July 2004
Lunchtime Seminar Series
Presented by:
Sue Nolen
Assistant Victorian Government Solicitor
Commercial & Property Branch
Managing Good Faith
Requirements in
Government Contracts
Introduction
The law concerning good faith in the
performance of contracts in Australia has
undergone significant development.
Since the landmark decision of Renard
Constructions (ME) Pty Ltd v Minister for
1
Public Works (‘Renard Constructions’) in
1992, a breach of good faith requirements
is increasingly being claimed in litigation.
Whether there has been a good faith
requirement and if so a breach of it is often
a complex question. The answer will
depend on contract-related conduct of the
parties in the particular circumstances.
Those working in government procurement
need to be mindful of the legal
requirements of good faith when
conducting government tenders and
managing contracts, particularly when
exercising remedies for breach of a
contract.
How does good faith apply to
government contracts?
If the contract does not include an express
provision, the case law that has developed
is that the duty of good faith will be
implied.
In some contracts the government includes
an express provision to its contracts to act
in good faith. If one looks at the contracts
published by government pursuant to its
contract publishing system there is
generally a requirement for both parties to
act in good faith in reference to the dispute
resolution provisions.
(www.contracts.vic.gov.au)
Good faith has been a term implied in fact
but more recently has been treated in some
contracts as implied in law.
A term that is implied in fact is a term that
is implied by a judge based on the judge’s
view of the actual intention of the parties.
A term implied by law is implied as a legal
incident of a particular type of contract but
only if that class of contract requires it as a
2
matter of necessity and reasonableness.
This topic was the subject of the monthly VGSO lunchtime seminar held on
Thursday 29 July 2004. These notes are published with the permission
of the presenter, Sue Nolen, AVGS, Commercial & Property Branch.
The notes are not to be regarded as legal advice.
Managing Good Faith Requirements in Government Contracts
Good faith not new
Good faith is not a new legal principle.
The duty of good faith initially arose to
explain why the insured was required to
disclose to the insurer all information
3
relevant to the risk insured. The duty
however was also placed on the insurer so
that there was a mutual obligation of
disclosure prior to entering into the
contract.
In 1766, Lord Mansfield in Carter v
4
Boehm made his famous reference to good
faith as
the governing
principle…applicable to all
contracts and dealings. The policy
would be equally void against the
underwriter, if he concealed; as if
he insured a ship on her voyage,
which he privately knew had
arrived: and an action would lie to
recover the premium…Good faith
forbids either party, by concealing
what he privately knows, to draw
the other into a bargain his
ignorance of the fact and his
believing the contrary.
Despite Lord Mansfield’s endeavours to
raise good faith to the level of general
principle, the common law as it
subsequently developed rejected his
initiative. The traditional view of contract
as it became established in England in the
second half of the nineteenth century did
not impose or recognise a general duty of
good faith. Australian law also reflected
5
this view.
Traditional view caveat emptor and
freedom of contract
The traditional view of contract law was
based on the maxim caveat emptor – a
contracting party was required to look to
the protection of his or her own interests
because the law imposed no obligation on
the other party to protect those interests.
Freedom of contract was the guiding
principle. Judges did not imply a term
unless it could be justified based on the
parties’ intentions.
The contract could be administered
according to its terms regardless of how
oppressive or unfair the terms were, except
if there was a fiduciary relationship that
6
had been established.
Honesty and reasonableness
The treatment of good faith as an implied
term in Australia has led to debate about
when the duty of good faith will apply to a
particular contract and what it actually
means to a particular contract.
Even if a contract includes a term that
requires the parties to act in good faith,
consideration needs to be given as to what
the obligation actually requires.
Case law indicates that a party to a contract
will discharge the implied requirement of
good faith if a party acts honestly and
reasonably.
Good faith – procurement policies and
model litigant
An analysis of the recent case law since
Renard Constructions indicates that good
faith is very much about a baseline of
standards and overarching principles of
fairness and reasonableness.
The current procurement policies of the
State of Victoria reflect some of the types
of standards and behaviour that the legal
Page 2 of 13
Managing Good Faith Requirements in Government Contracts
7
‰
In the conduct of a tender if there is a
pre-award contract governing the
11
tender process
‰
Good faith also complements some of the
standards that the Victorian government
has adopted in the conduct of litigation
8
through the Model Litigant Guidelines.
In the conduct of a show cause
procedure prior to taking over the
12
works or terminating a contract
‰
In the exercise of a right generally to
13
terminate
Good faith applies to private parties
‰
In fulfilling the obligation arising
from a right of pre-emption (that is, a
first right of first refusal) where a
vendor must make a bona fide offer
14
to the party entitled to the right
‰
In exercising a choice conferred by a
“subject to finance” clause – the
buyer must genuinely seek finance
and make a bona fide choice about
15
whether it is suitable
‰
In the conduct of dispute resolution,
including mediation under an express
dispute resolution clause in a
16
contract
requirements of good faith require.
Policies include the requirement that
government act with fairness, integrity and
impartiality in its commercial dealings.
Good faith requirements do not only apply
to government parties. Private parties are
also bound by the requirement to act in
good faith.
Government as moral exemplar
There is increasing judicial authority that
government is a moral exemplar in its
commercial dealings in that it is required to
adhere to higher standards of conduct than
9
is expected of private sector entities.
Government having adopted procurement
policies and best practice standards in the
exercise of its powers in reference to
tenders and contracts will be judged as
being required to adhere to these standards.
Contractors will also use the claim that
government, as a contracting party is a
moral exemplar but is not complying with
the standards that it has set for itself if a
10
project starts to turn sour.
When will there be an implied term of
good faith?
Case law precedent in Australia indicates
that the courts will imply a term of good
faith in the following circumstances:
No legislation to apply good faith
universally
Unlike other international jurisdictions,
there is no legislation in Australia that
universally applies a requirement to act in
good faith when dealing in contract.
There is a range of legislation that requires
good faith to be exercised but that is in the
context of the particular issue the
legislation is seeking to deal with.
There are legal commentators who argue
that the judiciary seems to have stepped in
to fill this void through the approach to
imply a term of good faith into the contract
Page 3 of 13
Managing Good Faith Requirements in Government Contracts
and the courts are in effect setting policy
17
through rearranging the parties bargains.
The issue as to whether or not a duty of
good faith exists as an implied term in all
contracts is yet to be determined by the
High Court. The majority of the High
Court declined to decide the issue of the
existence of the obligation in Royal
Botanic Gardens and Domain Trust v
18
South Sydney City Council.
Good faith as an implied term
In the absence of an express term in the
contract requiring the parties to act in good
faith, the rules that have been developed
for implication of terms in a contract must
be satisfied to determine if there is a legal
obligation under the particular contract that
requires the parties to act in good faith.
These rules are that the implied term in a
contract:
‰
must be reasonable and equitable;
‰
necessary to give business efficacy to
the contract so that no term will be
implied if the contract is effective
without it;
‰
so obvious that it goes without
saying;
‰
capable of clear expression; and
‰
must not contradict any clear
19
expression in the contract.
There is a view currently expressed by
academics and legal commentators that the
courts have taken the wrong approach with
good faith by using implied terms of
reasonableness as a way of requiring the
parties to act in good faith. Instead, they
say good faith should be something which
is inherent in contract law itself and should
be treated as a rule of construction in
contract law such as frustration and the
rules that have been developed on
20
interpretation of contracts.
Regardless of this view, the law on good
faith as it stands is that unless the parties
have specifically provided for it in their
contract for good faith to be an implied
term the rules referred to above must be
satisfied.
United States treatment of good faith
The United States and Canada have the
requirement on a party to act in good faith
as part of their legal system.
The United States Uniform Commercial
Code S1-203 and the Restatement of
Contracts, Second s.205 explicitly provide
that parties are required to observe good
faith in the performance and enforcement
of a contract.
Good faith is defined to mean “Honesty in
fact in the conduct or transaction
concerned” (s.1-201(19) Uniform
Commercial Code). The term in s.205 is
implied subject to the qualification that
parties may expressly agree as to what
“good faith” permits or requires them to
21
do. The Restatement does not have
statutory force in any jurisdiction, but is
continually referred to by judges in the
United States as being of great persuasive
22
authority.
Continental Europe and international
instruments such as the UNIDROIT
Principles of International Commercial
Contracts and the United Nation
Convention on Contracts for the
International Sale of Goods make extensive
use of the concept of good faith.
Page 4 of 13
Managing Good Faith Requirements in Government Contracts
Requirement for reasonableness
One of the requirements for good faith is
that a party must be reasonable in the
exercise of its rights and obligations under
the contract.
It is the requirement of reasonableness that
presents the greatest challenge for
government contract managers.
Good faith and show cause notices under
standard contracts
The facts of Renard Constructions are
illustrative of the issues that good faith
requirements pose for government contract
mangers in satisfying the test of
reasonableness.
The New South Wales Court of Appeal
considered the power of the principal,
being the Minister for Public Works, to
take over the works and terminate the
contract under the terms of the standard
government construction contract NPWC
Edition 3 (1981).
Clause 44.1 of the contract entitled the
government if the contractor was in breach
or failed to comply with a direction of the
superintendent to suspend payment. The
clause also entitled the government to issue
to the contractor a ‘show cause notice’
which required the contractor to
demonstrate to the principal why it should
not exercise the powers in the clause.
If the contractor failed within the time
specified in the notice to show cause to the
satisfaction of the government, clause 44.1
entitled the State to take over the work
remaining to be completed and exclude the
contractor from site or cancel the contract.
The time for practical completion was
originally provided to be 17 January 1986,
but this was later extended to 3 March
1986. On 28 February 1986, the contractor
applied for further extensions of time.
On 4 March 1986, the principal gave notice
to the contractor to show cause before
5.00pm on 18 March as to why the
principal should not take over the work or
cancel the contract. On 17 March 1986,
the contractor in showing cause stated,
among other things, that the principal had
not yet supplied materials which it was
required to supply under the contract and
that, subject to certain qualifications, it
expected that the work would be complete
by the end of April 1986.
When the contractor did not complete the
work in time, the principal served a notice
under clause 44.1. Although there was no
doubt that the contractor was in default, it
was clear that the delay was in part
attributable to the principal’s failure to
provide necessary materials in accordance
with the contract. Subsequently, the
principal issued a notice to terminate.
The court found that the State’s decision to
terminate was based on misleading,
incomplete and prejudicial information. In
those circumstances the court considered
that the contractor was correct in its claim
that the State had not complied with an
implied term which required it as principal
to act reasonably in:
First, deciding to give notice; and
Second, exercising the power the
Principal had under the clause if
the Contractor failed to show
cause to the principal’s
satisfaction in answer to the
notice.
Page 5 of 13
Managing Good Faith Requirements in Government Contracts
Priestley JA, after reviewing the law in the
United States and the developments in
England and Europe considered that there
was a strong case for accepting a good faith
obligation similar to that in Europe and the
United States. He concluded that the
requirement to act reasonably and honestly
was implied because the rules laid down
for implication of terms had been
23
satisfied.
The difficulty of reasonableness
Renard Constructions introduces a
requirement for the principal to behave in a
reasonable manner to discharge the
obligation to act in good faith but
unfortunately provides little guidance as to
what a principal should take into account
before exercising the powers provided for
in the agreement.
The principal may believe he is acting
reasonably and honestly at the time when
the powers are exercised but a court might
think otherwise when determining a
standard of reasonableness. It was
recognised by Meagher JA in Renard
Constructions that reasonableness is almost
impossible to define. He quoted Taylor J
24
in Armstrong v State of Victoria (No.2):
But reasonableness, alone is an
abstract concept and does not by
itself provide a test for
determining what charges may or
may not be made; it is a useful
guide if, and only if, we are aware
of the various matters which must
be considered where the necessity
arises of determining where
particular charges are or are not
reasonable.
If there has been unconscionable conduct it
will always be unreasonable.
Unconscionable conduct involves conduct
that is of not fair dealing which would
‘stand condemned by ordinary standards of
25
honesty and decency’.
Good faith and a pre-award contract
governing the tender process
A government process contract under a
tender has an implied term in law that the
government must act in good faith to
tenderers.
In 1997, Finn J of the Federal Court of
Australia considered and applied Renard
Constructions in Hughes Aircraft Systems
International v Airservices Australia
26
(‘Hughes Aircraft’).
Hughes Aircraft was the unsuccessful
tenderer in a two party tender process
conducted by Civil Aviation Authority
(‘CAA’), (now Airservices Australia). The
tender process related to a project known
as the Australian Advanced Air Traffic
System. An earlier tender process had
been found by an independent report to be
unfair and unsound in many respects.
Finn J held that the RFT contract between
Hughes Aircraft and the CAA contained an
implied term that the CAA would conduct
its evaluation fairly.
His Honour considered that a general duty
of good faith and fair dealing is to be
implied in all process contracts as a matter
of law where there was a competitive
tender process contract by which a public
body was obliged to consider tenders for a
project involving the expenditure of public
funds.
In terms of the implied duty to act fairly,
Finn J stated that it prescribed an objective
standard of conduct to be adhered to by the
CAA in relation to the RFT. Conduct that
Page 6 of 13
Managing Good Faith Requirements in Government Contracts
merely gives rise to an apprehension
(however reasonable) that such might
27
occur is not enough.
Good faith moving towards being
implied in exercise of powers
It can now be assumed that there is an
implied term in all commercial contracts
that the parties are required to act in good
faith in the in the exercise of a power
conferred by the contract.
In 1999 in Garry Rogers Motors (Aust) Pty
28
Ltd v Subaru (Aust)Pty Ltd, Finklestein J
had to deal with a termination clause in a
standard form motor vehicle dealership
agreement in which the plaintiff claimed,
among other things, a breach of good faith.
Subaru terminated the agreement giving 13
months notice because the plaintiff was not
prepared to abide by Subaru’s new ‘6 star
revitalization program’ that Subaru wanted
for all of its dealers.
Finklestein J found that the case law since
Renard Constructions makes it clear that in
appropriate cases a term would:
...ordinarily be implied not as an
ad hoc term, based on the
intention of the parties but as a
legal incident of the relationship..
If such a term is implied it will
require a contracting party to act
in good faith and fairly, not only
in relation to the performance of a
contractual obligation, but also in
the exercise of a power conferred
by the contract. There is no
reason to think prima facie at
least, that the obligation of good
faith and fair dealing would not
act as a restriction on a power to
terminate a contract, especially if
29
that power is in general terms.
Finklestein J went on to say that such an
obligation would require a party not to act
capriciously or restrict the legitimate
interests of the party but that such a term
will not prevent a party from promoting its
own legitimate interests. His Honour
found that Subaru had not breached the
implied term by terminating the contract as
it had given 13 months notice. He found
that Subaru had proper grounds to
terminate because the dealing failed to
renovate its premises to the standards
30
required in the contract.
Supreme Court of Victoria follows New
South Wales decisions
In 2000, the Supreme Court of Victoria
found that the doctrine of an implied term
of good faith applied in a licence franchise
agreement with McDonald’s Australia Ltd
in Far Horizons Pty Ltd v McDonald’s
31
Australia Ltd . Bryne J stated:
I do not see myself at liberty to
depart from the considerable body
of authority in this country which
has followed the New South
Wales Court of Appeal in Renard
Constructions (ME) Pty Ltd v
Minister for Public Works. I
proceed therefore on the basis that
there is to be implied in a
franchise agreement a term of
good faith and fair dealing which
obliges each party to exercise the
powers conferred upon it by the
agreement in good faith and
reasonably and not capriciously or
for some extraneous purpose.
Such a term is a legal incident of
32
such a contract.
His Honour went on to find that
McDonald’s had not breached the implied
term in opening competing stores in the
area of the licensee and not offering the
Page 7 of 13
Managing Good Faith Requirements in Government Contracts
licensee the franchisee of the stores the
licensee wanted.
Burger King
In 2001, in Burger King Corp v Hungry
Jack’s Pty Ltd New South Wales (‘Burger
33
King’) , the New South Wales Court of
Appeal followed Renard Constructions
holding that there is an implied term of
either reasonableness or a duty of good
faith, or perhaps both, in the commercial
agreement between Burger King and
Hungry Jack’s for the operation and
development of Hungry Jack’s hamburger
34
business in Australia.
Burger King franchised its fast-food stores
in Australia and the largest franchisee was
Hungry Jack’s. The franchise agreements
were for terms of 15 years with provision
for renewal of a further 15 years.
In 1990, the parties entered into several
agreements, one of which gave Hungry
Jack’s an unrestricted non-exclusive right
to develop franchised restaurants
throughout Australia. The agreement was
for five years, with renewal provisions.
There was a provision for termination for
breach, and a provision that a 30-day notice
was required to be given in respect of any
breach capable of cure.
During 1994, the parties entered into
discussion about the feasibility of
establishing outlets in Shell service stations
under the brand name Hungry Jack’s.
However, during the course of these
discussions, Burger King began dealing
with Shell separately without Hungry
Jack’s knowledge. Continuing disputes
between the parties developed and Jim
Montgomery, Hungry Jack’s National
Development Manager provided
confidential information to Burger King,
which aided Burger King in these disputes.
In 1995, Burger King advised Hungry
Jack’s that it would not approve any more
franchisees. In 1996 and 1997, Burger
King served notices of termination on
Hungry Jack’s. One of the issues that the
court was asked to rule on was whether the
termination notices were valid and whether
Burger King had breached its obligations
of good faith and reasonableness in the
agreement.
Rolfe J implied three terms:
‰
First, a term of co-operation that
Burger King would do all that was
reasonably necessary to enable
Hungry Jack’s to enjoy the benefit of
the agreement.
‰
Second, an implied term of
reasonableness that required Burger
King to act reasonably in exercising
its powers under the agreement.
‰
Third, an implied term of good faith
that required Burger King to act in
good faith in the exercise of its
contractual powers.
Rolfe J held that the breaches by Burger
King amounted to a repudiation of the
contract. He awarded Hungry Jack’s $60
million in damages for delay in opening
restaurants, loss of opportunity to obtain
new franchisees and loss of service
royalties.
Burger King appealed but the Court of
Appeal dismissed its arguments. The
implied term of co-operation was
considered uncontroversial, on the basis of
35
the authority of Mackay v Dick. The
Page 8 of 13
Managing Good Faith Requirements in Government Contracts
court discussed the implied terms of
reasonableness and good faith at length.
The Court of Appeal cited with approval
the obiter statement of Priestly JA in
Renard Constructions concerning people’s
expectations of good faith behaviour and
his review of the influence of the American
approach. The Court of Appeal also
referred to statutory provisions, which
require reasonable and fair behaviour in
certain circumstances.
The Court also considered the three
propositions on good faith put by Sir
Anthony Mason in his 1993 Cambridge
lecture that it was probable that the concept
of good faith embraced no less than three
related notions:
‰
First, an obligation on the parties to
cooperate in achieving the
contractual objects (loyalty to the
promise itself)
‰
Second, honest standards of conduct
‰
Third, compliance with standards of
conduct which are reasonable having
36
regard to the interests of the parties
The plaintiff operated a caravan park and
camping ground in Lane Cove pursuant to
a 20 year lease that was granted in 1974
under the National Parks and Wildlife Act
1974 (NSW).
In 1992 the reservation was revoked and
the park was reserved as a national park
under s 33(2) of the Act.
A monthly lease was issued to the lessee
whilst the government made plans to call
tenders for new management arrangements
of the park. The tenant paid rent monthly
compared to the previous lease where rent
was paid every 6 months.
The court dismissed the plaintiff’s claim on
the basis that an obligation in a monthly
tenancy to act reasonably and in good faith
was inconsistent to the nature of the
contract between the parties. The essence
of a monthly lease is that giving one
month’s notice can terminate it.
The court stated that even though it might
be inconvenient for the tenant to have to
vacate within a month after the issue of the
notice, this is no basis for converting the
contract into something that it is not.
Nature of contract can exclude good faith
What does good faith mean?
The nature of the contract can exclude a
requirement to act in good faith. For
instance, good faith obligations will not be
implied in monthly tenancies.
If there is a requirement to act in good faith
what does it mean to the parties? How is it
possible to know whether the obligation of
good faith is being satisfied in a particular
contract?
In 2001 in Easts Van Villages Pty Ltd v
Minister Administering the National Parks
37
and Wildlife Act , the plaintiff claimed that
the Minister was under an obligation in a
monthly tenancy to act reasonably and in
good faith in exercising any legal right she
had to give a notice to quit.
There is no uniformly agreed definition of
good faith other than the notions that have
been expressed by particular judges in
cases such as Renard Constructions and
Hungry Jack’s.
Page 9 of 13
Managing Good Faith Requirements in Government Contracts
Can have regard to express terms of
contract
The requirement to have regard to the
interests of the other party does not mean
that a party is not entitled to have regard to
its own interests or to enforce the express
terms of the contract such as a termination
for convenience clause.
In Thiess Contractors Pty Ltd v Placer
38
(Granny Smith) Pty Ltd a contractual
obligation to act in good faith was held not
to prevent one party from invoking the
termination of convenience clause which
was also part of the contract.
than prices available in the market. On
this basis, the principal exercised the
termination for convenience clause.
Templeton J of the Supreme Court found
that:
‰
The termination for convenience
clause was clear and unambiguous in
providing the principal with an
absolute and uncontrolled right of
termination.
‰
The good faith clause did not require
the principal to act reasonably when
exercising the termination for
convenience clause. A contractual
obligation of good faith does not
prevent a party pursuing its
legitimate commercial interests, even
if that results in termination of the
contract.
‰
The obligation of good faith was to
be construed as requiring the parties
to act honestly with each other and to
take reasonable steps to cooperate in
relation to matters where the contract
did not define rights and obligations
or provide any mechanism for
resolution of disputes.
The termination for convenience clause
said:
the Principal may, at its option, at
any time and for any reason it
deems advisable, cancel and
terminate the Contract, in which
event the Contractor shall be
entitled to receive compensation
as follows.
The good faith clause said:
the successful operation of this
Contract requires that the
Contractor and Principal agree to
act in good faith in all matters
relating to carrying out the works,
derivation of rates and
interpretation of this document.
The contract was a “partnering contract”
for an open cut mine between the principal
and the contractor. The contractor was
paid its operating costs (which it was
bound to disclose) plus an agreed profit
margin. The principal put the work for
another mine out to tender. From the
tenders received, the principal found that
the cost of continuing with the contractor
under the contract was substantially higher
The decision of the trial judge was
appealed to the Full Court of the Supreme
Court of Western Australia. The Full
Court dismissed the contractor’s appeal in
respect of the termination for convenience
clause and simply said:
The contractor was well aware of
the risks of agreeing to the
contract with the termination
clause in it and accepted those
risks.
Page 10 of 13
Managing Good Faith Requirements in Government Contracts
Good faith doesn’t require the same
standard as required in a fiduciary
relationship
Good faith does not require that the parties
meet the same standard as required by the
legal fiduciary duty. Good faith assumes
that the parties are on a footing of equality
and are pursuing their own interests. By
way of contrast a fiduciary’s duty is to:
‰
‰
Not use his or her own position to his
or her own advantage or that of
another party
Conclusion
The law of good faith has changed over the
last 12 years.
Burger King confirms that good faith
requirements can be summarised as
follows:
‰
A duty of good faith both in
performing obligations and
exercising rights may be implied into
the contract
‰
Implied terms of good faith and fair
dealing oblige parties to exercise
powers and rights conferred by the
agreement in good faith and not for
some unrelated or irrelevant purpose
‰
Obligations of good faith and
reasonableness will be readily
implied in standard form agreements,
especially if there is a general power
of termination
‰
Australian cases make no distinction
between reasonabless and good faith
Not place himself or herself in a
position in which his or her own
interest would conflict with the
fiduciary duty
when the relationship between the parties
is such that, whether by reason of an
express undertaking, dependence or
confidence the beneficiary has entitlement
to a legitimate expectation that the other
party (ie the fiduciary) will act in the
beneficiary’s interest.
The imposition of a fiduciary relationship
on the parties has been resisted in Australia
if its effect is to alter the operation of the
39
contract to the way that it was intended.
Best endeavours and good faith
Does good faith requirement mean the
same standard as best endeavours?
The leading cases on best endeavours
demonstrate that a slightly higher standard
is required than for good faith. Best
endeavours is generally defined in terms of
reasonableness in the circumstances and a
requirement to do all that is necessary to
ensure that a contract is performed.
All government process contracts under
tenders are subject to an implied term of
good faith and standard contracts that
provide government with the right to
terminate after the issue of a show cause
notice are subject to an implied term.
Good faith will be breached when one
party seeks to prevent the contract’s
performance or to withhold its benefits to
the other party.
The recent cases on good faith have not
provided much detail on what standard of
behaviour is required to meet the obligation
of reasonableness. Therefore, effective
contract management is crucial if the State
is to minimise any liability. This includes:
Page 11 of 13
Managing Good Faith Requirements in Government Contracts
40
‰
Acting honestly
‰
Not acting arbitrarily or
41
capriciously
‰
Not acting with an intention to cause
42
harm
8
‰
Consistency of conduct
‰
Clear communication of decisions
‰
Document decisions
‰
Co-operation with the other party
‰
Consideration of the interests of the
44
other party
43
Refer to VGSO seminar paper: Stephen Lee
The State as Model Litigant -Fact, Fiction,
Fallacy or Fantasy (2004) Victorian
Government Solicitor’s Office
<http://www.vgso.vic.gov.au> at 27 July 2004
9
Nicholas Seddon, Government Contracts,
Federal, State and Local (2nd edition 1999) at
11
10
See Ewin Hannan, ‘Station Fiasco Heading
to Court’, The Age (Melbourne), 15 July 2004,
for comment from Mr Wal King, CEO
Leighton Holdings that the State has an
obligation as moral exemplar in its commercial
dealings with the private sector in reference to
current dispute with the State over the $700
million Spencer Street redevelopment project
11
However, good faith does not require a
party to put the other party’s interests
above its own requirements. Nor does
good faith stop government from including
a termination for convenience clause in the
contract or exercising such rights under the
contract.
1
2
(1992) 26 NSWLR 234
Ibid at 256 per Priestley JA
3
Hughes Aircraft Systems International v
Airservices Australia (1997) 146 ALR 1 at 118
12
Renard Constructions (ME) Pty Ltd v
Minister for Public Works (1992) 26 NSWLR
234
13
Garry Rogers Motors (Aust) Pty Ltd v
Subaru (Aust) Pty Ltd (1999) ATPR 41-703;
Burger King Corporation v Hungry Jack’s Pty
Ltd (Unreported, NSWCA, Sheller, Beazley
and Stein JJA, 21 June 2001)
14
Transfield Properties (Kent Street) Pty Ltd v
Swift Pty Ltd (1994) 36 NSWLR 321;
Beneficial Finance Corp Ltd v Multiplex
Constructions Pty Ltd (1995) 36 NSWLR 510
See Carter v Boehm (1766) 3 Burr 1905 at
1909
15
4
16
Ibid at 1164
5
AF Mason 'Contract, Good Faith and
Equitable Standards in Fair Dealings’ (2000)
116 L.Q.R. 66
6
Paul Finn ‘Commerce, the Common Law and
Morality’(1989) 17 Melbourne University Law
Review 87 at 91
7
Victorian Government Purchasing Board
<http://www.vgpb.vic.gov.au/>
Meehan v Jones (1982) 149 CLR 571
Aiton Australia Pty Ltd v Transfield Pty Ltd
(1999) 153 FLR 236
17
Professor JLR Davis ‘Good Faith in Building
Contracts and Construction’ (Paper presented
at the Construction Law Committee’s
Construction Law Seminars in 1993)
18
(2002) 186 ALR 289
19
BP Refinery (Westernport) Pty Ltd v
Hastings Council (1977) 180 CLR 266
Page 12 of 13
Managing Good Faith Requirements in Government Contracts
20
Prof. JW Carter and Dr Elisabeth Peden
‘Good faith in Australian Contract Law’ (2004)
94 Australian Construction Law Newsletter 6
21
See Burton ‘Breach of Contract and the
Common Law Duty to Perform in Good
Faith’(1980) 94 Harvard Law Review 369 at
371-372
22
23
24
40
See Burger King at [171] quoting Sir
Anthony Mason
41
See for example, Far Horizons Pty Ltd v
McDonald Australia Ltd (Unreported, Supreme
Court of Victoria, Byrne, J, 18 August 2000) at
[120]
42
See Renard Constructions at 267
43
Ibid
44
See Burger King at [69]-[187]
Ibid
See ibid at [171] quoting Sir Anthony Mason
(1957) 99 CLR 28 at 88-89
25
Waltons Stores (Interstate) Limited v Maher
& Anor (1988) 164 CLR 387 at 434 per
Deanne J
26
27
28
29
(1997) 146 ALR 1
Ibid at 103
(1999) ATPR 41-703
Ibid at 35
30
This case was cited with support by Finn J in
South Sydney District Rugby League Football
Club v News Ltd (2000) 177 ALR 611 at 696
31
(Unreported, Supreme Court of Victoria,
Byrne, J, 18 August 2000)
32
Ibid at [120]
33
(Unreported, NSWCA, Sheller Beazley &
Stein JJA, 21 June 2001)
34
The court also followed Hughes Aircraft and
Alcatel Australia Ltd v Scarcella (1998) 44
NSWLR 349
35
36
37
38
(1881) 6 App Cas 251
See Burger King at [171]
(2001) Aust Contract R 90-132
(2000) 16 BCL 130
39
Hospital Products Ltd v United States
Surgical Corporation (1984) 156 CLR 51 per
Mason J at 96-99
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