Key Takeaways
- In Svella v Virgin Media, the High Court held that calling a commercial contract “relational” does not automatically create a duty of good faith.
- An implied term must be necessary for the contract to work, or so obvious that it goes without saying. Fairness alone is not enough.
- Detailed clauses on work allocation, performance, payment, discretion and termination can leave no gap for wider implied obligations.
- Settlement and exit agreements are particularly unlikely to carry implied good faith duties where they resolve disputes and make conditional commitments.
- A good faith allegation that repeats a debt or express breach claim adds nothing. Liability turns on what the contract required.
- Courts can dispose of weak implied term claims through summary judgment, without a full trial.
- Go Legal litigates commercial contract disputes in the High Court and the Business and Property Courts for claimants and defendants.
- Go Legal is rated Excellent with over 300 five-star reviews and 5/5 on Trustpilot and Google, placing our solicitors among the best-reviewed litigation lawyers in England and Wales.
Can Relational Contracts Imply Good Faith in England and Wales?
Only where the contract leaves a genuine gap and a good faith term is necessary to fill it. Describing a long-term commercial arrangement as “relational” does not, by itself, create an implied duty of good faith.
The High Court confirmed this in Svella Connect Ltd v Virgin Media Ltd [2026] EWHC 2223 (TCC). A framework contractor alleged that Virgin Media breached unwritten duties of good faith by cutting work, withholding payment and issuing performance notices. The court granted summary judgment to Virgin Media because those claims had no real prospect of success.
English law has no general doctrine of good faith in commercial contracts. The court’s starting point was the parties’ express bargain. The real question is not whether the other side behaved unfairly. It is whether the contract already governs the disputed conduct, or leaves a gap that makes an implied term necessary.
The ruling matters to any business using framework agreements, supply contracts, contractor arrangements or negotiated exits. If your contract gave the other party discretion to allocate work, invite competing bids, manage performance or terminate, a court will not usually use good faith to take that right away.
We litigate commercial contract disputes in the Business and Property Courts, including the Technology and Construction Court where Svella was decided. We act for claimants suing for breach and for defendants resisting novel implied term claims.
What Was the Commercial Background to the Dispute?
Svella Connect Limited held framework agreements under which it could compete for fibre-optic network work from Virgin Media Limited. From 2023, Virgin Media provided network services to a single customer, Nexfibre Networks Ltd, trading as nexfibre.
The Framework Agreements
Virgin Media entered three NEC-standard-form Framework Agreements with NMCN plc:
- The Lightning Framework Agreement, dated 7 May 2019, covered expansion into new network areas.
- Two Morpheus Framework Agreements, dated 14 February 2020, covered network extensions in the North West and in Yorkshire and the East Midlands.
NMCN entered administration, and the agreements were novated to Svella in October 2021.
Each agreement ran to more than 200 pages. Clause 10.2 required the parties to “act in a spirit of mutual trust and co-operation”. The initial term was three years. Virgin Media could extend each agreement twice by 12 months, to a maximum of five years.
Virgin Media could terminate at any time under clause 26.2, for example if it no longer required Svella’s work. Clause 26.2A allowed either party to terminate for convenience on at least 12 months’ written notice. Recital 3 stated that Virgin Media gave no guarantee or representation that Svella would be appointed to carry out any works. The Morpheus terms also stated that the arrangements created no partnership or joint venture.
How Was Work Allocated?
The Framework Agreements set the terms on which Svella might receive separate Work Orders or Package Orders. Each order required the parties’ agreement, and Svella was not paid until one was in place. Virgin Media’s decision on awarding an order was final and could not be contested.
Before each financial year, nexfibre published an Opportunity Plan setting out planned volumes and locations. Virgin Media then negotiated provisional allocations with contractors, weighing price, delivery rates, installation quality, health and safety compliance and capacity.
Allocations stayed provisional. Actual work depended on nexfibre calling it down, approving detailed design and local-authority work, and approving the contractor’s formal proposal before giving approval to build. Contractors often carried out less work than the Opportunity Plan suggested.
How Did the Relationship Break Down?
Relations deteriorated from about March 2024. Svella alleged that Virgin Media removed a rate for work from mobile elevating work platforms and proposed ladders to save money, exposing workers to injury risk. Virgin Media denied changing rates unilaterally and said platforms could still be used and charged where justified.
Svella also alleged that Virgin Media “victimis[ed]” it by reducing build volumes after it objected and tried to charge for aborted customer visits.
On 24 July 2024, the parties signed an Exit & Settlement Agreement. Svella agreed to leave the Morpheus agreements by 31 March 2025 and waived its intimated Morpheus claims. In return, Virgin Media agreed to award further Lightning work:
- Schedule 1 earmarked a FY25 build allocation of 74,000 plus 22,000 brought forward, and Schedule 2 identified 96,372 installations.
- Virgin Media would grant 50% of that allocation, subject to its governance process and Svella’s quality and delivery KPIs.
- Svella would have postcode exclusivity across the Central Area for the remainder, to the extent projects proceeded there.
- Svella would receive a minimum of 15% of Central Area volume in FY26, subject to governance on cost per premises.
- If nexfibre rejected a build, Virgin Media would use reasonable endeavours to replace it.
In November 2024, nexfibre scaled back its FY25 plans. Only around 26,000 of the 96,372 installations remained planned.
Svella alleged that Virgin Media committed repudiatory breaches of the Exit & Settlement Agreement, which would allow it to revive the settled Morpheus claims. It said Virgin Media breached implied duties of good faith by intending to “starve” it of work, withholding payment, issuing unjustified Performance Improvement Plans, failing to grant committed volumes, encouraging rivals to bid and concealing its intentions. Svella abandoned its claims for fraudulent misrepresentation, intimidation and exemplary damages before the hearing, leaving the good faith case to stand or fall alone.
What Questions Did the Court Decide About Implied Good Faith?
Svella pleaded that each party had to act honestly, not frustrate the contract’s purpose, and not act in a way reasonable and honest people would regard as commercially unacceptable. The court had to decide:
- Did the Framework Agreements carry implied duties of good faith? Virgin Media argued that implication depends on necessity or obviousness, not on a relational label, and that the detailed terms left no gap. Svella argued that the agreements were relational and involved expected collaboration in allocating work.
- Did the Exit & Settlement Agreement carry such duties? Virgin Media argued that an agreement designed to end troubled dealings was not relational. Svella argued that it required continuing co-operation, so breaches supported its repudiation case.
- Could the duties be implied in fact or in law? Implication in fact gives a particular contract business efficacy. Implication in law treats a term as a necessary incident of a type of contract, such as employment. Svella said relational status justified implication. Virgin Media said necessity was still essential.
- Did the new allegations disclose any viable breach? Virgin Media said some duplicated express claims and others pleaded no completed cause of action. Svella said an intention to frustrate the bargain could itself breach good faith.
What Is a Relational Contract?
A relational contract is a long-term, collaborative arrangement that depends on continuing co-operation and communication. In Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB), the court held that English law does not imply good faith into all commercial contracts. It recognised that some long-term relationships require communication, co-operation and predictable performance based on mutual trust and expectations of loyalty not fully expressed in writing. The concept was applied in Al Nehayan v Kent [2018] EWHC 333 (Comm).
In Bates v Post Office Ltd (No. 3) [2019] EWHC 606 (QB), the court identified nine non-exhaustive characteristics of relational contracts. They include duration, integrity, collaboration, trust, communication, investment, exclusivity and consistency with the express terms. No single factor is decisive, except that a term inconsistent with an express term cannot be implied.
How Did the Court Apply the Implied Terms Test?
The court held that no duty of good faith could be implied into either the Framework Agreements or the Exit & Settlement Agreement, whether in fact or in law.
Why Is Necessity More Important Than Fairness?
Under Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, an implied term must be:
- Reasonable and equitable.
- Necessary for business efficacy.
- Capable of clear expression.
- Consistent with the express terms.
- So obvious that it passes the officious bystander test.
A term cannot be implied merely because it is fair, or because the parties would have agreed to it if asked. The court explained:
“The critical enquiry is not then whether the contract is relational but whether the parties’ agreement has been fully set out in their contract and, if it has not, whether the pleaded terms should be implied.”
The court added that “Necessity must remain at the heart of the approach on either basis”, meaning implication in fact or in law. Following Candey Ltd v Bosheh [2022] EWCA Civ 1103, the Bates characteristics were treated only as a sense-check, not a substitute for the orthodox test. The court also drew on UTB LLC v Sheffield United Ltd [2019] EWHC 2322 (Ch), where the relational label was not allowed to replace orthodox analysis. It relied on Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396 for the point that good faith can be implied only where the contractual language, read in context, permits it.
Why Was There No Gap in the Framework Agreements?
The court assessed implication at the date of novation, not with hindsight. It described the agreements as:
“The Framework Agreements were essentially the terms therefore on which Svella pre-qualified to compete for work without any guarantee that work would be awarded.”
It also observed:
“There was no obligation on Virgin Media to place any work with Svella, no right of exclusivity to work within a geographical area, and no obligation on Svella to bid for or accept work.”
Clause 10.2 already regulated co-operation, so there was nothing left for a similar implied term to do. Svella identified no gap and did not explain why its terms were necessary or obvious. The proposed duties also conflicted with the express provisions on guaranteed work, competing bids and termination.
The Bates sense-check pointed the same way:
- A three-year term, extendable only to five and terminable at will or for convenience, was not especially long term.
- The planning process involved real communication, but no expectation of loyalty or exclusivity.
- The agreements required no investment. Svella bought NMCN’s assets to acquire its business, not because the agreements demanded it.
- Alleged investment based on assurances of a long-term relationship could not survive the entire agreement clauses.
The agreements were therefore not relational contracts. Implication in law also failed: relational status would not itself create a good faith duty, and Svella made no attempt to establish necessity. Because the contracts and background were already before the court, a trial would not have improved Svella’s position.
Why Are Exit and Settlement Agreements Unlikely to Include Wider Good Faith Duties?
The court found the proposed duties “even less tenable” in the Exit & Settlement Agreement. It was inherently unlikely that good faith obligations would be implied into a carefully negotiated settlement intended to end a troubled relationship.
The express reasonable endeavours obligation already governed replacement volume, so a wider term would rewrite the bargain. The agreement regulated an exit, not an ongoing collaboration, and left the Lightning agreement otherwise unchanged. The court called it:
“a hard-edged settlement transaction and not some broader agreement where the parties were yet to work out how they might collaborate together.”
The limited FY25 and FY26 exclusivity did not convert it into a relational contract.
Why Did the Individual Good Faith Allegations Fail?
The court also tested each alleged breach, in case its conclusion on implication was wrong.
Payment and committed volumes. If money or work was contractually due, Svella could recover it without a good faith term. If it was not due, refusing it was not commercially unacceptable. As the court put it: “There is nothing commercially unacceptable – or one might say sharp – about not paying monies that are not in fact due.”
Intentions. These allegations came from a covert recording of a call between Svella’s managing director and Virgin Media’s commercial director, who shared Virgin Media’s thinking about its options. Pleading that Virgin Media intended to de-scope work or starve Svella of work, without alleging that it actually did so or seeking relief, disclosed no complete cause of action.
Competitive bids. Encouraging a rival to bid caused no loss in itself. If work went elsewhere, the question was whether Virgin Media was contractually obliged to give it to Svella.
Performance action. The contracts already contained detailed machinery on Service Levels, audits, Performance Improvement Plans, suspension and step-in rights, qualified by reasonableness. The court said: “The implication of such a term would be to rewrite the parties’ contract which was to use a touchstone of reasonableness and agreed Service Levels.” The allegation that Virgin Media had no honest belief in its safety and performance complaints was also not properly particularised.
The court granted summary judgment on the good faith claims. Svella was otherwise allowed to amend its claim, but not to add the new particulars of breach.
How Does Svella v Virgin Media Affect Commercial Contracts?
The judgment shifts disputes back to the written bargain. The practical consequences differ depending on which side of the contract you sit.
How Can Claimants Identify the Strongest Contractual Route?
Framework contractors and other claimants should test their case before alleging bad faith:
- Gather the agreement, schedules, variations, Work Orders, forecasts, notices and correspondence.
- Pin down the precise complaint: non-payment, reduced work, a Performance Improvement Plan, suspension or termination.
- Find the clause that governs it and decide whether it creates a binding obligation, a discretion, a condition or a reasonable endeavours duty.
- Ask whether the proposed implied term fills a genuine omission or contradicts the agreed allocation of risk.
- Consider whether an express breach of contract claim or debt claim is the clearer route.
- Take advice before alleging dishonesty. Serious allegations need proper particulars and evidence, and allegations about the other side’s intentions must be tied to actual conduct and loss.
How Can Defendants Respond?
Operators and other defendants should preserve the records showing how they used their contractual rights. These include procurement records, performance data, payment calculations, governance decisions, customer communications and notices.
Map each allegation to the clause that authorised the decision, imposed an unmet condition or provided a dispute process. Where the contracts and background facts are already clear, an early summary judgment application may stop a weak implied term claim before it reaches an expensive trial.
How Can Businesses Reduce Good Faith Disputes?
Directors should make sure the written agreement reflects how the relationship will work when demand, performance or goodwill changes. Review:
- whether forecasts and allocations are informative, provisional or binding;
- when Work Orders become binding and whether minimum volumes apply;
- whether work is exclusive or open to competitive tender;
- conditions linked to customer demand or third-party approvals;
- performance standards, audits, Performance Improvement Plans, suspension and step-in procedures;
- payment, dispute resolution and termination rights; and
- the scope of any express co-operation obligation.
If the parties genuinely want good faith obligations, they should write them in. An express co-operation clause will be read within its proper scope, not as a wider duty of loyalty.
On an exit or settlement, state precisely whether future work is guaranteed, conditional on governance, KPIs or customer demand, exclusive within a defined area, or subject only to reasonable endeavours. Limited continuing work will not turn a settlement into a relational contract.
How Can Businesses Preserve Their Position When a Relationship Breaks Down?
Follow the contract’s notice, payment, performance and dispute procedures precisely. Record the contractual power used, the information relied on, any conditions that applied and the reasons for each decision.
Assume that calls may be recorded and later scrutinised, as happened in Svella. Discussing commercial options is not a breach in itself, but careless communications can make a dispute harder and costlier to defend.
Frequently Asked Questions
Get Expert Help With Relational Contract Disputes
The outcome of a good faith dispute usually turns on the written contract, its schedules and the evidence of how decisions were made. Acting early helps you identify the strongest express claim, preserve key documents and avoid spending money on an implied term argument that a court may dismiss summarily.
Our solicitors act for claimants and defendants in commercial contract disputes before the High Court and the Business and Property Courts, including the Technology and Construction Court. We can review your framework agreement, settlement terms and evidence, then advise on a practical litigation strategy. Call 0207 459 4037 or book a free consultation with our team.
