Analysis of the Role of the Principle of Good Faith in Commercial Contracts: A Comparative Study of Australia and Indonesia

Abstract

The expansion of global trade has intensified cross-border contractual relationships, positioning commercial contracts as central instruments for regulating parties’ rights and obligations. Contracts are not merely formal documents but legal relationships grounded in trust. A key principle sustaining this relationship is good faith, which requires honest, reasonable, and responsible conduct at all stages of a contract, from negotiation to dispute resolution. This study examines the role of good faith in commercial contracts through a comparative analysis of Australia and Indonesia, representing common law and civil law traditions. Using a normative juridical approach and comparative method, the research analyzes legislation, doctrine, case law, and relevant contractual provisions. The findings reveal that in Australia, good faith has evolved through judicial decisions and is often treated as an implied obligation in certain contracts. In Indonesia, good faith derives strong legitimacy from codification as a general principle of contract law. Despite differing approaches, both systems substantively recognize good faith as a mechanism to ensure balance, prevent abuse of rights, and promote substantive justice. Strengthening this principle requires clear regulation supported by consistent judicial practice, contributing to trust and fairness in modern commercial contracting.