On 15 October 2020, LVL Transport Pty Ltd (LVL Transport) entered into a contract of sale with Fuller Road West Pty Ltd (as trustee for the Fuller Road Trust) (Fuller Road) for Lot 19 at 31 Fuller Road, Ravenhall. The key terms of the contract included:

• Price: $885,370 (5% deposit $44,268.50)

• Special Condition 8: Plan of Subdivision: required certification and registration of the plan within 24 months of the contract date

• Special Condition 8.4: rescission for inability to complete: gave Fuller Road discretion to determine whether to seek registration of the plan “having regard to market demand, its financial position, ability to obtain finance, and planning, commercial, practical and other similar considerations”. The clause stated expressly that it was not a “sunset clause” for the purposes of the Subdivision Act 1988 (Vic)

On 2 June 2022, Melton City Council certified the plan (a precursor to registration).

Subsequently, on 16 August 2022, Fuller Road wrote to all 21 purchasers, advising that “market conditions have changed considerably”, due to factors such as interest rates, construction costs, and authority delays, and purported to terminate each contract pursuant to special condition 8.4.

In response, LVL Transport and two other purchasers (Karanfilovski Investments Pty Ltd and SMX Equities Pty Ltd) commenced proceedings, seeking declarations that the terminations were void, together with orders for specific performance and, in the alternative, damages.

The matters were heard concurrently before Judge McNamara in the County Court of Victoria.  

The Court considered three central issues:

1. Is there an implied duty of good faith in commercial contracts?

2. What is the extent of the vendor’s obligation to pursue plan registration?

3. Was special condition 8.4 valid and enforceable, or did it confer an impermissible “absolute discretion”?

The plaintiffs argued that Fuller Road owed an implied duty of good faith and fair dealing in the performance of the contracts.

Judge McNamara rejected this submission, reaffirming that, under current Victorian law, there is no general implied duty of good faith in commercial contracts. He did, however, note at [116] that:

“It remains a possibility that the High Court will determine that such a general obligation of good faith does inhere in all contracts. On the present state of authority, I would, in conformity with the opinion of Judge Burchell in Votua Pty Ltd v Lineal Developments Pty Ltd, resolve that question in the negative.”

This approach maintains the orthodox position in Victoria: unless expressly included, a duty of good faith will not be implied as a general obligation in commercial contracts.

Practical takeaway: clients cannot rely on “good faith” to fill drafting gaps. Any expectation of fairness, cooperation, or reasonableness must be clearly articulated within the contract.  

The plaintiffs also argued that Fuller Road was obliged to take all necessary steps, to “leave no stone unturned”, to achieve registration of the plan by the contractual deadline. The Court disagreed. Judge McNamara held that the vendor’s obligation was to take reasonable steps, not to undertake “burdens or tasks which are excessively onerous or penal in effect”.

While there was some evidence of delay and wasted expenditure (consultancy fees and preparatory works), the Court found that Fuller Road had taken sufficient steps to progress approvals and could not be faulted for not achieving registration “at the earliest possible moment”.

Practical takeaway: performance will be measured against a standard of reasonableness. Vendors are expected to act proactively, but the law does not require them to make exhaustive efforts at any cost. 

The decisive issue was Fuller Road’s reliance on special condition 8.4 to terminate the contracts.

Fuller Road contended that the clause gave “absolute discretion” to decide whether to proceed or not, based on prevailing commercial conditions. The plaintiffs, by contrast, argued that a literal reading of the clause would defeat the essence of the bargain: it would allow the vendor to terminate at will, while the purchasers remained bound without any corresponding right. 

At [160], the Court summarised Fuller Road’s position:

“…the terms of clause 8.4 were apt to give it an absolute discretion as to performance depending upon market conditions two years after the date the contracts were entered into. If the contract at that stage seemed commercially unfavourable… the contract could be cancelled.”

Judge McNamara rejected this construction. At [162] he held:

“…this would not be a businesslike outcome or the bargain which businesspeople would be likely to make. Clause 8.4 should not be regarded as empowering Fuller Road as vendor to cancel… where the sole reason… is only that a development without presales would provide it with a more profitable outcome.”

The Court emphasised that construing the clause to allow cancellation for market-driven profit motives would reduce the contract to a mere option to purchase at a fixed price, without an option fee. Such an outcome was commercially nonsensical.

Accordingly, the clause was declared invalid, and Fuller Road’s terminations ineffective. Specific performance was ordered in favour of LVL Transport.  

This decision reflects a wider judicial and policy concern with “sunset-style” provisions in off-the-plan contracts: 

• Consumer protection concerns: Although framed as a commercial contract, the Court recognised the imbalance created when a vendor could unilaterally cancel while retaining flexibility to profit from rising markets.

• Legislative context: Parliament has already intervened in NSW and Victoria to regulate “sunset clauses”. Courts remain alert to attempts to circumvent these protections by drafting clauses that are not labelled “sunset clauses” but operate in substance in the same way.

• Contract interpretation: Courts will favour a construction that gives effect to a harmonious, commercially sensible outcome over one that undermines the entire bargain.  

1. No implied good faith: Practitioners should not assume a general duty of good faith exists in commercial contracts. If parties intend obligations of fairness or cooperation, they must be expressly drafted.

2. Reasonable steps only: Vendors must take genuine, proactive steps to progress approvals, but are not required to undertake onerous or penal tasks.

3. Beware of absolute discretion clauses: Clauses granting unilateral cancellation rights to one party, even if labelled otherwise, risk being struck down as inconsistent with commercial purpose.

4. Policy context matters: Courts are increasingly sensitive to legislative intent around protecting purchasers from opportunistic terminations in off-the-plan sales.  

LVL Transport v Fuller Road serves as a reminder of the limits of contractual drafting. Clauses that appear to grant a vendor complete discretion to cancel or delay, particularly in property development and off-the-plan sales, will be closely scrutinised against principles of commercial construction and fairness.

Developers should carefully review standard form contracts to ensure special conditions are not so broadly drafted as to risk being rendered unenforceable. Purchasers, for their part, should remain alert to “sunset-style” provisions that could effectively reduce their contract to an option.

For guidance on how this decision may affect your construction contracts, or to review your agreements for risk and enforceability, contact our Construction & Engineering team.