Trade Practices Act

The principle of utmost good faith is the central theme encompassing all insurance contracts. The principle of good faith arose initially to apply directly to insurance contracts with other contract classes soon following suit. To act with utmost good faith, uberrima fides, requires both parties of the contract to disclose all information and make ‘full declaration of all material facts, which relates to the very nature of the insurance contract.

This implied duty to act in utmost good faith is detailed in s 13 of the Insurance Contract Act 1984 (Cth). This Act states that ‘a contract of insurance is based on the utmost good faith and there is implied in such a contract a provision requiring each party to it to act towards the other party... with the utmost good faith’. With this duty to act in good faith imbedded in legislation, it is obvious that the Australian legal system has progressed its application and acceptance of good faith.

In order to determine how the courts have utilised this duty of good faith in respect to insurance contracts, case analysis is required and will be discussed in Part III. Certain legislative remedies have been passed in order to deal with cases where one of the contracting parties has not embraced the duty to act in good faith. When good faith and existing common law principles fail to bring equality to a contract, the weaker party, who has been disadvantage, may be able to rely on statutory remedies to fend off unconscionable conduct.

A party is able to rely on both state, Fair Trading Act 1987 (SA), and commonwealth legislation, including Trade Practices Act 1974 (Cth) and the Insurance Contract Act 1984 (Cth), to remedy the unreasonable actions of contracting parties in order to deal with unconscionable conduct with respect to business and insurance contracts. Hurley v McDonald’s Australia Ltd asserts that unconscionable conduct is a result of ‘serious misconduct, or something clearly unfair or unreasonable’.

Under s 51AC of the Trade Practices Act 1974 (Cth), contracting parties are prohibited from acting unconscionably when dealing with contracting parties in a commercial setting. In addition, s 51AC(3)(k) outlines how the courts are to use an implied duty of good faith in order to determine whether a party has conducted itself unconscionably. Unreasonable conduct and unconscionable conduct differ in their underlying definitions.

Whilst unconscionable conduct is an intentional act which causes detriment to the opposing contracting party, unreasonable conduct may not undermine the opposing party but simply places limits on them that may be seen as unreasonable. Whilst these ideals appear one in the same, they are both necessarily concepts that control the actions of persons entering into contractual dealings. We therefore need both doctrines in order to expand the notion of good faith and assert its necessity in certain classes of contracts.

However, I do believe that only the doctrine of unconscionable conduct is needed when dealing with commercial contracts. The benefits of relying on statutory provisions are far greater than relying on a concept that is not universally recognised nor guaranteed to be implemented by the courts. Whilst these remedies are available, it does not excuse the requirement of a duty of good faith to be implied in all contracts.

It is especially important in contracting relationships involving employment, insurance and the like where the parties rely on reasonableness and honesty to ensure fairness prevails. With statutory remedies available, there is sufficient evidence in support of the courts use of an implied duty to act in good faith. Part III. Cases which project a need for the principle of good faith to be applied as a mechanism to regulate or prevent certain behaviour.

There are many cases both within and outside the Australian jurisdiction which impart the courts embracement of an implied duty for contracting parties to act in good faith. As discussed previously, the leading case on good faith in Australia is Renard. In Esso, Buchanan JA stated that implying a duty of good faith is necessary in ensuring a contract is performed effectively. As discussed previously, BP Refinery, Secured Income, Hospital Products and Alcatel all expressed a need to act in a way that projects good faith.