PRINCIPIOS BÁSICOS CURRICULARES

The fact that it may be possible to contract out of an obligation of good faith is an outcome which is not universally endorsed by proponents of the doctrine. The ability to contract out of good faith would tend to dilute the potency and frequency of application of the doctrine. This can be contrasted against the European codifications. These often preclude the exclusion or limitation of the duty of good faith and fair dealing.188

It is highly conceivable that if contracting parties were permitted to contract out of the doctrine then this would frequently occur within New Zealand. The use of standard form contracts is increasing.189 It is not difficult to envisage well-drafted exclusion and entire agreement clauses within standard consumer contracts preventing the application of a good faith doctrine. Accordingly, the utility of the good faith doctrine as a means of redressing inequality of bargaining power may be weakened. Similarly, commercial parties may seek to exclude a doctrine of good faith taking the view that it need not be relied upon provided both parties perform the contract as expected. Corporate parties operating at arms length may make a commercial election to avoid the uncertainties

187

The onus is on the person seeking the protection of the exclusion clause to show that the contingency has in fact arisen. See DHL International (NZ) Ltd v Richmond Ltd [1993] 3 NZLR 10.

188

See generally art 1:201 Principles of European Contract Law.

189

associated with good faith. In particular, they may seek to avoid challenges to their motives for exercising contractual powers. It is therefore plausible that the doctrine would be unlikely to have any meaningful impact on commercial contracts if contracting parties were permitted to completely exclude it.190 Moreover, it is even conceivable that if a good faith doctrine were introduced, thereby increasing the awareness of the need to achieve contractual exclusion, obligations of good faith in classes of contract under which such obligations are currently implied are more likely to be excluded either deliberately or inadvertently. Paradoxically, the introduction of a good faith doctrine may diminish the application of good faith obligations in New Zealand contractual relationships.

Consequently, public policy may prevent contractual exclusion of good faith. There are some standards and obligations which are not suitable for contractual variation despite the insistence on party autonomy in the field of contract law.191 Fraud is an obvious example. It has been recognised that ‘no subtlety of language, no craft or machinery in the form of contract, can estop a person who complains that he has been defrauded.’192 In HIH Casualty and General Insurance Ltd v Chase Manhattan Bank193 the House of Lords identified the policy justifications for the rule. Lord Scott noted that a party to a contract should not be permitted to benefit from his or her own fraud.194 Lord Hobhouse also observed that a contractual exclusion may be meaningless where a contract has been procured by material fraud because the party deceived has not given a true consent to be bound by the contract.195

190

See Paterson, above n 1, at 279.

191

See Justice Paul Finn, ‘Equity and Commercial Contracts: A Comment’ [2001] Australian Mining and Petroleum Law Association Yearbook 414, at 422.

192

Pearson & Son Ltd v Dublin Corporation [1907] AC 351, at 356 per the Earl of Halsbury.

193

[2003] 2 Lloyd’s Rep 61. The House left open the issue of whether a principal can exclude liability for the fraud of his or her agent.

194

Ibid, at 85.

195

Conceivably the doctrine of good faith may also fall within this public policy exception category. Certainly a term expressly permitting bad faith conduct may approach the threshold to be unenforceable as against public policy.196 It is notable that in HIH Lord Bingham opined that each party to a contract will assume the honesty and good faith of the other and the parties would not enter into a contract absent such an assumption.197

Nonetheless, it is dubious whether a doctrine of good faith invokes correspondingly strong policy considerations to those justifying the necessity to provide a victim of fraud with some legal recourse. Whilst fraud would be an obvious example of a breach of good faith, conduct falling well short of common law fraud is also likely to contravene the good faith standard. Indeed, if the law permits exclusion of liability for negligence198 there is no evident justification for preventing contracting parties from excluding liability for breach of good faith.

Accordingly, there does not appear to be any outstanding policy consideration or element of illegality which would preclude contracting parties from specifically limiting or excluding the doctrine of good faith. On the contrary, to suggest that good faith cannot be excluded on the basis of some abstract notion of community standards is likely to work against the interests of contracting parties and commercial parties in particular.199 Arguments based on illegality and public policy are unlikely to hold sway in respect of an exclusion of good faith. The courts will be reluctant to read down freedom of contract. An appropriate exclusion clause should therefore embarrass the judiciary into submission.200

196

Seddon and Ellinghaus, above n 42, at 460.

197

[2003] 2 Lloyd’s Rep 61, at 68.

198

See generally Shipbuilders Ltd v Benson [1992] 3 NZLR 549; Kaniere Gold Dredging Ltd v The Dunedin Engineering and Steel Co Ltd (1985) 1 NZBLC 99,024; Producer Meats Ltd v Thomas Borthwick & Sons Ltd [1964] NZLR 700.

199

See Dixon, above n 181, at 115.

200

W Grover, ‘A Solicitor Looks at Good Faith in Commercial Transactions’ in Commercial Law: Recent Developments and Emerging Trends (Special Lectures of the Law Society of Upper Canada, 1985), at 106- 107.

Accordingly it is concluded that the common law would not be capable of preventing contracting parties from excluding or limiting the doctrine of good faith. Although the right to contract out of the doctrine would be subject to existing legal and equitable controls, such as the rule of contra proferentum, the doctrine could not be utilised to rewrite the agreed terms of a contract.201 The courts should not be permitted to override a clear contractual intention to negate or avoid good faith obligations.