Australia: Good faith or good fiction?

A central element of the proposed WA franchising legislation is the introduction of a new statutory duty that is described, in our view rather misleadingly, as "good faith". In reality the current push for a statutory duty of good faith is simply the latest effort by a small group of lobbyists to have what is essentially a new concept of "fairness" introduced into business contracts. The lobbyists failed in their attempts to do so in the context of the changes to the Australian Consumer Law, in the recent review of the operation of the unconscionable conduct provisions of the Trade Practices Act and in the recent Federal review of the Franchising Code of Conduct, so they have turned to other means to try to achieve their ends.

Contrary to the position presented by the lobbyists, there is already at law an existing duty of good faith and fair dealing implied under common law into most franchise agreements. Although the courts have stopped short of implying a duty of good faith and fair dealing into all franchise agreements, there are a number of franchising examples where a duty has been implied and there is already a strong body of law governing the implied duty of good faith and fair dealing. For a detailed article as to the status and meaning of the implied duty of good faith, by Greg Hipwell and Elizabeth Stary, click here.

In the franchising context the caveat emptor (buyer beware) principle has been somewhat supplanted by the Franchising Code of Conduct in the codification of specific principles for responsible franchisor behaviour in key areas such as pre-contractual disclosure, transfer, termination and dispute resolution. Further, the comprehensive franchisor disclosure process is supported by requirements for franchisees to have ample time to consider their decision and certification requirements concerning obtaining legal, accounting and business advice.

Given the current position at common law and the existing regulatory framework, there is little justification for establishing a statutory duty of good faith.Further, the proposed WA legislation dramatically extends the concept of "the duty to act in good faith" from where it has thus far been developed by the courts. The proposed legislation defines acting in good faith as acting "fairly, honestly, reasonably and cooperatively". It also rather curiously and alarmingly, creates a specific extension of good faith in the context of the granting of an extension to or renewal of a franchise agreement. In particular, the proposed obligation to act fairly pushes the duty dramatically toward a duty which is more in the nature of a fiduciary obligation. The proposed new statutory duty would create a different and new obligation that will potentially override the wording of a contract and create uncertainty in the parties respective obligations.

If the Bill is introduced and becomes law, plaintiff law firms will have considerable incentive to chase franchisees and encourage them to litigate knowing that respondent franchisors will be under extreme pressure to settle. This may result in franchisors being subject to legal proceedings that a fair minded person would regard as having little merit. The cost and difficulty of defending a claim of unfair or uncooperative conduct will be prohibitive given that 95% of all franchisors are small to medium enterprises. In its submission to the WA politicians the Franchise Council of Australia expressed concern that the concept of mediation underlying the Australian regulatory framework may be destroyed in Western Australia, with litigation the new norm.

Concepts of fairness and cooperative behaviour are often anathema in commercial dealings. Determining whether a franchisor has acted cooperatively or fairly would be highly subjective. Furthermore, in circumstances where franchisors and franchisees are competitors, (which is often the case) acting cooperatively may breach the cartel provisions in the Trade Practices Act. Justice Kirby in Royal Botanic Gardens and Domain Trust v. South Sydney Council (2002 186ALR289) expressed some concerns with the implied duty, particularly its apparent conflict with the "fundamental notions of caveat emptor (i.e. buyer beware) that are inherent (statute and equitable intervention apart) in common law conceptions of economic freedom".

The current regulatory framework features the comprehensive requirements of the Franchising Code of Conduct, and the broad and highly effective prohibitions on misleading or deceptive and unconscionable conduct. It is overseen by the ACCC as an effective and well-resourced regulator with strong and recently enhanced enforcement powers. Add the current statutory framework to the fact that a common law duty of good faith will be implied into most franchise agreements and there is no logic behind any new statutory obligation of good faith which dramatically broadens the common law obligation. Such a statutory obligation will tip the risk scales too far against franchisors and damage the industry.

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)
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.