Data

Date:
12-03-1992
Country:
Australia
Number:
Court:
Court of Appeal, New South Wales
Parties:
Renard Constructions (ME) PTY LTD v. Minister for Public Works

Keywords

GOOD FAITH AND FAIR DEALING IN PERFORMANCE OF CONTRACT - REFERENCE TO ART. 7(1) CISG AS A PRECEDENT FOR DOMESTIC LAW

Abstract

A domestic Australian contract was concluded in 1985 for the construction of a pumping station. It provided inter alia that in the case of a default by the contractor, the principal could suspend progress payments and require the contractor to justify its default. Should the contractor fail to give such justification, the principal was entitled to terminate the contract.

Applying Australian law, the Court held that such a clause was to be construed as containing a term implied by law that the principal would reasonably consider whether the contractor had failed to justify its default, and where the principal concluded that it had so failed, whether the contract should be terminated.

Equating the duty to act reasonably with the duty of good faith and fair dealing in the performance of the contract, the Court made an extensive review of the role of the duty of good faith and fair dealing at international level. In this context reference was made to Art. 7 CISG as a factor confirming an increasing recognition at international level of the principle of good faith and fair dealing, and as precedent in this case for domestic Australian law.

Fulltext

[...]

The two other matters which I think should be mentioned are related topics, but are usually dealt with separately. The first is that of good faith performance in contract, and the second is that of equitable interference in exercise of legal rights.

Good Faith. The kind of reasonableness I have been discussing seems to me to have much in common with the notions of good faith which are regarded in many of the civil law systems of Europe and in all States in the United States as necessarily implied in many kinds of contract. Although this implication has not yet been accepted to the same extent in Australia as part of judge-made Australian contract law, there are many indications that the time be fast approaching when the idea, long recognised as implicit in many of the orthodox techniques of solving contractual disputes, will gain explicit recognition in the same way as it has in Europe and in the United States.

The relevant factors in this area were elucidated last year by Steyn J in a lecture at Oxford University called 'The Role of Good Faith and Fair Dealing in Contract Law' (16 May 1991). Although he recognised in that address (with some regret I think) that the position in England was not the same, in this respect, as in the civil law and the United States, and although he showed why the difference existed and could continue, he also pointed out a number of reasons why that situation might well change. The chief of these were:
(a) that the common law jurisdictions in the United States had in recent times moved decisively towards recognition of the good faith principle;
(b) Australian and New Zealand jurisdictions seemed to him to be moving in the same direction;
(c) in English law itself it seemed to him that the doctrine of consideration had, in commercial cases, receded in importance;
(d) in England also the Law Commission was investigating whether the privity rule should be mentioned in its rigid form;
(e) remarks made by Bingham LJ in Court of Appeal Division Interfo Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 at 445 suggesting a fairness approach to the question whether a party should be held to be bound by contractual terms;
(f) the ratification by a great many countries of the United Nations Convention on Contracts for the International Sale of Goods, art. 7(1) of which requires regard to be had to the observance of good faith in international trade in the interpretation of the convention;
(g) the probable impact of the EEC on English contract law from (as scheduled at the time of his lecture) December 1992;
(h) instances where in regard to particular contracts, English Courts had implied good faith obligations; and
(i) the passage of statutes such as the Unfair Contract Terms Act 1997 (UK), which empower courts to grant remedies to the affected party to an unreasonable contract. (In regard to this he pointed out the similarity between the concepts involved in the ideas of (i) good faith and fair dealing, and (ii) reasonableness.)

All the matters he mentioned have their counterparts in Australian contract law, some operating more obviously, and some possibly having less weight, than in England. [...]

[Priestley JA]}}

Source

Published in English:
- 26 New South Wales Law Reports (1992) 234-283}}