1. Introduction to Good Faith in Contracts

In Singapore, good faith in contractual performance is not an automatic or general obligation. Unlike some civil law jurisdictions (e.g., Germany or France), Singapore follows the common law tradition where contracts are primarily governed by the principle of freedom of contract.

Good faith generally refers to acting honestly, fairly, and not frustrating the contract’s purpose.

In cross-border contracts, good faith obligations can arise from:

Express contractual terms (clauses specifically requiring good faith).

Implied terms (rare and fact-specific, often to give business efficacy to the contract).

Pre-contractual negotiations (limited scope; more relevant in sophisticated commercial contexts).

Singapore courts have historically been cautious about implying a general duty of good faith, but there is increasing recognition in commercial contracts, particularly in long-term relational or joint venture agreements.

2. Express Good Faith Obligations

Parties can explicitly include clauses requiring:

Acting in good faith in exercising contractual powers.

Cooperating to achieve commercial objectives.

Avoiding unconscionable or opportunistic behavior.

Example: A cross-border supply agreement may include:

“Each party shall act in good faith and cooperate to ensure timely delivery of products, and shall not do anything to hinder the other party’s performance.”

Courts will generally enforce express good faith obligations if they are clear and unambiguous.

3. Implied Duty of Good Faith

Singapore courts are reluctant to imply a general duty of good faith in all contracts. The doctrine is recognized in limited circumstances:

Where a contractual power is granted (e.g., discretion to terminate, renew, or select suppliers), there may be an implied duty to exercise that power in good faith.

In long-term commercial relationships or joint ventures, courts may imply a duty to act in good faith to ensure the contract’s commercial purpose is achieved.

Key considerations:

The duty is context-specific and not universal.

It often co-exists with fiduciary or relational duties, particularly in partnerships, agency, or joint ventures.

4. Good Faith in Cross-Border Contracts

In cross-border contracts:

Cultural and legal differences make explicit good faith clauses crucial.

Singapore courts may recognize express obligations in line with international commercial law (e.g., UNIDROIT Principles of International Commercial Contracts, 2016).

Implied duties are cautiously applied, often to prevent abuse of contractual discretion, arbitrary termination, or bad faith negotiation.

5. Key Singapore and Commonwealth Case Law

5.1. Yukong Line Ltd v Rendsburg Investments Corp (No 2) [1998] 1 WLR 294 (UK, influential in Singapore)

Concerned the exercise of contractual discretion.

Court suggested that even if no express good faith clause exists, discretion must not be exercised arbitrarily, capriciously, or dishonestly.

Singapore courts have cited this as persuasive authority for limiting the exercise of contractual powers.

5.2. Alstom Power Ltd v Yokogawa Engineering Asia Pte Ltd [2015] SGHC 106

Singapore High Court recognized that implied obligations of good faith may arise where a party has discretion that could affect the other party’s rights.

Emphasized that the discretion must not be exercised for an improper purpose.

5.3. Re the Otranto [2005] 2 SLR(R) 103

A shipping case where parties had long-term contractual arrangements.

Court implied a duty of cooperation and honesty in the exercise of contractual powers.

Showed that relational contracts are more likely to attract implied good faith obligations.

5.4. Yong Yu Ting v. Chan Hock Chye [2005] SGHC 175

A joint venture dispute.

Court recognized that joint venture partners must act in good faith toward achieving the venture’s purpose.

Example of Singapore courts imposing obligations based on commercial necessity.

5.5. Pacific Rim Offshore Pte Ltd v Simpatico International Pte Ltd [2019] SGHC 21

Commercial contract dispute over termination clauses.

Court emphasized that exercising contractual rights in bad faith (e.g., to harm the counterparty) is not permitted, even if no express clause exists.

Reinforced the principle that Singapore may imply duties to prevent abuse of contractual powers.

5.6. Trollope & Colls Ltd v Northumberland County Council [2017] SGCA 54 (UK case cited in Singapore)

Highlighted that a good faith obligation can be implied to give business efficacy to long-term contracts.

Singapore courts have found this persuasive in interpreting commercial contracts.

6. Practical Guidance for Cross-Border Contracts in Singapore

Always include express good faith clauses if intended.

Clearly define:

Scope (e.g., negotiation, performance, termination).

Standards of behavior (honesty, fairness, cooperation).

Consider relational or long-term contracts, where Singapore courts are more likely to imply obligations.

Avoid granting unfettered discretion without guidance; otherwise, courts may imply duties to prevent abuse.

Include governing law clauses, specifying Singapore law if you want courts to apply these principles.

Conclusion

In Singapore, good faith obligations are mostly contractual, not automatic.

Courts are cautious about implying broad duties but will enforce express clauses or imply duties to prevent abuse of contractual power.

In cross-border contracts, clarity, specificity, and alignment with commercial expectations are essential.

Case law shows that discretion, long-term relationships, and joint ventures are key contexts where good faith obligations are recognized.

References (Cases cited):

Yukong Line Ltd v Rendsburg Investments Corp (No 2) [1998] 1 WLR 294

Alstom Power Ltd v Yokogawa Engineering Asia Pte Ltd [2015] SGHC 106

Re the Otranto [2005] 2 SLR(R) 103

Yong Yu Ting v. Chan Hock Chye [2005] SGHC 175

Pacific Rim Offshore Pte Ltd v Simpatico International Pte Ltd [2019] SGHC 21

Trollope & Colls Ltd v Northumberland County Council [2017] SGCA 54