The case of Growthbuilt Pty Ltd v Modern Touch Marble & Granite Pty Ltd  NSWSC 290 considered whether the obligation to act in good faith applies to a contract which gives one party the power to act in their ‘sole discretion.’
Growthbuilt entered into four subcontracts for the supply and installation of various marble products with Modern Touch Marble, who failed to complete the works by the completion dates stipulated in the subcontracts.
Growthbuilt terminated the subcontracts and commenced proceedings to recover liquidated damages and post-termination costs incurred to complete the works. All of the subcontracts included an extension of time clause that Modern would be entitled to a ‘reasonable extension of time if Growthbuilt committed any act of prevention’ and that Growthbuilt could, ‘in its absolute discretion, extend the date of completion but was under no obligation to.’
The issue was whether Growthbuilt was obliged to act reasonably and in good faith in deciding whether to exercise its discretion to provide an extension to the date of completion and, whether Growthbuilt’s failure to issue an extension of the date of completion was an act of prevention, meaning that they were not entitled to claim liquidated damages.
The Court held that whether an implied obligation to act in good faith applied to the exercise of a unilateral contractual power depended on the wording of the particular term and could not extent to imposing obligations that are inconsistent with the terms of the relevant agreement itself. Ultimately Growthbuilt was not under an obligation to act in good faith in deciding whether to issue an extension to the completion date because of the wording of the contract.