Use your discretion: good faith constraints on discretionary contractual powers

Panel: Christopher Charlton (Macfarlanes), Brandon Kain (McCarthy Tétrault), Matthijs Kuijpers (Stibbe), Matthieu Brochier (Darrois Villey Maillot Brochier)

At LIDW2025, Macfarlanes hosted a cross-border panel exploring the evolving role of good faith in the exercise of discretionary contractual powers - a decade on from Braganza v BP Shipping, the case that brought public law principles of rationality into the realm of private contracting.

The discussion brought together perspectives from England, Canada, the Netherlands and France. While each jurisdiction recognises good faith in different guises, all are grappling with how far judicial oversight should go when a party exercises discretion under a contract.

• England remains cautious but curious. The Braganza duty continues to develop in case law, requiring that discretion be exercised in a rational and non-arbitrary manner. It stops short of importing a freestanding duty of good faith - but we’re seeing what might be called “scope creep” as more cases test the limits.
• Canada offers a hybrid approach. Outside of Quebec’s civil code, the “organising principle of good faith” is now firmly established. Parties must act honestly and exercise discretion reasonably, and these obligations cannot be contractually excluded. There is, however, still some uncertainty about how far these obligations will go when assessing key contractual provisions - particularly around termination rights and negotiation duties.
• The Netherlands uses good faith as a civil law correction mechanism. Courts assess whether a party has gone beyond unfairness into unacceptable conduct - a flexible, principle-driven test.
• France takes a strongly purposive view. Good faith applies from negotiation to performance and termination, rooted in the sanctity of the binding contract. A party cannot enforce a clause if it has behaved inconsistently with it. Legal certainty and coherence are central themes.

In light of ongoing debates around algorithmic transparency and legal accountability, I asked how these duties might apply where a decision is made not by a human but by an AI system operating as a “black box”. Christopher Charlton noted that if both parties had agreed to use such a system, any legal challenge would likely focus on the outcome rather than the decision-making process.

As automated decision-making increases, assessing whether an AI has acted “reasonably” may soon test the Braganza duty in unpredictable ways… 

I attended three other compelling talks at LIDW2025 - catch up here if you missed them: 

• The culture of London arbitration: going viral or an English virus?
• Enforcing arbitration awards - cradle to grave strategies, from interim relief in support of the arbitration through to final asset recovery.
• AI in document review: best practices and lessons learned.

Burges Salmon also co-hosted two events for LIDW2025: Complex Disputes in the Public Eye I: Balancing Risks and Demands across Civil, Criminal and Regulatory Spheres; and Part II: Leveraging Technology and Artificial Intelligence to Get Ahead of the Game. Check out Tom Whittaker’s LinkedIn post and share your thoughts with us if you attended.

The evolving duties of good faith and reasonableness continue to sharpen the focus on how contractual discretions are exercised and framed. Our Dispute Resolution team at Burges Salmon regularly advises on the strategic use - and limits - of these clauses in commercial disputes, as well as on how they’re best structured to withstand scrutiny both at the drafting stage and in litigation.

Each jurisdiction recognises good faith in its own way — but all are grappling with how far judicial oversight should go when discretion is exercised under a contract.