Australia: North East Solution Pty Ltd V Masters Home Improvement Australia Pty Ltd [2016] VSC 1

Construction Law Update - July
Last Updated: 24 July 2016



An agreement to act reasonably and in good faith may be sufficiently certain to be enforceable. The precise nature and extent of the obligations will be determined by reference to the relevant contractual terms and the facts.


The case concerned the development and lease of a Masters Home Improvement store in Bendigo for Woolworths Limited (Woolworths). North East Solution Pty Ltd (NES) agreed to develop the store for Woolworths and then lease it to Masters Home Improvement Australia Pty Ltd (Masters) for at least 12 years.

The main provision of the Agreement for Lease (AFL) in dispute was clause 2.2, concerning the determination of the extra cost of building a Masters store instead of a Bunnings Store (the Landlord's Work Costs).

The AFL could only be terminated under clause 2.2(c) if the parties, acting reasonably and in good faith, were unable to resolve any disagreement that arose in relation to the Landlord's Work Costs. In May 2010, Woolworths purported to terminate on this basis.

The plaintiff's claim

NES submitted that there was no genuine disagreement, or alternatively that Woolworths had not acted reasonably or in good faith to resolve it. NES argued that Woolworths took into account various commercial factors:1

  • an inability to bring the costs within its budget;
  • perceived opposition by the Council and residents;
  • the belief that NES had funding issues; and
  • the desire to pursue an alternative site,

none of which were valid grounds on which the AFL could be terminated.

The defendant's claim

Woolworths argued that NES could not succeed unless it could show conduct on the part of either defendant which "offends conscience" or was otherwise "wholly unreasonable" in the circumstances.

It also argued that clause 2.2 of the AFL was merely an agreement to negotiate with no enforceable outcome.


Croft J found that Woolworths was not free to terminate the AFL. Clause 2.2 of the AFL was "not an agreement merely to negotiate" but "an agreement to act reasonably and in good faith in an attempt to resolve differences in relation to the estimate by NES of the Landlord's Work Costs."2

Act in good faith

Croft J referred to the following general propositions regarding the requirement to act in good faith:

"[T]he authorities establish that an agreement to negotiate 'reasonably' and 'in good faith' is sufficiently certain to be enforceable."3

His Honour referred to Allsop CJ's judgment in the Full Court of the Federal Court in Paciocco v Australia and New Zealand Banking Group Ltd as a reaffirmation of the elements of the obligation to act in good faith:

"That a normative standard is introduced by good faith is clear. It will, however, not call for the same acts from all contracting parties in all cases ... The contractual and factual context ... is vital to understand what, in any case, is required to be done or not done to satisfy the normative standard."4

In respect of the obligation to act "reasonably", his Honour determined that while there was overlap, it should not be conflated with the obligation to act in good faith. However, the content of each obligation depends on the contractual terms and circumstances.5

Enforceability of the obligation

Croft J determined that Woolworths' argument that clause 2.2 of the AFL was an unenforceable "agreement to agree" was overly narrow. The position ignored the factual circumstances, as well as the contractual requirement that the cost difference be determined by NES and verified by Woolworths' surveyors.6

Application to the facts

Croft J identified seven steps that a reasonable person in Woolworths' position would be required to take to resolve their differences:7

  1. Invite NES to participate in the review process;
  2. Inform NES of any differences identified in relation to calculation of the Landlord's Works Costs;
  3. Communicate to NES the basis of any claim that the Landlord's Work Costs were "too high";
  4. Assist NES in obtaining alternative quotes;
  5. Provide reports identifying the basis of the differences in the parties' quotes;
  6. Communicate the contents of the reports it relied on for its quote to identify differences; and
  7. If applicable, postpone negotiations until the review process had been completed to allow all parties to consider reports relied upon.

Croft J found that, on the evidence, Woolworths had not taken any of these steps. Instead, in breach of clause 2.2, it had not acted reasonably and in good faith in resolving its differences with NES, and so terminated the AFL for reasons that were not permitted.8

"The evidence ... discloses, in my view, a continued unwillingness on the part of Woolworths to communicate to NES any differences that it may have had in relation to the estimate by NES of the Landlord's Work Costs or of Masters' contribution to those costs."9

Loss and damage

Croft J held that as a result of Woolworths' breach, NES had lost a unique and valuable opportunity (to develop and lease the site to Masters).10

His Honour ordered judgment for NES for damages of $10.875 million plus interest, based on the value of rent over the life of the lease and the expected value of the property at the end of the lease, (with a 25 per cent discount applied to reflect the inherent risks).11 sinodisp/au/cases/vic/VSC/2016/1.html


1 At [169]
2 At [243]
3 At [56]
4 (2015) 321 ALR 584, at [290]
5 At [72]
6 At [79]–[81]
7 At [244]
8 At [247]
9 At [208] and [375]
10 At [259]
11 At [345]–[346] and [391]

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Chambers Asia Pacific Awards 2016 Winner – Australia
Client Service Award
Employer of Choice for Gender Equality (WGEA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions