Good Faith
DR MICHELLE SHARPE
VICTORIAN BAR
Good Faith
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Drafting contracts
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Exclusion clauses
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Discretions
Litigating disputes where there has been a lack of good faith
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Breach of contractual duty to act in good faith
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Statutory unconscionable conduct
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Franchising Code of Conduct
Drafting Contracts
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Exclusion/entire agreement clauses
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exclude implied terms?
This agreement contains the entire agreement of the parties with respect to its
subject matter. It sets out the only conduct relied on by the parties and
supersedes all earlier conduct by the parties with respect to its subject matter.
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Discretion/sole discretion/obligation to negotiate
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describe standard? – reasonable or good faith?
Drafting Contracts - examples
…and shall make a good faith effort [or reasonable efforts] to accommodate
the Consultant’s reasonable scheduling needs in coordinating such
cooperation.
…provided, however, that any such tax, assessment, charge or levy need not
be paid if the validity thereof is being contested in good faith [or reasonably
contested] by appropriate proceedings.
...unless the Company has in good faith [or reasonably] determined that the
matters relating to such notice do not constitute material, nonpublic
information...
Drafting Contracts
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Where obligation to act in good faith expressly provided in agreement, unlikely to be
implied elsewhere in agreement by court
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Caution!
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Unfair terms in standard form consumer contracts are void: ACL, s.23 & ASIC Act, s.12BF
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Term defined by legislation to be unfair (ACL, s.24 & ASIC Act, s.12BG) where:
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It would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
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It is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged
by the term; and (rebuttable presumption: ACL, s.24(4) and ASIC Act, s.12BG(4))
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It would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
Treasury Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) - on 12
November 2016 will extend to:
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small businesses (less than 20 employees)
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in contracts in which the price is less than $300,000 or less than $1m if contract is for period of longer
than 12 months Treasury Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth)
Breach of Good Faith Claims
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Framing good faith in pleadings
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Necessary/not necessary to make contract work
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Definition or description of contract
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One off commercial transaction or on-going/relational (e.g. joint venture or franchise agreements)?
Not breaking new ground?:
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Matter already covered/not covered by relevant precedent
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Implied in fact rather than law
Implication arising from construction of contract/implied terms
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Facts support an implied term of good faith? (BP Refinery (Westernport) Pty Ltd v Shire of Hastings
(1977) 180 CLR 266)
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Exclusion clause excluding implied terms? Can good faith be used as a tool to construe the exercise
of a discretion/sole discretion? (Vodafone Pacific v Mobile Innovations Ltd [2001] NSWCA 15 and
Vakras v Cripps [2015] VSCA 193)
Statutory Unconscionable Conduct
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Conduct which consists of a lack of good faith may also be conduct that is
unconscionable under the ACL or the ASIC Act.
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Private enforcement – rich array of statutory remedies
(injunction/damages/compensation order/other orders)
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Public enforcement – civil pecuniary penalty / infringement notice / other orders
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ACL, s. 21/ASIC Act, s. 12CB prohibits conduct that is, in all the circumstances,
unconscionable.
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ACL, s. 22(1)(l) & s. 22(2)(l)/ASIC Act, s.12CB(1)(l) & s.12CB(2)(l) provides that the
matters that the court may have regard to in determining the existence of
unconscionable conduct includes the extent to which parties acted in good
faith.
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The existence of one or more matters listed in s. 22/s.12CB does not necessarily
mean ipso facto that the conduct is unconscionable.
Statutory Unconscionable Conduct
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ACCC v Oceana Commercial Pty Ltd [2004] FCAFC 174, per Heerey,
Sundberg and Dowsett JJ at [181]:
‘…it distorts the proper operation of s 51AC to search through the
twelve criteria set out in subs (3), find one that seems to fit the case
in hand, and then move to a conclusion of unconsionable
conduct...Parliament has expressly stipulated that the twelve crieria
do not limit the matters to which the court may have regard...’
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The criteria illuminate the meaning of unconscionable conduct but
concept of unconscionability is not closed: CAV v Scully [2013] VSCA 292
at [42] and Paciocco v ANZ Banking Group Ltd (2015) 236 FCR 199 at [262].
Statutory Unconscionable Conduct
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ACCC v Lux Distributors Pty Ltd [2013] FCAFC 90, at [41], the Full Court
developed the following test :
‘The word ‘unconscionability’ means something not done in good
conscience…Notions of moral tainting have been said to be relevant, as
often they no doubt are, as long as one recognises that it is conduct
against conscience by reference to the norms of society that is on
question. The statutory norm is one which must be understood and
applied in the context in which the circumstances arise. The context here
is consumer protection directed at the requirements of honest and fair
conduct free of deception. Notions of justice and fairness are central, as
are vulnerability, advantage and honesty.’
Statutory Unconscionable Conduct
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Private Enforcement – pleading statutory unconscionable conduct:
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Need to describe not just the conduct complained of but the context in which
the conduct occurred and the defendant/respondent’s knowledge of these
matters (i.e. the story/case theory)(see Sharpe & Parker ‘A bang or a whimper?
The impact of ACCC unconscionable conduct enforcement’ (2007) 15(3) TPLJ
139)
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Particulars required – SCR r 13.10(3) & FCR r. 16.42
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Federal Court - Concise Statement
Franchising Code of Conduct
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First mandatory code prescribed under TPA (now CCA) Part IVB
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Trade Practices (Industry Codes – Franchising) Regulation 1998
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Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (as
of 1 January 2015)
‘The purpose of this code is to regulate the conduct of participants in
franchising towards other participants in franchising.’ (Franchising Code
1998 & 2014, Clause 2)
Franchising Code of Conduct
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Franchising Code 1998, cl. 23A
‘Nothing in this code limits any obligation imposed by the common law,
applicable in a State or Territory, on the parties to franchise agreement to act
in good faith’
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Franchising Code 2014, cl. 6(1)
‘Each party to a franchise agreement must act towards another
party with good faith, within the meaning of the unwritten law from time to
time, in respect of any matter arising under or in relation to:
(a) the agreement; and
(b) this code.
Franchising Code 2014
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Under cl. 6(2) obligation to act in good faith extends to a person who proposes to become a
party to a franchise agreement:
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any dealing/dispute relating to a proposed franchise agreement;
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the negotiation of a proposed franchise agreement; and
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the Franchising Code.
Matters to which a court may have regard in determining whether there has been a breach of
the obligation to act in good faith (cl. 6(3)):
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whether the party acted honestly and not arbitrarily; and
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whether the party cooperated to achieve the purposes of the agreement.
It is not a a breach of the obligation to act in good faith:
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for parties to act in their own legitimate interests (cl. 6(6)); and
for a franchisor to do nothing more than to not give a franchisee an option to renew or extend the
franchise agreement (cl. 6(7)).
Franchising Code 2014
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Obligation to act in good faith cannot be excluded or limited in a franchise
agreement (cl. 6(5)-(6))
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A contravention of the Franchising Code:
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is a breach of CCA, s. 51ACB (which prohibits the contravention of an applicable
industry code); and
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may indicate conduct that is unconscionable in breach of ACL, s. 21.
Private enforcement:
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the CCA governs the consequences of a breach of the Franchising Code: Master
Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 at [38]
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Office of the Franchising Mediation Advisor (‘OFMA’)
Public enforcement: s. 51ADB (orders to redress loss suffered by non-parties)
and monetary penalty up to $54,000 (300 penalty units)