Efforts by Standards Australia to bring “certainty” to legal contracts may be having the opposite effect with concerns in several quarters about proposed new “good faith” provisions.
The Masters Builders Association has expressed its concern and has now been joined by Business SA in suggesting the proposed standard, AS 11000, is unclear and a potential source of confusion.
Releasing the draft standard for public comment in January, Standards Australia said “the objective of AS 11000 is to provide general guidance for legal contracts in all sectors of industry, including construction, engineering, health, manufacturing and infrastructure”.
“The proposed new general conditions of contract in AS 11000 provide a broadly balanced approach to risk allocation in language which is focused on brevity and certainty,” Standards Australia Technical Committee chairman, Professor Ian Bailey, said.
“They include a new early warning procedure based upon an express good faith obligation, which is intended to assist in the management and resolution of issues under contracts,” he said.
However, John Vozzo, senior associate with the Master Builders Association’s new law firm in South Australia, MBA Law, is not convinced.
Vozzo told Business Insight that some observers “are critical of the inclusion of express good faith provisions in contracts because they are vague”.
“Currently, the express provision in the new draft AS11000 provides only that the parties agree ‘to act reasonably in a spirit of mutual trust and cooperation, and generally in good faith towards the other’,” he said.
“But what does that actually mean? What’s ‘reasonable’ and what’s ‘generally in good faith’?”
Vozzo said the Master Builders’ national contract committee made a submission to Standards Australia on the issue and said the provision “is likely to engender uncertainty without the presence of a definition of the behaviour that constitutes acting in good faith”.
He said the MBA sought to resolve the uncertainty with a definition that says “good faith means that the parties must cooperate to achieve contractual objectives, comply with honest standards of conduct that are reasonable having regard to the interests of the parties, but the obligation does not require one party to subordinate its own legitimate interests to those of the other party”.
Vozzo said “the implied obligation of good faith in contract – that would apply if there is no express term such as that proposed in the new draft AS11000 and which may apply to all contracts – remains a woolly concept”.
“The High Court still has not clarified good faith in contract generally, and the positions from various courts in various states differ. It is a complex and unresolved legal area,” Vozzo said.
Business SA director of policy Rick Cairney said the proposed standard “has the potential to cause more contract confusion and disruption than it intended to resolve”.
Cairney queried “where is the evidence that this new standard is necessary?”
In January, the Chief Executive of Standards Australia, Dr Bronwyn Evans, said “the Standard on General Conditions of Contract is used widely and underpins many major business and public contracts”.
“It is timely to update the standard to bring it in line with new legislation and changing business needs,” Evans said.
