Case: Pacific Brands Sport &amp; Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 ; (2006) 149 FCR 395 
Outcome: applied
Notwithstanding the view I have formed that cl 3.3 of the HofA was contractually uncertain, it is however desirable to examine the existence and content of the asserted duty. That examination will reveal that despite repeated dicta accepting the existence of the duty of good faith of the kind relied upon, Counsel took me to only one case in which it was held, at first instance, that there was a breach of such a duty and yet even then that holding was not determinative of the outcome of the litigation: Pacific Brands Sport &amp; Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288 at [60] and on appeal in Pacific Brands Sport &amp; Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 ; (2006) 149 FCR 395 at [119] and [235] to [238]. Secondly, as the subsequent discussion will reveal, I am not to be taken as accepting that such a duty, however defined, exists. (ii) 161 First, it ignores the principles concerning repudiation. The relevant principles were summarised by Finn and Sundberg JJ in Pacific Brands Sport &amp; Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 ; (2006) 149 FCR 395 at [102] and [103] as follows: "102. The principles governing repudiation of a contract are, as we understand it, not in issue and for present purposes can be stated shortly. (i) A party will have repudiated a contract if, by words or conduct, it evinces an intention no longer to be bound by it or if that party shows it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and not in any other way: Shevill v Builders Licensing Board [1982] HCA 47 ; (1982) 149 CLR 620 at 625-626; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23 ; (1989) 166 CLR 623. (ii) The party's conduct is to be judged objectively by reference to the effect it would be reasonably calculated to have upon a reasonable person: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd at 658 above; Satellite Estate Pty Ltd v Jacquet (1968) 71 SR (NSW) 126 at 150. (iii) A party that acts on a genuine but erroneous view of its obligations under the contract will not for that reason alone have repudiated it. That party may still be willing to perform the contract according to its tenor: DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12 ; (1978) 138 CLR 423 at 431-432; Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] UKHL 11 ; [1980] 1 WLR 277. But persistence in an untenable construction will ordinarily be regarded as repudiatory: Summers v Commonwealth [1918] HCA 33 ; (1918) 25 CLR 144 at 152; and see Chitty on Contracts [25-018]. 103. We would note, additionally, that in the case of contracts of significant duration in which interaction and some level of cooperation is required, it is common for parties without formally varying their contract to conduct their dealings inter se in ways that they find acceptable and convenient, fair and reasonable, or commercially necessary "rather than by reference to a priori rights and duties": cf Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117." 162 Secondly, the conduct of Latitude identified by BreakFree did not, judged objectively by reference to the effect it would be reasonably calculated to have upon a reasonable person, evince an intention no longer to be bound by the HofA. 163 Latitude's failure to provide, request or even secure the Third Bank Guarantee was entirely referable to the fact that, on 20 August 2004, Frawley agreed that Latitude would only provide one more bank guarantee, a fact he confirmed to his solicitor: see [71] above. This was the type of conduct that Finn and Sundberg JJ considered in [103] of Pacific Brands Sport &amp; Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 ; (2006) 149 FCR 395. 164 Further, a request to extend the deadline for the satisfaction of cl 7 of the HofA was not, as submitted by counsel for BreakFree, identical to the procedure for extension of deadlines for the satisfaction of conditions precedent under cl 2.2 of the HofA. Clause 21.1 of the HofA applied to all other contractual variations and required the formal execution of a new deed. Its terms are mandatory " [t]hese [HofA] may only be varied or replaced by a document duly executed by the parties ". Time was of the essence (cl 21.5) and would, in relation to the provision of guarantees, have required formal amendment of the HofA. The efficacy of engaging in the procedure for formal amendment is questionable given that the parties' attention, in the week prior to 30 August 2004, was directed to a range of additional matters, including the warranties and other amendments sought by Latitude and communicated by its solicitors to BreakFree on 26 August 2004 [see [77ff] above]. In the circumstances, it was reasonable for Latitude to continue its negotiations on these matters without piecemeal amendment under cl 21.1 in respect of individual clauses such as the provision of guarantees under cl 7. The draft Sale of Shares Agreement forwarded by Middletons on 26 August 2004 was consistent with an intention that there be global amendments to the HofA in the form of a " document duly executed by the parties" pursuant to cl 21.1. 165 BreakFree's reference to the failure of Latitude to provide the Second Bank Guarantee under the HofA by 30 August 2004 erroneously focuses on only part of the circumstances which are to be judged objectively. Considered objectively, in light of all the circumstances, including the fact that Thompson had requested and received the bank guarantee from the Bank as early as 24 August 2004 and that all remained was for he and his wife to sign and fax the document, it cannot be said that the failure of Latitude to provide the Second Bank Guarantee to BreakFree, whether taken singularly or with any other fact or facts, evinced an intention on the part of Latitude no longer to be bound by the HofA.