Court of Appeal rules there is no general duty of good faith in contract law

The Court of Appeal in the case of Flynn v Breccia has overturned a High Court decision that ruled there was a general principle of good faith in Irish contract law.

The case involved a shareholders’ agreement relating to the Blackrock Clinic. Breccia was a shareholder who acquired loans overdue for repayment of another shareholder, Benray Lim-ited.

The other shareholders in the clinic had provided cross-security for Benray’s loans, and the failure of Benray to repay the loan resulted in Breccia appointing a receiver over Benray’s shares in the Blackrock Clinic.

Benray argued that Breccia should be restrained on a number of grounds, including that there was an implied duty of good faith and fair dealing between the shareholders.

The High Court agreed that there was a duty of good faith in the shareholders’ agreement and restrained Breccia from appointing a receiver.

This was the first time such an implied term had been placed into a commercial contract by an Irish Court.

However, the Court of Appeal refuted this and held that Irish contract law does not recognise a general principle of good faith and fair dealing.

In some circumstances such a term may be implied but these are the exception and not the general rule.

The Court held that the shareholders’ agreement did not contain any implied term which re-stricted Breccia from calling in Benray’s loan and that the shareholders’ agreement was not the type of contract to which any general duty of good faith applies.

The judgment offers clarity to those engaging in commercial contracts that they will not be held to the ambiguous duty to act with good faith in their dealings with their contractual partner.

The decision reaffirms the general principle that contractual construction in a commercial contract will be generally confined to what the parties have agreed to in the written terms of the contract.

Flynn v Breccia IECA 74