When does the implied term of good faith apply?
As a guiding principle, courts will imply a term of good faith and fair dealing into a franchise agreement. This obliges each party to exercise the powers conferred on it under the agreement in good faith and reasonably, and not capriciously or for some extraneous purpose. Therefore, unless a franchise agreement specifically states that there is to be no duty of good faith or fair dealing, which few franchisors would be bold enough to insist upon, the franchisor must act in good faith. What is good faith? Good faith embraces three notions: • an obligation on the parties to co-operate in achieving the objects of the contract; • compliance with honest standards of conduct, and • compliance with standards of conduct which are reasonable having regard to the interests of the parties.A party can act to promote its own “legitimate interests”, but must not act “capriciously”. The duty of good faith may require the franchisor to exercise its contractual rights (including any right to terminate
