Originally from The Law and Practice of International Arbitration: Essays in Honor of John Fellas – Preview Page

When applicable, an implied covenant of good faith and fair dealing (“the implied covenant” or “GFFD”) protects contracting parties’ mutual expectations of performance and provides a cause of action when those expectations are not satisfied. This essay examines implied covenant claims by contrasting its applications across two divergent jurisdictions: in New York, this covenant has applied to every contract as a matter of law for decades; while in England, it is a much newer and elusive concept, yet steadily growing in importance. This essay also addresses certain practical consequences for parties, counsel, and arbitrators in the two cities with which we closely associate John Fellas, namely, New York and London. 

1. THE UBIQUITOUS IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING UNDER NEW YORK LAW 

Under New York law, “all contracts imply a covenant of good faith and fair dealing in the course of performance.” 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 153 (2002) (emphasis added); see also Restatement (Second) of Contracts § 205 (1981) (“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.”). The implied covenant “embraces a pledge that ‘neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.’” Jennifer Realty, 98 N.Y.2d at 153 (quoting Dalton v. Educational Testing Serv., 87 N.Y.2d 384, 389 (1995)).