Articles Good Faith and Termination: The English and Australian Experience Wayne Courtney*

Keywords: bhasin v hrnew, contract, termination, contract rights, contractual discretions, good faith in contract

The Journal of Commonwealth Law Vol. 1, Issue 1, 2019

Starting where Bhasin v Hrynew left off, this article onsidersc how the concept of ‘good faith’ may control the exercise of a right to terminate, or not to renew, a contract. It draws upon case law in Australia and the United Kingdom, which may serve as a guide for further developments in Canada. It advances two key

themes. The first oncc erns a tension between generality and specificity in 2019 CanLIIDocs 1764 common law method. Rights to terminate vary in nature and purpose. The temptation to apply the same incidents of good faith uniformly to them all must be resisted. Secondly, unless some radical reform is intended, developments in good faith should cohere with the existing body of principles comprising the law of contract. This suggests that any distinct duty of good faith will tend to play an interstitial role. The impact of such a duty upon existing rules and policies of the common law is often neglected; this is particularly evident in relation to termination for breach of contract.

i. introduction In its landmark decision Bhasin v Hrynew,1 the Supreme Court of Canada referred to several decisions as showing that a contractual 'discretion' or 'power' could be subject to some form of good faith limitation in Canadian law.2 The Court stopped short of holding that the newfound duty of good faith in performance applied to the right in question, namely, a right to prevent automatic renewal of a dealership contract. Classifying the right as a 'discretion' would be, the Court said, a 'significant expansion of the decided cases under that type of situation'.3 More generally, it was 'unnecessary to decide whether reliance on a discretionary power to achieve a purpose extraneous to the contract… might call for further development' under the newfound principle.4 Taking Bhasin as a starting point, this paper considers the role of good faith in restricting one party's exercise of a right to terminate, or to prevent renewal of, a contract.5 The section immediately below lays out some important challenges

* Institution: National University of Singapore Department: Law 1 2014 SCC 71,[2014] 3 SCR 494. 2 ibid [50]–[51], [55], [89]. 3 ibid [72]. 4 ibid [90]. 5 It does not consider dissolution of, or expulsion of members from, partnerships, associations, unions and the like. See, eg, Russell v Russell (1880) 14 Ch D 471; Dickason v Edwards (1910) 10 CLR 243; Kerr v Morris [1987] Ch 90, 110–1 (Dillon LJ; Lloyd LJ and Nicholls LJ agreeing). Good Faith and Termination: The English and Australian Experience for a good faith analysis of termination rights. The third section then considers the current state of Anglo-Australian law on good faith in termination. This may provide some insight on the likely direction of developments in Canadian law, if Canada is inclined to follow these jurisdictions rather than the United States. ii. good faith and fault lines in the common law In Australia and England, the substance of the 'good faith' concept remains a matter of considerable debate.6 Much of the controversy concerns the way in which good faith is to be accommodated within the law of contract. The debate has also been propelled by differing personal views held by judges about the competing values of certainty and fairness. Bhasin at once manages to

acknowledge some of these disputes, sidestep others, and sow the seeds for 2019 CanLIIDocs 1764 further conflict. Several points of controversy can be mentioned briefly at the outset. Australian and English cases have not finally settled upon whether 'good faith' is implemented through construction of the contract, by implication of a term in fact or in law, or by some other means.7 Much of the analysis on this point has occurred in relation to the exercise of contractual rights or discretions, where courts have inclined towards implication. Another debate concerns the content of a contractual duty of good faith. Does it merely require honesty-in-fact; does it include an absence of bad faith, arbitrariness, capriciousness and perversity; or does it embody even more demanding expectations of 'reasonableness' or 'fair dealing'?8 Bhasin describes the organising principle in terms of performing 'honestly and reasonably and not capriciously or arbitrarily'.9 English and Australian courts have incorporated an element of reasonableness into 'good faith' though the two jurisdictions differ in what they mean by it. The English courts limit reasonableness to a form of rationality, as may be found in judicial review of administrative action.10 The decision-maker must take into account relevant considerations and ignore those that are irrelevant. And the decision may not be so perverse or outrageous in its defiance of logic that no reasonable

6 For a general account of the Australian position, see JW Carter, 'Good Faith in Contract: Why Australian Law is Incoherent' (Paper presented at the Queensland Bar Association Annual Conference, 8 March 2014). 7 See, eg, Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, 257, 261 (Priestley JA), 279 (Handley JA); Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, 368; Socimer International Bank Ltd v Standard Bank London Ltd [2008] EWCA Civ 116, [2008] 1 Lloyd's Rep 558 [66] (Rix LJ); Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB), [2013] 1 Lloyd's Rep 526 [131]–[132]. See also JW Carter and E Peden, 'Good Faith in Australian Contract Law' (2003) 19 JCL 155; E Peden, '"Implicit Good Faith"– or Do We Still Need an Implied Term of Good Faith?' (2009) 25 JCL 50; JW Carter and W Courtney, 'Good Faith in Contracts: Is There an Implied Promise to Act Honestly?' (2016) 75 CLJ 608. 8 See generally AF Mason 'Contract, Good Faith and Equitable Standards in Fair Dealing' (2000) 116 LQR 66. Cf Uniform Commercial Code §§1–201(20) and 1–304 ('honesty in fact and the observance of reasonable commercial standards of fair dealing'); Restatement (2d) of Contracts (1981) §205 ('good faith and fair dealing in … performance and … enforcement' of the contract); SJ Burton and EG Andersen, Contractual Good Faith: Formation, Performance, Breach, Enforcement (Little, Brown & Co, 1995) §3.3; Principles of European Contract Law arts 1:201, 1:202 (duty to act 'in accordance with good faith and fair dealing' and duty 'to co-operate in order to give full effect to the contract'). 9 Bhasin (n 1) [63]. 10 See, eg, Socimer (n 7) [66] (Rix LJ).

The Journal of Commonwealth Law 2 Good Faith and Termination: The English and Australian Experience decision-maker could have come to it. Australian decisions often go further, eliding good faith with reasonableness as an objective standard.11 Next, there is the question of how a good faith 'requirement' (to use a neutral word), operates in relation to the parties' agreement. Is it, for example, a distinct duty; a contractual obligation; or a restriction applied to another aspect of the contract, defining theligation ob to perform or limiting the exercise of a contractual right? The answer to that question has ramifications for actions taken not in good faith. I say no more about these debates because they affect good faith generally. Turning to the exercise of rights to terminate, the reasoning about good faith in Anglo-Australian cases reveals four fault lines. First, whether termination is different from performance, so that it should be exempt from any duty 2019 CanLIIDocs 1764 of good faith. Secondly, whether there is a taxonomy of 'rights' in contract, under which some or all termination rights are treated differently from other rights. Thirdly, the interaction of good faith and contract doctrine. These three are symptomatic of another tension, between generality and specificity in the development of good faith. a. is termination different from performance? In attempting to circumscribe the operation of good faith, it has been suggested that rights to terminate are different from rights or obligations in performance.12 Good faith ought not to apply to termination, it is said, because that process brings to an end the parties' shared endeavour. The Supreme Court in Bhasin must have rejected that view as a general rule, by its approval of several decisions on termination which it said illustrated the application of good faith.13 A distinction between performance and termination is unsustainable if good faith truly is an 'organising principle' or, as I would prefer it, immanent in the body of doctrines and rules that comprise the law of contract.14 The contrast is pitched at the wrong level of generality. It treats all rights to terminate as if they were the same, which is manifestly not the case.15 Moreover, an aspect of good faith is loyalty to the spirit of the bargain.16 Contractual duties to co-operate and not to impede performance serve that end, though Anglo- Australian law does not conventionally label them as 'good faith'. From this perspective termination is merely the obverse of performance. It cannot be isolated from other contractual (or extra-contractual) acts that diminish the counterparty's receipt of the benefit of theargain. b Some incidents of 'good

11 See, eg, Renard (n 7); Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187, (2001) 69 NSWLR 558 [169]–[171]. 12 Monde Petroleum SA v Western Zagros Ltd [2016] EWHC 1472 (Comm), [2016] 2 Lloyd's Rep 229 [272]. 13 Bhasin (n 1) [51], [54], [89]. 14 See below, text to n 34. 15 Cf Burton and Andersen (n 8) §7.3.2.1 (distinction between performance and enforcement terms). 16 AF Mason, 'Contract, Good Faith and Equitable Standards in Fair Dealing' (2000) 116 LQR 66, 69.

The Journal of Commonwealth Law 3 Good Faith and Termination: The English and Australian Experience faith' will apply only while the contract, or relationship established by the contract, subsists. Even so, the parties are sometimes expected to act fairly after the substance of the contract has been discharged.17 Also, as the facts in Bhasin demonstrate, any exemption for termination could in some circumstances be circumvented by pointing to pre-termination conduct.18 Lastly, there is an appeal to symmetry. The common law in Commonwealth jurisdictions has struggled with the opposite problem to termination, namely, that of the insistent performer who ignores the counterparty's serious breach or repudiation.19 A generalised duty of good faith in performance (and enforcement) of the contract may have implications for that kind of conduct. It may also catch decisions to renew or extend contracts.20 Whatever path the law takes, it would be odd for the duty of good faith to neglect one side of the story. 2019 CanLIIDocs 1764 b. rights, discretions and powers The Court in Bhasin said that the 'right' not to renew was not a kind of 'contractual discretion'. The Court also referred to 'contractual powers' and 'discretionary powers'.21 These descriptions and others, such as 'absolute contractual rights',22 are scattered throughout English and Australian decisions. The objective of the characterisation in Bhasin, as elsewhere, is to explain why good faith restricts the exercise of some 'rights' but not others, like a right to terminate. Usage of these labels is far from consistent. Contract lawyers are prone to use the word 'right' indiscriminately to refer to any choice or entitlement arising under the contract. To label a 'right' as 'absolute' is essentially conclusory.23 Nor is there any systematic basis for deriving particular incidents of good faith from each label.24 As the law stands such classifications are, therefore, unhelpful. Attempts to define 'discretion' quickly confront the point that an element of choice invariably exists when a party is able to exercise, or refrain from exercising, a legal entitlement. So, for example, a party can elect between

17 Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 1 WLR 1661 (payment of death-in-service benefit); Sullivan v Darkin [1986], 1 NZLR 214; Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd [2014] VSC 57 [156], [173]–[175] (resale of property by vendor). The same point is implicit in the view that mitigation of damage (including after termination) is an aspect of 'good faith'. Cf also Socimer (n 7) (valuation of securities on termination date). 18 Cf, in England, the 'Johnson exclusion zone': Eastwood v Magnox Electric plc [2004] UKHL 35, [2005] 1 AC 503; Edwards v Chesterfield Royal Hospital NHS Foundation Trust [2011] UKSC 58, [2012] 2 AC 22. 19 White and Carter (Councils) Ltd v McGregor [1962] AC 413; Finelli v Dee (1968) 67 DLR (2d) 393 (Ont CA). 20 This is not to say that a right to affirm orxtend e would necessarily be curtailed: cf Lomas v JFB Firth Rixson Inc [2012] EWCA Civ 419 [46]; Greenclose Ltd v National Westminster Bank plc [2014] EWHC 1156 (Ch), [2014] 2 BCLC 486 [145], [150]–[151]. See below, text to n 155. 21 Bhasin (n 1) [51] and [31], [89], [90]. 22 Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200, [2013] BLR 265 [83], [91] (Jackson LJ); Greenclose (n 20) [145]; Myer v Kestrel Acquisitions Ltd [2015] EWHC 916 (Ch) [65]; Monk v Largo Foods Ltd [2016] EWHC 1837 (Comm) [64]; Shurbanova v Forex Capital Markets Ltd [2017] EWHC 2133 (QB) [95]–[97]. 23 D Foxton, 'A good faith goodbye? Good faith obligations and contractual termination rights' [2017] LMCLQ 360, 372. 24 See Carter (n 6) 34. See also Excomm Ltd v Guan Guan Shipping (Pte) Ltd (The Golden Bear) [1987] 1 Lloyd's Rep 330, 342 (doubting that there is 'a class of contractual rights described as powers' which must be exercised reasonably).

The Journal of Commonwealth Law 4 Good Faith and Termination: The English and Australian Experience affirming or terminating theontract c for breach by the counterparty; a buyer of goods may have flexibility under contract to determine the quantity of goods25 or time for delivery; likewise, a charterer, flexibility in fixing the duration of the charter; and an employer may direct its employee to work in different locations. The last three examples all concern the counterparty's performance. Considering the position of a performing party, the Court in Bhasin observed that 'a party almost always has some amount of discretion in how to perform a contract'.26 The statement sits uneasily with the preceding sentence in which the Court declared that the right not to renew was not a 'discretion' like some others. It underscores the looseness of the term. One could speak of the performing party's 'discretion' to define orary v the content of its own obligation to be performed, its 'discretion' to act in any way that constitutes sufficient performance of a fixed contractual obligation, and its 'discretion' not 2019 CanLIIDocs 1764 to renew a contract. The first of theseertainly isc not 'almost always' present, so the Court presumably had the second in mind. A view that has gained some currency in England is that a binary choice is unrestricted by good faith.27 In contrast, selection from more than two options does involve a discretion and is therefore subject to some limitation. This perspective may have its roots in explaining waiver of contractual entitlements or the unfettered choice between some common law rights, such as affirmation and termination for serious breach. The criterion is arbitrary. There is no reason for control of the selection among choices itself to depend upon the number of choices. For example, why should regulation of a decision to allocate broadcast channels to customers depend upon whether there are two or more channels?28 Nor is there any sensible distinction between an insurer expressly given the option to accept or reject a claim outright and one who has the additional choice to pay the claim in part.29 Fortunately, the law is not so illogical as to fix upon thisriterion. c Binary choices may be subject to control.30 Conversely, a party may concurrently enjoy rights (provided by common law or contract) to terminate on multiple grounds, or to affirm. It is generally not restricted in its choice among bases for termination.31 Focusing upon the number of choices or classifying the type of entitlement is not especially fruitful. Greater insight can be gained by looking

25 Cf Sale of Goods Act 1979 (UK), ss 30(1), (2) (delivery of wrong quantity). 26 Bhasin (n 1) [72]. 27 Mid Essex Hospital Services (n 22) [83], [91] (Jackson LJ); Myer v Kestrel (n 22) [61]; Monde Petroleum (n 12) [266]. 28 Cf JML Direct Ltd v Freesat UK Ltd [2010] EWCA Civ 34. 29 Cf Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2) [2001] EWCA Civ 1047, [2001] 2 All ER (Comm) 299 and CVG Siderurgicia del Orinoco SA v London Steamship Owners' Mutual Insurance Association Ltd (The Vainqueur Jose)́ [1979] 1 Lloyd's Rep 557. 30 Gan Insurance (n 29) (approval of settlement); Lymington Marina Ltd v Macnamara [2007] EWCA Civ 151, [2007] 2 All ER (Comm) 625 (approval of sub-licences); Braganza (n 17) (payment of death-in-service benefit); Watson v Watchfinder.co.uk [2017] EWHC 1275 (Comm), [2017] Bus LR 1309 (approval to exercise option). 31 See, eg, Ilkerler Otomotiv Sanayai ve Ticaret Anonim Sirketi v Perkins Engines Co Ltd [2017] EWCA Civ 183, [2017] 4 WLR 144 [13]. See further below, n 80.

The Journal of Commonwealth Law 5 Good Faith and Termination: The English and Australian Experience more closely at the event that gives the party a choice, the circumstances in which the choice is to be made, and the interests of each party in respect of that choice. Ultimately, any taxonomical approach has its limits.32 c. good faith and common law doctrine In retrofitting aystem s of contract law with a general duty of good faith, due regard must be paid to the fabric of the common law in that jurisdiction. Comparison with other legal systems, as occurred in Bhasin, can offer valuable insights. There are, however, good reasons to be cautious about selectively transplanting concepts from elsewhere.33 The transplant must cohere with the law in the target jurisdiction. The Anglo-Australian approach to good faith in contract has traditionally been covert. The concept is manifested in an array of contract law doctrines or rules which go by different names. Examples include 2019 CanLIIDocs 1764 the requirement of reasonable notice to incorporate terms without signature;34 frustration; performance insecurity (including dishonesty) as a theme underlying repudiation of contract; an inability to exclude liability for one's own dishonesty;35 and the avoidable loss rule in mitigation of damage. For termination of contract, the best-known doctrines address discharge for breach and repudiation. Other doctrines, such as estoppel and election, restrict the right to terminate. The present structure of the law of contract makes it far easier to advance a distinct duty of good faith as an interstitial concept rather than as an overarching one. This is, perhaps, what the Court meant by its assurance that '[g]enerally, claims of good faith will not succeed if they do not fall within… existing doctrines'.36 Bhasin must then be the exception that proves the rule. The Court referred to civil fraud and estoppel, noting that its newfound duty of good faith was not subsumed by them. This avoided a charge of redundancy. Nor did the duties necessarily conflict. The risk remains thatontractual c good faith imposes standards more favourable to the party invoking it, so that established, carefully delineated doctrines are swallowed up. The duty of good faith recognised by the Court seems to be more generous than the tort of deceit in the omission of any requirement to intend inducement and in the possibility of damages on a contractual measure.37 In this respect Bhasin is symptomatic of a more general concern. A fair argument can be made that some contract doctrines are in dire need of reform. This should occur after thorough reflection, rather than accidentally, by

32 Foxton (n 23) 363. 33 For criticism of Australian courts' use of US 'good faith' precedents, see E Peden, 'Contractual Good Faith: Can Australia Benefit from the American Experience?' (2003) 15 Bond L Rev 186; Carter (n 6) 6–8. 34 Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433, 439 (Bingham LJ). 35 S Pearson & Son Ltd v Dublin Corp [1907] AC 351; HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 2 Lloyd's Rep 61 [16] (Lord Bingham), [76] (Lord Hoffmann), [122] (Lord Scott). 36 ibid [66]. 37 ibid [88].

The Journal of Commonwealth Law 6 Good Faith and Termination: The English and Australian Experience sweeping developments. What is striking about arguments for 'good faith' to control rights of termination (particularly common law rights) is that little account is taken of its impact on established doctrine.38 d. generalisation Courts have sought to draw together different incidents or concepts under the rubric 'good faith'. This impulse moved the Court in Bhasin, which lamented a 'piecemeal' approach that 'often fails to take a consistent or principled approach to similar problems'; a unified approach was 'more coherent and more just'.39 Pulling in the opposite direction is the elementary point that details do matter: the common law incrementally creates and moulds rules to fit specific situations., So the High Court of Australia has warned against 'high-sounding generalisations, for judicial indulgence of idiosyncratic notions 2019 CanLIIDocs 1764 of what is fair in the market place'.40 And in MSC Mediterranean Shipping Co SA v Cottonex Anstalt41 Moore-Bick LJ said it was better for the law 'to develop along established lines rather than to encourage judges to look for… some "general organising principle" drawn from cases of disparate kinds'. There is a tension in Bhasin between the Court's endorsement of good faith as an organising principle and its acknowledgement that the precise content of good faith will vary and that contractual rights may be subject to different restrictions.42 Without entering into the broader debate, I make two observations about this tension as it concerns the exercise of contractual rights and rights to terminate in particular. Much of the common law of contract comprises default rules that have evolved over a long time, guided by experience and informed by norms shared by parties in particular contexts, or by the community at large. Specific rules or standards are developed to provide structured answers to recurrent problems. There is fair criticism that this has led to excessive proliferation of rules and a body of law that is unduly complex. Often, however, fine gradations emergec be ause they are thought to befit different circumstances. There is a meaningful distinction between irrationality, lack of reasonable care and objective unreasonableness in exercising a contractual discretion.43 The 'legitimate interest' qualification from White and Carter (Councils) Ltd v McGregor44 requires something worse than 'unreasonable' conduct. Australian and English law agree that a mortgagee in possession who intends to sell the property must act in 'good faith', though they probably diverge on what this entails.45

38 See below, section III.A. 39 ibid [42], [33]. 40 Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414, 445–6; ABC v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001), 208 CLR 199 [80] (Gummow and Hayne JJ). 41 (n 19) [45] (Tomlinson LJ and Keehan J agreed). 42 ibid [50] (contractual discretions), [51] (contractual power used to evade duty) and [72], [90] (a non-'discretionary' or unfettered right). 43 Hannover Life Re of Australasia Ltd v Jones [2017] NSWCA 233 may illustrate an overly-refined approach. 44 [1962] AC 413. 45 Cf Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676, 679 (Griffith CJ), 694 (Barton J), 700 (Isaacs J); Forsyth v

The Journal of Commonwealth Law 7 Good Faith and Termination: The English and Australian Experience

A mortgagee's duty is different from that cast upon a seller exercising a contractual discretion to value securities which it holds after terminating for the buyer's default;46 or upon a vendor of land who exercises a contractual power of resale;47 or upon a party to mitigate following a breach of contract. A danger of generalised reasoning is that rights lose their distinct character. Good faith is highly sensitive to context.48 One justification for restricting the exercise of contractual rights has been that the parties' interests may or do conflict, theontract c effectively placing resolution of that conflict in the hands of the party exercising the discretion.49 This perspective emphasises the weaker position of the counterparty and the possibility of abuse by the party exercising the right. Standing alone it proves too much50 because it implies that rights to terminate should usually be fettered; hence, attempts to rationalise common 2019 CanLIIDocs 1764 law rights to terminate as exceptional. The law does not go so far even for express contractual rights. In interest swaps or forward freight agreements, for example, the parties' interests are diametrically opposed. Nonetheless, the right to terminate under the ISDA master agreement has been held to be unrestricted.51 The position of the party exercising the right and the reason the right is conferred must be taken into account. The parties may deliberately provide for rights with a self-interested or partisan orientation. Sometimes, the right is directly counteracted by another term in the contract. 'Roulette' provisions used to resolve deadlocks between investors in joint ventures are an example.52 Standard clauses are widely used in some markets to ameliorate the perceived harshness of a right to terminate.53 Alternatively, the partisan right may be 'purchased' or 'priced in' during negotiations in return for greater contractual rewards.54 It is not the role of the court to second-guess the adequacy of the bargain. Many contracts will attach different consequences to the exercise of rights to terminate for cause and to terminate without cause. The latter usually

Blundell (1973) 129 CLR 477, 493 (Walsh J), contra 481 (Menzies J); Upton v Tasmanian Perpetual Trustees Ltd [2007] FCAFC 57, (2007) 158 FCR 118 [15]–[19] (Kiefel and Besanko JJ), [82] (Graham J) (mortgagee must not act fraudulently or 'recklessly or wilfully sacrifice the interests of the mortgagor') and Downsview Nominees Ltd v First City Corp Ltd [1993] AC 295, 312, 315; Yorkshire Bank v Hall [1999] 1 WLR 1713, 1728 (Robert Walker LJ) (reasonable care to obtain proper price or true market value). 46 Socimer (n 7) [122] (Rix LJ), [154]–[155] (Lloyd LJ). 47 Sullivan (n 17); AHR Constructions Pty Ltd v Maloney [1994] 1 Qd R 460, 465–7; Portbury (n 17) [156], [160]. Cf Sakkas v Donford Ltd (1983) 46 P & CR 290. 48 Yam Seng (n 7) [141]; Braganza (n 17) [31] (Lady Hale). 49 Horkulak v Cantor Fitzgerald International [2004] EWCA Civ 1287, [2005] ICR 402 [30] (Potter LJ); Lymington (n 30) [41] (Arden LJ); Socimer (n 7) [65] (Rix LJ). 50 For other criticisms, see Gan Insurance (n 29) [70]–[72] (Mance LJ). 51 Lomas [2012] EWCA Civ 419 [46] (Longmore LJ) (dismissing the contrary argument as 'hopeless'). 52 More familiar may be the old chestnut of sharing a cake between two children, each of whom wants to eat as much as possible. Fairness is achieved by one child cutting and the other choosing first. It is unnecessary to restrict either of those acts; the position would be different if the cutter also chose first. 53 Eg, the anti-technicality clause found in standard form time charters, which constrains the owner's right to withdraw the vessel for non-payment of hire. 54 See Foxton (n 23) 372.

The Journal of Commonwealth Law 8 Good Faith and Termination: The English and Australian Experience comes at a greater cost, with the terminating party having to compensate the counterparty for costs and expenses incurred (perhaps with an element of profit) up to the point of termination. Some of these themes are illustrated by Renard Constructions (ME) Pty Ltd v Minister for Public Works,55 a seminal Australian decision cited in Bhasin. At issue was a show cause procedure in a standard form construction contract, which could be invoked by the principal if the contractor 'default[ed] in the performance or observance of any covenant, condition or stipulation in the Contract'. The procedure was to be initiated by a notice identifying the default upon which it was based. In the event that the contractor 'fail[ed]… to show cause to the satisfaction of the principal', the clause conferred upon the principal the right to cancel the contract, or to take over all or any part of the work. After issuing a notice, to which the contractor responded, the principal 2019 CanLIIDocs 1764 decided to exercise its right to take over all of the work and exclude the contractor from the site. It reached that decision by relying upon 'misleading, incomplete and prejudicial information' supplied by others. Priestley JA and Handley JA held that the principal was required to act reasonably at two stages: in its dissatisfaction with the contractor's response and in its decision as to which (if any) of the rights conferred by the clause was to be exercised.56 Handley JA reached that conclusion by construction. For Priestley JA it was a matter of implying terms in fact or in law. At the first stage, at least, the implied term governed the existence of the right to cancel or take over the work.57 His conclusion did not depend upon good faith. It is remarkable that his discussion of it, which was only obiter, has attracted so much attention. Priestley JA argued that his conclusion on implied terms was compatible with common law developments on good faith and also equitable restrictions on the exercise of common law rights. He referred to several Australian cases on a standard clause found in contracts for the sale of land. The standard clause applies to a vendor who is unable or unwilling to satisfy requisitions on title made by the purchaser.58 The clause permits the vendor to rescind upon notice if the purchaser declines to withdraw the requisition. The vendor must act in good faith for a proper purpose, and not recklessly, arbitrarily or unconscionably.59 These limits were originally informed by the difficulties involved in making title under the English land title system.60 The restriction is

55 (1992) 26 NSWLR 234. 56 Renard (n 7) 257. 57 ibid 258–9 but cf 269. 58 The clause has been in use for more than a century and a half: see Tanner v Smith (1840) 10 Sim 410, 411; 59 ER 673, 673. See generally,C Harpum, 'Rescission for insistence on a requisition: the ghost of Bain v Fothergill' [1990] Conv 150. 59 Selkirk v Romar Investments Ltd [1963] 1 WLR 1415, 1422–3; Godfrey Constructions Pty Ltd v Kanangra Park Pty Ltd (1972) 128 CLR 529, 538 (Barwick CJ), 543 (Walsh J), 548–9 (Stephen J); Pierce Bell Sales Pty Ltd v Frazer (1973) 130 CLR 575, 587 (Barwick CJ), 590–1 (Gibbs J). 60 Similar considerations underpinned the rule in Bain v Fothergill (1874) LR 7 HL 158.

The Journal of Commonwealth Law 9 Good Faith and Termination: The English and Australian Experience equitable in nature, rather than being applied solely through construction61 or by implication. Priestley JA's treatment of these cases as illustrating general rules62 to be applied to contracts is an overstatement. The purpose of the termination right must be relevant. The standard clause is inserted for the benefit of theendor. v But a party who seeks to rely upon its own inability or unwillingness to perform stands in quite a different position from one who relies upon default by the counterparty or an independent event as a basis for termination. In another Australian case63 it was rightly said that the power under the clause 'has little, if any affinity with theontractual c power of a purchaser to rescind by reason of the vendor's default in transferring property'. To its credit, the Supreme Court in Bhasin appears to have been more sensitive to this variability. Referring to Mason v Freedman,64 which also concerned a vendor's right to rescind for 2019 CanLIIDocs 1764 inability to meet requisitions on title, the Court pointed out that some limitation is needed to prevent the vendor evading the contractual bargain. The Court did not say that this limitation affected all contractual rights to terminate. That must be correct, though it merely transforms the issue into whether exercise of the right amounts to evasion of the bargain. Renard has been influential in Australia. The approach of the majority was almost immediately transferred to bankruptcy provisions in the same standard form construction contract.65 By the turn of the twenty-firstentury c the New South Wales Court of Appeal felt able to say (in a franchising case) that 'obligations of good faith and reasonableness will be more readily implied in standard form contracts, particularly if such contracts contain a general power of termination'.66 It is not obvious why standard form contracts are more deserving of control by good faith than negotiated contracts. The assumption may have been that a franchisor, as the stronger party, is likely to (and in that case, did) impose one-sided and imbalanced terms upon the franchisee. But the same risk of unequal bargaining power exists for a negotiated contract. Nor did the court attempt to distinguish standard forms created by a party with substantial market power, from standard forms drafted by industry bodies that are intended to strike an appropriate balance between the interests of both contracting parties.67 This enthusiasm has since waned, with courts being more circumspect about a generalised duty of good faith.68 The point has been left

61 Cf Champtaloup v Thomas [1976] 2 NSWLR 264, 270 (Glass JA); Godfrey (n 59) 549 (Stephen J). 62 (1992) 26 NSWLR 234, 270. 63 Champtaloup (n 61) 271 (Glass JA). This case contradicts Priestley JA's reasoning in Renard (n 7) 269–70). 64 [1958] SCR 483. See also Le Mesurier v Andrus (1986) 54 OR (2d) 1 (CA). 65 Hughes Bros Pty Ltd v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91. Cf Westminster Properties Pty Ltd v Comco Constructions Pty Ltd (1991) 5 WAR 191, 198 (Malcolm CJ). 66 Burger King (n 11) [163]. 67 See above, n 53. 68 Central Exchange Ltd v Anaconda Nickel Ltd [2002] WASCA 94, (2002) 26 WAR 33 [45]–[64]; Wenzel v ASX Ltd [2002] FCAFC 400, (2002) 125 FCR 570 [80]–[81]; Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 [189], [191]; Esso Australia Resources Pty Ltd v

The Journal of Commonwealth Law 10 Good Faith and Termination: The English and Australian Experience open by the High Court of Australia.69 iii. mapping termination rights a. common law rights to terminate for breach or repudiation These are rights to terminate for breach of condition, serious breach of an intermediate term or repudiation. English and Australian courts have so far resisted applying good faith to common law rights. In this sphere, Lord Reid's observation that '[i]t might be, but it never has been, the law that a person is only entitled to enforce his contractual rights in a reasonable way'70 still holds sway. Leggatt J recently challenged this distinction between rights conferred by contract and by operation of law, saying:71

I cannot see why this should make any difference in principle. 2019 CanLIIDocs 1764 In each case one party to the contract has a decision to make on a matter which affects the interests of the other party to the contract whose interests are not the same. The same reason exists in each case to imply some constraint on the decision-maker's freedom to act purely in its own self-interest. The essential concern, as Rix LJ observed in the Socimer case at para 66, is that the decision-maker's power should not be abused. The Court of Appeal disagreed.72 Leggatt J was right to recognise that the terminating party makes a choice which the law could choose to constrain.73 As explained earlier, the two-choices-or-more analysis is not feasible, nor has the law of contract systematically adopted a taxonomy of rights, powers and discretions.74 Leggatt J's analogy falters thereafter because it does not account for other differences between rights, which justify different treatment. A straightforward normative factor is that common law rights arise in respect of what is, in law, a significant deviation from the contract. Since the law of contract generally avoids inquiring into the defaulting party's mental state, the doctrines governing discharge for breach and repudiation provide a benchmark for measuring the seriousness of the breach to the innocent party. Being the victim of such a wrong, we would not expect the law to be too eager to

Southern Pacific Petroleum NL [2005] VSCA 228 [4], [25]; CGU Workers Compensation (NSW) Ltd v Garcia [2007] NSWCA 193, (2007) 69 NSWLR 680 [132]–[136]; Tote Tasmania Pty Ltd v Garrott [2008] TASSC 86, (2008) 17 Tas R 320 [16]; Specialist Diagnostic Services Pty Ltd v Healthscope Pty Ltd [2012] VSCA 175, (2012) 305 ALR 569 [86]–[87]; Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd [2012] WASCA 165, (2012) 268 FLR 433 [150]–[151]; Androvitsaneas v Members First Broker Network [2013] VSCA 212 [108]. Cf United Group Rail Services Ltd v Rail Corp New South Wales [2009] NSWCA 177, (2009) 74 NSWLR 618 [59]–[61]; Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50, (2015) 236 FCR 199 [287]–[291]. 69 Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5, (2002) 240 CLR 45 [40] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ), [87]–[88] (Kirby J), [155] (Callinan J); Commonwealth Bank of Australia v Barker [2014] HCA 32, (2014) 253 CLR 169 [42] (French CJ, Bell and Keane JJ). 70 White (n 19) 430. See also China and South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536, 545. 71 MSC (n 41) [97]. 72 MSC (n 41) [45] (Moore-Bick LJ; Tomlinson LJ and Keehan J agreeing). 73 See also R Hooley, 'Controlling Contractual Discretion' (2013) 72 CLJ 65, 86–7. 74 See above, section II.B.

The Journal of Commonwealth Law 11 Good Faith and Termination: The English and Australian Experience constrain its decision to terminate. Certainty and coherence are other important considerations. The common law could have adopted a simple rule that a party can terminate whenever it is 'fair' or 'reasonable' in the circumstances to do so. Instead, it developed a more sophisticated regime that directs the manner in which the right to terminate is established. This provides a degree of systematisation and predictability. The regime has also evolved over time. The intermediate term added flexibility, so that the right to terminate could be determined by reference to actual events and not only the range of consequences anticipated at the time of contract. There is also a preference to construe terms as being intermediate, to encourage performance.75

It is not clear which incidents of good faith are appropriate to apply to a 2019 CanLIIDocs 1764 common law right to terminate. Consider, for example, 'honesty'. Must the terminating party honestly believe that it is lawfully entitled to terminate? Parties' convictions about their legal positions vary in strength. Where there is doubt, there is no compelling reason to penalise a party for taking a chance that turns out to be correct.76 Even if the party positively believes it has no right to terminate, a requirement of 'honesty' prioritises belief over actual legal entitlement. A similar point arises, conversely, where a party insists on performing according to its disputed (but, ultimately, correct) construction of the contract.77 A requirement of honesty in termination also risks conflict with the 'alternative ground' rule. In general,78 a party who terminates upon an invalid ground can retrospectively attribute its termination to another ground extant at the time of termination, even if the terminating party was not then aware of it.79 This is an extension of the more elementary principle that a party is free to choose among grounds for termination.80 Rather than lacking 'good faith', it might be said that the present law simply manifests a different understanding of the concept: it favours what is ultimately a lawful justification over an erroneous explanation or misprediction. Requirements such as lack of arbitrariness or capriciousness, and propriety of purpose, raise the question of a party's reasons for terminating. A good

75 Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44, 71 (Roskill LJ); Bremer Handelsgesellschaft Schaft mbH v Vanden Avenne Izegem PVBA [1978] 2 Lloyd's Rep 109, 113 (Lord Wilberforce); Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2016] EWCA Civ 982, [2016] 2 Lloyd's Rep 447 [52], [56] (Gross LJ), [92] (Hamblen LJ), [99] (Sir Terence Etherton MR). 76 See further below, text following n 78. 77 Cf Stocznia Gdanska SA v Latvian Shipping Co [1996] 2 Lloyd's Rep 132, 139 (Staughton LJ) (legitimate interest in continuing performance under White and Carter principle when it was not clear that counterparty was repudiating). 78 For qualifications, see Glencore Grain Rotterdam BV v Lebanese Organisation for International Commerce [1997] 4 All ER 514, 526–8 and Heisler v Anglo-Dal Ltd [1954] 1 WLR 1273.. Cf Sucden Financial Ltd v Fluxo-Cane Overseas Ltd [2010] EWHC 2133 (Comm), [2010] 2 CLC 216, [44](6)–(7) (party able to rely on alternative ground which required a certain state of mind, because it happened to possess that state of mind at time of termination). 79 Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339; Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis Angelos) [1971] 1 QB 164; Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359; Rawson v Hobbs (1961) 107 CLR 466, 480 (Dixon CJ). 80 See, eg, Ilkerler (n 31) [13].

The Journal of Commonwealth Law 12 Good Faith and Termination: The English and Australian Experience faith approach might then create a catalogue of acceptable reasons.81 Concerns about denial of contractual obligation, adequacy of performance or inadequacy of compensation could be treated as legitimate. Other reasons, such as merely capturing an economic windfall, could become illegitimate. This represents a considerable shift in conventional thinking. Concerns like these are already embodied to some extent within the doctrine of repudiation and the classification of promissory terms. However, a party's reason for termination in any particular case need not correspond to the basis of its right to do so. Thus, Anglo-Australian law accepts that a party can seize an opportunity to terminate to escape the contract for reasons unrelated to inadequacy of performance.82 Fluctuations in market prices and changes in a party's strategic direction are common reasons, indeed, notorious in some

markets. 2019 CanLIIDocs 1764 A reason-based scheme may encourage inquiries into the uncommunicated subjective intentions of the terminating party, or lead to subjective devaluation of contractual performance. Like the requirement of 'honesty', the reason- based scheme depends upon information that the defaulting party may not possess at, or obtain promptly after, the time of termination. And there would be complications in implementing the finer details,or f example, how to deal with multiple reasons, and whether a reason need only be honestly held or is to be judged against a standard of rationality or reasonableness. Whether a reason-based scheme would be preferred by most contracting parties or lead to a more satisfactory and coherent law of contract is an open question.83 I remain sceptical. The common law regime for discharge is comprehensive, so an additional 'good faith' restriction on termination necessarily cuts across it. The restriction would probably have a modest effect on termination for fundamental breach of an intermediate term or breach of a condition that seriously affects the substance of performance. Its impact would be more pronounced for other breaches of condition.84 It would, no doubt, reduce instances of termination. But it is not obvious that there is a one-size- fits-all solution; selective statutory intervention may be more appropriate.85 Presenting 'good faith' as a restriction on common law rights to terminate invites comparisons with other restrictions on termination. The common law has, typically, taken a piecemeal approach by addressing specific instances of

81 R Brownsword, 'Retrieving Reasons, Retrieving Rationality? A New Look at the Right to Withdraw for Breach of Contract' (1992) 5 JCL 83, 92–3; R Hooley, 'Controlling Contractual Discretion' (2013) 72 CLJ 65, 87–8. Cf Burton and Andersen (n 8) §7.3.2.2. 82 See, eg, Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 AC 694; Cargill UK Ltd v Continental UK Ltd [1989] 2 Lloyd's Rep 290, 295 (Parker LJ), 296 (Bingham LJ); Castle Constructions Pty Ltd v Fekala Pty Ltd (2006) 65 NSWLR 648 [23], [27], [29] (Mason P). 83 Cf R Brownsword, 'Retrieving Reasons, Retrieving Rationality? A New Look at the Right to Withdraw for Breach of Contract' (1992) 5 JCL 83, 105. 84 Cf Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245, 263 (Mason CJ). 85 As in the Sale of Goods Act 1979 (UK), s 15A. The buyer has no right to terminate for breach of certain conditions implied by statute where the breach is 'so slight that it would be unreasonable' to reject the goods.

The Journal of Commonwealth Law 13 Good Faith and Termination: The English and Australian Experience conduct perceived to be unfair or unconscionable.86 A good faith restriction on common law rights has the potential to operate more broadly. It is surprising, then, that advocates of good faith have given little consideration to its effect on the way the general law presently regulates exercise of the right to terminate. It suffices to illustrate the point with one example: relief against forfeiture. Relief against forfeiture may restrict a party's reliance upon termination for the counterparty's breach. Whatever the precise boundaries of the courts' inherent jurisdiction,87 it is plainly a narrow one.88 It applies to contracts that create or transfer proprietary or possessory rights.89 In England it will not avail a purchaser of land who has breached an essential time stipulation.90 Australian law is more generous in this respect. Although the case need not be 'exceptional',91 unconscientious conduct is still required. The traditional 2019 CanLIIDocs 1764 grounds of relief are fraud, mistake, accident and surprise. The court will not 'reshape contractual relations into a form the court thinks more reasonable or fair where subsequent events have rendered one side's situation more favourable'. The mere fact that the terminating vendor stands to gain because the property's value has risen is an insufficientasis b for relief.92 If a proprietary or possessory right continues to be an essential requirement to attract the jurisdiction, good faith opens up a convenient route around it.93 Obvious candidates are time charters, where decisions by owners to withdraw vessels for non-payment of hire are frequently contentious. Certainty has been a prominent reason for keeping relief against forfeiture within narrow bounds.94 That rationale must be diminished if a more expansive doctrine of good faith is to be adopted. Moreover, since Australian cases tend to associate good faith with reasonableness, the standard would be much more stringent than that of unconscientious or unconscionable conduct. The same may be true on the English approach which proscribes arbitrariness, capriciousness and irrationality. A good case can, perhaps, be made that relief against forfeiture deserves reappraisal so far as it restricts rights to terminate. The problem is not so much that relief against forfeiture fails to manifest 'good

86 Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57, (2003) 217 CLR 315 [20]–[26] (Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ). 87 On the relationship between relief against forfeiture and the rule against penalties, see Cavendish Square Holdings BV v Makdessi [2015] UKSC 67, [2016] AC 1172 [160]–[161] (Lord Mance), [227]–[229] (Lord Hodge), [291] (Lord Clarke), [294] (Lord Toulson). Relief against forfeiture may also be possible under statute: see, eg, Law of Property Act 1925 (UK), s 146(2). 88 Shiloh Spinners Ltd v Harding [1973] AC 691, 722–3 (Lord Wilberforce), contra 726–7 (Lord Simon); The Scaptrade (n 82) 702 (Lord Diplock); Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514, 518–9; Tanwar (n 86) [35]–[36], [39], [59] (Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ). 89 The Scaptrade (n 82); Sport Internationaal Bussum BV v Inter-Footwear Ltd [1984] 1 WLR 776; Cukurova Finance International v Alfa Telecom Turkey Ltd [2013] UKPC 2, [2016] AC 923, [94]. 90 Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514 (a Privy Council appeal from Hong Kong). 91 Tanwar (n 86) [59]. 92 ibid [62]; Romanos v Pentagold Investments Pty Ltd [2003] HCA 58, (2003) 217 CLR 367 [23]–[25] (Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ), [58]–[60] (Callinan J). 93 Cf Cukurova (n 89) [82] (mortgagee's bad faith and relief against forfeiture separate grounds for intervention). 94 The Scaptrade (n 82) 704; Sport Internationaal (n 89) 788; Union Eagle [1997] AC 514, 519, 521.

The Journal of Commonwealth Law 14 Good Faith and Termination: The English and Australian Experience faith'. Rather, it risks being overwhelmed by the broader contractual concept. b. contractual rights to terminate 1. termination for breach Most of the arguments in favour of a 'good faith' restriction on common law rights to terminate carry over to contractual rights to terminate. There is the additional concern that the right can be exercised in respect of trivial breaches. Termination may then inflict upon theaulting def party adverse consequences that are disproportionate to its own wrong. These consequences include loss of the benefit of the terminatingarty's p future performance and, potentially, liability to that party for that party's losses due to premature termination. Anglo-Australian law uses various techniques to curtail reliance on contractual rights to terminate. The approach is not systematic. A logical sequence for analysis is to consider: the events that engage the right, compliance with any 2019 CanLIIDocs 1764 procedures to exercise the right, limitations on the exercise of the right itself and remedies. A starting point has been to confine,y b construction, the types of breach that will enliven the right to terminate. The leading example is The Antaios.95 Clause 5 of the NYPE form of time charter conferred upon the owners the right to withdraw the vessel for non-payment of hire 'or on any breach of this charter party'. Lord Diplock held without hesitation that 'any breach' meant any repudiatory breach, that is, a breach which would be sufficient to confer upon the owners a common law right to terminate. A clause that could be invoked by the owners upon any breach by the charterers would be 'totally uncommercial' and defeat the 'whole purpose' of the charter.96 The construction was the lesser of two evils: it avoided termination for trivial breaches at the cost of rendering this branch of the clause redundant. In contrast, timely performance of the obligation to pay hire, which is the subject of the firstart p of the clause, is not essential. The firstart p of the clause therefore confers a right which goes beyond the common law. A more liberal approach may be taken where a termination clause prescribes a procedure to be followed before the right can be exercised. The procedure typically requires notice and an opportunity to 'remedy' an identified breach or to 'show cause' why the contract ought not to be terminated. Since the procedure offers some degree of protection against opportunistic termination, courts appear to be more willing to construe the clause literally as applying to any breach.97

95 Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191. See also Rice v Great Yarmouth BC (2001) 3 LGLR 41 [20]–[24]; Dominion Corporate Trustees Ltd v Debenhams Properties Ltd [2010] EWHC 1193 (Ch), [32]. 96 [1985] AC 191, 201. 97 See, eg, Amann Aviation Pty Ltd v Commonwealth (1990) 22 FCR 527, 532 (Davies J), 542, 544 (Sheppard J), contra 555 (Burchett J); Renard (n 7) 258 (Priestley JA), 279 (Handley JA).

The Journal of Commonwealth Law 15 Good Faith and Termination: The English and Australian Experience

On this approach the substance of the restriction on termination inheres in the procedure rather than in the definition of the triggerent. ev At a minimum the terminating party must act honestly and not arbitrarily or capriciously.98 The insistence by the majority in Renard upon a standard of objective reasonableness is surprising.99 Priestley JA's view that the implication of this standard (and nothing less) was necessary to give business efficacy to the contract is not particularly compelling. Handley JA's preference for construction avoided that obstacle but his conclusion is, similarly, too stringent. He said that the standard of reasonableness made it unnecessary to determine whether the principal had to accord procedural fairness to the contractor.100 That appears to be correct in the circumstances. However, given that the clause was procedural in nature, it put the cart before the horse:

procedural fairness was the logical starting point, objective reasonableness 2019 CanLIIDocs 1764 going a step beyond. Meagher JA rejected any requirement of objective reasonableness. His straightforward answer was that the principal could not properly form a view as to satisfaction on the basis of prejudicial and misleading information.101 This comes closer to a limitation of rationality. Where the right to terminate depends not upon the objective fact of breach or repudiation, but upon the terminating party's opinion that this has occurred, some measure of control is also justified.102 The clause ought not to be used as a charade to escape an undesirable contract. In Bartlett v Australia and New Zealand Banking Group Ltd103 the employer purported to dismiss an employee pursuant to an express right which arose if, in the employer's opinion, the employee had engaged in 'serious misconduct, serious neglect of duty, or serious breach' of the employment contract. Influenced by Braganza v BP Shipping Ltd,104 Macfarlan JA held in dicta105 that the employer would have been required to act honestly and reasonably in a Wednesbury sense106 in the process of forming its opinion, and that it had not done so.107 Although there was no express show cause procedure, Macfarlan JA also held that the employee would have been entitled to be shown material supporting the allegation of misconduct and allowed an opportunity to respond.108

98 Amann Aviation (n 97) 532 (Davies J), 542, 544 (Sheppard J). 99 But see Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84, 94. 100 (1992) 26 NSWLR 234, 280. He supported the standard of reasonableness by referring (at 281–3) to the contractual provision for arbitration, but the force of this is not immediately apparent. See also Foxton (n 23) 378. 101 (1992) 26 NSWLR 234, 275–6. 102 Sucden (n 78) [48]–[49]; Bartlett v Australia and New Zealand Banking Group Ltd [2016] NSWCA 30, (2016) 92 NSWLR 639 [49]. See generally Service Station Association (n 99) 94. 103 (n 102). 104 [2015] UKSC 17, [2015] 1 WLR 1661. 105 (n 17) [49]. The preferred construction was that the clause required proof of actual breach, with the employer's opinion only relating to its seriousness. Ibid [36], [106], [114]. 106 Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223. 107 Cf Cromwell Property Securities Ltd v Financial Ombudsman Service Ltd [2014] VSCA 179, (2014) 288 FLR 374 [67], [80], [86], [88] (Warren CJ and Osborn JA), [231], [246], [251] (Tate JA). 108 [2016] NSWCA 30, (2016) 92 NSWLR 639 [53].

The Journal of Commonwealth Law 16 Good Faith and Termination: The English and Australian Experience

Assuming that all preconditions for the exercise of the contractual right to terminate have been satisfied, there remains the matter of the exercise of the right itself. Anglo-Australian law traditionally eschewed any general limitation of good faith or reasonableness. This is seen most clearly in various lines of authority on contracts conferring a right to terminate for failure to pay money on time.109 Regulation is, if at all, a matter for specific doctrines such as relief against forfeiture. Recent English decisions affirm thisault def position.110 Australian decisions are now in a state of disarray. Some recent cases have reasserted the same default position, explaining that any good faith limitation must depend upon the nature and terms of the contract.111 From this perspective the majority's conclusion in Renard, that the principal had to act reasonably in exercising its right to cancel or take over the work, was remarkably generous to the 2019 CanLIIDocs 1764 contractor. Apart from improving upon the default position, the contractor's interests were already safeguarded by a requirement of reasonableness at the first, procedural, stage of termination.112 Other cases have followed the lead set by Renard. Where a good faith restriction has been countenanced, it has been relevant to consider: 1. The seriousness of the breach and whether it caused the terminating party any harm.113 2. Whether the terminating party contrived or contributed to the counterparty's breach upon which it relies to terminate.114 It is doubtful whether this adds much to orthodox principles about reliance upon one's own acts as a basis for termination.115 3. Whether the terminating party had an ulterior or collateral motive.116 A terminating party 'should not pretend to rely upon breaches of no importance to him or her' to bring the contractual relationship to an

109 See, eg, Financings Ltd v Baldock [1963] 2 QB 104; AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170; Esanda Finance Corp Ltd v Plessnig (1989) 166 CLR 131 (chattel leases); Shevill v Builders Licensing Board (1982) 149 CLR 620 (lease of real property); Mardorf Peach & Co Ltd v Attica Sea Carriers Corp of Liberia (The Laconia) [1977] AC 850, 872 (reasonableness as a temporal limitation only); A/S Awilco of Oslo v Fulvia SpA di Navigazione of Cagliari (The Chikuma) [1981] 1 WLR 314; The Scaptrade (n 82) (time charters). 110 Sucden (n 78) [49]–[50]; Lomas v JFB Firth Rixson Inc [2012] EWCA Civ 419 [46]. Cf Shurbanova (n 22) [93]. 111 See, eg, Androvitsaneas (n 68) [108]–[109]. 112 Contrast Monde Petroleum (n 12) [271.3] where a two-stage limitation was rejected in different circumstances. 113 Asia Television Ltd v Yau's Entertainment Pty Ltd [2000] FCA 254; (2000) 48 IPR 283 [76]; Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288 [64]–[66], not addressed on appeal: [2006] FCAFC 40, (2006) 149 FCR 395 [119] (Finn and Sundberg JJ). 114 Bamco Villa Pty Ltd v Montedeen Pty Ltd [2001] VSC 192 [165]–[167]; Burger King (n 11) [187]; Council of the City of Sydney v Goldspar Australia Pty Ltd [2006] FCA 472, (2006) 230 ALR 437 [167]–[168], [185]–[186]. In Burger King and Goldspar, good faith attached to the discretion which was used to produce the breach. Cf NSW Rifle Association Inc v Commonwealth [2012] NSWSC 818, (2012) 266 FLR 13 [140] (good faith in fixing period orf counterparty to remedy breach). 115 See below, n 129. 116 Forklift Engineering Australia Pty Ltd v Powerlift (Nissan) Pty Ltd [2000] VSC 443 [94]; Pacific Brands [2005] FCA 288 [66] (a result described as 'adventurous' in Goldspar (n 114) [166]); Mangrove Mountain Quarries Pty Ltd v Barlow [2007] NSWSC 492 [27]–[28]; Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 [151]– [153], [167].

The Journal of Commonwealth Law 17 Good Faith and Termination: The English and Australian Experience

end for other reasons.117 At the same time, it is said that a party is entitled to pursue its own legitimate interests and to act to its commercial advantage. The happy coincidence of genuine dissatisfaction with breach and a desire to terminate for other commercial reasons does not amount to bad faith.118 It has not been explained why a reason-based limitation is applied to contractual, but not common law, rights to terminate for breach. It may reflect an intuitive view that some restriction is justified by the lower barrier for termination.

The common law established two remedial disincentives to termination. It denies loss of bargain damages to a party who can only support termination 119

by reliance upon a contractual right. This is usually explained on the basis of 2019 CanLIIDocs 1764 causation or by restricting the source of the right to loss of bargain damages to events that constitute serious breach or repudiation. There was, briefly, a suggestion that the entitlement to loss of bargain damages for non-serious breach might depend upon whether the terminating party's decision was 'reasonable'.120 It was promptly corrected and rationalised in terms of the framework for discharge for breach, a response consistent with the conventional view about freedom to exercise rights to terminate. The other disincentive concerns the law of penalties. An agreed damages clause providing compensation for loss of the bargain has been regarded as penal and unenforceable if it can be triggered by a non-serious breach of contract.121 This is a product of the loss-of-bargain rule just mentioned, and the rule that the sum fixed as agreed damages be a genuine pre-estimate of loss. The former has been used as a benchmark to assess the latter. The result is strong on logic, if not so much on practicality and flexibility. One might feel more sympathy for a consumer under a hire-purchase agreement than for a commercial charterer accepting terms in a standard form widely used in the industry.122 Whether unequal bargaining power can be directly taken into account has been debated.123 It is, nonetheless, regulated indirectly so far as the inequality manifests itself in 'penal' provisions.124 This aspect of the penalties rule has been relaxed in Australia. It has been

117 Mangrove (n 116) [28]. 118 Asia Television (n 113) [76]–[77]. 119 See, eg, Baldock (n 109); Shevill (n 109). 120 Overstone Ltd v Shipway [1962] 1 WLR 117 123 (Holroyd Pearce LJ), 130 (Davies LJ), which was explained in Baldock (n 109) 113 (Lord Denning MR), 115–7 (Upjohn LJ), 122–3 (Diplock LJ). 121 Baldock (n 109); Capital Finance Co Ltd v Donati (1977) 121 SJ 270; Lombard North Central plc v Butterworth [1987] QB 527, 542 (Nicholls LJ). 122 See, eg, cl 11(c)(ii) of the NYPE 2015 form of time charter. Cf Kuwait Rocks Co v AMN Bulkcarriers Inc (The Astra) [2013] EWHC 865 (Comm), [2013] 2 Lloyd's Rep 69 [29]–[32]. 123 Cf Philips Hong Kong Ltd v Attorney General of Hong Kong (1993) 61 BLR 41, 57–9; Cavendish (n 87) [35], [75] (Lord Neuberger and Lord Sumption; Lord Carnwath agreeing), [152] (Lord Mance), contra [256], [267] (Lord Hodge). 124 AMEV-UDC (n 109) 194 (Mason and Wilson JJ); Cavendish (n 89) [34]–[35] (Lord Neuberger and Lord Sumption).

The Journal of Commonwealth Law 18 Good Faith and Termination: The English and Australian Experience

accepted for some time that parties can agree to compensation for loss of the bargain upon termination for minor breach.125 It remains to be seen whether English law, with its new and more liberal test for penalties,126 will follow the Australian approach on this point. The import of recent developments in both jurisdictions127 has been to defer to party autonomy and, correspondingly, to reduce interference by contract doctrine. Although the penalty rules are, of course, very different from a good faith limitation on a contractual right to terminate,128 the general thrust is not encouraging.

2. termination upon the occurrence of other contingencies The common law already addresses some of the ground that might be covered by a duty of good faith. There is, for example, a general rule regarding provisions for automatic termination contingent upon an event within the 2019 CanLIIDocs 1764 control of a party. If the event is brought about by the default of that party vis-à-vis the other, then the contract is not automatically discharged; the other party only may elect to terminate.129 The former party cannot take advantage of its own default to procure cancellation of the contract. Conversely, if the contract is conditional upon an event then, in accordance with the usual principles of construction or implication, a duty may be cast upon one party or both parties to make reasonable efforts to procure satisfaction of the condition.130 Specific rules abouto-operation c or prevention aside, courts are consistently more willing to control the exercise of contractual rights in this category. The nature of the contingency and the purpose131 in providing for discharge of the contract are important considerations. Several illustrations will suffice. As explained above, a vendor who is unable or unwilling to meet requisitions on title has only a restricted right to terminate.132 The vendor cannot simply assert unwillingness in order to sell the property to a higher bidder.133

125 ibid 194 (Mason and Wilson JJ), 204–5 (Deane J), 217 (Dawson J); Esanda Finance Corp Ltd v Plessnig (n 109). 126 Cavendish (n 87) [32] (Lord Neuberger and Lord Sumption), [152] (Lord Mance), [255] (Lord Hodge), [291] (Lord Clarke), [293] (Lord Toulson). Cf also The Kos (No 2) [2012] UKSC 17, [2012] 2 AC 164. 127 Including Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28, (2016) 258 CLR 525, where the High Court was influenced by the interests analysis in Cavendish (n 87). The Australian approach to termination (above n 125) appears to be unaffected. 128 On the broader connection between good faith and penalties, see JW Carter and E Peden, 'A Good Faith Perspective on Liquidated Damages' (2007) 23 JCL 157. 129 New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1918] AC 1; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, 441–2; Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180, 189 (Lord Diplock). See also Rudi's Enterprises Pty Ltd v Jay (1987) 20 NSWLR 568, 579–80 (Samuels AP); Alghussein Establishment v Eton College [1988] 1 WLR 587; TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130, 146–9 (Hope JA), 161 (Priestley JA) (a two-contract situation). 130 Brauer & Co (Great Britain) Ltd v James Clark (Brush Materials) Ltd [1952] 2 All ER 497 (export licence); Coloniale Import-Export v Loumidis Sons [1978] 2 Lloyd's Rep 560 (import licence–reliance upon force majeure provision); Hargreaves Transport Ltd v Lynch [1969] 1 WLR 215 (planning permission); Meehan v Jones (1982) 149 CLR 571 (satisfactory finance). See generally Mackay v Dick (1881) 6 App Cas 251, 263 (Lord Blackburn). 131 For general observations to this effect, see British Equitable Assurance Co Ltd v Baily [1906] AC 35, 42 (Lord Lindley); Pierce Bell (n 59) 587; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, 368; Equitable Life Assurance Society v Hyman [2000] 1 AC 408, 460 (Lord Cooke). But cf Bytan Pty Ltd v BB Australia Pty Ltd [2012] VSCA 233, (2012) 41 VR 46 [40] (n 25) (Warren CJ). 132 See above, text to n 59. 133 Pierce Bell (n 59) 590–1.

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A contract may contain a right to terminate, or condition subsequent to formation, that depends upon one party's satisfaction as to a particular matter relating to the contract. Typical instances are the purchaser's satisfaction with the quality of goods under contract, or with finance necessary to complete a purchase of land. Subject to arguments about illusory consideration or uncertainty, courts have had little difficulty imposing minimumquirements re to act honestly, for a proper purpose and not arbitrarily.134 Similarly, a contractual right to reduce or 'de-scope' aspects of the counterparty's performance must be used for its intended purpose. The leading Australian example is Carr v JA Berriman Pty Ltd.135 A building contract conferred upon the architect, acting on behalf of the employer, an 'absolute discretion' to give instructions to the builder for 'the addition or omission or substitution of any work'. Fullagar J explained that the purpose of the clause 2019 CanLIIDocs 1764 was to allow the architect to make necessary or desirable adjustments to the work as it progressed. The clause was not intended to permit the architect simply to hand over the work to another party.136

3. termination 'for convenience' or 'without cause' This category includes express termination clauses and implied terms allowing a contract of indefinite duration to be ended upon reasonable notice. Such provisions are commonly described as effecting 'termination for convenience' or 'termination without cause' because the right is available without precondition: one party elects to terminate, generally by giving notice to the counterparty. It does not matter for present purposes whether the contract is terminated with immediate effect or continues until a notice period expires. Clauses expressly permitting termination for convenience have been used for a long time in procurement contracts with the US federal government, so it is worth briefly mentioning that history. Their original purpose was to avoid surplus acquisition overrunning the cessation of a war effort.137 Usage of the clauses spread and they became a regular feature of government procurement for both civilian and military objectives. The standard clause 'comprehends termination in a host of variable and unspecified situations' and is not limited to a 'decrease in the need for the item purchased'.138 It is, nonetheless, subject to restrictions against 'bad faith' or 'abuse of discretion'.139 The nature of the

134 See, eg, Repetto v Friary Steamship Co Ltd (1901) 17 TLR 265; Haegerstrand v Anne Thomas Steamship Co Ltd (1905) 10 Com Cas 67; Astra Trust Ltd v Adams [1969] 1 Lloyd Rep 81; Albion Sugar Co Ltd v William Tankers Ltd [1977] 2 Lloyd's Rep 457 (satisfactory survey or trial of vessel, or 'approval' of buyer); Ee v Kakar (1980) 40 P & CR 223 (satisfactory survey of land); Canada Egg Products Ltd v Canadian Doughnut Co Ltd [1955] SCR 398 (satisfactory goods); Meehan v Jones (1982) 149 CLR 571 (satisfactory finance) and cf Lee-Parker v Izzet (No 2) [1972] 1 WLR 775 (satisfactory mortgage), doubted in Graham v Pitkin [1992] 1 WLR 403, 406; Wishart v National Association of Citizens Advice Bureaux Ltd [1990] ICR 794 (satisfactory references). Cf Monde Petroleum (n 12) [271.2]. 135 (1953) 89 CLR 327. 136 (1953) 89 CLR 327, 347. 137 Krygoski Construction Co Inc v United States 94 F 3d 1537, 1540–1 (Fed Cir, 1996). 138 John Reiner & Co v United States 325 F 2d 438 (Ct Cl, 1963) cert denied 377 US 931 (1964). 139 ibid 452; Kalvar Corp Inc v United States 543 F 2d 1298, 1301 (Ct Cl, 1976); Salsbury Industries v United States 905 F 2d 1518, 1521 (Fed Cir,

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proscription seems to have changed over time. It encompasses termination simply to obtain a better price elsewhere for the same work,140 or where the government from the outset never intended to complete the contract.141 Beyond the government procurement context, the implied covenant of good faith and fair dealing has been applied to the exercise of contractual rights to terminate for convenience.142 The common law implied covenant may demand more of the terminating party than is expected of the government in procurement.143 English judges have been consistently reluctant to impose a good faith limitation on a right to terminate without cause.144 In Reda v Flag Ltd,145 for example, the Privy Council considered executive employment contracts with a stated term of three years. Earlier termination was possible on various 2019 CanLIIDocs 1764 grounds, one being without cause, and different consequences (including compensation) attached to each ground. The Privy Council upheld the employer's election to terminate without cause. The argument that the employer's decision was motivated by a collateral purpose (to avoid granting the employees stock options in the future) received short shrift. In this context, Lord Millett said, 'there is no such thing as a "collateral" or improper purpose; a power to dismiss without cause is a power to dismiss for any cause or none'.146 The implied term of mutual trust and confidence did not qualify the contractual right. At the extremes, some limitation may be recognised if the purpose is to thwart the employee's receipt of benefits already earned or accrued, or which the employer envisages ought to be paid for termination on a different ground.147 The Australian position is far from uniform.148 In Bartlett, the court was

1990) cert denied 498 US 1024 (1991); Krygoski (n 137) 1543. See generally 64 Am Jur 2d Public Works and Contracts §145. 140 At least where this is known in advance: cf Torncello v United States 681 F 2d 756, 771–2, 773 (Ct Cl, 1982); Krygoski (n 137) 1541–2; Gulf Group General Enterprises Co WLL v United States 114 Fed Cl 258, 362 (Ct Cl, 2013); contra Colonial Metals v United States 494 F 2d 1355 (Ct Cl, 1974). 141 Salsbury Industries (n 139) 1521; Caldwell v Glickman (1995) 55 F 3d 1578, 1582. 142 Harris Corp v Giesting & Associates Inc 297 F 3d 1270 (11th Cir, 2002); Questar Builders Inc v CB Flooring LLC 978 A 2d 651 (Md App, 2009); Vila & Son Landscaping Corp v Posen Construction Inc 99 So 3d 563 (Fla App, 2012); Mb Oil Ltd Co v City of Albuquerque 382 P 3d 975, 980 (NM App, 2016). Cf Burton and Andersen (n 8), §§3.4.1, 7.3.2.1. 143 FW Claybrook, 'Good Faith in the Termination and Formation of Federal Contracts' (1997) 56 Maryland L Rev 555, 572–8. But cf Vila & Son (n 142) 568. 144 Johnson v Unisys Ltd [2001] UKHL 13, [2003] 1 AC 518, [42]–[43], [46]–[47] (Lord Hoffmann) (goodaith f term might affect manner, but not right, of dismissal without cause), [77] (Lord Millett); Reda v Flag Ltd [2002] UKPC 38, [2002] IRLR 747; Hadley Design Associates Ltd v Lord Mayor and Citizens of the City of Westminster [2003] EWHC 1617 (TCC) [88]–[89]; Hamsard 3147 Ltd v Boots UK Ltd [2013] EWHC 3251 (Pat) [82], [84]–[85]; TSG Building Services plc v South Anglia Housing Ltd [2013] EWHC 1151 (TCC) [42], [51]; Monk (n 22) [64], [82]; Ilkerler (n 31) [27]–[29]. Cf Shurbanova (n 22) [93]–[97] (right to revoke an 'abusive' trade). Contrast Timeload Ltd v British Telecommunications plc [1995] EMLR 459. 145 [2002] UKPC 38, [2002] IRLR 747. 146 [2002] UKPC 38, [2002] IRLR 747 [43]. See also Wallace v United Grain Growers [1997] 3 SCR 701 [75]–[76]; Styles v Alberta Investment Management Corp 2017 ABCA 1 [36]–[37]; Burton and Andersen (n 8), §3.4.1. 147 Aspden v Webbs Poultry and Meat Group (Holdings) Ltd [1996] IRLR 521 (sickness benefits); Jenvey v Australian Broadcasting Corp [2002] EWHC 927 (QB), [2003] ICR 79 (redundancy). But see Reda (n 145) [51] (Aspden a 'rare example of term being implied' due to inconsistency among express terms in contract). Cf Burton and Andersen (n 8) §3.4.1 pp 94–5. 148 See JM Paterson, 'Good Faith Duties in Contract Performance' (2014) 14 OUCLJ 283, 305–7. The point remains open in Singapore: TT

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divided over whether a clause permitting the employer to terminate on notice 'for any reason' was restricted. The majority held it was not.149 In the minority, Simpson JA was troubled by a number of Australian decisions accepting that good faith may restrict a right to terminate for convenience. These range across distributor or dealer agreements,150 contracts related to government procurement151 and commercial contracts for various kinds of services.152 There is also a respectable body of cases to the contrary.153 The divergence stems partly from different predispositions towards good faith, through reliance on local cases and those on US government procurement contracts.154 That the right to terminate is expressed in broad or absolute terms is also regarded as significant. Approaching the issue as one of security of tenure under contract involves a degree of circularity. A party enjoys the benefit of theontract c to the extent 2019 CanLIIDocs 1764 that it cannot be terminated by the other party. This circularity seems to be resolved in England, and by some courts in Australia, by giving the clause literal effect. As a result, the following structures may be treated as substantially equivalent for the purposes of an election to end or not to renew the contract:155 (1) contracts for a notional fixed term with a right to terminate for convenience sooner; (2) those for a fixed term with 'automatic' renewal unless a party elects against it; and (3) those for a fixed term which contemplate renewal if one party so elects or if both parties agree. The practical effect of the different structures is to specify who chooses and, in the absence of such a choice, the consequences. A structure that favours continuation by default (as in categories (1) and (2)) does not, of itself, create a restriction on termination. Bhasin was a category (2) case. The reasoning was, with respect, conclusory in nature. It was an exaggeration to paint the alternative construction as being a contract effectively of indefinite duration. Another possibility – a middle ground – was to find some limitation short of an assurance of renewal; whether that limitation had any bite in the circumstances was a further matter. The Court's reluctance to impose any restriction, and its view that a broad good

International Ltd v Ho Lee Construction Pte Ltd [2017] SGHC 62 [40]. 149 [2016] NSWCA 30, (2016) 92 NSWLR 639 [87] (Macfarlan JA), [107] (Meagher JA). Note that Australia has rejected the implied term of mutual trust and confidence found in English law: Commonwealth Bank of Australia v Barker [2014] HCA 32, (2014) 253 CLR 169. 150 Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] FCA 903 [34]; Apple Communications Ltd v Optus Mobile Pty Ltd [2001] NSWSC 635 [15]. 151 Kellogg Brown & Root Pty Ltd v Australian Aerospace Ltd [2007] VSC 200 [61] (services for military helicopters); GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50 [753] (software development for national security). 152 K & S Freighters Pty Ltd v Linfox Transport (Aust) Pty Ltd [1999] FCA 1325 [21] (carriage subcontracts); Dickson Property Management Services Pty Ltd v Centro Property Management (Vic) Pty Ltd [2000] FCA 1742 [9], [11] (cleaning services). 153 Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd (2000) 16 BCL 255 (mining contract) (appealed on other grounds: [2000] WASCA 102 and [2003] HCA 10, (2003) 196 ALR 257); Solution 1 Pty Ltd v Optus Networks Pty Ltd [2010] NSWSC 1060) [61]–[63] (dealer agreement); Starlink International Group Pty Ltd v Coles Supermarkets Australia Pty Ltd [2011] NSWSC 1154 [30]–[33] (trolley collection services); Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd [2012] WASCA 165, (2012) 268 FLR 433 [150]–[153] (licence to operate convenience store at petrol station). See also Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) [2015] FCA 825, (2015) 329 ALR 1 [1017]–[1019]. 154 See also N Seddon, Government Contracts (4th ed, Federation Press 2009) paras 5.4 to 5.9. 155 Monk (n 22) [64] esp (v) (equating (1) and (3)).

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faith duty would not have availed Bhasin in any event,156 seem to be consistent with the English position. Looking beyond the express terms of the contract, promissory estoppel may play a role in appropriate circumstances. Anglo-Australian law does not separately protect 'reasonable expectations'157 that parties will continue to deal with each other irrespective of the terms of their contract.158 I would not rule out the possibility that the law of contract could impose some very limited restrictions on the exercise of a right to terminate for convenience. One suggestion has been that termination for convenience must be 'honest'.159 To be a meaningful limitation this must require more than honesty-in-fact. It might, perhaps, proscribe certain reasons for termination, such as depriving the counterparty of benefits which,airly f , it can be regarded as having already earned. A further step would be to employ the concept of recapturing 2019 CanLIIDocs 1764 opportunities foregone by contracting.160 So, for example, if the contract is to complete specificork w or to accomplish a particular objective, good faith may prevent a party terminating simply to replace the contractor with someone cheaper to finish the same task.161 iv. conclusion An overarching duty of contractual good faith has an undeniable allure. But a single concept cannot apply to most or all things in contract without a considerable degree of abstraction. If the Australian and English experience is any guide, it is impossible to achieve uniformity even within the limited sphere of rights to terminate contracts. The Court in Bhasin presents a conflicted vision, aspiring to a unifying theory but conceding variability in the treatment of termination rights. There are sound reasons for this variability and in this article I have emphasised two of them. The first is that rights to terminateonf arec erred by different methods and for different reasons. The mere fact that the counterparty can be affected by the exercise of the right is only one factor; the interests of the terminating party are also relevant. This calls for consideration of the purpose of the right, whether it was 'purchased', and the circumstances in which it must be exercised.

156 Bhasin (n 1) [72], [90]–[91]. 157 For critiques of the concept generally, see C Mitchell, 'Leading a Life of its Own? The Role of Reasonable Expectations in Contract Law' (2003) 23 OJLS 639; S Smith, '"The Reasonable Expectations of the Parties": An Unhelpful Concept' (2009) 48 Can Bus L J 366. In relation to good faith in particular, see S Burton, ''Breach of Contract and the Common Law Duty to Perform in Good Faith' (1980) 94 Harvard L Rev 369, 385–7. 158 Baird Textile Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ 274, [2002] 1 All ER (Comm) 737. See generally Bytan (n 131) [123]–[124] (Cavanagh AJA, dissenting in the result). 159 Mineralogy (n 153) [1019]. 160 A concept developed by S Burton, 'Breach of Contract and the Common Law Duty to Perform in Good Faith' (1980) 94 Harvard L Rev 369. 161 Such a restriction is explicit in the FIDIC Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (1999 ed) cl 15.5.

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The other reason is that a duty of good faith must cohere with existing law. Development is relatively straightforward where there are clear gaps, as for rights to terminate upon contingencies other than breach. Here, good faith can be served by familiar restrictions against dishonesty, arbitrariness, capriciousness, irrationality and impropriety of purpose. Common law rights to terminate for breach are different. They are already regulated by a complex body of rules that collectively manifest a view of the common law about what is 'fair'. Some of these (such as relief against forfeiture) no doubt deserve reappraisal. Substituting or superimposing a general duty of good faith is a leap that goes well beyond modest, targeted reform. Wayne Courtney: National University of Singapore; Senior Fellow,Melbourne Law School. Some of the ideas presented in this paper have been developed over time with Emeritus Professor John Carter. All errors remain mine. I 2019 CanLIIDocs 1764 acknowledge the support of the NUS Start-up Grant, project R-241-000-154-133.

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