High Court refuses to imply term of good faith

Myers v Kestrel Acquisitions [2015] EWHC 916 (Ch)

The Facts

As part of the consideration for a sale of the claimant’s sub- prime lending business, the first defendant (Kestrel) issued vendor loan notes to the claimants. These were documented in the Vendor Loan Note Instrument in the contract.

The Vendor Loan Note Instrument stated that:

“[Kestrel] could make any modifications to this instrument… if the modification is consistent in all material respects with any modification being made to the Discounted Loan Note Instrument”.

In reliance on this clause, Kestrel subsequently amended the Vendor Note Instrument. The claimants objected, stating that the effect of the amendments would make the vendor loan notes worthless. They asked the court to imply a term that Kestrel’s power to modify the Vendor Loan Note Instrument had to be made in good faith

The Decision

The High Court refused to imply the term. Although the clause gave the power to modify, it was not a discretion that involved a range of options. The discretion was whether or not to exercise a contractual right, which is a ‘binary choice’. This did not justify the defendant being subject to an obligation of good faith.