Contracting parties

It needs to be recognised that the judiciary are not in agreement that an implied duty of good faith should be recognised. Meagher JA in Renard and Gummow J in Service Station Association v Berg Bennett & Associates Pty Ltd confronted the dissenting judgements and projected a more conservative view as to the negative effects of good faith. Furthermore, in Printing and Numerical Registering Co v Sampson Jessel MR raised an interesting issue regarding the implementation of good faith being repugnant to the spirit of contract itself. Jessel MR stated that ‘contracts when entered into freely shall be held sacred and shall be enforced…

you are not likely to interfere with this freedom of contract’. With an implied duty to act in good faith being applied universally, it appears to not only interfere with the freedom of contract formation but may lead to the courts relying on the implied term of good faith as opposed to the express terms of a contract. The judgements handed down in the cases that support good faith do act as a mechanism to not only regulate the malicious behaviour of certain contracting parties but also acts as a deterrent in order to prevent future behaviour that could be construed as “bad faith”.

These mechanisms have been successful as it would be reasonable to assume that whenever an individual or business is entering into a contractual arrangement with another, that have knowledge enough to act in a way that is perceived to be in good faith. Since the decision in Printing and Numerical Co v Sampson of the 1800’s, the judicial system in Australia has cemented its desire to implement an implied duty of good faith. The above cases prove this implementation has been successful in ensuring fairness and honesty between contracting parties.

Furthermore, with the development of legislation dealing with unconscionable conduct, it shows a commonwealth approval of the necessity for contracting parties to act with reasonableness and in good faith. Conclusion It is apparent from the above discussion that good faith revolves around three notions, reasonableness, honesty and co-operation. These elements are vital for the successful application of an implied duty of good faith. Utilising this broad definition, we are able to determine the most effective class of contracts applying a duty of good faith.

Through an analysis of cases in both Australian and international jurisdictions, it has been established that good faith is implied most frequently in employment and insurance contracts. This is due to the parties relying on full honesty and full disclosure of information in order to make the contract complete and enforceable. Whilst some may suggest that honesty and disclosure are vital components of all contracts, in commercial contracts, for example, it is not critical for the formation of the contract itself.

Businesses express their desire to be able to conceal information relating to their everyday business dealings that are not directly related to a specific contract. In concluding this paper, it appears that an implied duty of good faith is vital for both the courts and contracting parties alike. This principle ensures that the dominant contracting party does not take advantage of the weaker party through malicious manipulation of the situation. Good faith is only applicable to certain classes of contracts, those where the parties rely on full disclosure and honesty in carrying out the terms of the contract at hand