You don’t gotta have good faith, faith, faith

Natalie Kaminski

In proceedings over disputed commission payments, the High Court found no implied obligation of good faith in a contract between an independent financial advisor, Mr Wales, and his client, CBRE the property management business: Wales v CBRE.

The contract related to Wales’ advisory services about a group pension scheme, under which CBRE’s employees obtained pensions issued by Aviva. The dispute sparked when CBRE moved its employees to a new pensions platform (as it was statutorily required to do) without the continuing involvement of Wales.

Commissions previously payable to Wales ceased. Aviva acted to claw back advance commissions it had paid to Wales’ intermediaries (which in turn clawed back Wales’ share) in anticipation of premiums that never materialised. Wales sought unsuccessfully to recover these commissions.

One issue was whether there’d been an implied term that CBRE would deal honestly with and in good faith to Wales, or just honestly. The court held the latter.

A duty of good faith wasn’t assumed as a legal incident of their relationship for two reasons. First, CBRE’s primary duties were owed to its employees on the group pension scheme, not agents or third parties providing advice on it. CBRE couldn’t have assumed implied obligations to third parties to the potential disadvantage of its employees. Secondly, the contract between them resembled more of a retainer than a joint venture – it wasn’t for a fixed term, and was expressly terminable by either party at any time upon two days’ notice, without penalty.

Neither was good faith implied at common law under the “rigorous” test of necessity. Since a duty to act honestly was in fact implied (and conceded by CBRE), it wasn’t necessary to imply an additional duty of good faith to make the contract workable.