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CONTROLLING CONTRACTUAL DISCRETION

Published online by Cambridge University Press:  08 March 2013

Richard Hooley
Richard Hooley*
Affiliation:
Professor of Law, King's College London.
*
Address for correspondence: The Dickson Poon School of Law, King's College London, Strand, London WC2R 2LS. Email: richard.hooley@kcl.ac.uk.
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Abstract

This paper identifies the source, content and limits of the controls that might be imposed by a court on the way a party exercises discretionary powers conferred under the terms of a contract. It is argued that such controls boil down to a requirement of “good faith”, in the sense that the party exercising the discretion must do so honestly, and that this can be tested by asking whether the decision is one that no reasonable person acting reasonably could have reached in the circumstances. It is suggested that a similar requirement should apply when a contracting party exercises a right to terminate for breach, whether at common law or under a termination clause.

Keywords

Controlling contractual discretionimplied termsconstructiongood faithtermination for breach
Type
Articles
Information
The Cambridge Law Journal , Volume 72 , Issue 1 , March 2013 , pp. 65 - 90
Copyright
Copyright © Cambridge Law Journal and Contributors 2013

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References

1 E.g. the Consumer Credit Act 1974; the Unfair Terms in Consumer Contracts Regulations 1999, S.I. 1999/2083.

2 See, e.g., Re Smith and Fawcett Ltd [1942] Ch. 304, 306, and also the Companies Act 2006, s. 172, which gives the obligation a statutory basis.

3 [2009] UKPC 10, [2009] 1 W.L.R. 1988, [16]–[27]; endorsed and clarified by the Court of Appeal in Mediterranean Salvage & Towage Ltd. v Seamar Trading & Commerce Inc. (The Reborn) [2009] EWCA Civ 531, [2009] 2 Lloyd's Rep. 639, [8]–[14], and by Aikens L.J. in Crema v Cenkos Securities Plc. [2010] EWCA Civ 1444, [2011] 1 W.L.R. 2066, [36]–[41].

4 See, e.g., US Restatement (2d) Contracts, s. 205; Uniform Commercial Code, s. 1–203. Good faith in negotiation of contracts has had a slower path to acceptance: see Furmston, M. and Tolhurst, G.J., Contract Formation: Law and Practice (Oxford 2010)Google Scholar, Ch. 12.

5 Morgan, J., “Against Judicial Review of Discretionary Contractual Powers” [2008] L.M.C.L.Q. 230, 235, 239Google Scholar.

6 Daintith, T., “Contractual Discretion and Administrative Discretion: A Unified Analysis” (2005) 68 M.L.R. 554Google Scholar, 575.

7 H. Collins, “Discretionary Powers in Contracts” in D. Campbell, H. Collins and J. Wightman (eds.), Implicit Dimensions of Contracts: Discrete, Relational and Network Contracts (Oxford 2003), 219, 226–231.

8 [2001] EWCA Civ 1466, [2002] 1 W.L.R. 685, as quoted by Dyson L.J. on appeal in that case at [26].

9 See Collins, note 7 above, 231.

10 [2001] EWCA Civ 1047, [2001] 2 All E.R. (Comm) 299.

11 Ibid., at [64], per Mance L.J.

12 Note 8 above.

13 Ibid., at [32], per Dyson L.J.

14 Ibid., at [41]. See also Paragon Finance plc v Pender [2005] EWCA Civ 760, [2005] 1 W.L.R. 3412, [120], per Jonathan Parker L.J.

15 [2007] EWCA Civ 151, [2007] 2 All E.R. (Comm) 825.

16 Ibid., at [42]–[44].

17 [2008] EWCA Civ 116, [2008] 1 Lloyd's Rep. 558.

18 Ibid., at [66].

19 E.g., sale of goods, landlord and tenant, employment, the carriage of goods by land or sea. See generally, Beale, H. et al. (eds.), Chitty on Contracts, 31st ed. (London 2012), Vol. I, Ch. 13Google Scholar; Peel, E., Treitel's Law of Contract, 13th ed. (London, 2011)Google Scholar, [6–041]–[6–045]; Andrews, N., Contract Law (Cambridge 2011)CrossRefGoogle Scholar, [13.03]–[13.07]. This restriction seems to have been ignored in Australia where there is evidence of the courts implying terms in law outside such common relationships: see, e.g., Vodafone Pacific Ltd. v Mobile Innovations Ltd. [2004] NSWCA 15, [125], [189]; Burger King Corp. v Hungry Jack's Pty Ltd. (2001) NSWCA 187, [159], [164]; Alcatel Australia Ltd. v Scarcella (1998) 44 NSWLR 349, 369; cf. Renard Constructions (ME) Pty Ltd. v Minister of Public Works (1992) 26 N.S.W.L.R. 234, 263, where Priestley J.A. referred to a “hybrid” between implied terms in fact and in law; and see generally, Peden, E., Good Faith in the Performance of Contracts (Sydney 2003), Ch. 6Google Scholar.

20 Note 8 above.

21 At [36] and [42], per Dyson L.J.

22 [2002] 1 A.C. 408, 459.

23 Note 10 above, at [62].

24 Note 3 above, at [15]. Cooke J. has said that Lord Clarke's emphasis on necessity “tallies” with Lord Hoffmann's statement in Belize Telecom at [18]: SNCB v UBS AG [2012] EWHC 2044 (Comm), [65].

25 Note 3 above, at [16]–[27].

26 Jackson v Dear [2012] EWHC 2060 (Ch), [40], per Briggs J.

27 [2009] EWCA Civ 1391, [2010] 2 P. & C.R. 2, [31].

28 Thomas, G., Thomas on Powers, 2nd ed. (Oxford 2012), [10.194]Google Scholar.

29 Horkulak v Cantor Fitzgerald International [2004] EWCA Civ 1287, [2005] I.C.R. 402, [30], per Potter L.J.; JML Direct Ltd. v Freesat UK Ltd. [2010] EWCA Civ 34, [14], per Moore-Bick L.J. Cf. SNCB Holding v UBS AG, note 24 above, [108], per Cook J.

30 [1993] 1 Lloyd's Rep. 397.

31 Ibid., at 404.

32 Note 15 above.

33 Commercial contracts often confer a power on one party to approve or consent to a particular activity, or to approve the progress of a construction project. The same questions arise as with the exercise of other types of contractual discretionary power. Daintith, note 6 above, has shown that the origins of the problem can be traced back to Dallman v King (1837) 4 Bing NC 105, 109.

34 Note 15 above, at [28].

35 SNCB Holding v UBS AG, note 24 above, [107], [136].

36 Peden, E., “‘Implicit Good Faith’ – or Do We Still Need an Implied Term of Good Faith?” (2009) 25 J.C.L. 50Google Scholar.

37 Ibid., at 51. For further development of the theory that good faith underpins contract law, see Carter, J.W. and Peden, E., “Good Faith in the Australian Contract Law” (2003) 19 J.C.L. 155Google Scholar; “A Good Faith Perspective on Liquidated Damages” (2007) 23 J.C.L. 157.

38 (2009) 25 J.C.L. 50, 51. See also Peden, E., “When Common Law Trumps Equity: the Rise of Good Faith and Reasonableness and the Demise of Unconscionability” (2005) 21 J.C.L. 226, 239–240Google Scholar.

39 Note 17 above.

40 (1992) 26 N.S.W.L.R. 234.

41 See, e.g., Burger King v Hungry Jack's Pty Ltd., note 19 above, [169]–[170]; Vodafone Pacific Ltd. v Mobile Innovations Ltd., note 19 above, [125].

42 [2009] UKPC 10, [2009] 1 W.L.R. 1988, [16]–[27].

43 Unique Pub Properties Ltd. v Broad Green Tavern Ltd. [2012] EWHC 2154 (Ch), [53], Warren J.

44 Walford v Miles [1992] 2 A.C. 128, 138, H.L.; Interfoto Picture Library Ltd. v Stiletto Visual Programmes Ltd. [1989] Q.B. 433, 439, C.A.

45 The approach is also seen in the construction of contracts, e.g., where there is a reluctance to construe an exemption clause so as to apply to a deliberate breach: see Internet Broadcasting Corporation Ltd. v MAR LLC [2009] EWHC 844 (Ch), [2009] 2 Lloyd's Rep. 295, [23]–[24], [33]; cf. Astrazeneca UK Ltd. v Albemarle International Corporation [2011] EWHC 1574 (Comm), [288]–[301]; Shared Network Services Ltd. v Nextiraone UK Ltd. [2011] EWHC 3845 (Comm), [13].

46 The Reborn, note 3 above, [15]. See also Chitty on Contracts, note 19 above, [13-005]; McMeel, G., The Construction of Contracts, 2nd ed. (Oxford 2011), [11.28]Google Scholar; Davies, P.S., “Recent developments in the law of implied terms” [2010] L.M.C.L.Q. 140Google Scholar.

47 Eastleigh BC v Town Quay Developments Ltd., note 27 above, [30], per Arden L.J.

48 See, e.g., Nash, note 8 above, [31], per Dyson L.J..

49 Note 17 above, at [66] (Rix L.J. delivered the main judgment with which Lloyd and Laws L.JJ. agreed). The authorities reviewed by Rix L.J. included The Product Star (No2), note 30 above; Ludgate Insurance Co Ltd v Citibank NA [1998] Lloyd's Rep. IR 221; Gan, note 10 above; Nash, note 8 above.

50 [1948] 1 K.B. 223. See generally, Wade, H.W.R. & Forsyth, C.F., Administrative Law, 10th edn. (Oxford 2009), Ch. 11Google Scholar.

51 Note 30 above, at 404.

52 Note 15 above, at [37]; applied by Briggs J. in Carey Group plc v. AIB Group (UK) Plc [2011] EWHC 567 (Ch), [2011] 2 All E.R. (Comm) 461, [51].

53 Ibid., at [69]–[70].

54 There is considerable academic support for a general requirement of good faith in English law: see, e.g., Powell, R., “Good Faith in Contracts” (1956) 9 C.L.P. 16Google Scholar; H.K. Lücke, “Good Faith and Contractual Performance” in Finn (ed.), Essays in Contract (1987); Steyn, J., “The Role of Good Faith and Fair Dealing in Contract Law: A Hair-Shirt Philosophy?” [1991] Denning Law Journal 131Google Scholar; Brownsword, R., “Two Concepts of Good Faith” (1994) 7 J.C.L. 197Google Scholar; J. Beatson and D Friedmann, “Introduction: From “Classical” to Modern Contract Law” in J. Beatson and D. Freidmann (eds.), Good Faith and Fault in Contract Law (1995); Mason, A., “Contract, Good Faith and Equitable Standards in Fair Dealing” (2000) 116 LQR 66Google Scholar. EU legislation has made the question more pressing: see, e.g., the Proposed Common European Sales Law (2011), art. 2(1).

55 Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 A.C. 481, [17], per Lord Bingham; and generally, Whittaker, S. & Zimmerman, R. (eds.), Good Faith in European Contract Law (Cambridge 2000).Google Scholar

56 “Good faith” on its own is different from the composite expression “good faith and fair dealing”, which introduces an objective standard of conduct. The Draft Common Frame of Reference keeps the concepts separate: “good faith” is defined as “a mental attitude characterised by honesty and an absence of knowledge that an apparent situation is not the true situation” (see list of definitions introduced by Art. I-1:108); “good faith and fair dealing” is “a standard of conduct characterised by honesty, openness and consideration for the interests of the other party to the transaction or relationship in question” (Art. I-1:103); and “reasonableness” is “to be objectively ascertained, having regard to the nature and purpose of what is being done, to the circumstances of the case and to any relevant usages and practice” (Art. I-1:104): Von Bar, C. & Clive, E. (eds.), Principles, Definitions and Model Rules of European Private Law, Draft Common Frame of Reference (DFCR) (Oxford 2010)Google Scholar.

57 Stapleton, J., “Good Faith in Private Law” (1999) 52 C.L.P. 1, 8Google Scholar.

58 See, e.g., Sale of Goods Act 1979, s. 61(3); Bills of Exchange Act 1882, s. 90: “a thing is deemed to be done in good faith within the meaning of this Act when it is in fact done honestly, whether it is done negligently or not”.

59 Ibid.. Because Stapleton (at 11–12) distinguishes “good faith” from “fair” or “reasonable” dealing (“an objective norm of behaviour”) she is critical of Bingham L.J.'s dictum in Interfoto Picture Library Ltd. v Stiletto Visual Programmes Ltd., note 44 above, 439, that “good faith...is in essence a principle of fair and open dealing” (a “regrettable development”).

60 Note 24 above.

61 At [112].

62 At [72].

63 See main text to note 49 above (overturning Gloster J. [2006] EWHC 718 (Comm), who held that the seller bank was bound to take reasonable care in finding the true market value of the portfolio of securities: an analogy with the equitable duties of a mortgagee was rejected by Lloyd L.J. at [154]–[155]). Rix L.J. recently took the same approach, and applied Socimer, in WestLB v Nomura Bank International Plc [2012] EWCA Civ 495, [32], [58] (valuation of portfolio of stocks and shares); see also McKay (t/a McKay Law Solicitors and Advocates) v Centurion Credit Resources LLC, unreported, 2nd May 2012 (lender exercising discretion not to make an advance under a loan agreement).

64 Note 40 above.

65 Ibid., at 258.

66 J.W. Carter, E. Peden and G.J. Tolhurst, Contract Law in Australia, 5th ed, 2007, at [2-02]; Peden, note 36 above, 59, citing, e.g., Burger King Corp v Hungry Jack's Pty Ltd. [2001] NSWCA 187, reported in part (2001) 69 N.S.W.L.R. 558 and cases following. See, however, Hunter Valley Skydiving Centre Pty Ltd. v Central Coast Aero Club Ltd. [2008] NSWSC 539,[48]. For criticism of the assimilation of good faith and reasonableness, see Peden, E., “When Common Law Trumps Equity: the Rise of Good Faith and Reasonableness and the Demise of Unconscionability” (2005) 21 J.C.L. 226Google Scholar.

67 See main text to note 49 above.

68 Note 30 above, 405. See also Potter L.J. in Ludgate Insurance Co Ltd. v Citibank NA, note 49 above, [35].

69 Thomas on Powers, note 28 above, [10.184].

70 Note 17 above, at [66]; applied in WestLB AG v Nomura Bank International Plc, note 63 above, [32], [58]. See also Euroption Strategic Fund Ltd. v Skandinaviska Enskilda Banken AB [2012] EWHC 584 (Comm), [105], where Gloster J. also referred to this “as the duty to act rationally”.

71 See Council of Civil Service Unions v Minister for the Civil Service [1985] A.C. 374, 410, per Lord Diplock.

72 Thomas on Powers, note 28 above, [10.184].

73 Note 10 above, at [73].

74 Note 15 above, at [42].

75 [2002] EWCA Civ 126, [2002] ICR 1045, [39].

76 Nash, note 8 above, [31].

77 [2000] I.R.L.R. 766, [40].

78 Jani-King (GB) Ltd. v Pula Enterprises Ltd. [2007] EWHC 2433 (QB), [2008] 1 All E.R. (Comm) 451, [34]; NSB Ltd (in Liquidation) v Worldpay Ltd [2012] EWHC 927 (Comm), [42].

79 Note 8 above, at [38]

80 Note 75 above, at [39].

81 Note 17 above, at [116]. See also Breganza v BP Shipping Ltd [2012] EWHC 1423 (Comm), [91], Teare J.. Fiduciary law also recognises that a trustee may reach a perverse decision in good faith: see, e.g., Hutton v West Cork Railway Co (1883) 23 Ch. D. 654, 671.

82 In a similar way that a professional trustee would be considered to have acted dishonestly and in bad faith, even if he were to have considered that he exercised his power in the best interest of the beneficiaries, if the belief was so unreasonable that no reasonable trustee in that profession would have shared that belief: Walker v Stones [2001] Q.B. 902, 939 (C.A.); Barnes v Tomlinson [2006] EWHC 3115 (Ch), [79]; Fattal v Walbrook Trustees (Jersey) Ltd. [2010] EWHC 2767 (Ch), [81]; and, generally, G. Virgo, The Principles of Equity and Trusts (Oxford 2012), 415, 550.

83 Pender, note 14 above, [120]; McKay (t/a McKay Law Solicitors and Advocates) v Centurion Credit Resources LLC [2011] EWHC 3198 (Q.B.), [50], affd. by C.A., unreported, 2 May 2012.

84 See, e.g., Ee v Kakar (1979) 40 P & CR 223, 230. See generally, M. Furmston and G.J. Tolhurst, Contract Formation, note 4 above, [9.84], [9.99].

85 See also Peden (2005) 21 J.C.L. 226, 235. Perhaps this is also what Rix L.J. is hinting at when he said in Socimer (at [112]) that the requirements of good faith and rationality “include both subjective and objective elements”.

86 Ed Peel seems to agree that “good faith”, as used in this context, is in practice likely to be defined by reference to these other concepts: “Agreements to Negotiate in Good Faith” in A. Burrows and E. Peel (eds.), Contract Formation and Parties (Oxford 2010), 37, 52.

87 Socimer, note 17 above, [66], per Rix L.J.

88 Ibid., at [116].

89 Ibid.. See also Philips Electronique Grand Public SA v British Sky Broadcasting Ltd. [1995] E.M.L.R. 472, 484 (C.A.).

90 Duke of Westminster v Guild [1985] Q.B. 688, 700 (C.A.). See generally, Treitel's Law of Contract, note 19 above, [6-039].

91 Nash, note 8 above, [41].

92 Note 15 above.

93 Ibid., at [26]. That part of Arden L.J.'s judgment dealing with the limits of the power to withhold approval is considered in the main text to note 32 above.

94 Ibid., at [28].

95 The question is posed, but not answered, in Treitel's Law of Contract, note 19 above, [15-050], n. 209.

96 Note 5 above, 239–240.

97 (2005) 21 J.C.L. 226, 233–234. See also Carter, Peden & Tolhurst, Contract Law in Australia, note 66 above, [2–20].

98 Note 19 above.

99 Daintith, note 6 above, 571.

100 It is also said in Chitty on Contracts, note 19 above, [13-027] that “the discretion conferred may be found, on its true construction, to be unqualified”. Socimer [2008] EWCA Civ 116 and Looney v Trafigura Beheer BV [2011] EWHC 125 (Ch) are cited in support of that statement. However, it is submitted that in both cases the court focused on, and rejected, the imposition of an objective standard of reasonableness, and was not concerned with the different question of whether a control on contractual discretion based on a subjective standard of honesty and good faith could be excluded by the terms of the contract.

101 E.g., see note 58 above (SGA 79; BEA 82).

102 S. Pearson & Son Ltd. v Dublin Corp. [1907] A.C. 351, 353, 362 (H.L.); HIH Casualty and General Insurance Ltd. v Chase Manhattan Bank [2003] 2 Lloyd's Rep. 61, [16], per Lord Bingham.

103 Ibid., at [16], per Lord Bingham (when considering the undecided issue of whether it is possible to exclude liability for the fraud of an agent).

104 [2010] EWHC 2862 (QB).

105 Ibid., at [37].

106 [1998] C.L.C. 650, 659.

107 [2004] EWHC 977 (Comm), [2004] 2 Lloyd's Rep. 352, [113]–[114].

108 Note 24 above, at [111]–[114].

109 [2003] I.C.R. 721 (H.L.).

110 Ibid., at [15].

111 See main text to note 32 above.

112 Although, as stated below (see notes 115 and 116), the injured party may sometimes have no choice but to terminate.

113 Doctrinal incoherence arises where, on closer analysis, there is no rationale for treating certain transactional elements in different ways. For example, it is submitted that it is incoherent to limit the “practical benefit” test to promises to pay more (as in Williams v Roffey Bros & Nicholls (Contractors) Ltd. [1991] 1 Q.B. 1, C.A.), so that promises to pay less are subject to different doctrinal rules (as confirmed in Re Selectmove Ltd. [1995] 1 W.L.R. 474, C.A.). I am grateful to Roger Brownsword for this point.

114 See generally, Treitel's Law of Contract, note 19 above, Ch. 18; Andrews, Contract Law, note 19 above, Ch. 17.

115 But the duty to mitigate the resultant loss may in practice leave the injured party with little alternative than to terminate: see, e.g., Treitel's Law of Contract, note 19 above, [18-008]; McKendrick, E., Contract Law, 9th edn. (London 2012)Google Scholar, [19.8]; Rowan, S., Remedies for Breach of Contract: A Comparative Analysis of the Protection of Performance (Oxford 2012), 100Google Scholar.

116 [1961] A.C. 413, 431 (Lord Reid suggested two general limitations on the injured party's right to affirm the contract, continue with performance and claim the agreed price: performance must not require the cooperation of the other, defaulting, party (at 429), and the injured party must have a “legitimate interest” in performing (at 431)). See also Clegg v Andersson T/A Nordic Marine [2003] EWCA Civ 320, [2003] 2 Lloyd's Rep. 32, 48 (Hale L.J.).

117 SNCB Holding v UBS AG, note 24 above, [73], Cooke J.

118 D. Harris, D. Campbell and R. Halson, Remedies in Contract and Tort, 2nd ed. (Cambridge, 2005), 55. Cf. Brownsword, R., “Retrieving Reasons, Retrieving Rationality? A New Look at the Right to Withdraw for Breach of Contract” (1992) 5 J.C.L. 83Google Scholar, 90 (a slightly revised version of this paper was published as “Bad Faith, Good Reasons and Termination of Contracts” in J. Birds, R. Bradgate and C. Villiers, Termination of Contracts (Chichester 1995), 227). Brownsword proposes (at pp. 92 and 237 respectively) that “a right to withdraw would be available where it was conferred by legislation or case law, or where it was so agreed by the parties; but, failing such special provision, the right to withdraw would depend upon the innocent party having good reason for claiming the option of release from the contract, as opposed to settling for damages” – the proposal is criticised by E. McKendrick, Contract Law: Text, Cases, and Materials, 5th ed. (Oxford 2012), 784.

119 See, e.g., Interfoto Picture Library Ltd. v Stiletto Visual Programmes Ltd., note 44 above, 439; Walford v Miles, note 44 above, 138; ING Bank NV v Ros Roca SA [2011] EWCA Civ 353, [92].

120 Bradford Corp. v Pickles [1895] A.C. 587; Allen v Flood [1898] A.C. 1.

121 Rowan, note 115 above, especially Ch 2, which reveals a marked difference in approach in England (relatively broad right to terminate) and France (notable reluctance to allow termination).

122 Exemplified by Union Eagle Ltd. v Golden Achievement Ltd. [1997] A.C. 514, 519, where Lord Hoffmann, delivering the advice of the Privy Council, rejected a plea that equity will restrain enforcement of legal rights when it would be “unconscionable” to insist upon them because it would create uncertainty, although he did recognise that “the same need for certainty is not present in all transactions” (here vendor of a flat held entitled to rely on right to terminate under express clause making time of the essence when purchaser tendered purchase price 10 minutes late). Rowan, note 115 above, pp. 78–79; S. Whittaker, “Termination Clauses” in A. Burrows and E. Peel (eds.), Contract Terms (Oxford 2007), 253, 255–6.

123 Harris, D., “Incentives to Perform, or Break Contracts” (1992) 45 C.L.P. 29, 35–36Google Scholar.

124 Rice (t/a Garden Guardian) v Great Yarmouth Borough Council [2003] T.C.L.R. 1, C.A.; applied in Dominion Corporate Trustees Ltd. v Debenture Properties Ltd. [2012] EWHC 1193 (Ch), [2010] 23 E.G. 106. Cf. control of the exercise of contractual discretion through construction (see Sect. II.B.2 above).

125 [2012] EWCA Civ 419, [46].

126 Ibid.

127 [2010] EWHC 2133 (Comm), [2010] 2 C.L.C. 217.

128 At [50]. Although Blair J. said (at [49]) that “there may be some force” in a submission that where the right to close out the client's position arose on the broker's determination – in its “absolute discretion” – that the client had not performed (or might not be able or willing in future to perform) any of its duties, that discretionary power was subject to an obligation not to act arbitrarily, capriciously or unreasonably.

129 Ibid.

130 As it was described by R. Zakrzewski, Remedies Reclassified (Oxford 2005), 86. See also G. Thomas, Thomas on Powers, note 28 above, at [11.04].

131 Davis, K.C., Discretionary Justice: A Preliminary Inquiry (Louisiana 1969), 4Google Scholar.

132 Barak, A., Judicial Discretion (New Haven 1989), 7CrossRefGoogle Scholar.

133 Carty v Croydon London Borough Council [2005] EWCA Civ 19, [2005] 1 W.L.R. 2312, [25].

134 WestLB v Nomura Bank International Plc, note 63 above, [48], per Rix L.J..

135 W.N. Hohfeld, “Fundamental Legal Conceptions as Applied in Judicial Reasoning” (1916–17) 26 Yale LJ 710, 717. Hohfeld's solution to the problem remains open to criticism: see, e.g., Harris, J.W., Property and Justice (Oxford 1996), 120–5Google Scholar; Penner, J.E., The Idea of Property (Oxford 1997), 23–5Google Scholar.

136 This stems from the “will theory” which was advanced by Hart to explain the nature of rights. However, the will theory has been strongly criticised by others, such as MacCormick and Raz, who advance the competing interest (or benefit) theory, which is seen by Freeman as “the most convincing explanation of what having a right entails” (see generally, M.D.A. Freeman, Lloyd's Introduction to Jurisprudence, 8th ed. (London, 2008), 394–396).

137 Daintith, note 6 above, pp. 555–6.

138 Renard Constructions (ME) Pty Ltd. v Minister for Public Works, note 40 above.

139 See, e.g. Hughes Bros Pty Ltd. v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1993) 31 NSWLR 91.

140 Carter, Peden & Tolhurst, Contract Law in Australia, note 66 above, [2-02].

141 Quaere whether a standard of subjective honesty also applies where a party elects to rescind a contract on grounds of misrepresentation, duress or undue influence. It is arguable that, for reasons of consistency, the same standard should apply in these cases, although that argument is not explored in this paper, which is restricted to cases of termination for breach. However, unlike termination for breach, which operates de futuro, rescission sweeps away a voidable contract ab initio and leaves no scope for implying a term (or construing an express term) similar to that implied in cases of contractual discretion (although certain clauses, such as an exclusive jurisdiction clause or an arbitration clause, may survive rescission: see D. O'Sullivan, S. Elliott and R. Zakrzewski, The Law of Rescission (Oxford 2008), para. 1.12). This explains, for example, why a court must rely on the wide statutory discretion contained within s. 2(2) of the Misrepresentation Act 1967 to refuse rescission and award damages instead following a non-fraudulent misrepresentation (see J. Cartwright, Misrepresentation, Mistake and Non-Disclosure, 3rd ed. (London 2012), paras. 4-61 et seq).

142 [1933] A.C. 470.

143 (1992) 5 J.C.L. 83, 93; “Bad Faith, Good Reasons and Termination of Contracts”, note 118 above, 238.

144 Illustrated by Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch.D. 339 (C.A.). See also Force India Formula One Team Ltd. v Etihad Airways PJSC [2010] EWCA Civ 1051, [116]; Tele2 International Card Company SA v Post Office Ltd. [2009] EWCA Civ 9, [30] n. 17.

145 Note 107 above, at [114].

146 Note 24 above, at [111].

147 See, e.g., Astra Trust Ltd. v Adams [1969] 1 Lloyd's Rep. 81, 87; Albion Sugar Co Ltd. v William Tankers Ltd (The John S Darbyshire) [1977] 2 Lloyd's Rep. 457, 466. Cf J.F. O'Connor, Good Faith in English Law (Aldershot 1990).

148 See Sect. II. D above.

149 ss.19–22.

150 s.140A(1)(b). The wide-ranging powers of the court are set out in s 140B.

151 s.140C(1). The term “individual” includes most small partnerships and unincorporated bodies but not companies (s.189(1)). The provisions do not apply to s.16(6C) exempt consumer credit agreements (which are regulated by the Financial Services Authority).

152 Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law (CESL) Com (2011) 635 final. The proposed CESL is optional to the parties and would be available only to contracts for the sale of goods, the supply of digital content and related services.

153 Ibid., art 2(3).