The High Court has summarily dismissed a claim for breach of implied duties of good faith, holding that there was no gap in the relevant agreements that needed to be filled and in any event the contracts were not relational in nature: Svella Connect Limited v Virgin Media Limited [2026] EWHC 2223 (TCC).
The decision includes a thorough review of the case law on both the implication of terms generally and implied terms of good faith specifically. The decision suggests that the key question is not whether a contract is "relational", but whether the parties’ agreement has been fully set out in their contract and, if it has not, whether a term should be implied. In considering a proposed implied term of good faith in the case of a long-term collaborative agreement, the court might be assisted by considering the characteristics of a relational contract as a sense check. However, this is not an alternative to applying the orthodox rules for the implication of a term, which set a high bar.
This decision will give comfort to commercial parties that vague requirements of good faith will not lightly be implied into even long-term commercial contracts. Parties who wish to impose obligations of good faith may be well advised to do so expressly and, where appropriate, seek to limit or exclude any implied duty of good faith. Careful thought should also be given to the drafting of any express terms, including whether some indication can be given of the actions required – or not required – to satisfy the obligation of good faith.
Background
Virgin Media Limited (Virgin) creates and expands data networks throughout the UK using contractors operating pursuant to framework agreements. Virgin entered into three framework agreements with NMCN plc which were later novated to Svella Connect Limited (Svella). The framework agreements governed the terms on which Svella would provide network services to Virgin’s order.
Relations between the parties deteriorated, with Svella alleging that Virgin had begun putting pressure on it in various respects, including by removing a particular rate for work and reducing build volumes. The parties entered into an Exit & Settlement Agreement (the settlement agreement) under which two of the framework agreements would be run down and, subject to various conditions, Svella would be guaranteed certain volumes of work under the third agreement. In the event, the volume of work specified in the settlement agreement was scaled back significantly.
Svella alleged that the agreements were relational contracts, that there was an implied term of good faith, and that Virgin was in breach.
Virgin denied that there was any basis for implying a term of good faith, or any breach of such a term. It described Svella’s allegations as an attempt to cast perfectly ordinary business conduct as nefarious.
Virgin applied for summary judgment or strike out of Svella's case on good faith.
Decision
The High Court (Pepperall J) granted summary judgment in favour of Virgin. Svella was refused permission to plead its reformulated case on good faith.
Legal framework
The court began with a detailed review of the case law on the implication of terms generally and terms of good faith specifically.
Implication of terms
The court noted that the first step was to construe the express words of a contract, and only then consider the issue of the implication of terms.
A contractual term could be implied either as a matter of fact in the circumstances of a particular case or as a matter of law, whether by statute or as a necessary incident of a particular kind of contractual relationship.
The test for implication of a term in law was rooted in necessity but might draw on a broader range of factors such as the term’s reasonableness and fairness.
Put simply, the conditions for implying a term in fact were that the term must be: reasonable and equitable; necessary to give business efficacy to the contract; so obvious it goes without saying; capable of clear expression; and not contradict any express term of the contract.
In Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2015] UKSC 72 (considered here), the Supreme Court added further gloss to the analysis, noting that:
- The implication of a term was not critically dependent on proof of an actual intention of the parties when negotiating the contract.
- A term should not be implied into a detailed commercial contract merely because it appears fair or because the court considers that the parties would have agreed it if it had been suggested to them.
- The requirement that a term is reasonable and equitable will not usually, if ever, add anything.
- Business efficacy and obviousness can be alternatives - only one of them needs to be satisfied (although usually both will be).
- If approaching the implication of a term by reference to the officious bystander requirement, the question to be posed must be formulated with care.
- Necessity for business efficacy involves a value judgment. A more helpful way of putting the requirement might be that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.
Implied terms of good faith
An important review of whether English law of contract recognises an implied term of good faith had been carried out by Leggatt J in Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB) (see here). In particular, Leggatt J observed that a duty of good faith might be implied by law as an incident of certain categories of contract. He referred in this regard to so-called relational contracts which required a high degree of communication, cooperation and performance based on mutual trust and confidence and involved expectations of loyalty not legislated for in express contractual terms but implicit in the parties’ understanding and necessary to give business efficacy to the arrangements.
In Bates v Post Office (No. 3) [2019] EWHC 606 (QB), Fraser J listed the following non-exhaustive characteristics of a relational contract:
- There must be no express terms in the contract that prevent a duty of good faith from being implied.
- The contract will be a long-term one.
- The parties intend their roles to be performed with integrity and fidelity to their bargain.
- The parties are committed to collaborating in performance of the contract.
- The spirits and objectives of their venture may not be capable of being expressed exhaustively in a written contract.
- They each report trust and confidence on one another, but of a different kind to a fiduciary relationship.
- The contract involves a high degree of communication, cooperation and predictable performance based on mutual trust and confidence
- There may be a degree of significant investment or financial commitment in the venture.
- The relationship may be exclusive.
Subsequent case law has made it clear that these characteristics are to be viewed as a sense check and have not replaced the traditional tests for implication of terms.
On the basis of this review, the court considered that the critical enquiry was not whether the contract was relational, but whether the parties' agreement had been fully set out in their contract and, if it had not, whether the pleaded terms should be implied.
The correct starting point was for the court to analyse the parties' express bargain and consider whether, on conventional Marks & Spencer principles, any pleaded implied term of good faith was made out. In doing so, the court should consider the true nature of the contract and the extent to which the parties had already regulated the terms of their relationship. A term could not be implied in respect of a matter that the parties had already provided for in their contracts, because an implied term was intended to fill a gap, not to rewrite a contract.
In considering a proposed implied term of good faith in the case of a long-term collaborative agreement, the court might be assisted by considering the Bates checklist as a sense check. However, this was not a substitute for the orthodox rules for the implication of terms.
English law did not recognise a requirement of good faith as a duty implied by law into all commercial contracts, and the general drift of cases since Yam Seng had been to consider the implication of any duty of good faith in fact rather than in law. However, the nature of Virgin's application meant addressing the tests for implication in both fact and in law. Necessity should remain at the heart of the approach on either basis.
Application to the facts
Framework agreements
The framework agreements were detailed commercial agreements based on NEC standard terms. They included an express obligation to act in a spirit of mutual trust and co-operation which already regulated how the parties were to collaborate. While the agreements ran for three years and were extendable for five years, Virgin had an unfettered right to terminate. The agreements established the terms on which Svella might be awarded individual binding contracts. Such agreements were expressly not joint ventures, and there was no guarantee of an award of work or that work provisionally allocated would proceed. There was no exclusivity and Virgin had an express right to seek competitive bids and award orders as it saw fit.
Virgin had established that there was no gap in the framework agreements which would make it necessary to imply the pleaded terms for reasons of business efficacy. Nor were the pleaded terms so obvious that they went without saying.
Applying the Bates criteria as a sense check, the indicators did not support the implication of good faith terms, for reasons including the following:
- The initial contract period of three years (extendable to five) was not especially long term.
- There was no particular intention that the parties perform their roles with integrity and fidelity to their bargain.
- Express terms already addressed collaboration and mutual trust and imposed limited and one-sided obligations of cooperation on Svella. These clauses regulated the parties’ relationship and there was no need to imply like terms.
- The agreements already captured the true spirit of the parties' venture, which was essentially a time-limited agreement that Svella pre-qualified to compete for work without any guarantee that work would be awarded.
- Although substantial communication was required, there was no obligation of loyalty or exclusivity.
- No particular investment or financial commitment was required by the agreements.
On this basis, the court concluded that the framework agreements were not relational contracts in the sense described by the authorities and there was no basis for implying the pleaded terms in fact.
Nor was there a basis for implying the terms in law, first because the framework agreements were not relational, and secondly because proof of a relational contract did not of itself give rise to duties of good faith as a matter of law. The touchstone remained necessity, and there had been no attempt to establish that the implied terms were necessary in this case.
Settlement agreement
The pleaded terms were even less tenable in respect of the settlement agreement.
It was 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. The contract already included an express agreement that Virgin should use reasonable endeavours to find replacement volume, which meant that an implied term was unnecessary and would be rewriting the parties' bargain. It was also unlikely that an agreement bringing to an end agreements that were not themselves relational would be itself regarded as relational.
Applying the Bates criteria as a sense check confirmed that there was no basis for implying the pleaded terms.
The court concluded that the settlement agreement was not a relational contract and there was no basis for implying the pleaded terms in fact, nor in law, for the same reasons as for the framework agreements.
There was therefore no prospect of Svella establishing the pleaded implied terms at trial.
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