contrasted with the principles that exist in other common law jurisdictions, and in the civil law jurisdictions.
The conclusion that I will come to should already be well apparent to anybody seriously in business. If you’re going to deal with somebody get your contract professionally drafted. If you’re going to deal big get a very big contract drafted.
I never cease to be amazed by the number of unintended litigants with hangdog looks wondering how the world about them has fallen apart. When asked for a copy of the shareholders’ agreement they confirm there isn’t one. You see, it was all champagne flutes and high fives then. The lawyers wanted to charge a fortune! I never thought we would fall out! We were best mates! He’s my brother! He’s my father!
Who would ever think that one party would rely on the strict terms of a contract for his own benefit even if doing so would ruin the other? Egad! (Have you had your loan sold yet? Was it sold to a not-for-profit organsiation...).
There are currently 10,000 solicitors in Ireland and about the same number of barristers. If it wasn’t for people falling out over contracts a lot of those would be unemployed.
Just so that we are clear then, there is no general principle of good faith in the Irish law of contract. There are very limited exceptions to this rule, such as that of uberrimae fidei in insurance law, suretyship and partnership. That’s the situation here even though other common law jurisdictions such as Canada have recognised it.
But even Canada is an exception to the common law rule. And that general common law rule runs entirely contrary to the civil codes of France, Germany and Switzerland for example. It also runs contrary to the UNIDROIT Principles of International Commercial Commerce which expressly provides that:
“Each party must act in accordance with good faith and fair dealing in international trade.”
Now when we’re talking about good faith we’re not talking about misrepresentation or deceit. You’re certainly not allowed in Ireland to induce somebody to enter a contract on the basis of either.
Similarly, the Court won’t allow the self-induced frustration of a contract. And any commercial document can be amended by the Court where it is clear that one party was misled by what has been described as the “sharp practice” of the other.
Additionally where a contract contains conditions of an unusual or particularly onerous nature, then the party requiring those conditions must take reasonable steps to draw attention to them to confirm that the other party has agreed to them.
So what else have the Courts in Ireland done to try and bring this jurisdiction in line with “the great civil codes of France, Germany and Switzerland”?
Well there are in fact several specific doctrines and concepts which do to an extent correspond with those civilian concepts of good faith and fair dealing. We have the equitable doctrines of unconscionability, fraud on a power and the principal that he or she who comes to equity must come with clean hands. If you want the Judge to order the other side to act fairly you have to have acted fairly yourself.
Why then, if the Courts here have gone so far in recognising other general principles of fairness, have they not yet recognised a general principle of good faith and fair dealing in commercial contracts?
Well, it may be, as Judge Hogan says, that this simply reflects the common law’s preference for incremental, step-by-step change through the case law, coupled with a distaste for a reliance on overarching general principles "not deeply rooted in the continuous, historical fabric of the case law."
Fair enough. But that's no comfort to a party who has been perhaps immorally but certainly lawfully shafted. Worse, when corporate Ireland is busting a gut to get business in here, what do we say to the rest of the world when we say there is no concept of fair dealing or good faith in our commercial relations? Come to Ireland and either take your chances; or bring a team of lawyers; or adopt UNIDROIT. But if you're really interested in good faith commerce then you're probably better off in France because the Irish Courts won't help you.
From a public policy point of view surely we can't afford an incremental step-by-step process which will ultimately bring us in line with competitors that already dwarf us?
In the meantime, whatever size deal you are contemplating, make sure you tool up. Get yourself an outstanding corporate lawyer who can spot the pitfalls that you can’t, and who will view the future and the opposing party through the lens of bitter experience not the sparkled prism of the crystal champagne flute.
The partners in Leman have advised on some of the largest shareholder agreements and M&A transactions and (entirely unrelated!) have advised parties on some of the largest shareholder and M&A disputes in the history of the state.
Contact Ronan McGoldrick or Dominic Conlon.
Ms Justice Mary Finlay Geoghegan agreed with Breccia there was no “general principle” of good faith and fair dealing in Irish contract law beyond recognised examples such as partnerships and in insurance law.