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19th June 2015

It’s not fair, it’s commercial

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A distribution agreement case has emphasised that when the Courts are asked to interpret a commercial contract, unless the relationship defined by the contract is one to which the law itself requires the parties to act in good faith towards each other (eg employment law or partnership law) or where the parties expressly agree to vest duties of trust and confidence in each other in their dealings, the Courts are disinterested in whether the application of the contract terms is fair. They respect the original bargain.

The case in question involved the examination of the termination provisions of the contract. The mechanism for termination of the agreement was sufficiently clear for the manufacturer to be given summary judgment against the claimant distributor. The Court would not imply a term that termination of the agreement had to be in good faith. The fact that the manufacturer had been publicly saying positive things about the distributor and at the same time had been looking for a replacement for the distributor, was neither here nor there. There was no dishonesty in that conduct. There were commercial reasons for what the manufacturer had done and the distributor’s tenure was governed by the agreement. (Ilkerler Otomotive Sanayai Ve Ticaret Anonim Sirketi & another v Perkins Engines Company Limited (2015).

So, if you want your counterparty to act fairly towards you, you need to make that clear when drafting the agreement.

See our Contracts and Commerical Agreement services page for more information or click here to email Dominic.