L’olfacte

Good faith has been famously defined by Summers as the absence of bad faith conduct.26 This exclusionist definition has an attractive simplicity. Apparently actions taken in bad faith can be readily identified. Bad faith supposedly has an identifiable meaning.27 Thus it is relatively straightforward to distinguish between good faith and bad faith conduct. Summers observes that if good faith had an unambiguous meaning of its own then there would be no need to derive a definition from its opposite but

…good faith is not that kind of doctrine. In contract law, taken as a whole, good faith is an “excluder.” It is a phrase without general meaning (or meanings of its own) and serves to exclude a wide range of heterogeneous forms of bad faith…Aristotle was one of the first to recognize that the function of some words and phrases is not to convey general, extractable meanings of their own, but rather to exclude one or more of a variety of things.28

Summers therefore contends that it is only possible to formulate positive meanings for particular uses of good faith by ruling out forms of bad faith. It is unlikely that these meanings may be generalised into a single, positive and unifying definition of good faith.29 Judges should not attempt to formulate restrictive definitions of good faith. Instead the judiciary should carefully characterise the particular forms of bad faith which justifies a legal remedy. Ultimately, ‘bad faith rather than good faith wears the pants in this dichotomy.’30

It is submitted that a definition of good faith based on the conceptualisation advanced by Summers is not appropriate if a doctrine of contractual good faith were to be introduced

26

Robert S Summers, ‘“Good faith” in General Contract Law and the Sales Provisions of the Uniform Commercial Code’ (1968) 54 Virginia Law Review 195.

27

See Michael Bridge, ‘Doubting Good Faith’ (2005) 11 New Zealand Business Law Quarterly 426, at 429.

28 Summers, above n 26, at 201. 29 Summers, above n 7, at 820. 30 Summers, above n 26, at 207.

within New Zealand. The definition is incompatible with the envisaged purposes of the doctrine. The justification for this inference is explored below.

Arguably a definition of good faith based on bad faith could not positively contribute to the existing law of contract within New Zealand. The regulation of bad faith conduct in relation to contracts is already encapsulated, in whole or in part, within existing legal and equitable principles such as misrepresentation, duress, undue influence and unconscionability. Thus it is not clear what the benefit is of shifting from a conceptualisation of bad faith conduct to instead focus on a symmetrical and mutually dependent definition of good faith.31 Indeed, the subject doctrine would not produce any different legal outcomes within New Zealand if good faith is merely defined with reference to existing rules. There would be no enhancement of the protection of reasonable expectations or improved trust and cooperation within contractual relationships. At best, good faith might serve some limited benefit as a unifying principle. More likely, the doctrine would assume a reductionist character. It would add nothing to the existing tools of contract law in New Zealand.32 The application of contract principles under the guise of good faith would merely be a rebadging of what the courts already do.33 The result is liable to be unnecessary confusion. Good faith would not have any positive pragmatic effect on the law within New Zealand.

This outcome is inconsistent with the views of good faith proponents who suggest that the doctrine would create new obligations to provide a remedy in situations where the existing rules of contract cannot reach or appear unable to reach.34 Good faith could fill any space that may exist between the current doctrines.35 Ipso facto, the breadth of the

31

See Marietta Auer, ‘“Good Faith” and its German Sources: A Structural Framework for the “Good Faith” Debate in General Contract Law and Under the Uniform Commercial Code’ (2001), at 104 <http://www.law.harvard.edu/academics/ graduate/publications/papers/auer.pdf9>, at 26 February 2008.

32

Bridge, above n 27, at 428.

33

Ibid. This argument is further discussed in Chapter 4.

34

See Thomas, above n 9, at 394. See also Hector MacQueen, ‘Good Faith in the Scot’s Law of Contract’ in Forte (ed), above n 3, at 37.

35

law regulating bad faith conduct must be expanded if this result is to be achieved under Summers’ definition. Conceivably this would be attained through the incremental development and broadening of existing legal and equitable doctrines. Arguably this was what Summers was effectively advocating by suggesting that the judiciary must focus on bad faith rather than good faith. However, there are two obvious problems with this approach.

Firstly, Summers’ definition fails to articulate clearly what bad faith conduct is, if it is to be understood as distinct from, or wider than, conduct already attracting a remedy under the existing law. Accordingly, there is no guidance for the judiciary in cases involving novel allegations of bad faith which do not fit within existing doctrinal categories.36 The excluder definition is no more certain than a positive definition of good faith.

Secondly, it was noted above that proponents of a good faith doctrine argue that whereas the existing law requires judges to deal with good faith in an unclear and roundabout fashion, an introduction of the subject doctrine would permit judges to directly and openly confront breaches of good faith. That argument loses impetus if the definition of good faith is to be founded on a more stringent regulation of bad faith conduct under the existing back door methods.

Additional criticisms can be leveled at the excluder definition. Good faith and bad faith are not necessarily symmetrical. Bad faith may set a minimal standard which contracting parties must meet whilst good faith may be more a standard of aspiration.37 Good faith is likely to require positive action such as cooperation, support and assistance.38 Bad faith conduct, as understood within the existing law, is focused on negative requirements such

36

It has been recognised that Summers’ approach ‘provides absolutely no guidance to the disposition of future cases, except to the extent that they may be on all fours with a decided case.’: Bridge, above n 5, at 398.

37

Brownsword, above n 4, at 17, citing Lon L Fuller, The Morality of Law (revised ed, 1969).

38

as non-victimisation, non-exploitation and non-opportunism.39 There is a void between those positive and negative requirements which a definition based on bad faith cannot subsume. Thus, a definition focused on bad faith conduct might be unable to deal with instances where the defendant adopts a passive role.40 To take a hypothetical example, a prospective purchaser of land may know that it is rich in oil and also that the vendor is ignorant of this fact. The purchaser may acquire the land at a deflated price by omitting to disclose the information to the vendor.41 In such a case the purchaser has not actively engaged in bad faith conduct. Arguably however his or her non-disclosure may amount to a breach of good faith.42 A good faith doctrine might compel the purchaser to warn the vendor. The excluder definition may be inadequate in this scenario.

Accordingly, the definition advanced by Summers would be inappropriate if a general doctrine of good faith were to be introduced within New Zealand law. Such a definition would not achieve the desired purposes of the good faith obligation. An affirmative definition is required to justify support for the subject doctrine. Thus, the excluder definition must be abandoned in favour of a positive conceptualisation of good faith.