Question

(in business law ) Is good faith part of Australian contract law? Discuss with reference to decided cases and legislation?(at least 150 words)

Answer 1

Australia has not yet committed itself to a definitive principle of good faith in contract law. Unlike the legal systems in Europe and the United States, Australia does not demand an explicit legal prerequisite of good faith to form a contract.

However, the distinction between implication and fact, implication in law and construction is not always easy to state, and may be to some extent at least a matter of semantics.

In Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR 468, Hope JA at 486-487 discussed and differentiated implication in fact and implication in law. His Honour explained that implication in fact was undertaken where the implied term is necessary to give business efficacy to the contract, whereas implication in law occurs where the implied term is viewed as a legal incident of a particular class of contract. Prima facie, implication in law has the result that the term is implied into all contracts belonging to that class; but the implication may, nonetheless, be excluded having regard to the express terms of a particular contract and the factual matrix in which it was made. The distinction between implication in fact and implication in law was recognised by the High Court in Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10. The court returned to the topic in Byrne v Australian Airlines Ltd (1995) 185 CLR 410. In the latter case, McHugh and Gummow JJ noted at 449 that in some cases it was more useful to identify implied terms “as rules of construction applied to the express terms of the contract”. They then said at 450: “…the modern and better view is that these rules of construction are not rules of law so much as terms implied, in the sense of attributed to the contractual intent of the parties, unless the contrary appears on a proper construction of their bargain.” Their Honours continued by recognising the proposition “that what would now be classified as terms implied by law in particular classes of case had their origin as implications based on the intention of the parties, but thereafter became so much a part of the common understanding as to be imported into all transactions of the particular description.” They cited with approval a passage from Halsbury’s Laws of England referring to “ambiguous terminology” and the shift from implication based on presumed intention to implication as an incident of the class of contract