People rightly expect freely negotiated contracts to be honoured. When a contract is with government, the expectation is not lessened. Indeed, it is accompanied by the reasonable expectation (if not the obligation) that the agreement will be administered fairly and according to law. The government’s failure to meet these expectations creates a form of sovereign risk.
However, the responsibilities of government are not confined to the administration of contracts. Public interest decision-making involves multifarious stakeholders, in different places and at different times. The interests of a contract counterparty may not always accord with the broader public interest and a promise by government about future conduct may hamper the future discharge of public duties. That said, it is necessary for governments to enter into contracts to discharge their public duties and the state benefits no less than private individuals from the principle that contractual undertakings should be reliable.
The spectre of public and private interests in conflict does not necessarily leave either party without satisfactory remedies. Although the courts have not clearly articulated the balancing of respective rights and interests, a clear consensus is emerging for a doctrine that once was described as “exceedingly vague”.
In Searle v Commonwealth of Australia, the New South Wales Court of Appeal recently considered the doctrine that a government or public authority may not fetter the future exercise of discretionary powers in the context of training obligations owing by the Royal Australian Navy to a marine technician, holding that neither the relevant contract nor damages for its breach fettered the power of the Commonwealth. In doing so, the court usefully outlined some of the underlying principles in this area, reinforcing that public and private interests normally can be balanced adequately.
Some fundamental propositions appear to be clear.
The Court of Appeal in Searle v Commonwealth held that –
then the contract cannot be said have the effect of fettering the exercise of a discretion unless the award or potential award of damages itself had or has that effect.
The court noted that the policy tensions between upholding contracts and preserving governments’ freedom to act in the public interest are best resolved by courts withholding remedies of specific performance and injunctive relief for contracts which in fact have a fettering effect but preserving an action for damages for the benefit of the contractual counterparty for any breach of contract if the government subsequently exercised a discretionary power in a manner inconsistent, or in a way that made it impossible to comply, with contractual obligations.
Absent exceptional circumstances, governments are likely bound by contracts they enter, at least to the extent of being liable for damages for breach, even if the public interest in the future is considered different to the public interest at the time the contract is made.
In our Public Law Tracker in March 2019, we examined the use by governments of contractual termination for convenience clauses as protection against agreements being seen to fetter future discretions of government.
We pointed out that such clauses were not legally necessary for most government contracts in order to preserve discretions, particularly when the freedom of future action can be preserved by the payment of damages upon breach of contract. This accords with the decision in Searle v Commonwealth discussed above.
 Hogg, The Doctrine of Executive Necessity in the Law of Contract, (1970) 44 ALJ 154, 155
 P. Hogg, Liability of the Crown in Australia, New Zealand and the United Kingdom(Law Book Co, 1970) 130
 Searle v Commonwealth of Australia  NSWCA 127
 It is also possible that aspects of its performance may be converted into a duty which a court may specifically enforce. In these circumstances, the government’s remedy – should it seek to avoid the obligation – is to introduce further legislation.
 Attorney-General (NSW) v Quin (1990) 170 CLR 1, 17-18 (Mason CJ); Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth (197) 139 CLR 54 at 74 (Mason J); William Cory & Son Ltd v London Corp  2 K.B. 476; NSW Rifle Association v Commonwealth  NSWSC 818 
 Attorney-General (NSW) v Quin (n 5)
 Rederiaktiebolaget Amphitrite v R  KB 500 is the high water mark of this doctrine. It has been repeatedly criticised and the High Court has noted that the principle stated in it was expressed too generally: see Ansett Transport Industries (n 5) at 74-5 (Mason J); A v Hayden (1984) 156 CLR 532, 543 (Gibbs CJ)
 That is, no term fettering the discretion will be implied. Clear wording is required to construe the contract as qualifying freedom of executive action: see Commissioners of Crown Lands v Page  2 QB 274, 291; City of Subiaco v Heytesbury Properties Pty Ltd (2001) 24 WAR 146 
 L’Huillier v State of Victoria  2 VR 465, 481 (Callaway JA)
 See the fifth edition of Seddon, Government Contracts (Federation Press, 2013)
 NSW Rifle Association v Commonwealth (n 5)
 Unless the damages also have a fettering effect. One imagines that this would only arise where very substantial potential damages may be awarded. For a fuller analysis, see Searle (n 3) at  – .