High Court Finds Breach Of Express Obligations Of Good Faith But No Loss

The decision shows that conduct which undermines the parties' bargain may be in breach of a good faith clause.

In a recent decision, the High Court found that a party had breached an express duty of good faith in a collaboration agreement to bid for a large tunnelling sub-contract on the HS2 project, but that the breach was not the cause of the innocent party's loss as the bid would have been rejected anyway: Matière SAS v ABM Precast Solutions Ltd [2025] EWHC 1434 (TCC).

The decision is a useful reminder of how courts will interpret and enforce express obligations of good faith in commercial contracts. In particular, the decision illustrates that conduct which is dishonest, commercially unacceptable, or which undermines the contract's purpose may be held to breach a good faith clause.

The case also illustrates that, to be awarded substantial damages, the innocent party must prove that the breach actually caused it to suffer loss – such as, in this case, the loss of a real and substantial chance to win the sub-contract which was the subject of the collaboration agreement. Although the court accepted that the claimant originally had a real and substantial chance of being awarded the sub-contract, and that chance diminished over time, it held that the breach was not the cause of that loss.

Background

The dispute arose out of a large contract for tunnelling works on the HS2 route. The main contractor for the works was a joint venture called EKJV. Two companies, Matière and ABM, bid jointly for a sub-contract for part of the works: Matière would design the tunnels and co-ordinate their installation; ABM would manufacture them.

Matière and ABM entered into a Collaboration Agreement and a Consortium Agreement to govern their joint bid. These contracts both contained clauses with express good faith obligations, such as this clause 3.1 in the Consortium Agreement:

The joint bid failed. Matière subsequently contracted directly with EKJV for the installation of the tunnels.

Matière sued ABM for unpaid fees. ABM counterclaimed, alleging that Matière had breached its good faith obligations by undermining the joint bid in a variety of ways. ABM argued that, but for those breaches, it was virtually certain to be awarded the sub-contract and earn £19 million in profit.

In the alternative, ABM claimed an account of profits, on the basis that Matière's subsequent contracts with EKJV were entered into in breach of clause 3.2 of the Collaboration Agreement, which precluded Matière from entering into any related contract or engagement while that agreement remained in force.

Decision

The Court (Alexander Nissen KC, sitting as a Deputy High Court judge in the Technology and Construction Court) held that both the Consortium Agreement and the Collaboration Agreement imposed enforceable express duties of good faith.

In interpreting these clauses, the court applied the principles set out in cases such as Yam Seng Pte Ltd v ITC Ltd [2013] EWHC 111 and, in particular, the recent Court of Appeal case of Re Compound Photonics Group Ltd [2022] EWCA Civ 1371 (considered in our blog post here). These principles include that:

1. A duty of good faith requires parties to act honestly and not to engage in conduct that would be considered commercially unacceptable by reasonable and honest people.
2. The content of the duty is heavily conditioned by its context, including any more specific provisions in the contract.
3. Good faith may require fidelity to the bargain or adherence to the spirit of the agreement, where the common purpose and aims of the parties can be objectively ascertained. In such cases, conduct which might be expected to undermine the bargain entered or the substance of the contractual benefit bargained for could breach the duty.

Applying these principles, the court found that the relevant clauses in this case contained a requirement that each of ABM and Matière would act honestly with each other and would not engage in commercially unacceptable conduct. The court was also satisfied that, in this case, the obligation included keeping fidelity to the bargain, because the common purpose and aim of the parties was apparent from the contract, ie to submit a joint bid to EKJV on which ABM and Matière were agreed.

The court held that Matière had breached these obligations. In particular, it had failed to support a proposal from ABM to build a factory in Scunthorpe to manufacture the tunnels, and had indicated to EKJV that use of a different factory may be cheaper without first discussing this with ABM. Matière had also explored alternative manufacturing options, which would either reduce ABM's scope of work or replace them entirely, without ABM's knowledge. The court found that these actions were dishonest and/or commercially unacceptable, and that by acting in that manner, Matière had not adhered to the spirit of the parties' bargain (ie the submission of a joint bid).

However, ABM failed to establish that the breaches caused it loss. The court accepted that, at the start of the bid process, the joint bid had a real and substantial chance of winning; and that by the end of the process, it had no real prospect of success. But it held that Matière's breaches played no material part in the diminution in the bid's chance of success. This was principally because the judge concluded, having undertaken a careful review of the contemporaneous evidence, that EKJV's decision to reject the joint bid was driven by concerns that EKJV had already identified, relating to the cost, efficiency and quality of the units ABM would manufacture. As such, even if Matière had complied with its good faith obligations, the joint bid would still have been rejected.

The court also dismissed ABM's secondary claim for an account of profits from Matière's later contract with EKJV, finding that clause 3.2 did not apply because the Collaboration Agreement had been terminated when the joint bid was rejected.

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