Australia: Express clauses for terminating a contract: when can you exercise your rights?

Litigation and Dispute Resolution Insights
Last Updated: 18 October 2010
Article by Luke Buchanan

Key Points:
The case law is not clear, but there are some basic principles which can guide you when creating an express clause allowing termination, or trying to use it.

We've seen before that there are limited bases for terminating a contract at common law. What if the contract itself confers a right of termination in certain circumstances? Is the right to terminate under an express clause unfettered? In particular, must a party be acting in good faith before it can exercise an express termination clause?

As we'll see, the case law is not clear on this point. Nonetheless, there are some basic principles which can guide you when creating an express clause allowing termination, or trying to use it.

Champtaloup - No limits

In Champtaloup v Thomas [1976] 2 NSWLR 264, the NSW Court of Appeal held that where a party has a contractual right to terminate, the right is not restricted or lost in circumstances where it is exercised capriciously, arbitrarily, unreasonably and not bona fide.

In Champtaloup, a purchaser had an express right to rescind a contract if certain events occurred. The events did occur, however, the purchaser admitted in evidence that his decision to rescind had nothing to do with those events.

Despite this, the Court still held that the right was validly exercised – as a matter of construction, the Court refused to read any relevant limitation into the rights given by the contract.

Departure from Champtaloup - there is a limit

The NSW Court of Appeal then handed down its decision in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, which is at odds with its earlier decision in Champtaloup, a fact it acknowledged in the decision.

In Renard, if the contractor breached the contract, the principal could call upon it to show cause as to why the contract should not be terminated. The principal was unhappy with the contractor's performance and issued a notice requiring the contractor to show cause. Despite the contractor purporting to show cause as required by the provision, the principal was not satisfied and proceeded to terminate the contract.

The question for the Court was whether the principal, in exercising its right under the show cause provision, was required to act in good faith. It found that the powers of the principal in determining whether to terminate the contract under the show cause provision were to be exercised "reasonably".

Later developments - implying (and excluding) a term of good faith

The NSW Court of Appeal revisited good faith in Vodafone Pacific Limited v Mobile Innovations Limited [2004] NSWCA 15. In Vodafone, Justice Giles indicated that the law had not yet gone as far as to deem commercial contracts to be a class of contract carrying the implied term of good faith as a matter of law.

However, he was willing to assume that "unless excluded by express provision or because inconsistent with the terms of the contract, Vodafone was under an implied obligation to act in good faith and reasonably in exercising its powers under the ASP Agreement".

To the extent there was an implied contractual obligation to exercise contractual rights, including rights of termination, in good faith, then Justice Giles thought it could be excluded.

A later example of where it was held to have been excluded is Solution 1 Pty Limited v Optus Networks Pty Limited [2010] NSWSC 1060. The parties had agreed that Optus would have the "absolute discretion" to terminate on 120 days' notice.

Following earlier authority, Justice Hammerschlag was willing to assume that a term of good faith could to be implied into the contract. The term was excluded however because it was inconsistent with the termination right being an "absolute discretion", and because the contract expressly excluded any implied terms.

What's the situation outside New South Wales?

The law outside NSW is arguably more circumspect.

The Victorian Court of Appeal has been reluctant to conclude that "an obligation of good faith applies indiscriminately to all rights and power [sic] conferred by a commercial contract" (Esso Australia Resources Pty Limited v South Pacific Petroleum NL (Receivers and Managers Appointed) (Administrators Appointed) [2005] VSCA 228).

In Queensland, the Supreme Court expressed the concern that an implied term of good faith may "tend to superimpose an often unwarranted layer of complexity and uncertainty into commercial bargains" (Kendells v Sweeney [2005] QSC 64).

So how do you draft or exercise an express right to terminate?

Renard is arguably persuasive in the context of express termination clauses. However, it is important to emphasise that Renard concerned a show cause provision, which will not be the case with all commercial contracts. Moreover, recent cases suggest courts are reluctant to imply a term of good faith into all commercial contracts.

Without High Court authority on the issue, the law remains unsettled. The critical questions requiring clarification by the High Court include:

  • is there is an obligation to act in good faith when exercising express contractual rights (including an express right to terminate)?
  • when this obligation can arise; and,
  • if the obligation exists, what conduct will amount to a breach of the obligation in the context of commercial contracts?

Ultimately, the following matters should be borne in mind:

  • When drafting a termination clause in a commercial contract, you should consider whether good faith should be expressly excluded. If parties do not wish to run the risk of a court holding that the right of termination can only be exercised in good faith, a clause which excludes the obligation should be included in the contract. That appears to be consistent with the approach taken by Justice Giles in Vodafone.
  • When considering whether to exercise an express right to terminate a contract in which the obligation of good faith is not expressly excluded, there is a risk that a court will find that the right can only be exercised in good faith. The terminating party should at least have regard to the decisions in Renard and Vodafone before exercising such a right, as well as the potential consequences if the court does find that there is an obligation to act in good faith.
  • A duty of good faith does not prevent a party from taking decisions and actions "which are designed to promote the legitimate interests of [that] party" (South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611). When a party is acting in a manner that is consistent with its contractual rights to promote its legitimate interests, there should be no breach of any implied duty to act in good faith.

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.

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.

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”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.