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Queensland Government Bulletin

20 January 2021

#Government, #Construction, Infrastructure & Projects, #Corporate & Commercial Law

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Queensland Government Bulletin

Good faith in projects

Good faith is an obligation frequently included in agreements used in a major project. For instance:

  • in preliminary agreements, such as MOUs or process deeds with bidders, parties may agree to negotiate or finalise (in good faith) the terms of the definitive project documents by a certain date and in line with key terms
  • in consultancy agreements, the obliging consultant may act in good faith when performing its services
  • in the main agreements for development and operation, such as project agreements or design and construct contracts with contractors, various rights might be qualified by a reference to acting in good faith or the parties agree to confer to resolve technical or process issues, or to negotiate any disputes in good faith.

The documentation and issues in major projects are complex and good faith obligations often find their way into the agreements as well-intentioned compromises or a ‘quick fix’.

One common and simple use of the term ‘good faith’ is when it is applied to a right for the principal to set-off money from amounts otherwise due to a contractor. For example:

The Government may, acting reasonably and in good faith, set off from any amount due to the Contractor any amount due or which may become due to the Government under this Contract.

What does it mean?

Despite the long history of good faith, we still do not know for sure what ‘good faith’ is. In the absence of a definition, and given ‘good faith’ has been and is still being considered by the courts of various jurisdictions in Australia and within a variety of contexts, there is a broad range of meanings attributed to the term. However, it seems that ‘good faith’ likely involves elements of:

  • fairness
  • honesty
  • reasonableness
  • not undermining the contractual objectives
  • not acting arbitrarily or capriciously
  • having regard to the interests of the other party, without having to subordinate one’s interests to the interests of the other.

In terms of an agreement to negotiate in good faith, the courts have said:

  • the parties must subject themselves to the process of negotiation and ‘keep an open mind’
  • an ‘unreasonable’ proposal does not constitute a lack of good faith, at least where it is open to negotiation. The notion of ‘good faith’ does not require that the content of a proposal made in negotiations must pass some objective test of reasonableness
  • there is no requirement to give in to the other party’s demands. As mentioned above, a party is not required to act in the interests of the other.

An example in practice

So what does that mean for the government party in the set-off example above? We suggest it means:

  • the Government can set off debts due. That is, known debts that have been valued according to the contract
  • in considering any debts which may become due, consistent with the elements outlined above, the Government (for example) would need to have a genuine and honest belief that the debt may become due
  • the Government would also need to be honest and reasonable in its valuation of any debts it believes may become due
  • the Government need not refrain from setting off both debts due and those which may become due because it would cause hardship for the contractor.

The last point is interesting, given fairness and reasonableness are elements of good faith. However, in Diab Pty Ltd v. YUM! Restaurants Australia Pty Ltd, the Federal Court of Australia decided that a discretionary power could be exercised by YUM! Restaurants, in the manner in which it was exercised, even though to do so would cause financial hardship for its franchisees.

Back to our example, also in support of the Government setting off both the amounts due and those which may become due, is “that it is not for the courts to re-write the parties’ bargain for them”.

Of course, what court decisions also tell us is that in the presence of an express obligation of good faith, the additional obligation (in our example) to act reasonably becomes redundant. This is because good faith includes more than just acting reasonably.

What if our example did not include the obligation on the Government to act in good faith but only referred to an obligation to act reasonably? The modified clause would be:

The Government may, acting reasonably, set off from any amount due to the Contractor any amount due or which may become due to the Government under this Contract.

Would an obligation to act in good faith be implied?

Implied obligations

We cannot say for sure whether good faith would be implied into a contract which does not expressly require the parties to act in good faith. The “question whether a standard of good faith should be implied generally to contracts has not been resolved in Australia”.

If there are to be any indications drawn from decisions, however:

  • in Queensland, there is no definitive position, but recent decisions have supported the implication of good faith
  • decisions of the High Court indicate an unwillingness to consider whether a standard of good faith should be implied into all commercial contracts, while the weight of decisions is against such implication
  • Victoria seems most closely aligned with the High Court, holding the view that the term should not be implied indiscriminately into all contracts, but rather on a case-by-case basis, such as provided by BP Refinery (Westernport) Pty Ltd v Shire of Hastings
  • in NSW, while there has been a greater acceptance of implying a term of good faith, as in Queensland, there is no definitive position.

It is also difficult to identify, with any material degree of certainty, any general circumstances under which good faith will be more likely to be implied.

Therefore, in our modified example with the obligation to act in ‘good faith’ removed, the obligation to act reasonably becomes important. This is because we cannot be assured a court would imply an additional obligation on the Government to act in good faith.

So, what is the moral of the story? Like anything in a contract, if you want something to be clear, make it clear. If a party or parties are to act in good faith, then say so. Of course, you should then define what good faith is to mean.

Our example clause should read as follows:

The Government may, acting in Good Faith, set off from any amount due to the Contractor any amount due or which may become due to the Government under this Contract.

A definition for the term ‘Good Faith’ would be included in the contract.

AuthorsDavid Harley 

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Pitman and Commissioner of Taxation (Taxation) [2020] AATA 5308
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Commonwealth Bills

National Emergency Declaration (Consequential Amendments) Bill 2020
Assent  Act no: 129  15 December 2020
Introduced with the National Emergency Declaration Bill 2020 to implement a recommendation of the Royal Commission into National Natural Disaster Arrangements, the bill amends: 24 Acts, four regulations and four ordinances that contain powers that are used by the Commonwealth when responding to, or supporting the recovery from, emergencies to enable the use of alternative or simplified statutory tests to streamline the exercise of those powers where a national emergency has been declared; and National Emergency Declaration Act 2020 and Radiocommunications Act 1992 to make amendments contingent on the commencement of the Radiocommunications Legislation Amendment (Reform and Modernisation) Act 2020.  

Regulatory Powers (Standardisation Reform) Bill 2020 [Provisions]
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National Emergency Declaration Bill 2020
Assent Act no: 128 15 December 2020
Introduced with the National Emergency Declaration (Consequential Amendments) Bill 2020 to implement a recommendation of the Royal Commission into National Natural Disaster Arrangements, the bill: establishes a framework for the declaration of a national emergency by the Governor-General, on the advice of the Prime Minister; enables ministers to suspend, vary or substitute administrative requirements in legislation they administer in certain circumstances; and enables the Prime Minister to require Commonwealth entities to report on available stockpiles, assets and resources, and options and recommendations to respond to a national emergency.

Electoral Amendment (Territory Representation) Bill 2020
Assent  Act no: 127 15 December  2020
Senate 03 December 2020 - The Electoral  Amendment (Territory Representation) Bill 2020 amends the Commonwealth Electoral Act 1918 to provide more   equitable representation,  through  changes  to  the  method  for  determining the  number  of  House  of Representatives members for the Northern Territory and the Australian Capital Territory.


Electoral and Referendum Amendment (AUSTRAC) Regulations 2020
22/12/2020 - This instrument amends the permitted purpose in the Electoral and Referendum Regulation 2016 for which the Australian Transaction Reports and Analysis Centre (AUSTRAC) may use electoral Roll information.

Broadcasting Services (Australian Content and Children's Television) Standards 2020
21/12/2020 –  This instrument repeals and replaces the Broadcasting Services (Australian Content) Standard 2016 and the Children’s Television Standards 2009 to reduce and simplify the Australian content obligations that apply to commercial television broadcasting licensees, while retaining important safeguards for the protection of children.



COVID-19 Emergency Response and Other Legislation Amendment Bill 2020
Stage reached: 2nd reading adjourned on 1/12/2020
The objectives of the Bill include:

  • amend  the Youth  Justice  Act  1992(YJ  Act)  to  allow  the  chief  executive  (youth justice) to delegate his or her powers to appropriately qualified temporary detention centre employees in the event of a future COVID-19 outbreak
  • amend the Electoral Act 1992 to provide flexibility, if required, to facilitate the holding of a by-election in a way that helps minimise serious risks to the health and safety of persons caused by the COVID-19 public health emergency
  • amend the process for filling a vacancy in the office of a mayor or councillor that arises  during  the  period  starting  on  a  quadrennial  election  and  ending  on  the  day before the first anniversary of the election.

Subordinate legislation reminder
No 144 Electoral Amendment Regulation 2020
5 Amendment of s 8 (Amount of policy development payment to which eligible registered political party is entitled—Act, s 240) (1) Section 5 commences on 1 January 2022. 

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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