More than a leap of good faith to override express terms

Published Date
Jun 8, 2023
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  • Emma Jing
A relational contract containing a duty to act in good faith could not be implied to contradict express termination provisions.

Contractual termination on short notice vs. implied umbrella agreement

Mackie, a car dealership, entered into a series of written dealership agreements with Renault and Nissan for the promotion, sale and repair of cars. Mackie also entered into framework contracts with RCI (a Renault subsidiary) under which car financing might be provided on a case-by-case basis. The express terms of the dealership agreements provided that they could be terminated with 24 months’ notice; for the RCI framework contracts, the express provision was just 7 days’ notice.

RCI became concerned about whether Mackie was involved in money laundering and terminated the RCI framework contracts, relying on the short notice provision.

To counter this, Mackie wanted to argue that there was an umbrella “relational” agreement between the parties under which finance and other ancillary services were provided. Further, Mackie wanted to say that this implied umbrella agreement contained the following implied terms:

  • that the parties would act in good faith; and 
  • that RCI would not withhold services, including the provision of finance, or terminate the umbrella agreement without good cause and a reasonable notice period of at least 24 months (ie the notice period in the dealership agreements).

The court had to decide whether these arguments had a real prospect of success, or whether they should be struck out. The judge had struck them out. Mackie appealed.

Good faith cannot contradict express written provisions

The court did not find that there was any basis for an implied umbrella agreement. Moreover, even if an umbrella agreement did exist, along with an implied duty of good faith, that duty would not be enough to compel RCI to continue advancing funds. 

The RCI contracts were framework agreements under which finance could be provided. They did not impose an obligation on RCI to lend at any particular level (or, indeed, at all). RCI could exercise its discretion as to whether it wanted to lend from time to time. 

Therefore, the implied terms would undermine the very nature of the RCI contracts. There was “no room for the alleged implication”. It would be “entirely inconsistent” with the express written terms and would amount to “an attempt to re-write the RCI contracts”. A duty of good faith could not be relied upon by Mackie to imply terms contrary to the express written provisions of the RCI contracts.

The court therefore dismissed Mackie’s appeal.

Judgment: Mackie v RCI

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This content was originally published by Allen & Overy before the A&O Shearman merger

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Emma Jing