In Trans Petroleum Australia v White Gum Petroleum Pty Ltd [2011] WASC 150, the plaintiff operated a service station under an agreement with the defendant.  When the defendant gave notice of termination under a clause which entitled either party to terminate the agreement upon 2 months written notice, the plaintiff brought proceedings claiming that the termination was in breach of implied limits imposed on the power to terminate.

The court rejected the plaintiff's claim, stating that the defendant acted reasonably and in good faith.  It was held that in the circumstances of this case, there was no need for the court to infer what the parties intended to agree and imply a term for the reasonable operation of the agreement, as it was already complete on its face.  The court held that the principle of interpretation that a contractual discretion cannot be exercised in a manner or for a purpose which will remove a benefit which was contemplated or which had been agreed did not extend to limiting a clearly worded termination clause. 

The judge noted that a business contract executed as a deed would not normally imply a term of good faith as such an implication would "alter the substance of an agreement so that it provides a benefit which was not agreed".

This decision gives certainty to parties relying on clear, express rights to terminate.  Parties entering into a deed should consider whether it is necessary to include an express term of good faith as the court will not normally imply a term of good faith into a deed.

See case.