Implied duties of good faith

New Balance v Liverpool (High Court) [2019]

The English courts have traditionally been very reluctant to imply duties of good faith into contracts governed by English law but this attitude seems to have changed significantly over recent years to the point where contracting parties seem to readily accept that such a term will often be implied. This is one such example where the court’s role was to determine what such an implied term required of the parties.


The terms of an agreement relating to the manufacture and branding of Liverpool FC kit required the parties to negotiate in good faith its renewal during the "first dealing period". If no agreement was reached, the club could enter into negotiations with a third party competitor of New Balance and New Balance had the right to match that third party's offer. The contract stated that New Balance had thirty (30) business days from the date of receipt of a third-party offer to notify the club in writing if it would “enter into a new agreement on terms no less favourable to the club than (i) the terms of this Agreement and/or (ii) the material, measurable and matchable terms of such third- party offer." The question was whether New Balance had matched the offer made by Nike. The terms of the New Balance offer matched the Nike offer virtually word for word. In particular:-

The club said it did not consider the New Balance offer to be a genuine one. This was because of what was described as ‘the contrived and unconsidered replication of the warranties and terms in the Nike offer, and because New Balance cannot deliver on those terms’.

It was apparently common ground that in addition to the express obligation of good faith to negotiate referred to above (about which there was no allegation of breach), there was an additional implied obligation of good faith relating to the exercise of the option to match a third party offer but the scope of that duty needed to be determined. New Balance argued that it would only be in breach of the implied term of good faith if it did not intend to meet, or knew that it could not meet, the terms of its offer. The club argued that the duty was breached if New Balance either knew or did not care that it could not match the Nike offer, or it had no reasonable grounds for such belief.


Teare J held that the duty of good faith or ‘fair dealing’ can be breached not only by dishonesty but also by conduct that lacks ‘fidelity to the parties' bargain’. In determining whether a party has not been faithful to the parties' bargain it is necessary to consider:

The question can be summarised as ‘Whether reasonable and honest people would regard the conduct in question as commercially unacceptable’. If New Balance had no intention to meet or knew that it could not meet the distribution obligation then it would be acting dishonestly, which would be in breach of the implied duty of good faith. However, if it honestly believed that it could meet the distribution obligation but its grounds for so believing were unreasonable then this would not be acting in breach of the implied duty of good faith. Its conduct would be innocent, albeit careless or imprudent. Breach of the implied duty of good faith would require New Balance to be reckless (i.e. not to care) as to whether it could meet the distribution obligation.

The judge concluded that that there was no evidence that the senior leadership team (‘SLT’) of New Balance was reckless as to whether it could meet the distribution obligation. On the contrary the SLT wanted a due diligence exercise carried out before deciding to match Nike's offer. Even if the state of mind of the more junior managers is to be attributed to New Balance (about which the judge drew no conclusion) the judge found no evidence of recklessness on their part. The estimates produced regarding the number of stores through which Liverpool products could be distributed were bold and “aggressive" as they were requested to be, but there is no evidence that they made estimates not caring whether they were accurate or feasible. The judge held that the senior leadership team of New Balance had acted in good faith when it submitted the matching distribution offer.

That is not the end of the story. New Balance ultimately lost the case because of a failure to match the terms of the Nike marketing offer precisely. The Nike offer had contained the words "of the calibre of Lebron James, Serena Williams, Drake, etc." (when describing global superstars in connection with the marketing offer) but these were not repeated in the New Balance offer. The New Balance offer was therefore held to be less favourable to the club.

Points to Note:

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