Delaware Business Litigation Report

Court Of Chancery Explains How To Decide If The Implied Covenant Applies

In re: El Paso Pipeline Partners L.P. Derivative Litigation, C.A. 7141-VCL (June 12, 2014) This is an important decision because it explains when to fill any contractual gaps with the duties imposed by the implied covenant to act in good faith and to deal fairly.  Of course, the short answer is the covenant rarely applies, but that does not explain how to figure out when it does. This decision looks to what the parties agreed to otherwise in analogous situations to see if the so-called gap should be filed by the covenant.  The basic question was did the GP have a duty to disclose material facts to a conflict committee absent any provision for that disclosure.  Reasoning in part that the LP agreement eliminated fiduciary duties that would have imposed such an obligation, the Court held there was no reason to add those duties back in by filling any "gap" that existed in the LP agreement as to such a duty. Share