A domestic Australian contract was concluded in 1985 for the construction of a pumping station. It provided inter alia that in the case of a default by the contractor, the principal could suspend progress payments and require the contractor to justify its default. Should the contractor fail to give such justification, the principal was entitled to terminate the contract.
Applying Australian law, the Court held that such a clause was to be construed as containing a term implied by law that the principal would reasonably consider whether the contractor had failed to justify its default, and where the principal concluded that it had so failed, whether the contract should be terminated.
Equating the duty to act reasonably with the duty of good faith and fair dealing in the performance of the contract, the Court made an extensive review of the role of the duty of good faith and fair dealing at international level. In this context reference was made to Art. 7 CISG as a factor confirming an increasing recognition at international level of the principle of good faith and fair dealing, and as precedent in this case for domestic Australian law. |