Is There A Duty Of Good Faith In Construction Contracts?

The rise of the use of partnering contracts and other

contracts such as the NEC that expressly refer to phrases such

as 'mutual trust and co-operation' and 'good

faith' has turned the spotlight onto the general

obligations of parties to construction contracts towards each

other. In particular, do parties owe each other an implied duty

of good faith when performing their rights and obligations

pursuant to a contract that does not expressly refer to

'mutual trust and co-operation' or 'good

faith'?

Good faith can be defined in many different ways. It

incorporates both subjective elements by requiring honesty and

objective elements by requiring adherence to standards of fair

dealing. Variations in the meaning of good faith occur between

different legal systems due to cultural and geographical

differences. In England and Wales, it is often criticised for

being a nebulous and vague concept and it has been stated that

instances of bad faith are more easily recognisable than good

faith.

English judges have on occasion attempted to define good

faith. Generally good faith is taken to mean fair play and open

dealing. Lord Justice Bingham (as he then was) in Interfoto

Picture Library Ltd v Stilleto Visual Programmes Ltd

defined good faith as "in essence a principle of fair

and open dealing". The parties 'should

not deceive each other' with obligations to

'play fair', 'come clean', or

'put one's cards on the table'.

On a European basis, the Lando Commission's

Principles of European Contract Law defines good faith

to mean 'honesty and fairness in mind, which are

subjective concepts'. An Australian Judge, Mr Justice

Miller in Bond Corporation Pty Ltd v the Western Australian

Planning Commission defined good faith as having two

divergent meanings:

"The first is a broad or subjective view which

requires inquiry into the actual state of mind of the person

concerned & The second involves the objective

construction of the words by the introduction of such

concepts as an absence of reasonable caution and

diligence."

Some Common Law jurisdictions such as Canada and various

states of Australia recognise an implied duty of good faith in

contractual performance. For example, the Supreme Court of

Victoria, Australia, in the 2007 case of Kellogg Brown

& Root Pty Ltd v Australian Aerospace Ltd ruled that

the principles of good faith may apply to the operation of a

termination for convenience clause present in the parties'

contract.

Good faith is also recognised in many civil law countries

such as...