Joint Venture Parties Beware: The Implied Duty To Act In Good Faith In Relational Contracts In Common Law Jurisdictions

The classical rules based theory of contract is a legal fiction, as far as long term contracts are concerned. Ronald Coarse postulated that long term contracts are of necessity incomplete, and the parties need to monitor and adjust their relationship from time to time in changing circumstances.

From 2004-2009, I was privileged to research on relational contracts and the works of Ian MacNeil and Stewart Macaulay at the Centre Of Legal Dynamics For Advanced Market Societies (CDAMS) of Kobe University, Japan.

In Asian societies, harmony and relationships are important considerations in business and social relations.

It is now refreshing to see a greater willingness among common law judges to recognize legal realism in the world of business. Implying a duty to act in good faith in “relational contracts” is a good start and will no doubt shake the common law world on the law of contracts.

Joint venture parties in common law jurisdictions will now need to consider if they owe an implied duty to act in good faith when dealing with their joint venture partners as their judiciary may apply the principles of Al Nehayan v Kent in future disputes.

“The decision in Al Nehayan v Kent is another instance of the courts implying a duty of good faith into a long-term, collaborative, joint venture agreement.

… commercial parties to long-term joint venture agreements should take note. In the event of a dispute, the courts may not regard them simply as investors in a commercial venture but rather as partners (in a general sense) trying to achieve a common aim and who owe one another an implied duty to act in good faith.”


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