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What is good faith?


A Court has defined what “ good faith” means.  A contract committed the parties to “ at all times deal with each other in good faith” and required them to do specific things “in good faith”.

The Court explained that those obligations do not depend on the parties’ subjective intentions.   What the parties thought the words meant is irrelevant.  Instead,  the words mean what a reasonable person would objectively understand them to mean.  In working out their meaning, the contract must be read as a whole and the factual background considered.  The phrase “in good faith” is not legal  jargon or a term of art used in a technical way. The words should be given their natural and ordinary meaning which dictionaries define as “ honesty of purpose” or “honesty of intention in entering in engagements”.

The full bench approved a statement ((2000) 116 LQR 66) by Sir Anthony Mason that the “concept of good faith embraced three related notions, namely:

1) an obligation on the parties to cooperate in achieving the contractual objects (loyalty to the promise itself);

2) compliance with honest standards of conduct; and

3) compliance with standards of conduct which are reasonable having regard to the interests of the parties.”

Read the scholarly judgement in Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd

One Comment leave one →
  1. 30/12/2010 10:15 am

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