LAW10003 Contract Law II: Critical Analysis of Good Faith in Contracts

This report critically analyzes the concept of good faith within the context of Australian contract law, using the case of Renard Constructions (ME) Pty Ltd v Minister for Public Works as a primary example. The report delves into the facts of the case, highlighting the contractual disputes and the court's reasoning regarding the implied duty of good faith and reasonableness. It explores the application of both classical and neo-classical contract theories, including the perspectives of Charles Fried and Randy Barnett, to understand the court's decision and its implications. The analysis emphasizes the importance of good faith in contractual agreements, the role of reasonableness, and the balance between individual autonomy and community expectations. The report concludes by summarizing the key findings and the significance of good faith in ensuring fairness and trust within the Australian contract law framework. It further emphasizes the importance of delivering the right information to the arbitrary person and the court's role in delivering the judgement.

Running Head: BUSINESS LAW 0
CONTRACT LAW
Australia

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INTRODUCTION
In this report, the critical analysis will be based on the mentioned case study that is relating to
the initiation of good faith in accordance with the Australian contract law. The basic
requirement to enter in a contract starts with the expressed and implied intentions of
performing the contract in good faith 1. The sensation of believe and confidence is led by the
intention to behave in the good manner and with good faith. This is also involving the
different theories of understanding the contract law in reference to the case study and its
judgement. Role of the neo-classical theory presented by Charles Fried applied to the contract
law prevailed in the country.
It has been determined from the case of Renard Constructions (ME) Pty Ltd v Minister for
Public Works2, The arguments were inevitable from the side of the arbitrator regarding the
unreasonableness and lack of good faith in the contractual agreement. Contract keeps the
rights and duties of both parties on the priority. Neo-classical theory has two main aspects
first is promise principal given by Fried and other is constant theory that argue the constant
behaviour of the parties lead the foundation of good faith3. Fried’s morality of autonomy
define the role of moral obligations is very important to maintain the reality of the contract4.
CASE CITATION
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234.
BRIEF SUMMARY OF FACTS
1 Luka Krsljanin, The concept of “good faith” in commercial contracts: what is it and when does it apply in the
sports industry? (Lawinsport) < https://www.lawinsport.com/content/articles/item/the-concept-of-good-faith-in-
commercial-contracts-what-is-it-and-when-does-it-apply-in-the-sports-industry>.
2 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234.
3 Stella Vettori, The Employment Contract and the Changed World of Work (Routledge, 2016) 210.
4 Thomas C. Grey, Formalism and Pragmatism in American Law (Brill, 2014) 98.

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In relevance to this case, the principal and the contractor have indulged in a valid contract
that relies on a specific clause which will express the actual reason for ending up of the
contract between the parties. The time period for finishing up the construction was increased
various times because of the failure upon the part of the principle for not disbursing the goods
and the other essential materials. After such breach of the initial duty still it was being
demanded and expected on the part of the contractor to complete the contract within the
given mentioned duration5.
Instead, the contractor had valuably incorporated all the required aspects to finish the
construction by utilizing and extending the force of work, functioning for overlong with
extremely skilled workers. This conduct has been considered as an unfair denial with
cancelling of the contract by the contractor. It further even adversely questioned the implied
duty of good faith and its applicability in an unacceptable manner6.
Therefore, the contractor was prohibited from the place of work during the ending days of the
work when it was all set to be completed within the appropriate time period. So, this turned
out to be a lack of good faith and also in not being reasonable towards the contract. In
accordance to the arbitrator, it was held that the actions and acquiring the work by the
principal from the contractor was duly unreasonable and concluded in the refusal of the
contract. But the principal clearly appealed with stating that there was no such implied
requirement in the contract to act in reasonable conduct7. However, the requirements of the
contract between the two parties i.e. the contractor and the principal must be within lawful,
genuine and with due consideration.
BRIEF SUMMARY OF PROCEDURAL HISTORY
5 Catherine Mitchell, Interpretation of Contracts (Routledge-Cavendish, 2018) 212.
6 Peter MacDonald Eggers and Simon Picken, Good Faith and Insurance Contracts (Routledge, 2017) 832.
7 Chris Willett, Fairness in Consumer Contracts (Routledge, 2016) 476.

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The court of appeal in accordance with Priestly JA stated that the term reasonableness is an
essential requirement and implied part of the contract. It was clearly examining the
implication by fact and implication by the law as a necessary element to being focused while
forming a contract. The consideration also suggested that the term was required for the urgent
effectiveness of the business8. So, if a contract was authorized to be terminated at any point
of the default then this makes the validity and original intention to make the commercial
bonding of the contract in a critical and impractical situation.
The requirement of the reasonableness was made expressed in the clause 44.1 in the current
contract with the condition of termination the contract. Concept of good faith will also
become applicable in the same type of contracts by creating an overlap amongst the
implication by fact and implication at law9.
In accordance with Meagher JA, the basis of the explanation by words in the contract was
validated in such manner that the principal’s mind was misrepresented by biasness and
misleading information that the judge could not understand the facts through which he had to
proceed with the judgment10.
In views of the Handley JA, it was dealt on the basis of the requirement of reasonableness
where the implied ability to terminate and taking over the construction was objectively
determined to be an uncooperative and not legally acceptable exercise on the part of the
principal. Therefore, under the express power of the contract, the principal cannot invalidate
the conditions of the contract for any sort of breach as per the general law and the appeal
from the part of the principal was rejected11.
8 Garth Wooler, Unconscionable Conduct in Commercial Transactions: Global Perspectives and Applications
(Cambridge Scholars Publishing, 2018) 292.
9 Mr. John Adriaanse, Construction Contract Law (Macmillan International Higher Education, 2016) 440.
10 Lukas Klee, International Construction Contract Law (John Wiley & Sons, 2015) 584.
11 Ian H. Bailey and Matthew Bell, Understanding Australian Construction Contracts (Thomson Reuters, 2008)
257.

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BRIEF SUMMARY OF RATIO DECIDENDI
The term ratio decidendi states the reason for the decision held by the court in order to
determine the final judgment. It is the reasoning of the court where the actual outcome is
perceived in reference to the case study. So, as per the case study, the contractor can take
reasonable authority in exercising each of its power with having adequate cause reflecting
upon the opportunity to be heard.
The reason upheld by the court of New South Wales is based on the implied duty of good
faith has to be maintained with due fairness and avoiding biases between the parties. The
opinion of the revealing the cause has seemed to be contrary in aspect to the principal.
Furthermore, the satisfaction of the principal and the indication of reasonableness have been
effectively challenged by the court.
CRITICAL ANALYSIS
The critical analysis of this case study emphasize the fact and the rules in the lights of the
classical theory that majorly focus the role of legal destiny is created by the entering parties
in their own and for their own profits. Main effective element that is the base of the success
or failure of the contract is the intention expressed or implied to make the contract complete.
Lack of the good faith from either side of the parties result the end of the contract facing the
legal hearings in the courts12. Both parties entered the constriction contract need to deliver the
right information to the arbitrary person regarding the failure to perform any work. A court in
the matter was expected to deliver the judgement based on the proper certainty of the
principle of good faith and proper communication. In the traditional means of the judgement
courts were prepared to redraft the contact applying the implied terms of the contracts.
12 Luca Siliquini-Cinelli and Andrew Hutchison, ‘Comparative Constitutional Contract Law: A Question of
Legal Culture’, (2019) 2019 More Constitutional Dimensions of Contract Law.

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The New South Wales court of appeal implies the term of good faith and reasonableness by
imposing the classical theory that will create a proposed relationship between the two parties
on the basis of the free will by each of the parties. The court has further adopted this in
respect to the understanding of the freedom in aspect to the contract to avoid any
inconsistency and to fill the gaps i.e. facilitating the freedom of contract. However, with the
help of this theory the disputes amongst various contracts and the conflict are settled.
The classical theory of contract has found in 19th Century and focus on individualist
philosophy of free choice13. It facilitates the parties to make the conditions in of the contracts
with the mutual consent and it also give rights to principal and contractor to specify the duties
and rights of the parties14. In the given case study both parties were consent on the clause 44.1
of the contract. The rights and obligations of the parties are enforced under the contractual
agreement15.
In relevance to the modern contract law, the value of the theory in aspect to Feinman is the
way the parties perceive and understand the problem by viewing the facts and its values
affected the contract. The next theory to be dealt with the contract law is the classical theory
which came into existence through the English law in the 19th century. The term introduced in
this theory was based on the WILL of the parties to make the decisions and changes freely to
create the positive impact over the contract. The will theory has the concept of self-imposed
liability in between the parties that can deal with their own conditions16.
According to Fried, the contract must be in a way that contract must base on the self-
motivation and morality to achieve the contract end with the completion of the task and the
13 Jeannie Paterson, Andrew Robertson and Arlen Duke, Principles of Contract Law (Lawbook, 5th ed, 2016) 3-
4 [1.10].
14 Duncan Fairgrieve, Comparative Law in Practice: Contract Law in a Mid-Channel Jurisdiction (Bloomsbury
Publishing, 2016) 35.
15 Richard Stone, The Modern Law of Contract (Routledge, 2013) 526.
16Tracey Hough and Ewan Kirk, Contract Law (Routledge, 2018) 478.

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main aim of the contract should be the trust and good faith. The ideology of the classical
theory is largely based on protecting the interest of the parties. Another consent theory which
is enforceable by moral justification between the parties that gives consent while transferring
any value present in their contractual exchange with the intention of either of the one. Lastly,
the neo-classical theory is based on the rules related to contract and solution of the conflict
with the mutual consent and intention to create the moral contractual relations.
Other part of the neo-classical theory is for the consent behaviour based on the implied terms
and conditions of the contract. Randy Barnett with the judgment decision of Renard
Constructions (ME) Pty Ltd v Minister for Public Works states that parties use their conduct
on the basis of the community standards and expectations17. This judgement here prevail the
community expectations are based on the existence of good faith and the fair treatments in
the contract.
CONCLUSION
Accordingly, it will further conclude the above case study that evaluates the contract between
the parties for the motive of the construction shall be in accordance with the Australian
contract law. The classical approach of the Australian contract law, the parties entered the
contract was legally bound to perform all legal duties they decide to perform. Contractor on
his side was liable to deliver the causes of the failure behind the timely performance and
principal was bound to make the effective solution to the problem faced by the contractor.
Good faith is achieved when both are eager to perform the duties with a focus to not ending
the rights of other. The contract must be fulfilled with due care and wilful intention by the
parties since the beginning and the completion of the contract. Therefore, the reasons for the
17 Austlii.edu.au, A Universal Duty Of Good Faith: An Economic Perspective (Austlii) <
http://www5.austlii.edu.au/au/journals/MonashULawRw/2007/6.pdf>.

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termination shall not be made efficient if the clause is not fulfilling the requirements by any
of the parties.

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Bibliography
A Articles/Reports/Journals
Adriaanse, Mr. John Construction Contract Law (Macmillan International Higher Education,
2016).
Bailey, Ian H. and Matthew Bell, Understanding Australian Construction Contracts
(Thomson Reuters, 2008)
Eggers, Peter MacDonald and Simon Picken, Good Faith and Insurance Contracts
(Routledge, 2017)
Fairgrieve, Duncan, Comparative Law in Practice: Contract Law in a Mid-Channel
Jurisdiction (Bloomsbury Publishing, 2016)
Grey, Thomas C. , Formalism and Pragmatism in American Law (Brill, 2014)
Hough, Tracey and Ewan Kirk, Contract Law (Routledge, 2018)
Klee, Lukas, International Construction Contract Law (John Wiley & Sons, 2015)
Mitchell, Catherine, Interpretation of Contracts (Routledge-Cavendish, 2018)
Paterson, Jeannie, Andrew Robertson and Arlen Duke, Principles of Contract Law (Lawbook,
5th ed, 2016) 3-4 [1.10]
Siliquini-Cinelli, Luca and Andrew Hutchison, ‘Comparative Constitutional Contract Law:
A Question of Legal Culture’, (2019) 2019 More Constitutional Dimensions of Contract Law.
Stone, Richard The Modern Law of Contract (Routledge, 2013).
Vettori, Stella The Employment contract and the Changed World of Work (Routledge, 2016).
Willett, Chris, Fairness in Consumer Contracts (Routledge, 2016).
Wooler, Garth Unconscionable Conduct in Commercial Transactions: Global Perspectives
and Applications (Cambridge Scholars Publishing, 2018).

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Cases
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Other Sources
Austlii.edu.au, A Universal Duty Of Good Faith: An Economic Perspective (Austlii) <
http://www5.austlii.edu.au/au/journals/MonashULawRw/2007/6.pdf>
Luka Krsljanin, The concept of “good faith” in commercial contracts: what is it and when
does it apply in the sports industry? (Lawinsport) <
https://www.lawinsport.com/content/articles/item/the-concept-of-good-faith-in-commercial-
contracts-what-is-it-and-when-does-it-apply-in-the-sports-industry>