Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45
The Royal Botanic Gardens and Domain Trust held a lease over land from South Sydney City Council. The lease contained a clause permitting the Trust to determine the 'annual rental value' of the land, and a dispute arose as to whether the Trust was contractually obliged to exercise that discretion in good faith or by reference to some implied limitation. The Council argued that the Trust had failed to assess the rental value in accordance with an implied obligation of good faith or reasonableness when exercising its power under the lease.
1. Whether a term requiring good faith or reasonableness is to be implied into a commercial contract to constrain the exercise of a contractual discretion. 2. Whether Australian contract law recognises a general duty of good faith in the performance and enforcement of commercial contracts.
The High Court held that no general implied duty of good faith constrained the Trust's exercise of its contractual discretion under the lease, and declined to recognise a standalone doctrine of good faith as part of Australian contract law.
There is no general implied term of good faith in the performance of commercial contracts in Australian law; whether any obligation qualifying the exercise of a contractual discretion arises depends on the proper construction of the contract itself, having regard to its express terms, structure and commercial purpose, rather than on the importation of a freestanding good faith doctrine.
Several members of the Court expressed reservations about wholesale adoption of the civilian or American good faith doctrine into Australian contract law, observing that existing doctrines — including implied terms, construction, and unconscionability — adequately address situations of unfair dealing without recourse to an overarching good faith obligation. The Court noted that the question of whether a more limited duty of good faith might be implied in particular categories of contract was left open.
Royal Botanic Gardens is the leading High Court authority for the proposition that Australian contract law does not recognise a general implied duty of good faith, and it remains the principal case cited in disputes concerning the implication of good faith terms and the proper approach to construing contractual discretions in commercial agreements.
Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45Read the full judgment on AustLII. Brief written by caselaw editors using AGLC 4th ed.