Document-Id: 901000, Please cite as: "https://www.trans-lex.org/901000"
Title
I.1.1 - Good faith and fair dealing in international trade
Content
No. I.1.1 - Good faith and fair dealing in international trade
(a) Parties to international business transactions must act in accordance with good faith and fair dealing in international trade. This standard applies to the negotiation, formation, performance and interpretation of international contracts.
(b) The standards and requirements imposed on the parties by this Principle vary depending on the individual circumstances involved, such as the trade sector in which the parties are operating, their size and degree of professional sophistication, and the nature and duration of the contract.
(c) The parties may not exclude or limit the application of this Principle to their legal relationship.
Commentary
1 Subsection (a) clarifies that the scope of the Principle of good faith is not limited to the interpretation of contracts but provides a behavioral standard for the parties from the beginning to the end of their (pre-)contractual relationship. This means that each party has the obligation to display a behavior towards the other party which cannot harm the latter and which takes into account the reasonable expectations of businessmen in the shoes of the other side. The parties to a contract have to display a normal degree of honesty and sincerity which is reasonable for the safeguard of the other party's interests, particularly in trying not to act in a way which has a potential to unduly surprise or inflict damages on the other party.
2 The Principle of good faith is of such pivotal significance not only for transnational contract law, but for legal relationships as a whole, that the parties may not contractually exclude or limit its application. Subsection (c) makes it clear that the Principle of good faith is not subject to the Principle of freedom of contract. Such an agreement would itself be void because it is against boni mores.
3 Subsection (b) makes it clear that the application of the good faith principle is never a purely mechanical process, but always requires a determination of what is deemed to be a proper conduct of a party, taking into account all circumstances of the concrete case. This analysis must include the nature of the contract itself. Thus, the reference to the "duration of the contract" in subsection (b) is meant to indicate that the time factor may play an important role as an "amplifier" for the parties' duties imposed on them by the good faith principle. Thus, in long-term, "relational" contracts, the principle of good faith will almost always impose increased duties of good faith on both parties as compared to "one off" exchange contracts. These increased duties may concern, e.g., the parties' duty to notify the other side in case of problems in the performance of the contract and the parties' duty to cooperate with the other party when such cooperation can reasonably be expected for the performance of that party's obligations. The reference to the degree of the parties' professional sophistication in subsection (b) must be seen and applied in conjunction with Trans-Lex Principle I.2.3.
4 Also, the fundamental principle of good faith is the source of many other general but more specific principles and rules of transnational commercial law, such as the principle of sanctity of contracts ("pacta sunt servanda") as the basis of transnational contract law, the prohibition of inconsistent behavior, the duty to renegotiate, the duty to notify and cooperate with the other side, the right to set off, the common intentions of the parties as the goal of every contract interpretation, or the existence of implied contractual obligations. Good faith may also set limits to the exercise of the parties' legal rights, e.g. with respect to the prohibition of abuse of rights or the parties' right to withhold performance. Before resorting to the overriding general principle of good faith, one should always seek to apply these more specific and concrete principles and rules.
2 The Principle of good faith is of such pivotal significance not only for transnational contract law, but for legal relationships as a whole, that the parties may not contractually exclude or limit its application. Subsection (c) makes it clear that the Principle of good faith is not subject to the Principle of freedom of contract. Such an agreement would itself be void because it is against boni mores.
3 Subsection (b) makes it clear that the application of the good faith principle is never a purely mechanical process, but always requires a determination of what is deemed to be a proper conduct of a party, taking into account all circumstances of the concrete case. This analysis must include the nature of the contract itself. Thus, the reference to the "duration of the contract" in subsection (b) is meant to indicate that the time factor may play an important role as an "amplifier" for the parties' duties imposed on them by the good faith principle. Thus, in long-term, "relational" contracts, the principle of good faith will almost always impose increased duties of good faith on both parties as compared to "one off" exchange contracts. These increased duties may concern, e.g., the parties' duty to notify the other side in case of problems in the performance of the contract and the parties' duty to cooperate with the other party when such cooperation can reasonably be expected for the performance of that party's obligations. The reference to the degree of the parties' professional sophistication in subsection (b) must be seen and applied in conjunction with Trans-Lex Principle I.2.3.
4 Also, the fundamental principle of good faith is the source of many other general but more specific principles and rules of transnational commercial law, such as the principle of sanctity of contracts ("pacta sunt servanda") as the basis of transnational contract law, the prohibition of inconsistent behavior, the duty to renegotiate, the duty to notify and cooperate with the other side, the right to set off, the common intentions of the parties as the goal of every contract interpretation, or the existence of implied contractual obligations. Good faith may also set limits to the exercise of the parties' legal rights, e.g. with respect to the prohibition of abuse of rights or the parties' right to withhold performance. Before resorting to the overriding general principle of good faith, one should always seek to apply these more specific and concrete principles and rules.
References
Doctrine
Berger, Klaus Peter, Closing remarks in: Good Faith in International Arbitration - A Versatile Chameleon, ICC Insitute of World Business Law, Dossier XXII, p. 234-236
Aguilar Alvarez, Guillermo, note to ICC Award No. 4972, Clunet 1989, at 1105 et seq.Beck, Alexander, Zu den Grundprinzipien der Bona Fides im Römischen Vertragsrecht, in: Festschrift Simonius, Basel 1955, at 9 et seq.Berger, Klaus Peter, The Creeping Codification of the Lex Mercatoria, The Hague, London, Boston 1999Berger, Klaus Peter, The Creeping Codification of the New Lex Mercatoriam 2nd. ed. 2010Berger, Klaus Peter/Arntz, Thomas, Good faith as a ‘general organising principle’ of the common law, Arb. Int'l, 2016, Vol. 32, pp. 167-178Bianca, C. Massimo/ Bonell, Michael Joachim, Commentary On The International Sales Law, Art. 7, Milan 1987Black, Henry Campell, Black's Law Dictionary, 6th ed., St. Paul 1990Blessing, Marc, Das neue internationale Schiedsgerichtsrecht der Schweiz - Ein Fortschritt oder ein Rückschritt?, in: Böckstiegel (ed.), Die internationale Schiedsgerichtsbarkeit in der Schweiz (II), Cologne, Berlin, Bonn, Munich 1989, at 13 et seq.Braeckmans, H., Paralegale Normen En Lex Mercatoria, 23 TvPr. 1986, at 1 et seq.Bronsword, Roger, Positive, Negative, Neutral: The Reception of Good Faith in English Contract Law, in: Bronsword/ Hird/ Howells (eds.), Good Faith in Contract, Aldersholt 1999, at 13 et seq.Charles T. Kotuby Jr. / Luke A. Sobota, GENERAL PRINCIPLES OF LAW AND INTERNATIONAL DUE PROCESS - Principles and Norms Applicable in Transnational Disputes, New York NY USA 2017Cheng, Bin, General Principles Of Law as Applied by International Courts and Tribunals, reprinted, Cambridge 1987Coing, Helmut, La Détermination de la Loi Contractuelle en Droit International Privé Allemand, in: Klein/ Vischer (eds.), Colloque de Bâle sur la Loi régissant les Obligations Contractuelles, Basel, Frankfurt a.M. 1983, at 29 et seq.Craig, W. Laurence/ Park, William W./ Paulsson, Jan, International Chamber of Commerce Arbitration, 3rd ed., Dobbs Ferry 2000Dasser, Felix, Gauthey, Danielle, La bonne foi dans l'arbitrage, ASA Bulletin, Volume 33, No. 2, 2015 at page 239 et seq.Dölle, Hans (ed.), Kommentar zum Einheitlichen Kaufrecht, Comment on Art. 10 by Ulrich Huber and on Art. 17 by Eduard Wahl, Munich 1976.Domingo, Ortega, Rodriguez-Antolin, Zambrana, Principios de Derecho Global, Navarra, 2006Dussan Laverde, Santiago, A Commentary on the Meaning of Objective Good Faith in the Translex Principles through International Arbitration – a Law & Economics Approach, Revista de Estudos Constitucionais, Hermenêutica e Teoria do Direito, Vol. 13 No. 2 (2021), p. 164Ehricke, Ulrich, Zur Einführung: Grundstrukturen und Probleme der lex mercatoria, 30 JuS 1990, at 967 et seq.Eisenberg, Melvin A., The Duty of Good Faith in American Corporate Law, ECFR 2006, at 10 et seq., Berlin 2006Esser, Josef, Grundsatz und Norm in der richterlichen Fortbildung des Privatrechts, 4th ed., Tübingen 1990Farnsworth, Allan, Duties of Good Faith and Fair Dealing under the UNIDROIT Principles, Relevant International Conventions and National Laws, Tul.J.Int.Comp.L. 1995, at 56 et seq.Farnsworth, E. Allan, Good Faith in Contract Performance, in: Beatson/ Friedmann (eds.), Good Faith and Fault in Contrat Law, Oxford 1995, at 153 et seq.Ferrari, Franco, Das Verhältnis zwischen den Unidroit-Grundsätzen und den allgemeinen Grundsätzen internationaler Einheitsprivatrechtskonventionen, JZ 1998, at 9 et seq.Ferrari, Franco, The CISG's Interpretative Goals, Its Interpretative Method and Its General Principles in Case Law (Part II), IHR 5/2013, at 181 et seq.Fouchard Gaillard Goldman on International Commercial Arbitration (edited by Emmanuel Gaillard and John Savage) The Hague 1999Friedl, Birgit, Haftung bei Abbruch von Vertragsverhandlungen im deutschen und anglo-australischen Recht, 97 ZVglRwiss 1998, at 161 et seq.Ginette, Leclerc, La Bonne Foi dans l‘Execution des Contrats, McGill L.J. 1992, at 1070 et seq.Harrison, Reziya, Good Faith in Sales, London 1996Hartkamp, Arthur, The UNIDROIT Principles For International Commercial Contracts and the United Nations Convention on Contracts for the International Sale of Goods, in: Boele-Woelki/ Grosheide/ Hondius/ Steenhoff (eds.), Comparability and Evaluation, Dordrecht, Boston, London 1994, at 85 et seq.Hascher, Dominique, note to ICC Award No. 6673, Clunet 1992, at 996 et seq.Hesselink, Martijn Willem, De Redelijkheid en Billijkheid in het Europese Privaatrecht, The Hague 1999Hesselink, Martijn, The Concept of Good Faith,in: Hartkamp/ Hesselink/ Hondius/ Joustra/ du Perron/ Veldman, Towards a European Civil Code, Nijmegen 2004, at p. 471 et seq.Horn, Norbert, Uniformity and Diversity in the Law of International Commercial Contracts, in: Horn/ Schmitthoff (eds.), The Transnational Law of International Commercial Transactions, Antwerp, Boston, London, Frankfurt a.M. 1982, at 3 et seq.Hurni, Christoph, Berner Kommentar zur ZPO, Art. 52 at page 449 et seq.Hutchison, Dale (Ed.) / Pretorius, Chris (Ed.), The Law of Contract in South Africa, Oxford University Press Southern Africa, 2018Hyland, Richard, Pacta Sunt Servanda: A Meditation, 34 VJIL 1994, at 405 et seq.Ingber, Léon / de Saedeleer, Isabelle / Renard, Alain, Chronique de droit civil belge. La réforme du droit de la filiation (loi du 31 mars 1987), in: RTD Civ. 1991 at page 829 et seq.Jarvin, Sigvard, Note to ICC Award No.6317, Clunet 2003, at 1159 et seq.Keily, Troy, Good Faith & the vienna Convention on Contracts for the International Sale of Goods (CISG), VJ 1999/1, at 15 et seq.Lando, Ole, CISG and Its Followers: A Proposal to Adopt Some International Principles of Contract Law, in: American Journal of Comparative Law 53, Berkley 2005.Langen, Eugen, Transnationales Recht, Heidelberg 1981.Lorfing, Pascale Accaoui, The contractually unforeseen renegotiation, 2010 International Business Law Journal 35 et seq.Lowenfeld, Andreas F., Lex Mercatoria: An Arbitrator's View, Arb.Int’l 1990, at 133 et seq.MacQueen, Hector L./Thomson, Joe, Contract Law in Scotland, Fourth Edition 2016Magnus, Ulrich, Die allgemeinen Grundsätze im UN-Kaufrecht, 59 RabelsZ 1995, at 469 et seq.Majeed, Nudrat, Good Faith and Due Process: Lessons from the Shari'ah, 1 Arb. Intl'l 2004, at 97 et seq.Marrella, Fabrizio, La nuova lex mercatoria, Principi Unidroit ed usi di contratti des comercio internazionale, CEDAM, Tratto di dritto commerciale e di dritto publico dell‘economia, Volume 30, Padova 2003Mayer, Pierre, Le Principe de Bonne Foi devant les Arbitres du Commerce International, in: Festschrift Pierre Lalive, Basel, Frankfurt a.M. 1993, at 543 et seq.Meyer, Rudolf, Bona fides und lex mercatoria in der europäischen Rechtstradition, Göttingen 1994Molineaux, Charles, Moving Toward a Lex Mercatoria - A Lex Constructionis, 14 J. Int‘l Arb. 1997, No. 1, at 55 et seq.Mustill, Michael, The New Lex Mercatoria: The First Twenty-five Years, Arb.Int'l 1988, at 86 et seq.Nassar, Nagla, Sanctity of Contracts Revisited, Dordrecht, Boston, London 1995Neumann, Thomas, The Duty to Cooperate in International Sales - The Scope and Role of Article 80 CISG (2012), p. 110 et seq.O'Connor, J.F., Good Faith in English Law, Aldershot 1991Ortscheidt, Jérôme, La réparation du dommage dans l'arbitrage commercial international, Paris 2001.Osman, Filali, Les Principes Généraux de la Lex Mercatoria, Paris 1992Pound, Roscoe, Law and Morals , Reprint., Littleton 1987Sanders, Pieter, Het nieuwe Arbitragerecht, 1st ed., Deventer 1987Schlechtriem, Peter, Good Faith in German Law and in International Uniform Laws, Rome 1997Schlechtriem, Peter, Internationales UN-Kaufrecht, Tübingen 1996Schmitthoff, Clive, International Trade Usages, Institute of International Business Law And Practice Newsletter, Special Issue, ICC Publ.440,4, Paris 1987Sonnenberger, Hans Jürgen, Treu und Glauben - ein supranationaler Grundsatz?, in: Festschrift Odersky, Berlin 1996, at 703 et seq.Sourgens, Frédéric Gilles. Good Faith in Transnational Law. Leiden, The Netherlands: Brill | Nijhoff, 12 Sep. 2022. https://doi.org/10.1163/9789004523203 Stempel, Christian, Treu und Glauben im Unionsprivatrecht (2016), pp. 316 et seq.Steyn, Johan, Contract Law: Fulfilling the reasonable expectations of honest men,, 113 The L.Q.Rev. 1997, at 433 et seq.von Hoffmann, Bernd, "Lex mercatoria" vor internationalen Schiedsgerichten, 4 IPRax 1984, at 106 et seq.Vouin, Robert-Francois-Marie, La bonne foi, Notion et rôle actuel en droit privé francais, Paris 1939Weber, Simon/Martinez, Julie, Good Faith in International Arbitration: Comparative Approaches in ICC Awards in: The ICC International Court Of Arbitration Bulletin, 2020 Issue 2, p. 112 et seq.Wehberg, Hans, Pacta Sunt Servanda, 53 AJIL 1959, at 775Zimmermann, Reinhard/ Whittaker, Simon, Good Faith in European Contract Law, Cambridge 2000Model Laws
A Contract Code: Drawn up on Behalf of the English Law CommissionPrinciples of Latin American Contract Law (PLACL)The Draft Civil Code for Israel in: Siehr, Kurt/Zimmermann, Reinhard (ed.) The Draft Civil Code for Israel in comparative perspective, 2008Uniform Commercial Code (USA)Court Decisions
Aiton Australia Pty Ltd v Transfield Pty Ltd, 153 FLR 236.Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, 363–369Barkhuizen v Napier, Constitutional Court of South Africa, 2007 (5) SA 323 (CC)Bhasin v. Hrynew, 2014 SCC 71Bobux Marketing Ltd. v. Raynor Marketing Ltd. [2002] 1 NZLR 506 (Court of Appeal).Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 at [186]C.M. Callow Inc. v. Zollinger, 2020 SCC 45ICJ Nicaragua v Honduras, Rec. 1998, 69Kirke La Shelle Company v. The Paul Armstrong Company et al. 263 N.Y. 79; 188 N.E. 163; 1933 N.Y. LEXIS 802MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2015] EWHC 283 (Comm) (12 February 2015)Nuclear Tests (Australia v. France), Judgment, I.C.J. Reports 1974, p. 253 et seq.Publications of the permanent Court of International Justice, Series A - No. 24, Collections of Judgements, Case of the free Zones of Upper Savoy and the Dristrict of Gex (Second Phase), Order of December 6th, 1930Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, 263–270Versloot Dredging BV & Anor v HDI Gerling Industrie Versicherung AG & Ors [2016] UKSC 45, [2017] AC 1Vodafone Pacific Limited v Mobile Innovations Limited [2004] NSWCA 15 at [125]Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7Arbitral Awards
Arbitration CAS 2002/O/410 The Gibraltar Football Association (GFA)/Union des Associations Européennes de Football (UEFA)CRCICA Award no.154/2000, in: Mohie EldinI. Alam Eldin, Arbitral Awards of the Cairo Regional Centre of InternationalCommercial Arbitration II (1997-2000), The Hague 2003, 25ICC Award No 17803, 2012ICC Award No. 12456, Collection of ICC Arbitral Awards 2008-2011, at 811 et seq.ICC Award No. 12554, Clunet 2013, at p. 205 et seq.ICC Award No. 14841/JHN, Clunet 2015, 180 et seq.ICC Award No. 2291, Clunet 1976, at 989 et seq.ICC Award No. 3131, Rev. d. Arb. 1983, at 525 et seq.ICC Award No. 4972, Clunet 1989, at 1100 et seq.ICC Award No. 5721, Clunet 1990, at 1019 et seq.ICC Award No. 5832, Clunet 1988, at 1198 et seq.ICC Award No. 5953, Clunet 1990, at 1056 et seq.ICC Award No. 6317, Clunet 2003, 1156 et seq.ICC Award No. 6673, Clunet 1992, at 992 et seq.ICC Award No. 8365, Clunet 1997, at 1078 et seq.ICC Award No. 8908, ICC Bull. 10/No. 2 (1999), at 83 et seq.ICC Award No. 9593, ICC Bull. 10/No. 2 (1999), at 107 et seq.ICC Award No. 9839, YCA 2004, 66 et seq.ICC Partial Award No. 6474 of 1992, YCA 2000, at 279 et seq.ICSID Award, AMCO Asia Corp. et al. v. The Republic of Indonesia et al., YCA 1985, at 61 et seq.ICSID Decision on Jurisdiction and Admissibility, Abaclat and Others vs. The Argentine Republic, ICSID Case No. ARB/07/5National Legislation
Bürgerliches Gesetzbuch - German Civil CodeCivil Code of the People's Republic of China (2020)Civil Code Québec 1991Contract Law of the People's Republic of ChinaContract Law of the People's Republic of ChinaEgyptian Civil CodeEthiopian Civil CodeFinnish Contracts ActFrench Civil Code 2016French Code Civil 1804Indonesian Civil Code (excerpts)Italian Codice CivileJapanese Civil Code 2020Act No. 89 of 1896
Amendment of Act No. 44 of 2017Louisiana Civil Code 2015Nieuw Burgerlijk Wetboek - New Netherlands Civil Code ( Dutch Civil Code )Philippines Republic Act 386 (Civil Code)Saudi Arabia Civil Transactions Law - Royal Decree No. M/191, June 18, 2023, official translationSpanish Código CivilSwiss Civil Code, Schweizer Zivilgesetzbuch, Art. 1-10, Â 2008
International Legislation
Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention)Fontaine, Marcel, OHADA Uniform Act On Contract Law Preliminary DraftOrganization for the Harmonization of Business Law in Africa (OHADA), Uniform act relating to general commercial lawREGULATION (EU) 2023/2854 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 13 December 2023 on harmonised rules on fair access to and use of data and amending Regulation (EU) 2017/2394 and Directive (EU) 2020/1828 (Data Act)UNIDROIT Convention on International Factoring (Ottawa, 28 May 1988).United Nations Convention on Contracts for the International Sale of Goods (CISG)Vienna Convention on the Law of Treaties of 1969Principles / Restatements
IBA Rules on the Taking of Evidence in International Arbitration 2010Principles of European Contract Law - PECLPrinciples of the Existing EC Contract Law (Acquis Principles)The Most Recent Legal Principles Adopted by the Arbitral Tribunals under the Auspices of the Cairo Centre, CRCICA-Newsletter, Jan. 1997, page 2 et seq.UNIDROIT Principles of International Commercial Contracts 2016Model Terms
Standard Contracts for the UK Offshore Oil & Gas Industry, General Conditions of Contract (including Guidance Notes) for Marine Construction, 2nd Ed., Aberdeen 2004, at 1 et seq. (available at: http://www.logic-oil.com/contracts.cfm)