Oct 2026
In other jurisdictions, an implied covenant of good faith and fair dealing is a familiar feature of the contractual landscape. However, save for in narrow and exceptional circumstances, English common law will not imply a general duty of good faith into commercial contracts.
The recent English High Court decision in Svella Connect Ltd v Virgin Media Ltd [2026] EWHC 2223 (TCC) provides valuable clarification on the law concerning “relational contracts” and the duty to act in good faith.
The reasoning is likely to be persuasive in the Cayman Islands.
What is a Relational Contract?
A “relational contract” is a long-term commercial agreement where the parties’ obligations are defined not just by strict written terms, but by an ongoing commitment to co-operation, trust, and flexibility. Courts may recognise certain long-term arrangements as relational contracts. When they do, the law may imply a duty of good faith.
The Decision
Svella, a fibre network contractor, became party to three framework agreements with Virgin Media by novation, and later entered into an Exit & Settlement Agreement under which it would withdraw from two of them.
When Virgin Media’s own customer scaled back its build plans and work volumes fell away, Svella alleged breaches of implied good faith terms. Svella pleaded that each was a “relational contract” requiring a high degree of communication, co-operation and predictable performance based on mutual trust and confidence. Virgin Media sought summary judgment, submitting that “Svella’s allegations of bad faith against Virgin Media seek to cast perfectly ordinary conduct as nefarious”.
Pepperall J held that neither agreement was a “relational contract” and that there was no basis for implying the pleaded terms, whether in fact or in law. He granted summary judgment and refused permission to plead the reformulated particulars of breach.
Analysis
The decision is a clear signal that the English courts will continue to take a conservative approach to implying duties of good faith into contracts.
The “relational” label is descriptive rather than determinative
Pepperall J observed that it is: “curious to categorise a contract as relational or not by reference to whether there is a gap in the drafting”, preferring to use the label “to describe the quality of the agreed relationship”.
He stated that “[t]he critical enquiry is not then whether the contract is relational but whether the parties’ agreement has been fully set out in their contract and, if it has not, whether the pleaded terms should be implied”.
Proving a “relational contract” is not enough
Pepperall J did not accept that proof of a relational contract gives rise to duties of good faith as a matter of law and stated that the touchstone “remains necessity even if such test is to be applied differently from when considering business efficacy”.
The nine characteristics of a “relational contract” identified by Fraser J in Bates v Post Office (No. 3) were applied, but expressly as a cross-check rather than a test, consistent with Coulson LJ’s warning in Candey Ltd v Bosheh that “the elusive concept of good faith should not be used to avoid orthodox and clear principles of English contract law”.
Pepperall J commented that this reflects the wider trend “that there has been “something of an avalanche of claimants in recent years trying to show that the contract into which they seek to imply the term is a relational contract” but only “relatively few” have succeeded.”
Comprehensive drafting leaves no room for implication
The framework agreements ran to over 200 pages. They required the parties to act “in a spirit of mutual trust and co-operation”, disclaimed any guarantee that Svella would be awarded work, entitled Virgin Media to seek competitive quotes and place orders as it saw fit, and were terminable by Virgin Media at will and by either party for convenience on notice. There was no gap to be filled.
The settlement agreement fared worse still, as “[t]he starting point is that it is inherently unlikely that duties of good faith should be implied into a carefully negotiated settlement agreement intended to bring to an end a troubled contractual relationship”
Key Takeaways
- No general duty: There is no general doctrine of good faith in contract at common law.
- Necessity is the test, not the character of the relationship: A long-term, collaborative relationship built on trust is not enough. What matters is whether there is a gap in the express bargain and whether the proposed term is necessary or obvious.
- Precision in drafting is the real protection: If a party wants comfort as to volumes, exclusivity, renewal or exit, it must bargain for them. Nor will boilerplate provisions do the work. A mutual trust and co-operation clause reduces the scope to imply anything further, and an entire agreement clause was held not to be determinative either way.
- Do not treat good faith as a reliable fallback in a dispute: An allegation of bad faith is a serious one, and a party that has not secured its position in the drafting may find the point determined against it at an early stage rather than at trial.
Ultimately, whether a good faith obligation arises in any given case will turn on the particular instrument, the relationship between the parties and the framework applicable to the entity concerned. Depending on the precise context, duties of good faith may arise by operation of statute (for example, as a matter of Cayman law, general partners of an exempted limited partnership owe duties of good faith under statute) or based on irreducible fiduciary duties.
Sanctity of contract is a pillar of Cayman Islands law. Sophisticated parties want certainty. As such, although there may have been an “avalanche” of claims based on implied terms of good faith of late, this recent decision suggests that, as a matter of English or Cayman Islands law, parties are still likely to be held to the strict letter of their commercial bargains.
This article is not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only and is intended merely to provide a brief overview and give general information. For advice on the application of these principles to a particular matter, please contact the authors or your usual Conyers contact.