2 Int'l J. Franchising L. 3 (2004)

handle is hein.journals/intjoflw2 and id is 1 raw text is: F EATURE
GoodFith inFranchising in

by Penny Ward, Baker & McKenzie, Sydney
While it remains the case that the franchising relationship in Australia is not fiduciary, it has been the
subject of significant recent attention on issues relating to fairness between the parties. This attention has
concerned itself more with the conduct of the parties towards each other than the content of any contract
and it has arisen from both the law of contract and from statute. While there is no unique law relating to
good faith and franchising in Australia, the leve[ of interdependence which characterises the franchising
relationship is likely to continue to attract a high level of scrutiny in this area.

1. Implied terms in general
Despite the legal developments described below, it
largely remains the position that parties to a contract
governed by the law of an Australian State are free to
determine the content of their legal relationship as they
see fit. Yet, in addition to expressly agreed terms, courts
have always been ready to imply certain terms into
contracts as a matter of law.
When will such terms be implied? Traditionally,
specific terms have been implied as a matter of law into
contracts of a certain class, such as for the sale of goods,
landlord    and    tenant,   contracts    of   carriage,
employer/employee relationships etc. For a term to be
implied at law in a new category of case, it must be both
reasonable and necessary. Necessity in this context, was
explained in Byrne v Australian Airlines Ltd (1995) 185
CLR41o at 448 as:
unless such a term be implied, the enjoyment of the rights conferred
by the contract would or could be rendered nugatory, worthless, or
perhaps be seriously undermined. Hence the reference in the decisions
to 'necessity'.
An implied term    of co-operation has been implied
since the nineteenth century. In McKay v Dick (1881) 6
App Cas 251, Lord Blackburn stated:
As a general rule ... where in a written contract it appears that both
parties have agreed that something shall be done, which cannot
effectively be done unless both concur in doing it, the construction of

the contract is that each agrees to do all that is reasonably necessary
to be done on his part for the carrying out of that thing, though there
may be no express words to that effect.
In the leading case of Hungry Jack's v BKC Corporation
[1999] NSW SC 1029 (see box out on page 6), the trial
judge agreed with Hungry Jack's that the following terms
were implied into the franchise agreement:
1. the franchisor would do all that was reasonably
necessary to enable the franchisee to enjoy the benefits of
the Development Agreement (the implied term of co
2. the franchisor must act reasonably in exercising its
powers under the franchise agreement; and
3. the franchisor must act in good faith in the exercise of
its contractual powers.
The Burger King trial judge held that the consequence
of the franchisor being in breach of these was that the
franchisee was dispensed... of the necessity to continue
performance. While the franchisor accepted that if there
were such implied terms and it was in breach, the
consequence would be that it could not rely on the
termination notice given.
Importantly, it remains the case that implied terms are
not intended to be used to rewrite the express terms of a
contract. In Metropolitan Life Insurance Co v RJR Nabisco
Inc 71 F Supp 1504 (1989), which was quoted with
approval by the Court of Appeal in Burger King it was


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