Good Faith In New Zealand Business Contracts: Meaning And Examples

If you’ve ever negotiated a contract and thought, “Surely they can’t do that…”, you’re probably circling around the concept of good faith.

In plain terms, the meaning of good faith in business is about behaving honestly and fairly in the way you negotiate, perform, and sometimes end a contract. It’s not always written into the agreement, and it doesn’t override everything you’ve signed - but it can still matter a lot when things go wrong.

For small business owners, this can be tricky. You want to move quickly, close deals, and keep relationships smooth - but you also need to protect your business from “gotcha” conduct, unclear promises, and disputes that can drain time and money.

Below, we’ll break down what good faith means in New Zealand contract law, when it’s relevant, what it looks like in real life, and how you can build practical “good faith protection” into your contracts and day-to-day processes.

What Is Good Faith In New Zealand Contract Law?

If you’re searching for the good faith meaning, you’re usually looking for a simple definition you can apply to real business scenarios.

A practical good faith definition is:

• Acting honestly (not misleading the other party), and
• Acting fairly (not undermining the deal or abusing your rights), and
• Co-operating where needed to achieve the purpose of the contract (especially where the contract assumes a level of collaboration).

In New Zealand, good faith isn’t a single “one-size-fits-all” rule that applies to every contract in the same way. Instead, it can show up through:

• Express terms (the contract literally says the parties must act in good faith),
• Implied obligations (in some contexts, the courts may imply obligations about honest and fair performance, or imply constraints on how rights and powers are exercised), and
• Related legal principles like misrepresentation, misleading conduct, and requirements around how contractual powers (including discretions) are exercised.

The key point: good faith usually doesn’t stop you from protecting your own interests - but it can stop you from playing games in a way that defeats the deal.

Good Faith vs “Being Nice”

Good faith is not the same as being “nice” or giving the other party a better deal than you negotiated.

For example, if your agreement clearly allows you to increase pricing after a fixed term, using that clause isn’t automatically “bad faith”. But if you intentionally misled the other party about your pricing plans to get them to sign, that’s where you can run into trouble.

Good Faith vs Trust And “Handshake Deals”

Good faith also isn’t a substitute for clear drafting. A contract that’s vague, inconsistent, or overly reliant on “we’ll figure it out later” can create uncertainty - and uncertainty is where disputes start.

If you’re entering a significant deal (supplier, distribution, business sale, long-term services), it’s worth getting the terms properly documented in a contract that’s legally binding, rather than relying on good intentions.

Does A Duty Of Good Faith Apply To All Business Contracts In NZ?

This is where many business owners get caught out.

In New Zealand, a duty of good faith is not automatically implied in every contract as a general rule. Whether good faith applies - and how strongly - depends on things like:

• What the contract actually says
• The nature of the relationship (e.g. long-term partnership-style arrangements)
• Whether one party has discretion (the power to decide something that affects the other party)
• The overall purpose of the agreement

It’s also important to separate business contracts from employment law: in employment relationships, there is a statutory duty of good faith under the Employment Relations Act 2000, which can apply more broadly than typical commercial contracting principles.

That said, even if your contract doesn’t mention “good faith”, you still need to be careful because New Zealand law has other ways of addressing unfair or dishonest conduct - including:

• Misrepresentation (false statements that induce someone to enter a contract)
• Misleading and deceptive conduct under the Fair Trading Act 1986 (often relevant in B2B dealing as well as consumer-facing conduct)
• Equitable and other contract law doctrines (for example, in serious cases involving oppressive behaviour, significant imbalance, or abuse of position).

In practice, “good faith” disputes often arise when:

• something important was said during negotiations but isn’t reflected clearly in the final contract
• one party takes a strict legal right and uses it in a way that feels like an “ambush” (particularly where the contract’s purpose depends on ongoing co-operation)
• the contract relies on ongoing co-operation (like supply, franchise, joint venture, or long-term service delivery)

Why This Matters For Small Businesses

If you’re a small business owner, you’re often negotiating with bigger players (landlords, suppliers, platforms, distributors) or you’re trying to scale quickly. That can lead to situations where:

• you accept terms without negotiating (because you’re time-poor)
• you rely on verbal assurances to “get the deal over the line”
• you don’t want to create tension by pushing back on unclear clauses

Unfortunately, those are exactly the situations where good faith arguments tend to pop up later - when the relationship breaks down.

What Does Good Faith Look Like In Real Business Scenarios?

It’s easier to understand the good faith meaning once you see it in everyday business decisions.

Here are common examples where good faith (or the absence of it) becomes relevant.

1) Negotiations And “Half Truths”

You don’t generally have to disclose everything in negotiations. But if you make statements that are misleading (even if technically true), you can create risk.

Example: You tell a potential distributor that you have “strong exclusive rights” to a product, but you know the manufacturer can terminate your supply next month. If that distributor signs based on that impression, you may be exposed to a dispute based on misleading conduct or misrepresentation.

2) Using A Contractual “Discretion” To Squeeze The Other Party

Many business contracts give one party discretion, for example:

• approving deliverables
• setting KPIs
• deciding whether a milestone has been met
• renewing a term

If you hold that power, you’ll usually want to exercise it honestly, for proper purposes, and consistently with the contract - not as a weapon. In some situations, the law may also imply limits on using discretions arbitrarily or capriciously, depending on context and wording.

Example: A client refuses to approve work (without genuine reasons) just to avoid paying the final invoice. Even if the contract says “approval at client discretion”, acting unreasonably may create legal and commercial risk.

3) Termination “By Surprise”

If your contract allows termination on notice, you can generally terminate. But disputes happen when termination is used strategically in a way that undermines what the parties reasonably understood the arrangement to be, particularly in long-term relationships where ongoing co-operation is assumed.

Example: You encourage a supplier to invest in stock for your upcoming busy season, then terminate right before the season begins to switch to a cheaper supplier, despite having created an expectation of ongoing supply.

This can become a “good faith” issue, but it can also become a contract interpretation issue: what did the parties actually agree to, and what was the purpose of the arrangement?

4) Refusing To Co-Operate When The Contract Requires It

Some contracts only “work” if both sides co-operate (like a long-term services arrangement, licensing, distribution, or a project with shared responsibilities).

Example: If your customer contract says the client must provide access and information by certain dates, and they fail to do so, you may have a claim for delays and costs - but if your own team also refuses reasonable co-operation, you might weaken your position.

This is one reason why clearly drafted Service Agreement terms matter: they can spell out what co-operation means in practice.

Good Faith In Common Small Business Contracts (And Where Problems Usually Start)

Good faith issues aren’t limited to one type of deal. But certain contracts create more friction because they involve ongoing performance, changing circumstances, or unequal bargaining power.

Supplier And Distribution Agreements

These relationships often require ongoing co-operation (forecasts, quality control, delivery timing, exclusivity, marketing commitments).

Disputes often come from:

• changing pricing unexpectedly
• cutting supply without reasonable notice
• refusing to meet minimum orders or minimum supply obligations
• poaching customers in a way that undermines the arrangement

Where the “spirit of the deal” matters, a tailored Distribution Agreement can help set expectations upfront and reduce the chance of a messy argument about good faith later.

Commercial Leases

Leases can become a hotbed for conflict because they’re long-term and the stakes are high (rent, fit-out, trading hours, maintenance, renewals).

Good faith issues commonly arise around:

• renewal negotiations and deadlines
• rent review processes
• consent for assignment or subleasing
• repair obligations and “make good”

If you’re negotiating a lease, having it reviewed early can help you understand where you may be relying on co-operation (or discretion) from the landlord. A Commercial Lease Review can also identify clauses that create practical risk if the relationship becomes strained.

Shareholder And Founder Relationships

When you go into business with another person, the relationship is usually built on trust - but you still need clear rules for decisions, exits, funding, and disputes.

Good faith arguments often come up when:

• one founder blocks decisions to gain leverage
• there’s a surprise dilution issue or uneven contribution
• there’s conflict over roles, pay, or performance expectations

A well-structured Shareholders Agreement can help reduce the chance that you end up arguing about the “spirit” of the arrangement, because the key rules are agreed in writing.

Employment And Contractor Arrangements

Even in a small business, good faith can be relevant to how you manage working relationships - especially when expectations aren’t written down properly.

In employment specifically, parties must deal with each other in good faith under the Employment Relations Act 2000, which can affect things like consultation, communication, and how workplace changes are managed.

For example, if a senior employee is relied on for confidential client relationships and you change their role in a way that undermines what they signed up for, you can create risk. This is why it’s important to have a clear Employment Contract and well-defined policies.

Practical Tips: How To Build Good Faith Into Your Contracts Without Creating Grey Areas

Good faith sounds simple, but the real challenge for business owners is making it practical - and not accidentally creating obligations you didn’t intend.

Here are some ways to protect your business while keeping relationships fair and workable.

1) Use Clear, Specific Contract Terms (So “Good Faith” Isn’t Doing All The Work)

The more your agreement relies on “we’ll work it out later”, the more likely it is that one party will later argue the other acted in bad faith.

Instead, aim to document:

• exact deliverables or scope (including what is out of scope)
• pricing, timing, and how variations work
• who needs to approve what, and within what timeframe
• what happens if delays occur due to the other party
• how disputes are handled (and escalation steps)

If you’re unsure whether your terms are enforceable, it’s worth understanding what makes a contract legally binding before you rely on it for revenue.

2) Be Careful With “Sole Discretion” Clauses

Clauses that say one party can decide something “in its sole discretion” can be useful - but they can also invite conflict.

If your contract gives you discretion, consider adding guardrails like:

• timeframes for decisions
• objective criteria (where possible)
• a requirement to give reasons for rejection (if appropriate)

This isn’t about giving up control. It’s about reducing ambiguity so the other party can’t claim you acted arbitrarily.

3) Document Key Negotiation Points (And Avoid “Side Promises”)

Many good faith disputes start with “But they told us we’d get X…”

To reduce that risk:

• confirm key commercial points in writing (even if it’s a simple email recap)
• avoid making promises you can’t control (e.g. future exclusivity, future volumes)
• ensure the final contract accurately reflects the deal

It’s also worth being aware that verbal assurances can create legal risk in some circumstances. If you’re making important promises, you may want to ensure you’re not relying on verbal promises that aren’t properly captured in your written agreement.

4) Add An Express Good Faith Clause (Only If It Fits The Relationship)

Sometimes an express good faith clause is helpful - especially in long-term collaborations where both sides will need to problem-solve.

But it needs to be drafted carefully.

A well-drafted clause might focus on good faith in specific contexts, like:

• negotiating variations or extensions
• sharing information necessary to deliver the project
• dispute resolution discussions

What you generally want to avoid is a vague clause that could be argued to override clear commercial terms (“you must always act in good faith” without limits), because that can create uncertainty rather than reduce it.

5) Put A Fair Process Around Termination And Renewal

Even where you have a strict right to terminate, a clear process reduces the chance of allegations that you acted unfairly.

Depending on the deal, that could include:

• reasonable notice periods
• opportunities to remedy breaches (where appropriate)
• clear exit steps (handover, final payments, IP return)
• transition assistance (if that’s part of the commercial bargain)

When the end of a contract is handled cleanly, you’re far less likely to face a dispute framed around “bad faith”.

6) Train Your Team On Consistent Communication

Good faith isn’t only about what’s written in the contract - it’s also about how your business behaves day-to-day.

If your sales team makes promises your delivery team can’t meet, you can end up with:

• scope disputes
• refund and complaint escalations
• allegations of misleading conduct

A simple internal checklist for proposals and approvals can go a long way (and it’s much cheaper than a legal dispute).

Key Takeaways

• The good faith meaning in New Zealand business contracts usually comes down to acting honestly, fairly, and in a way that supports (rather than undermines) the purpose of the agreement.
• A duty of good faith is not automatically implied into every contract in New Zealand, but good faith concepts can arise through express terms, implied limits on the exercise of contractual powers (depending on context), and overlap with misrepresentation and misleading conduct risks (including under the Fair Trading Act 1986).
• Employment is different: there is a statutory duty of good faith under the Employment Relations Act 2000.
• Good faith issues commonly arise in long-term commercial relationships like supplier and distribution deals, leases, and founder/shareholder arrangements where ongoing co-operation and discretion are involved.
• The best way to manage good faith risk is to draft clear, specific contracts that set expectations on deliverables, approvals, variations, renewals, and termination processes.
• If you want to include a good faith clause, it should be carefully drafted so it supports the commercial deal without creating unclear obligations.
• Small process improvements - like documenting key negotiation points and training staff to avoid “side promises” - can significantly reduce disputes and protect relationships.

This article is general information only and isn’t legal advice. If you need advice about your specific situation, get in touch with a lawyer.

If you’d like help reviewing or drafting a contract so your business is protected from day one, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.