Proctor : August 2018
17 PROCTOR | August 2018 When considering a breach of good faith, a practitioner should firstly identify conduct of this nature on the evidence (called a negative application of good faith). If it cannot be identified, a court may determine that there is no evidence of a breach. 11 But this approach is not conclusive as good faith may impose positive obligations, such as an obligation to disclose certain information. The obligations of good faith will not require the same acts by all contracting parties in all cases. Their practical form is determined by the contractual, commercial and factual context. 12 Consider the cases of Macquarie International13 and Clarence Property. 14 Both cases concerned almost identical express clauses requiring the parties to act in the utmost good faith: a. in the performance of their respective duties b. in the exercise of their respective powers, and c. in their respective dealings with each other. In both cases, one party sought to rely on the third of these obligations as the source of an obligation to disclose certain information. In Macquarie International, the parties had entered an agreement to develop a hospital precinct, each developing adjacent hospitals. It was held that one party breached good faith when it failed to disclose changes to its planning processes that threw into serious doubt the other party’s planned development of its hospital. In Clarence Property, it was held that the failure to disclose both the appointment of a director that gave rise to a potential conflict and the employment of one employee from the other party were matters outside the parties’ respective dealings with each other and did not breach good faith. The different outcomes at first instance of these two cases demonstrate that applying good faith cases by analogising facts is difficult and risky. Practitioners should focus on the legal principles. An express good faith clause in a contract will likely be sufficiently certain so as to be enforceable. Such a clause will be construed having regard to the terms of the contract and the circumstances known to the parties at the time when it was entered into.15 Generally speaking, there are two types of express good faith clauses: a. general clauses: requiring adherence to good faith in every aspect of the contract throughout (or during a specific part of) the contract (that is, dealings between the parties). Such clauses may carry many unexpected implications. See the above cases of Clarence Property and Macquarie International by way of example. b. narrow clauses: attached to the performance of a certain obligation (that is, negotiation in a dispute) or contractual power (that is, termination of the contract). The operation of such a clause can be determined with relatively more certainty. An example of a narrow clause can be found in United Group Rail. 16 The parties contractually agreed to “meet and undertake genuine and in good faith negotiations with a view to resolving the dispute or difference.” The Court of Appeal held that such a clause may prohibit the following conduct: a. threatening a future breach of contract (with no entitlement) to force another party to accept a settlement that is less than what it genuinely recognises as due Commercial law Patrick Doneley looks at the concept of good faith and its place in commercial contracts.