Svella v Virgin Media: English High Court Rejects Implied Good Faith Claims in Commercial Contracts

In Svella Connect Ltd v Virgin Media Limited [2026] EWHC 2223 (TCC), the English High Court has considered the circumstances in which duties of good faith will be implied into English law governed commercial contracts.

The decision rejects the proposition that there is a special regime governing the incorporation of a duty of good faith into a relational contract or that duties of good faith arise as a matter of law from such a contract and clarifies that:

• The proper application of the orthodox rules for the implication of a term in fact is required. This involves consideration of the question of necessity and the application of the conventional principles set out in Marks & Spencer plc v BNP Paribas Securities Services Trust Co. (Jersey) Ltd [2015] UKSC 72;
• A general duty of good faith will ordinarily not be implied into commercial contracts, save for in very specific circumstances; and
• It is inherently unlikely that duties of good faith will be implied into settlement agreements —which, by their nature, are intended to bring an end to a commercial relationship.

BACKGROUND

Virgin Media Limited ("Virgin Media") creates and expands fibre optic data networks throughout the United Kingdom using contractors operating pursuant to framework agreements. From 2023, it has provided network services to a single customer, nexfibre. Each year, nexfibre sets out its planned volume and location of work for the following year, following which Virgin Media enters into agreements with its framework contractors to allocate the anticipated work. Virgin Media entered into three framework agreements (the "Framework Agreements"), which were later novated to Svella Connect Limited ("Svella").

The Framework Agreements were detailed contracts based on New Engineering Contract ("NEC") standard terms and contained an express obligation to act "in a spirit of mutual trust and co-operation." The contracts contained no guarantee of work. Instead, Virgin Media could seek competitive bids, award work at its discretion and terminate the Framework Agreements for convenience with twelve months' notice.

Relations between Virgin Media and Svella deteriorated from March 2024. In July 2024, the parties entered into an Exit & Settlement Agreement under which Svella waived claims under two framework agreements while Virgin Media agreed to award further work in relation to the remaining Framework Agreement subject to certain conditions.

In November 2024, nexfibre notified Virgin Media that it was scaling back its plans for 2025, with the result that fewer than one-third of the installations contemplated in the Exit & Settlement Agreement were now planned for that year, adversely impacting the volume of work to be provided to Svella by Virgin Media.

Svella alleged that both the Framework Agreement and the Exit & Settlement Agreement were "relational contracts" giving rise to implied duties of good faith, and that Virgin Media had breached those duties resulting in a reduced volume of work being provided to Svella.

The Law on Implied Terms/Duties of Good Faith

In Marks & Spencer v BNP Paribas, the UK Supreme Court held (inter alia) that for a term to be implied into a contract that term must be necessary to give business efficacy to the contract.

In parallel, whilst English law has not traditionally recognised a general duty of good faith in commercial contracts, since Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB), courts have accepted that duties of good faith might be implied into certain "relational" contracts—long-term, collaborative agreements based on mutual trust where the parties have not exhaustively specified their obligations. In Bates v Post Office (No. 3) [2019] EWHC 606 (QB), Fraser J identified nine non-exhaustive characteristics of relational contracts to be used in determining whether a particular contract falls within this category.

Decision in Svella

In Svella, it was asserted that the existence of a relational contract gives rise to the implication of a duty of good faith as a matter of law. Pepperall J held that the critical inquiry is not whether a contract is considered "relational" but whether the parties' agreement has been fully set out in their contract and, if not, whether the pleaded implied terms should be implied in fact on orthodox principles. The Bates criteria provide a useful sense check of whether a contract is relational but are not a substitute for the conventional Marks & Spencer test for implied terms.

The correct starting point is to analyse the parties' express bargain and consider whether, as a threshold matter, the test for implied terms (per Marks & Spencer) is satisfied. In doing so, the court should have regard to the true nature of the contract and the extent to which the parties have themselves regulated the terms of their relationship.

A term cannot be implied in respect of a matter that the parties have already expressly provided for in their agreement, because the purpose of the implication of terms is to fill the gaps left by the parties rather than to rewrite their contract. In the case of a long-term collaborative agreement, the Bates test provides a useful sense check but does not constitute an alternative to a proper application of the orthodox rules for implication of a term in fact.

The Framework Agreements

The Court found no gap in the framework agreements requiring an implied term. These were detailed commercial contracts based on NEC standard terms, with an express "mutual trust and co-operation" clause. The parties had expressly agreed that no work was guaranteed, that Virgin Media was free to seek competitive bids and award work as it saw fit, and that the agreements were terminable at will or for convenience. Applying the Bates criteria confirmed this conclusion: the agreements lacked the characteristics of relational contracts.

Exit & Settlement Agreement

The judge found the implied good faith case "even less tenable" in relation to the Exit & Settlement Agreement. Pepperall J held that the starting point is that it is inherently unlikely that duties of good faith should be implied into a carefully negotiated settlement agreement intended to bring an end to a troubled commercial relationship.

This position was reinforced when applying the Bates criteria. The Exit & Settlement Agreement was not long-term in nature, and did not seek to establish a framework for the parties' ongoing relationship. Instead, it carefully set out the terms upon which the parties were to exit the Framework Agreements and settled the parties' previous disputes. There was nothing in the wording of the Exit & Settlement Agreement, or the context in which it was negotiated, to indicate that the parties had any expectation of mutual trust, confidence, or loyalty.

The Court accordingly dismissed Svella's claims and granted Virgin Media summary judgment.

Conclusion

Despite the recent "avalanche" of good faith claims (see at [76]), the outcome in Svella is consistent with an established body of case law which shows that English courts are generally reluctant to imply duties of good faith into commercial contracts, and that claims based on implied duties of good faith rarely succeed.

Significantly, the decision indicates that the Court will treat the label "relational" as describing the quality of the agreed relationship rather than as a factor determinative of whether terms should be implied into the contract. The Bates criteria serve as a sense check in making this determination, rather than operating as a substitute for the proper application of the orthodox rules for the implication of a term in fact.

The key takeaway is that if parties genuinely intend their agreements to be subject to a duty of good faith, they should provide for this specifically in the contract by including an express term that sets out the scope of that duty and the circumstances in which it applies. Particular scrutiny should be applied to the questions of necessity and the ordinary test for implication of terms when considering claims or defences which rely on implied obligations of good faith.