There has been some debate for some time about the role of “good faith” and good faith negotiations in contract law in Australia. These views were recently canvassed by the NSW Court of Appeal in United Group Rail Services Limited v Rail Corporation New South Wales [2009] NSWCA 177

The dispute was over whether a “negotiate in good faith” clause in a commercial contract was enforceable or void for uncertainty.

In delivering a unanimous judgment in favour of the enforceability of a obligation to negotiate in good faith  Allsop P noted (after considering the authorities):

at [59] There are other decisions of Australian courts and discussions by scholars recognising the obligation of good faith in a non-fiduciary context; and

at [60] It is fair to say that caution (in some cases a lack of enthusiasm) has been expressed by some…

In conclusion his Honour said:

80 The public policy in promoting efficient dispute resolution, especially commercial dispute resolution, requires that, where possible, real and enforceable content be given to clauses such as cll 35.11 and 35.12 to encourage approaches by, and attitudes of, parties conducive to the resolution of disputes without expensive litigation, arbitral or curial.

81 The business people here chose words to describe the kind of negotiations they wanted to undertake, “genuine and good faith negotiations”, meaning here honest and genuine with a fidelity to the bargain. That should be enforced. In my view, subcl 35.11(c) was not uncertain and had identifiable content.

I have always been a believer in good faith. I wonder if the effect of this judgment will be that good faith clauses will disappear from commercial contracts?

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