The role of good faith in international sales law


Diploma Thesis, 2016
46 Pages, Grade: MA

Excerpt

Table of Contents

Introduction

Approach to good faith in Civil Law jurisdictions

Approach to good faith in Common Law jurisdictions

References

Introduction

The second half of the 20th century was characterized by a worldwide trend in the development of foreign economic trade relations, and, as a consequence, the complication of the legal regulation of market relations in various international contracts: commercial, financial or cross-border provision of services.

In the context of globalization, which covered all spheres of society's life, the content of international trade turnover is changing. Its modern distinctive features are the following: the expansion of trade items (apart from the traditional trade in goods, also trade in services, intellectual property, capital is increasingly taking place); the emergence of new types of contracts (factoring, franchising, etc.); strengthening the role of universal international treaties on trade, services, intellectual property; the emergence of new world markets for currency and capital; stepping up of the activities of international economic organizations; introduction of new information technologies into the trade. The indicator of growth in international trade turnover is also the growth in exports.

The rapid growth of the modern world economy, the rapid development of economic and scientific and technical cooperation between different countries lead to the fact that “the world economy increasingly acquires the features of a single organism beyond which no state of the world can function properly”1.

The rapid development of world trade, the complication of its content strengthens the importance of uniform rules governing the agreement for the international sale of goods. International trade above all suffers from a lack of uniform standards. Differences in national law can create barriers to participants in economic turnover. Therefore, here, as nowhere, a tool is needed that can remove obstacles and provide business entities with the ability to conclude and execute international commercial contracts, despite their national differences and differences in the legal systems to which they belong. The United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred to as the 1980 Convention, the Vienna Convention of 1980) became such an instrument. It was adopted on April 11, 1980 at the United Nations Diplomatic Conference, which was held in Vienna from March 10 to April 11, 1980. The Convention was the result of many years of efforts by the international community to unify the law of international trade. The adoption of this document was a significant achievement in this field. To date, 85 states are parties to the Convention.

The attractiveness of the 1980 Convention is due to the following factors. First, the Convention combines the approaches of continental and Anglo-American law: it reflects the theory of “receiving an acceptance” characteristic of continental law, as well as certain concepts of Anglo-American law, primarily about means of protecting the seller and the buyer, the meaning in this connection of category of material breach of contract. Secondly, the Convention takes into account the principles of various legal systems of the countries of the world.2 Thirdly, the creators of the Convention, as stated in its preamble, proceeded from the “common goals adopted by the sixth special session of the UN General Assembly on the establishment of a new international economic order.”3. This served as a broad recognition of the Convention throughout the world. Fourthly, the Convention allows not only the participating states, but also the parties to the external economic contract of sale, to deviate from its separate provisions.

The 1980 Convention contains the principles of its interpretation: it is the principle of taking into account the international character of the Convention, the principle of uniform application, the principle of good faith in international trade. It should be emphasized that namely the principle of good faith is the base for provisions of the Vienna Convention of 1980.4

The ensuring of uniform application of the norms of the Convention is also contributed by application of the general principles on which it is based. The Convention provides that matters relating to the subject matter of its regulation, and which are not directly solved therein, are subject to regulation in accordance with the general principles on which it is based. In the absence of such principles, it is intended to use the rules of private international law. The importance of such principles is that they are intended to prevent the use of national law in the absence of norms in the Convention governing the issues that fall within its scope. These principles include, in particular, the principle of good faith. This principle fulfills two functions: 1) it is used for the interpretation of the Convention by virtue of Clause 1, Article. 7; 2) it is one of the general principles of the Convention. It should be noted that the principle of good faith extends to pre-contractual liability, since the scope of the 1980 Convention also includes issues related to the conclusion of the treaty.5 Despite the vagueness of the concept of good faith, the use of this principle would prevent an unjustified reference to national law, which will also contribute to the uniform interpretation and application of the provisions of the 1980 Convention.

It should be noted that in the legislations of different countries one or another formality is attached to the notion of “good faith”; it is concretized by various normative provisions. In European law, the problem of abuse is solved with reliance on moral and legal norms of justice, conscientiousness, and reasonableness. Thus, the German Civil Code establishes the following legal means of limiting the will of the right holder: a) prohibition of fault-finding, i.e. prohibition to use subjective law only to the detriment of another (§ 226 of the Civil Code); the exercise of the right is unenforceable if it is directed only at causing harm to another; b) the prohibition of exercising the right against “good morals” or the obligation to fulfill obligations on the basis of reliability and trust, taking into account “good morals”: “The debtor is obliged to fulfill his obligations in this way, as reliability and trust require, taking into account the customs of legal turnover” (§ 242 of the Civil Code); c) the timing of the exercise of the right, the expiration of which may entail the deprivation of the right to exercise, and the expiry of the limitation period.6 In Greece, the protection of rights and freedoms is directly dependent on the extent to which these rights and freedoms do not violate the Constitution and “good faith” (Article 5 of the Constitution of Greece), and the exercise of any right is prohibited if it goes beyond the limits delineated by the notions of “good Conscience,” “good morals” or the socio-economic goal of law (Article 281 of the Greek Civil Code). The requirements for the faithful fulfillment of obligations are contained in Art. 762 of the Civil Code of Portugal, art. 1134 of the Civil Code of France. According to the Constitution of Brazil, the president is responsible for “dishonest” government of a state.7

In Muslim law, jurisprudence is based on the Islamic principle of the inadmissibility of causing harm to another when fulfilling individual needs. The main criterion of abuse is harm with proper use of subjective rights. Namely the fact of doing harm in the exercise of the right, or that intention contradicts the Sharia and, according to Islamic jurists, are guilty deeds.8 In our opinion, the determining criterion for causing harm substantially solves the problem of improving the process of proving guilt in a number of cases, for example, related to cartel collusion, artificial overstatement of energy prices, other essential goods, since it allows qualifying them as abuse of law. Therefore, the legislative consolidation of the provision on the inadmissibility of causing harm by the right holder to all other participants in civil circulation is absolutely justifiable.

The 1980 Convention establishes a certain balance of rights and obligations of the seller and buyer in the event of a breach of the contract, involves cooperation and mutual assistance of the parties to achieve the objectives of their treaty. For example, the obligation of the buyer to provide a notice of the nature of the non-conformity of the goods (Article 39), the seller's ability to eliminate the deficiency in the performance of his obligations (Article 37). As emphasized in the literature, this is consistent with the principle of respect for good faith in international trade.9

The principles of international commercial contracts (the UNIDROIT Principles) prepared by the International Institute for the Unification of Private Law, first published in 1994 and revised in 2004 and 2010, include Article 1.7. “Good Faith and Honest Business Practice.” Each party is obliged to act in accordance with the good faith and honest business practices adopted in international trade practice. At this, the parties cannot exclude or limit this duty.10 Thus, the provisions on good faith are imperative.

The term “good faith” and similar concepts can be found in the earliest landmarks of law. The formation of good faith as a legal concept is traditionally associated with Roman law, imbued at the early stage of development with strict formalism: not what was desired acted, but what was said. With the development of the economy, when the increasing turnover led to the need to correct the civil law, references were made to such circumstances that made a formally correct requirement not worthy of protection in view of the apparent bad faith of the plaintiff. Roman lawyers in such cases said that the treaty was interpreted on the basis of good faith (bona fides); hence the treaties themselves, allowing such an interpretation, began to be called negotia bonae fidei, and the claims arising from them - ationes bonae fidei.11

One of the interesting manifestations of the principle of good faith in public international law is the estoppel institution, by virtue of which the party that made the representation or performed the action loses the right to deny the “truthfulness” of a representation expressed or implied. Estoppel (or rather - estoppel by representation) originates from English common law and now represents a separate legal principle recognized by both the states themselves and the practice of an international court and arbitration. In the modern science of international law, four constitutive elements of the estoppel institute are distinguished: 1) the existence of a certain position in the subject of law (the author of the representation); 2) as a consequence of such a position - the commission by another subject of law (destinator of the representation) of any actions or abstention from them; 3) as a consequence of such an act or omission - damage to the destinator; 4) the cancellation or substantial modification by the author of the representation of his original position.

Taking into account these elements, the legal grounds of the estoppel institute are traditionally formed into three theories: good faith, international responsibility, and an implied agreement. In terms of the problem posed, the first two are of particular interest. Thus, R.A. Kalamkaryan defends the theory of good faith, according to which the only reasonable explanation of the legal basis of the estoppel institute is the principle of good faith, and the institution itself requires states to have consistency in their legally significant behavior. Consequently, this theory determines the place of the principle of good faith in relation to the author of the representation and does not pay practically any attention to the destinator. At the same time, the second theory (the theory of international responsibility), spelled out by E. Zoller, also deals with the principle of good faith, but determines its place in relation to the destinator of representation. According to this theory, the principle of good faith is designed to protect the erroneous belief of the destinator. At this, good faith of the destinator presupposes, first of all, a legitimate belief, i.e., an error that at the same time would be forgiven and deserves protection based on a reasonable assessment of the created situation. An error in this situation acquires the quality of the right protected by the rule of legal interest.12

We believe that since the situation of estoppel arises between two subjects, the correct interpretation of the institution itself can only be achieved if the two theories are combined. It is obvious that the estoppel institute stimulates the consistent behavior of states, which in the end corresponds to the principle of good faith. Nevertheless, we should not forget about the other side. The behavior of one legal subject may be as much as possible inconsistent, but with the “sensitivity” of another subject, correcting its position on time and not allowing damage to occur due to this, the estoppel institution will remain inactive. It is the bona fide error of the presentationist that causes the estoppel institute to live. Moreover, a good faith appears in this case in a different meaning. A good faith of error means its both a true and justified commitment, taking into account the objective situation. Namely the good faith of the error that makes it possible to prevent resorting to estoppel of any unreasonable or even intentionally “mistaken” subject and to protect such trust, which was true and justified, and therefore was the basis of the rule of law, which deserves protection.

None of the international legal acts gives a definition of the concept of good faith and none of the doctrinal definitions is universally recognized in this field. Relatively certain is the understanding of good faith in the estoppel institute: on the one hand, as a standard of consistency, on the other - as a true and valid error. However, this understanding has an obvious flaw - the ambiguity of the term, found in legal reality (the analogous polysemy of the concept of good faith exists in the civil law of most states of the world), negatively affects its application. As for the other interpretations, many of them are characterized by tautological nature - as a principle obliging to inquire in good faith factual circumstances, to choose in good faith the norms to be applied, and so on.

Also, there are more detailed definitions. For example, P.B. Quagliato points to such criteria as “truthfulness, loyalty, respect for the law, fidelity to international obligations,”13 McLauchlan points “to maintain public order, fairness, equal position of the parties when using rights under the treaty, inadmissibility of gaining unilateral advantages, reasonableness”.14 However, most scientists almost unanimously in the analysis of the principle of good faith indicate the need to ensure the application of norms not only according to their letter but also according to their spirit.

On the one hand, this interpretation refers does to the content but to the purpose of the category being studied; however, on the other hand, international practice shows that the principle has been successfully applied in the absence of more precise guides, and in the science of international law this principle as such does not practically receive censures. Thus, good faith can be described as a broad category of international public law, by virtue of established practice not requiring a clear definition, opposing a formal approach to law and aimed at its application not only according to the letter but also necessarily according to the spirit.

It should be noted that most states recognize the existence in their legal systems of the difference between an objective and subjective good faith. Subjective good faith, as a rule, refers to knowledge about the facts or their absence; it is important for the law of things and does not cause sharp polemics. Significant disputes relate to objective good faith, which is an indefinite standard that allows judges to develop the law, depending on the circumstances. In this form, good faith is often referred to as a principle, doctrine or concept and is used, first of all, in contract law. It should be noted that the application and interpretation of the 1980 Convention is carried out in the context of two opposing tendencies: the trend of internationalization (uniform application) and the trend of domestication (application on the basis of national law of states). Ensuring a uniform regulation of the contract of international sale of goods requires a uniform application of the provisions of the Convention, but it should be recognized that the second trend retains a dominant position. Thus, it seems necessary to consider precisely the concept of good faith in objective meaning in the jurisdictions of Civil and Common Law.

Approach to good faith in Civil Law jurisdictions

The position of the legislator in the countries of the Romano-German system of law was influenced by the existing theoretical perceptions about the category of good faith. So, when drafting the French Civil Code, a guidance for the commission were the works of such well-known lawyers of the 17th and 18th centuries as J. Dome and R. Potier, which contained many references to good faith. Although they did not give a clear definition of the concept of good faith, the rules and principles they describe are imbued with this requirement. It presupposes, in particular, sincerity and loyalty to the other party in the obligation, prohibition of deceit, concealment of certain information, etc. Both of the authors derived the category of good faith from religious postulates. In Germany, in some countries, the category of good faith was legislatively consolidated, and its theoretical development began only in the 19th century in the framework of pandecticism. Despite very different initial positions, French and German scientists came essentially to similar conclusions.

The principle of good faith was fixed among the main principles of civil legislation - good faith became the rule. In the study of categories of reasonableness and good faith as the principles of civil law, one should proceed from the fact that the principles of law in a concentrated form reflect the most important aspects of the economic, political, ideological, and moral spheres of public life. At the same time, the principles of civil law are certain legal ideals, reflecting the laws of the development of society and its main socially significant interests, fixed in the formal legal sources of civil law. In this sense, they are the link between these regularities and the existing civil law, reflecting its features and regulatory capabilities.

In the legal system, principles and specific norms are inextricably linked. The principles of civil law act as fundamental ideological principles, acquire the character of guiding regulatory requirements, general (universal) norms of law. In this sense, in order for any principle of the civil law branch to be applied and implemented in practice, it is necessary to have it legally fixed in formal sources of civil law. Fixed in this way, the fundamental idea of civil law in the theoretical aspect can refer to the principles of the branch, and to its basic principles, and, simply, to its general provisions. Determined by the essence of civil law, the principles are originally abstract ideas, but in the future they acquire the property of normativity. At the same time, when we present the principles of law exclusively as ideas, we give them a purely doctrinal character, which leads to the loss of their practical significance, leveling their role in the legal regulation of property relations.

Principles of good faith and reasonableness are branch principles of civil law, since they characterize the most significant features of civil law as private law based on the principles of equality of parties, property autonomy, and autonomous will. If it is impossible to use the analogies of law, the rights and obligations of the parties are determined on the basis of the general principles and meaning of civil law (analogy of law), requirements of good faith, reasonableness, and justice. These principles of civil law are the basis of specific regulatory prescriptions that model the relationship between subjects of proprietary and legal relationships; they can manifest themselves in the exercise of civil rights and the performance of duties, as well as the protection of subjective civil rights. It seems that the categories of reasonableness and good faith are closely interrelated; accordingly, when deciding the question of good faith, one should take into account the operation of the principle of reasonableness. Nevertheless, good faith in a greater degree characterizes the objective side of the exercise of rights, and reasonableness - the subjective one.

E. Iftime believes that good faith is the principle of exercising civil rights, which forms such a direction of behavior when, taking into account his interests, the subject does not violate the rights and legitimate interests of other persons.15 Under the good faith, according to M. W.Hesselink, we should be understood the general principle of civil law based on the clear conscience of the subjects of civil circulation, prohibiting any willful misuse of the law, taking into account the harm done to the other party or a third party, in order to derive own benefit in establishing, implementing, and protecting civil rights and performing civil duties, proclaiming the avoidance of any deception, honesty in relations.16

A clear understanding of the content of the principle of good faith is of utmost importance for legal practice. This is demonstrated particularly clearly by the contract law: the recognition of a bargain as unconscionable transaction, committed with a defect of will or with going beyond the limitations of powers is impossible without the qualification of actions by one of the parties as unfair, in some way infringing the interests of the counterparty. Strengthening the importance of the principle of good faith allows participants of civil circulation to get protection from actions that do not formally contradict the requirements of the law but in fact have the aim of infringing the interests of the counterparty. However, there is another side to the coin: the clear definition of the boundaries of the concept of “good faith” is of the utmost importance, since an overly arbitrary interpretation of it can lead to undesirable consequences, including an unjustified widening of judicial discretion, which in some cases jeopardizes compliance with the rule of law.

The complexity of the problem of good faith is due, first of all, to the fact that good faith reflects a certain system of representations that have developed in society, about the morality of the conduct of the subject of law in civil circulation, that is, when acquiring, exercising, and protecting the right, and also in the performance of the duty.

The goal of good faith is to strike a balance between law and justice, because sometimes the provision of law or the contractual condition can lead to an unfair result.

In the case of recognition of good faith as the principle of civil law, the question of the application of this principle raises.

The most acceptable systematized scheme for applying the principles of civil law, which is fully relevant to the principle of good faith of participants in civil legal relations, was proposed by Hesselink (2011). So, the principle of good faith can be used by courts in the following cases:

1) To strengthen the argumentation in the case: the need for this arises when a legitimate and justified decision can be made without resorting to the principle of civil law, since there is a specific rule governing the disputed legal relationship. At this, a specific rule should be related to the principle of law as part to the whole;
2) In the process of interpreting legal norms: the principles of law may be an effective means of detecting the apparent clarity of a prescription of law;
3) When applying the analogy of law: the court finds a gap in the law and the impossibility of applying the analogy of the law, then refers to the possibility of applying the analogy of law: after all, the court chooses a specific rule-principle to be applied, or formulates the principle by induction;
4) As a norm of direct action: the principles of law, enshrined in the rules of law, have all the properties of the latter and can directly be used as the basis for the decision.

The principle of good faith is the duty of a participant in civil legal relations when using his rights and performing his duties to care for observance of the rights and legitimate interests of other participants in property circulation. Caring in this sense implies the aspiration of the subject to foresee and prevent the violations of the rights and legitimate interests of other persons connected with his activity. Caring is a subjective characteristic of good faith, which also implies a formal side: the limits of the due, within which the subject must be caring.17

According to German scholars, the beginning of good faith presupposes the need of the following: a) to each side to do everything to mutually facilitate the fulfillment of the obligation, to avoid everything that can aggravate them or make them unenforceable; b) to avoid violating the rights of the other party, proceeding from the orientation towards decisions of judicial practice, to the fact that each party must exercise the necessary care for the health and property of the other party; c) really do everything together all the required to achieve the goal of the treaty; d) to give necessary information on the fulfillment of primary realizable actions.18

One of the last interesting examples of consolidating the idea of good faith is the Civil Code of the Netherlands 2001, in Art. 6:2 stating that “a rule binding the parties by virtue of custom, law or other act is not applied to the extent to which, according to circumstances, it will be unacceptable in terms of reasonableness and justice.” A good faith in this case is denoted by the concepts of reasonableness and justice and plays the role of a general idea capable of changing the operation of any source of law. This function was called by A.Hartkamp as “restrictive.”19 Along with it, Hartkamp also singled out an “additional” one, which allows introducing rights and obligations that are clearly not provided for in the treaty and law, and “interpretative,” obliging to interpret the treaty on good faith (Moss, 2007).

[...]


1 Twigg-Flesner, C. (2013). The Europeanisation of Contract Law: Current Controversies in Law. Routledge.

2 Andersen, C. (2007). Uniform Application of the International Sales Law. Understanding Uniformity, the Global Jurisconsultorium and Examination and Notification Provisions. Kluwer Law International.

3 Ferrari, F. (1998). CISG Case Law: A New Challenge for Interpreters. Journal of Law and Commerce, 17, 245-255.

4 Bergsten, E. (2009). ‘Methodological Problems in the Drafting of the CISG’, in Janssen, A. & Meyer, O., CISG Methodology,European Law Publishers, 2009.

5 Dobila, M.C. (2015). Unification Of Criteria For The Assessment Of Good Faith In Negotiating Contracts: From National To International Through The Intercession Of The European Experience. AGORA International Journal of Juridical Sciences, 2, 1-10.

6 Zimmerman, R. & Whittaker, S. (2000). Good Faith in European Contract Law. Cambridge University Press.

7 Kull, I. (2002). Principle of Good Faith and Constitutional Values in Contract Law. Juridica International, VII, 142-148.

8 Alqooni, A. (2004 ). The influence of good faith in the Islamic jurisprudence and civil law. University Publications, Cairo.

9 Dobila, M.C. (2015). Unification Of Criteria For The Assessment Of Good Faith.

10 Andersen, C. (2007). Uniform Application of the International Sales Law.

11 Mackaay, E. (2012). Good Faith In Civil Law Systems. A Legal-Economic Anaysis. Revista Chilena de Derecho Privado, 18, 149-177.

12 Hesselink, M. W. (2011). The concept of good faith. In A. S. Hartkamp, M. W. Hesselink, E. H. Hondius, C. Mak, & C. E. du Perron (Eds.), Towards a European civil code. - 4th rev. and exp. ed. (pp. 619-649).

13 Quagliato, P.B. (2008). The duty to negotiate in good faith, International Journal of Law and Management, 50(5), 213-225.

14 McLauchlan, D. (2005). “The Agreement to Negotiate in Good Faith: A NonJusticiable Contract?” New Zealand Business Law Quarterly, 11, 454.

15 Iftime, E. (2014). Good Faith in International Sales Law. Acta Universitatis George Bacovia. Juridica, 3(2), 8-16.

16 Hesselink, M. W. (2011). The concept of good faith.

17 Mackaay, E. (2012). Good Faith In Civil Law Systems.

18 Pieck, M. (1996). A Study of the Significant Aspects of German Contract Law. Annual Survey of International & Comparative Law, 3(1).

19 Zimmerman, R. & Whittaker, S. (2000). Good Faith in European Contract Law. Cambridge University Press.

Excerpt out of 46 pages

Details

Title
The role of good faith in international sales law
College
Columbia International University
Grade
MA
Author
Year
2016
Pages
46
Catalog Number
V459658
ISBN (eBook)
9783668907652
ISBN (Book)
9783668907669
Language
English
Tags
international sales law, good faith
Quote paper
Nadiia Kudriashova (Author), 2016, The role of good faith in international sales law, Munich, GRIN Verlag, https://www.grin.com/document/459658

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