Case: Pacific Brands Sport &amp; Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40
Outcome: cited
The next live question is whether a term that the Council would act reasonably and in good faith when issuing directions and notices under cl 17 of the General Conditions of Contract is to be implied. The answer to that question will be of particular importance if I am wrong in implying the term just discussed. There is a bewildering variety of opinions in the authorities and commentaries as to the implication of terms as to reasonableness and good faith in commercial contracts. For example, in this Court compare the more adventurous approach of Finkelstein J in Pacific Brands Sport &amp; Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288 at [61] [65] (although see Pacific Brands Sport &amp; Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 at [119] ) with the more cautious approach of Gummow J in Service Station Association Ltd v Berg Bennett &amp; Associates Pty Ltd (1993) 45 FCR 84 and the Full Court in Wenzel v Australian Stock Exchange Ltd [2002] FCAFC 400 ; (2002) 125 FCR 570 at [80] [81]. All of the relevant authorities, save perhaps for the recent Victorian Court of Appeal judgment in Esso Australia Resources v Southern Pacific Petroleum NL [2005] VSCA 228 (which took a conservative line) have been discussed at length recently in numerous articles and a book (eg TM Carlin, 'The Rise (and Fall?) of Implied Duties of Good Faith in Contractual Performance in Australia, (2002) 25 University of New South Wales Law Journal 99; JW Carter and A Stewart, 'Interpretation, Good Faith and the "True Meaning" of Contracts: The Royal Botanic Decision', (2002) 18 Journal of Contract Law 182; A Wallwork, 'A Requirement of Good Faith in Construction Contracts?', (2004) 20 Building and Construction Law Journal 257; B Zeller, 'Good Faith Is it a Contractual Obligation?', (2003) 15 Bond Law Review 215; JW Carter and E Peden, 'Good Faith in Australian Contract Law' , (2003) 19 Journal of Contract Law 155; PD Finn, 'Good Faith and Fair Dealing: Australia', (Speech delivered at Commercial Good Faith Conference, Auckland New Zealand, 2 September 2005); E Peden, Good Faith in the Performance of Contracts , (2 nd ed, 2003)). 167 In 2002 Carter and Stewart (supra, p 190) said 'perhaps the most important unresolved issue in Australian contract law today is the extent to which the law recognises an implied requirement of good faith in performance and enforcement.' Nothing that has occurred since has resolved the issue in a manner binding upon me. Even Finn J, one of the principal proponents of such an obligation has recently said extra-judicially that ' ... one cannot, for the moment, be assured that the regulation of contractual behaviour under the good faith rule will take root in Australia at all, or other than limply.' (supra) 168 The best way for a single judge to travel through this thicket is to concentrate upon the particular contractual provision in question, in the particular contract, in the particular circumstances of the case. When this is done, in my opinion, an instruction or direction could not validly be given pursuant to cl 17 for the purpose of causing Goldspar to default in order that the Council would thereby have a pretext for terminating its contract with Goldspar so that the works the subject of that contract could be done by others. That conclusion follows from the application of principles enunciated in a series of High Court decisions. 194 It is argued for Goldspar that cl 25 constitutes an exclusive method of terminating the contract. Whatever may be the position in relation to breach as such, I am not persuaded that cl 25 would exclude termination at common law by acceptance of repudiation. In my opinion, however, the facts fall well short of establishing repudiation on the part of Goldspar at the time of termination. The principles concerning repudiation have recently been restated by Finn and Sundberg JJ in Pacific Brands Sport &amp; Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 as follows (at [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 , above, at 658; 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, above, par 25-018.'