What good faith means
Good faith is honesty in dealing, and not acting so as to defeat the point of the agreement.
It is easier to describe by its absence. A party who technically complies with every clause while deliberately frustrating what the contract was for is not acting in good faith. A party who exercises a discretion arbitrarily, or for a purpose unconnected with why the discretion was given, is not either.
Nigerian law, following the common law tradition, does not imply a general overarching duty of good faith into ordinary commercial contracts. Parties are largely free to act in their own interests, and a party who exercises a right the contract gave them is not usually criticised for doing so.
Where good faith obligations do arise, they come from three places: an express clause, a relationship the law treats as fiduciary, or a specific statutory or regulatory requirement.
How it is used
In practice good faith appears in drafting rather than in doctrine.
Parties write it in. A joint venture agreement requiring the parties to cooperate in good faith. A dispute resolution clause requiring good faith negotiation before arbitration. A long term supply contract requiring good faith discussion of price adjustments. A shareholders agreement requiring the parties to act in good faith in exercising reserved matter consents.
Those clauses have real content, but they are also softer than they look. A duty to negotiate in good faith does not oblige anybody to agree, and a court will not write the deal the parties failed to reach.
Where the obligation bites hardest is in relationships the law already treats as requiring loyalty. A director owes duties to the company. A partner owes duties to the partnership. An agent owes duties to the principal. A trustee owes duties to the beneficiaries. In each of those, honesty and loyalty are not optional add ons written into a clause. They come with the role.
Key features
- Honesty in dealing and not defeating the purpose of the agreement
- Not generally implied into ordinary Nigerian commercial contracts
- Arises from express clauses, fiduciary relationships or statute
- Fiduciary relationships include director, partner, agent and trustee
- A duty to negotiate in good faith does not require agreement
- Insurance contracts carry a distinct duty of utmost good faith
How this works in Nigeria
Insurance is the standing exception and it catches Nigerians out regularly.
Insurance contracts are contracts of utmost good faith, which imposes a positive duty of disclosure on the person taking out the policy. Material facts must be disclosed even where no question was asked about them, and non disclosure can allow the insurer to avoid the policy. A claim declined years later, over something the policyholder never thought to mention, is the practical consequence.
Directors' duties are the other significant application. CAMA 2020 codified them, requiring a director to act in what they believe to be the best interests of the company, to exercise their powers for a proper purpose, to avoid conflicts and not to make secret profits. That is a good faith obligation with statutory force.
Partners and agents sit in the same category. A partner who diverts a partnership opportunity, or an agent who takes a secret commission, has breached a duty that exists because of the relationship rather than because anybody wrote it down.
For ordinary commercial dealings, the practical Nigerian advice is unchanged: if you want the other side obliged to cooperate, say so in the contract, and describe what cooperation actually means.
Good faith vs fiduciary duty vs utmost good faith
Three levels of obligation, rising in strictness.
Good faith, as an express contractual term, requires honesty and not deliberately undermining the bargain. Both parties may still pursue their own commercial interests.
A fiduciary duty is much stronger. The fiduciary must act in the other party's interest rather than their own, avoid conflicts entirely, and account for any profit made from the position. Directors, partners, agents and trustees owe it.
Utmost good faith, which applies to insurance, imposes a positive duty of disclosure. You must volunteer material facts, not merely refrain from lying about them.
The practical distinction is what silence means. In an ordinary contract, saying nothing is usually fine. In a fiduciary relationship, saying nothing about a conflict is a breach. In insurance, saying nothing about a material fact can void the policy.
Limits and risks
A general good faith clause is vague, and vagueness cuts both ways. Courts are cautious about using it to override express terms the parties agreed, so it rarely rescues a party from a bad bargain.
A duty to negotiate in good faith is particularly weak. It does not require anybody to reach agreement, and enforcing it usually means establishing that a party did not engage at all rather than that they engaged unreasonably.
Good faith also cannot supply terms the contract omitted. Where the parties failed to agree a price mechanism, no obligation of good faith will invent one.
And proving bad faith is difficult. It requires evidence of purpose and motive, which is exactly what parties do not put in writing.
Worth knowing
If you need the other side to cooperate, describe the cooperation rather than asking for good faith. Deadlines, information to be provided, approvals not to be unreasonably withheld and consequences for failure are enforceable. A clause requiring the parties to act in good faith usually is not, on its own.
Questions people ask
Is there a duty of good faith in Nigerian contracts?
Not as a general implied term in ordinary commercial contracts. It arises where the parties wrote it in, where the relationship is fiduciary, or where a statute or regulation imposes it.
Which relationships carry good faith duties automatically?
Fiduciary relationships, including director to company, partner to partnership, agent to principal and trustee to beneficiaries. Those duties come with the role rather than from a clause.
What is utmost good faith?
The higher standard applying to insurance contracts, imposing a positive duty to disclose material facts even where no question was asked. Non disclosure can allow the insurer to avoid the policy.
Does a duty to negotiate in good faith mean we must agree?
No. It requires genuine engagement, not agreement, and courts will not write the deal the parties failed to reach. It is one of the weaker obligations to rely on.
Can a good faith clause override the express terms?
Rarely. Courts are cautious about using a general good faith obligation to displace terms the parties actually agreed, so it seldom rescues a party from a bad bargain.
How should I draft for cooperation?
Specifically. Set deadlines, list the information each side must provide, say that approvals will not be unreasonably withheld, and state the consequence of failure. That is enforceable where a general good faith clause is not.