Legal Method

Part I

The negotiation stage

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Negotiating the contract

Introduction

Lord Atkin once remarked that: ‘Businessmen habitually . . . trust to luck or the good faith of the other party . . .’.1 This comment2 provides more than an insight into the motivations of businessmen. It also implicitly acknowledges a limitation of the common law in policing the activities of contractors: the law no more ensures the good faith of your contractual partner than it guarantees your good fortune in business dealings. However, this might not be an accurate description of the purpose of the law relating to pre-contractual negotiations. In an important judgment that was notable for its attempt to place the legal principles under discussion in a broader doctrinal and comparative context Bingham LJ in the Court of Appeal observed that:3

In many civil law systems, and perhaps in most legal systems outside the common law world, the law of obligations recognises and enforces an overriding principle that in making and carrying out contracts parties should act in good faith . . . It is in essence a principle of fair and open dealing . . . English law has, characteristically, committed itself to no such overriding principle but has developed piecemeal solutions to demonstrated problems of unfairness.

This judgment makes it clear that the gap between civil and common-law jurisdictions is exaggerated by observations at too high a level of generality. While it is true to say that the common law does not explicitly adopt a principle of good faith, it is as obviously untrue to say that the common law encourages bad faith. Rather the jurisdictional difference is one of control technique. The common law takes a more fragmented approach with several doctrines providing redress in respect of narrowly defined examples of bad faith between contractors, frequently without any acknowledgement of the shared purpose of the different doctrines.4 Notwithstanding Bingham LJ’s observations about...