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Ask the Expert: The Emergence Of Relational Contracts - What They are and Why They are Important?

Published: 22 Nov 2019 Average Rating: 4.5 / 5 Print
 

Author: Paul Goulding

The term 'relational contract' has been around for a while and was included in a UK case decided 6 years ago. Since then the phrase has been used several more times in judgments but typically where the cases in question involved some fairly extreme behaviour by one of the contracting parties and often where the written contract in question was fairly brief and rudimentary, between smaller enterprises and entered into without the benefit of much by way of professional legal advice. A case in 2018 seemed to change all that when the term was applied to a contract running to many hundreds of pages entered into between two very substantial organisations with the benefit of very extensive legal advice. We waited to see whether that was something of a 'one-off'. Now we have the answer with a judge confirming that 'the concept of relational contracts is an established one in English law'.

Why is this important? It is incredibly important because the classification of a contract as a relational contract would seem to materially impact how the contract is likely to be interpreted; make it more likely that terms will be implied (including implied duties of good faith - something which the English Courts have traditionally frowned upon) and impact how contracting parties can exercise any contractual discretion.

It is therefore vital to understand the characteristics of a relational contract so as to be able to identify them, advise accordingly and investigate what, if anything, can be done to avoid the possible adverse consequences of and potential uncertainty created by a relational contract. English contract law has always been praised for its stability and certainty but query whether this is a development in the wrong direction?

 

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