Insurance case law

Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB)

In short: Leggatt J held that English law does not recognise a general duty of good faith implied by law into all commercial contracts, but that a duty of good faith can be implied in fact in an ordinary commercial contract on the ordinary principles of implication, and is more readily implied in longer-term “relational” contracts such as distributorships, franchises and joint ventures.

Citation

Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB) — High Court of Justice, Queen’s Bench Division, 2013.

Citation, court and year verified against the official judgment text published by The National Archives, Find Case Law (https://caselaw.nationalarchives.gov.uk/ewhc/qb/2013/111).

Neutral citation: [2013] EWHC 111 (QB)
Court: High Court of Justice, Queen's Bench Division
Judge: Mr Justice Leggatt
Case number: HQ11X00722
Judgment date: 1 February 2013
Full text: Find Case Law, The National Archives

Facts

On 12 May 2009 the parties entered into a written contract entitled the Manchester United Distribution Agreement. Under it the defendant, International Trade Corporation Limited (ITC), granted the claimant, Yam Seng Pte Limited, a Singapore company, the exclusive rights to distribute certain fragrances bearing the Manchester United brand name.

The relationship went wrong. ITC delivered the second order placed by Yam Seng very late and failed to make products available when it had promised them. Separately, ITC misled Yam Seng about the steps it had taken to ensure that the domestic retail price of the products in Singapore was not lower than the duty free price, which mattered directly to the value of the distribution rights Yam Seng had bought. ITC also threatened not to honour the rights it had granted Yam Seng in respect of Hong Kong and Macau.

Yam Seng terminated the agreement and sued. It argued, among other things, that the agreement contained an implied term requiring the parties to deal with each other in good faith.

Issue

The question of general importance was whether English law recognises a duty of good faith in the performance of commercial contracts, and if so on what basis: as a duty implied by law into all commercial contracts, or as a term implied in fact in a particular contract on the ordinary principles of construction and implication.

Decision

Leggatt J found for Yam Seng. His conclusions, summarised at the end of the judgment, were that ITC was in breach of contract in delivering the second order very late, in failing to make products available when promised, and in acting in bad faith in misleading Yam Seng about the Singapore pricing. The last of those breaches, together with the threat not to honour the Hong Kong and Macau rights, was repudiatory and justified Yam Seng in terminating the agreement. Yam Seng was entitled to recover its net loss resulting from the agreement as damages for breach of contract, and to recover the same loss under section 2(1) of the Misrepresentation Act 1967, having been induced to enter the agreement by false representations that ITC held a licence to manufacture and sell the products. ITC's counterclaim failed.

Ratio decidendi

The reasoning that made the case well known is narrower than it is often reported to be, and it is worth stating precisely.

First, Leggatt J accepted that under English law a duty of good faith is implied by law as an incident of certain categories of contract, such as contracts of employment and contracts between partners or others in a fiduciary relationship. But he doubted that English law had reached the stage where it was ready to recognise a requirement of good faith as a duty implied by law, even as a default rule, into all commercial contracts.

Second, he held that there was no difficulty in implying such a duty in an ordinary commercial contract by the established English methodology for terms implied in fact, based on the presumed intention of the parties. Contracts are made against a background that includes not only facts known to the parties but shared values and norms of behaviour, of which an expectation of honesty is the paradigm example.

Third, he observed that many contracts do not fit the model of a simple exchange but involve a longer-term relationship in which the parties make a substantial commitment. Such “relational” contracts may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence, and may involve expectations of loyalty that are not spelt out in the express terms. He gave joint venture agreements, franchise agreements and long-term distributorship agreements as possible examples.

Fourth, the test of good faith is objective: it depends not on either party's perception of whether conduct was improper but on whether, in the particular context, the conduct would be regarded as commercially unacceptable by reasonable and honest people.

How far the case goes, and how far it does not

Yam Seng is a first-instance decision of the High Court. It did not create a general duty of good faith in English commercial contracts, and Leggatt J expressly declined to say that English law had reached that point. What it did was to hold that a good faith obligation can be implied in fact where the contract, read as a whole against its background, supports the implication, and to identify relational contracts as the category where that implication is most likely to be available.

It should also be kept separate from the duty of utmost good faith in insurance law. That doctrine has its own statutory history and its own remedies, and it concerns the placing of the risk rather than the performance of a commercial bargain. Our notes on utmost good faith and on good faith under the Insurance Act 2015 deal with that separately.

Significance for professional firms and their insurers

The practical relevance for professional indemnity is in the kind of contract professional firms increasingly sign. Long-term framework agreements, outsourced service arrangements, panel appointments, distribution and reseller agreements and joint ventures all have the features Leggatt J described. Where a court is prepared to imply a good faith obligation into such an arrangement, the range of conduct that can amount to breach widens beyond what the express terms describe.

That matters at notification. A professional indemnity policy is generally written around civil liability arising from the conduct of the professional business, and the trigger and exclusions vary considerably between wordings. An allegation framed as bad faith performance of a commercial contract may sit differently from an allegation of negligent advice, and some wordings treat liabilities assumed under contract, or trading losses and trading liabilities, differently again. The point is not that such claims are uninsurable; it is that the contract wording and the policy wording need to be read together rather than separately. See our note on breach of contract cover under a PI policy.

Frequently asked questions

Did Yam Seng create a general duty of good faith in English contract law?

No. Leggatt J accepted that a duty of good faith is implied by law into certain categories of contract such as employment and partnership, but doubted that English law was ready to recognise such a duty implied by law, even as a default rule, into all commercial contracts. What he held was that a good faith duty can be implied in fact in an ordinary commercial contract on the presumed intention of the parties.

What is a relational contract?

In the judgment it describes a contract that involves a longer-term relationship in which the parties make a substantial commitment, requiring a high degree of communication, cooperation and predictable performance based on mutual trust and confidence, with expectations of loyalty not spelt out in the express terms. Leggatt J suggested joint ventures, franchise agreements and long-term distributorship agreements as possible examples.

How is good faith tested?

Objectively. The judgment states that the test depends not on either party's perception of whether particular conduct is improper but on whether, in the particular context, the conduct would be regarded as commercially unacceptable by reasonable and honest people.

What did Yam Seng actually recover?

It was entitled to recover its net loss resulting from the agreement as damages for breach of contract, and the same loss under section 2(1) of the Misrepresentation Act 1967, having been induced to enter the agreement by false representations that ITC held a licence to manufacture and sell the products. ITC's counterclaim failed.

Is this an insurance case?

No. It is a commercial contract case, and it is indexed here because the good faith and relational contract reasoning affects how liabilities arise under the long-term agreements that professional and technology firms sign, which in turn affects how those liabilities are notified and defended under a professional indemnity policy. It is separate from the doctrine of utmost good faith in insurance contracts.

References

This page is insurance information, not legal advice. Statutory references and case citations are stated as at August 2026 and were checked against legislation.gov.uk and the National Archives Find Case Law service. If limitation or contractual liability is live on a matter, take your own legal advice.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.

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