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Competition Law

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CLient Update: Importing into Australian law the US notion of good faith in contract-related dealings

5 June 2000

In brief: Notions of negotiating in good faith (and the corresponding special fiduciary duty that may arise) and comparative bargaining power are well known in US law, but little is known or used in Australian law.

Now, it seems that the Courts are using these concepts in commercial disputes in New South Wales. An unreported judgment late last year in Hungry Jack's v Burger King indicates that the notion of good faith may well be implied between the parties in some contractual disputes.

The Hungry Jack's v Burger King dispute centred around a Tripartite Test Agreement under which The Shell Oil Company and the two franchise chains, Hungry Jack's and Burger King agreed that Shell would test the idea of restaurants supplied by the other two in Shell service stations, with a view to developing a long term joint venture. The negotiations got to the point where Shell was no longer willing to proceed with the Hungry Jack's alternative. Apparently officers of Burger King knew of this changed state of affairs but did not tell Hungry Jack's.

It was held that the relationship between Hungry Jack's and Burger King under the Tripartite Test Agreement was enough to result in the parties having a special fiduciary duty arise. The Court held that, as a result, the private negotiations that took place between Shell and Burger King were a breach of that special duty, especially as the parties dissuaded Hungry Jack's from pursuing a separate deal with Mobil.

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