Saggi, Conferenze e Seminari 24. Reproduced with permission of Centro di studi e ricerche di diritto comparator e straniero, diretto da M.J. Bonell
Roma (February 1997)
Principles and rules commanding the observance of good faith and fair dealing in relationships governed by the law of obligations, in particular those created by contract, are common stock of most legal systems to which I have access. In the German Civil Code (BGB), which came into force on January 1, 1900, the observance of "Treu und Glauben mit Rücksicht auf die Verkehrssitte" -- embodied in such general provisions as §§ 157, 242 BGB, but repeated throughout the code in more specific contexts -- has become a legal principle of such pervasive influence that it is sometimes claimed the codified provisions could be dispensed with; the whole system of private law (or, more modestly, certain parts of it such as unjust enrichment) might be taken as a mere embodiment of the principle and could, in theory, be administered by reference to "Treu und Glauben" only. These are, of course, exaggerations, not taken seriously by the majority of legal writers, by the courts or by the legislator, but they are worth mentioning at the outset, if only because of the arguments by which they are usually rebutted: The certainty of law and its application would be abandoned entirely if each case, each individual solution had to be based on such uncertain principles.
The common existence and use of general provisions and rules on good faith and fair dealing leads us to expect that they will also be found in legal texts aimed at the unification of certain sectors of private law for purposes of international transactions. And indeed, [page 1] Art. 1.7 of the UNIDROIT Principles of International Commercial Contracts reads:
|(1)||Each party must act in accordance with good faith and fair dealing in international trade.
|(2)||The parties may not exclude or limit this duty.|
In addition, the official commentary lists a great number of provisions as constituting "a direct or indirect application of the principle of good faith and fair dealing", so that it "may be considered to be one of the fundamental ideas underlying the Principles" (viz., of International Commercial Contracts). This, of course, echoes the claim with respect to the German Civil Code mentioned above. Likewise, Art. 1.106 of the Principles of European Contract Law states:
|(1)||In exercising his rights and performing his duties each party must act in accordance with good faith and fair dealing.
|(2)||The parties may not exclude or limit this duty.|
The commentary to Art. 1.106 of these Principles explains: "This article sets forth a basic principle running throughout the Principles", and "particular applications of this rule appear in specific provisions", examples of which are also supplied.
By contrast, Art. 7(1) CISG -- to take as a last example the most successful attempt to date to unify the law governing certain parts of transborder legal relations -- reads:
"In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application in the observance of good faith in international trade", [page 2]
thus covering only the application of the Convention, rather than the parties' rights and obligations, their exercise and performance directly. This phrasing was not an inadvertent slip of the tongue; it was agreed upon only after lengthy discussions in the Working Group and the plenary session of the conference, and it was meant as a final rejection of more far-reaching proposals to apply the principle of good faith and fair dealing to the obligations and the behaviour of the parties themselves. But similar to the irresistible force of fundamental laws of nature such as the law of gravity, the principle that not only the interpretation of the Convention, but also the evaluation of the relations, rights and remedies of the parties, should be subject to the principle of good faith and fair dealing has found its way into the Convention, its understanding by the majority of legal writers and its application by the courts. The respective discussions in regard to [page 3] Art. 7 CISG reveal, however, a first and important distinction: The application of the principle in regard to a set of norms, thereby claiming normative character in itself, on the one hand and the application to individual contractual relations and thereby restricted to the circumstances of the particular case and not claiming abstract and normative force on the other hand. But the distinction is only clear in theory -- and therefore, the discussions of the implementation and its reach under Art. 7 para (1) or para (2) CISG seems to me highly theoretical, too --, because very often a decision applying the principle to the facts of a given case and a particular contract, later becomes the reference and source of a more general rule, implemented into the normative text itself. This may be even more likely in law systems which are not yet as familiar with the technique of distinguishing as common law jurists. [page 4]
Anyway, in regard to CISG, academic commentators have already begun to flesh out what good faith and fair dealing could and should mean in specific cases and situations to which the CISG has to be applied, and have developed more or less generalized rules. Could I do the same here in regard to Art. 1.7 UNIDROIT Principles, perhaps drawing on the experience with the principle of "Treu und Glauben" in the German Civil Code which has accumulated in nearly a century of practical application?
I. Two tentative observations
1. If the principle of good faith and fair dealing is indeed common to all legal systems based on the values of western civilization, then it should be easy to find a common core of concrete rules derived from this principle, which in turn could be incorporated into the UNIDROIT Principles or the CISG. But I have looked in vain for a monograph comparable to, say, Ernst Rabel's "Recht des Warenkaufs", which would report and compare in detail the various manifestations of the principle and its applications and understanding in the legal systems of the western world, and which would present, as a result, a set of specific rules common to all these systems. Although there are many articles, theses and the like comparing certain aspects of the principle in one or more legal systems, and there is of course a great abundance of scholarly analysis of certain issues which are solved in two or more legal systems by falling back on general clauses such as good faith and "Treu und Glauben", there is -- as far as I can see -- no comprehensive and exhaustive treatment. This leads me to my first and very tentative thesis no. 1:
If, in spite of the plentiful resources for legal research in the western world, we still have to wait for an exhaustive comparative analysis resulting, as mentioned before, in a set of rules common to all legal systems, it must be assumed that it will be impossible to satisfy [page 5] this hope, because there is, in fact, no such common stock of concrete rules and applications of the principle. Being well aware of the provocation implicit in such a statement, I hasten to add as a tentative thesis no. 2 the suspected reasons for this embarrassing statement: The importance of the general principle of good faith and fair dealing and the details developed out of it depend on the structure and content of the specific legal system in which they are implemented, and on the concrete and specific contract in question. It is mainly the shortcomings and gaps of a certain legal system or of a particular contract that require the employment of the principle of good faith and fair dealing, and the development of special rules based on this principle, to "cure", as it were, these shortcomings. If, e.g., a legal system contains a workable rule on the influence of changed circumstances -- as is the case with the UNIDROIT Principles --, it is not necessary to fall back on good faith and fair dealing in order to develop a solution in the way the German courts had to do because of the fact that the German legislator expressly rejected proposals to draft such a norm, instead forcing the courts to develop a solution based on "Treu und Glauben" about 30 years after the enactment of the German civil code.
This, however, means that in interpreting Art. 1.7 UNIDROIT Principles or the principle of good faith in the CISG and trying to predict how they will work out in practice, one has to take into account the full range of rules and provisions contained in the UNIDROIT Principles or the CISG and see whether and where they are lacking satisfying and detailed solutions to certain issues, which, therefore, have to be addressed by applying Art. 1.7. Another consequence is also obvious: It is not possible to isolate rules and phrases developed in other legal systems on the basis of good faith and fair dealing provisions, even if they are phrased in rather abstract terms such as (the prohibition of) venire contra factum proprium, and then transplant them into the understanding and application of the [page 6] UNIDROIT Principles or the CISG, because they might have been produced and formulated in order to fill a need which does not exist under the UNIDROIT Principles or the CISG since it is addressed there by a concrete and satisfying provision.
2. This, of course, means that my mission as envisaged initially, is impossible -- almost --, because it would be useless to report the variety of detailed rules developed in German law on the basis of "Treu und Glauben". As the example of "change of circumstances" shows, they are meaningful only in the context of a certain issue, and only if the issues are comparable and legal solutions to them are lacking in the Principles or the CISG could it be of any interest that, and how, the German courts and legal literature have employed the principle of "Treu und Glauben" in relation to the issue. If not the results, though, then the experience of a legal system having a nearly century-old tradition in living with such a general principle might be a starting point, and I will therefore begin with a fundamental experience of German law practitioners, scholars and students when they have to deal with the famous § 242 BGB.
II. Functions and values
If one takes a commentary on § 242 BGB in order to see what courts and literary contributions have made of this provision, one is immediately struck, if not shocked, by the abundance of cases, theories, detailed rules and sub-rules having sprung from it. Certainly the most frightening example is the 11th edition of the Staudinger commentary, where the commentator, Dr. Weber, dealt with this single provision in a tome of more than 2,000 pages. In leafing through this volume, one cannot avoid the impression that those scholars who advocated an abandonment of most concrete legal provisions in favour of § 242 BGB have already succeeded, for one can find a court decision or a scholarly theory applying the provision [page 7] to almost every situation governed by the Civil Code, and in addition very often overriding the text and the meaning of special provisions. It seems as if the ironic remark often made with respect to Roman Law, as well as to the case law of the Anglo-Saxon countries, holds true to the consequences of the principle of "Treu und Glauben" under German law as well, namely that you can find a source (be it a court decision or a scholarly theory) for every solution imaginable or wanted, § 242 BGB serving as the legal anchor to even the wildest propositions and results. The abundance is even more overwhelming if we not only regard "normativ" supplementations but concrete ones in the interpretation of particular contracts under § 157 BGB. We certainly do not hope for such a development where Art. 1.7 UNIDROIT Principles or Art. 7 CISG are concerned, and if there is any lesson to be learned from the German experience with a general clause like this, it is the need to develop solutions how the flood of cases and opinions can be made manageable and tamed into orderly and rationally structured channels. In my classes on the law of obligations and in explaining the meaning and function of § 242 BGB, I, therefore, follow the analysis of Franz Wieacker  which is shared by other authors and colleagues as well. Wieacker has worked out that in order to understand § 242 BGB -- and in order to make it teachable to students --, we have to distinguish functions and values. It is this distinction that I regard as being helpful not only in channelling the mass of German cases and theories in regard to "Treu und Glauben", but also to get a first and very tentative understanding of how principles of good faith and fair dealing might work in the context of a certain legal text such as the UNIDROIT Principles or the CISG. [page 8]
The first level of analysis deals with the functions of such a principle, asking where and with what intent the principle was employed by courts or meant to be applied by the legislator. First, there is a field of application that does not need much explanation:
1. Even the most detailed code or contract will not deal with every issue imaginable. Details of minor importance can be left to the courts: Minima non curat praetor. It can safely be left to the courts to decide that a debtor owing his creditor 10,000 DM is not allowed to tender them in bags full of small coins or knocking at his creditor's door at 4 a.m. to pay. Normally, such behaviour would not be conforming to "Treu und Glauben mit Rücksicht auf die Verkehrssitte", although situations are imaginable where it might be justified. But this cannot be regulated in a code and must be left to the courts. This, exactly, was the function the German legislator attributed to § 242 BGB, and no more. It certainly is a field of application for Art. 1.7 UNIDROIT Principles as well: If a time for payment is fixed in the contract, so that the debtor must perform on this date under Art. 6.1.1, a bag full of coins tendered at 1 p.m. in the morning on the fixed date is not "an earlier performance" under Art. 6.1.5, but it may be refused under Art. 1.7. Of the illustrations given in the official comment to Art. 1.7, the example no. 4 also seems to fall in this category of details which are too small and too varying to be worth a special rule: Even if the credit arrangement between a bank and its customer provides that the bank may stop further payments on the granted credit "at will", it goes without saying that it cannot stop to honour its obligation under the credit line agreement without any reasonably justifiable cause. But since the situations in which such a stop order or (as in the example no. 4) a demand for acceleration repayment might occur are so manifold, it would overburden a code to deal with all possible and imaginable fact situations, the more so since [page 9] experience teaches us that no detailed regulation could ever be complete anyway.
2. While these minima are gaps that no reasonable legislator would try to fill -- and therefore leave to the application of general clauses such as Art. 1.7 --, the principle of good faith and fair dealing or "Treu und Glauben mit Rücksicht auf die Verkehrssitte" is also indispensable in order to fill larger gaps or to clarify meanings left uncertain by the drafters of the code (or a similar body of provisions such as a contract) either intentionally, e.g. because they could not agree upon one of several solutions, or, more often, unintentionally. "Gaps" in the context of this analysis, therefore, include not only obvious "holes" in a legal text, but also - and probably more frequently - those provisions which turn out either to be too narrow or too unclear to cover certain issues or are even regarded as wrong.
a) Unintentional gaps can be the result of negligent drafting and oversight, but more frequently they are the consequence of factual developments which were not, and could not have been, foreseen at the time of the drafting of the code. It is here that the most obvious differences between a hundred-year-old codification such as the German BGB and modern instruments as the UNIDROIT Principles or the CISG are to be noticed: While the German BGB mirrors the situation of the second half of the 19th century and therefore addresses only issues and situations which the legislators had before their eyes then, a modern set of provisions such as the UNIDROIT Principles is, so to speak, up to date, and it will take some time before gaps develop or become visible as a consequence of factual developments. I do not, of course, wish to abuse my invitation by trying to find gaps caused by a lack of foresight in the UNIDROIT Principles. But my understanding that a modern set of rules such as the UNIDROIT Principles is less likely to show gaps is corroborated by experience with the CISG showing that references by courts to good faith and fair dealing so far [page 10] are mostly of passing character, if not superfluous. Thus, an arbitration court in Hamburg held  held that under good faith and fair dealing principles (of German law, implemented into CISG via Art. 7(2)!) a plaintiff's remedies are subject to his full compliance with his own obligations: He who comes into court with "unclean hands" is estopped from claiming termination and full damages, if the other party could have terminated the contract for the plaintiff's breach. The Munich Court of Appeal held in the context of a breach of a buyer's obligations to take delivery of cars that the seller could not - under good faith and fair dealing principles - ask for the entire damages if he himself had failed to demand taking delivery and full performance of the contract; likewise, the buyer after having declined to take delivery was estopped from demanding full performance after 2½ years.
The OLG Saarbrücken  remarked in an obiter dictum that in a continuing business relation it might be imaginable that the seller could be obliged to continue supply under good faith and fair dealing (in a CISG contract) despite doubts as to the existence of an instalment or requirement contract, but that in the situation at hand no such rule was to be formulated and applied.
A more interesting example is provided by the well-known case of the Bonaventura jeans, decided by the Cour d'appel Grenoble: The jeans produced and sold by a French firm to an American seller were to be sold only on the American market, but appeared on the market in Spain. In spite of the justified termination of the contract by the seller, the buyer began legal proceedings, thereby causing losses to the seller. This behaviour was regarded as "contraire en principe de bonne foi [page 11] dans le commerce international, édicté par" Art. 7 CISG, and, therefore, damages were granted. This meant that the court implemented an obligation to bear the costs of unsuccessful litigation, a problem often regulated in domestic codes of procedure.
In regard to the UNIDROIT Principles, I would like to restrict my observations primarily to those gaps which may be caused by developments not yet to be expected at the time of drafting. As an example I would -- very reluctantly -- like to point out the new electronic media by which messages and communications can be exchanged, such as the Internet. The definition of "receipt" in Art. 1.9, although the commentary mentions receipt by computer, may at least need clarification in case of Internet messages stored in a central computer. Likewise, the term "writings in confirmation" in Art. 2.12 may need a clarification or even extension based on Art. 1.7 in cases where the confirmation is sent via Internet: Does the time within which the recipient of an Internet confirmation has to object run only from the moment when the Internet message is reproduced in tangible form (see Art. 1.10 no. 4), or from the receipt by the addressee's computer? A rule formulated on the bases of Art. 1.7 could, e.g., say that "without undue delay" means, taking into account good faith and fair dealing, "without undue delay" after having had a reasonable opportunity to take notice of the recorded message regardless of whether and when it is printed.
b) In this latter example the concept of good faith and fair dealing was used to fill a gap by clarifying the meaning of a certain concept. This leads us to another -- more general -- source of "shortcomings" in legal texts, namely that the drafters were uncertain about, or could not agree on, hard and fast rules, and therefore provided a more general guideline instead of a clear-cut provision. The necessary interpretation is, of course, an invitation to employ principles such as good faith and fair dealing. As an example in the [page 12] UNIDROIT Principles, I dare to cite Art. 7.3.6 (1) and its rather loose provision on restitution after termination, i.e. one of the most vexing problems associated with this remedy.
3. This brings me to the next point: What are the conceptual tools employed in gap-filling based on good faith and fair dealing?
a) The concept of good faith and fair dealing may help to clarify or to develop the meaning of certain phrases and words in order to make them cover and solve new issues not considered by the drafters of the respective code. It would be easy to find dozens of examples in German law, because -- as mentioned above -- the growing age of a code such as the BGB necessarily means that situations and issues occur that could not have been foreseen by the drafters, so that the meaning of certain concepts have to be adjusted by a "Treu und Glauben" interpretation to cover the new problems. It is much more difficult to find similar shortcomings in a newer set of provisions such as the UNIDROIT Principles.
b) The gap-filling function of the principle of good faith and fair dealing is most often used, however, to create and implement new obligations on the parties, which were neither agreed by them in their contract nor laid down in the applicable provisions of law. Again, these anxilliary and implied obligations may have the character of "minima", i.e. details too small to be taken care of by the drafter of legal provisions. Thus, the example used before -- tendering payment in the middle of the night and small coins -- could give rise to an implied obligation supplementing Art. 6.1.1 UNIDROIT Principles with a provision like the following: "Unless otherwise agreed upon, tender of performance has to be at a reasonable time of the day or in case of merchants during the usual business hours at the place of performance." [page 13]
More important are, of course, those additional obligations based on good faith and fair dealing which are needed to complete the network of duties and obligations in a given contract in order to achieve the aims of the parties in concluding their particular agreement. Since Art. 5.2 lit. (c) UNIDROIT Principles expressly recognizes implied obligations based on good faith and fair dealing, it is not necessary to take direct recourse to Art. 1.7 as the basic norm, but this is only a technical, though clarifying detail confirming my general observation. A similar provision is missing in the CISG, so that the completion and supplementing of a particular contract have to be based on Art. 7 and the principle of good faith and fair dealing, either directly on Art. 7(1) or regarded as a fundamental and gap-filling maxim under Art. 7(2) CISG. Generally, a modern set of provisions such as the UNIDROIT Principles or the CISG is much more specific in regard to these additional obligations, and Art. 5.2 states several sources besides good faith and fair dealing for these obligations: nature and purpose of the contract; practices established between the parties and usages; and reasonableness, a concept which partly overlaps with good faith and fair dealing. Thus, e.g., the manifold duties to inform, to instruct, to deliver necessary handbooks etc. which constitute a great number of the cases decided under § 242 BGB could be based on the implied obligations provision of Art. 5.2 UNIDROIT Principles, while under the CISG one has to resort to Art. 7(1) or (2) CISG.
c) Apart from implied obligations whose final aim is to ensure the performance of the main obligations, e.g. to deliver a workable machine, to install functioning software which can be operated by the buyer, etc., the German courts have based so-called protective duties on § 242 BGB. These are duties of care to protect life, limb, personal property and economic assets of the other party (and to a certain extent, of third-party beneficiaries), and therefore show a close resemblance to duties of care under tort law. They were developed as [page 14] implied obligations in contracts in order to cure deficiencies of German tort law, e.g. in regard to the burden of proof of negligence and/or the responsibility of principals for their servants. It is an interesting question whether the concept of good faith and fair dealing, on which the respective contractual duties of care are based in Germany, could be used in transborder cases of contractual relations based on the UNIDROIT Principles, too. If, e.g. the German seller of a machine, who delivers the machine to the Italian buyer by his own trucks and drivers, causes some personal injury to the Italian buyer or damages his property, could he be held liable under the UNIDROIT Principles, on the basis that he violated an implied contractual duty of care based on Art. 5.2 (c), i.e. the concept of good faith and fair dealing? Likewise, if the contractual relations of the parties were governed by the CISG -- would the injured buyer have a contractual claim? Or could he be referred to the applicable tort law? Would the result depend on the sufficiency and adequacy of protection offered by the applicable tort law? I cannot deal with this question fully, because that would mean dealing with domestic tort laws and the respective conflict of law rules, too. But even without solving that case, it shows once again that the concrete use and shape of the principle of good faith and fair dealing and its employment in a given case depend on the legal circumstances surrounding the case: Whether and to what extent an obligation to care for the other party's life, limb and property would be implied into a contract falling under the UNIDROIT Principles or CISG might depend, to a large extent, on the sufficiency of the applicable tort law and the rules on concurrent actions.
4. On top of these two functional tools of the principle of good faith and fair dealing, i.e. (in short) giving new meanings to old concepts and developing and implying additional obligations incumbent on the parties, there is a third tool to be mentioned here: Good faith and fair dealing can be the basis of new remedies not foreseen in the respective code or set of provisions. Again, differences [page 15] between an older code like the German BGB and modern sets of provisions are obvious: As mentioned above, a right to an adjustment of contracts because of a change of circumstances was developed in Germany on the basis of § 242 BGB (Treu und Glauben), while the Principles treat these situations as hardship cases (Art. 6.2.2) and grant adequate remedies in Art. 6.2.3, eliminating the need to develop solutions based on the general principle of good faith and fair dealing. The CISG, though, lacks a comparable solution, and I expect that in its application to hardship cases it will be advocated that the more flexible solution of renegotiation and adjustment of the contract be applied and based on the Principle of good faith and fair dealing. Or, to give another example: While the German Code allows termination of a contract only in case of impossibility or default -- and, under certain circumstances, in case of defects of goods or other performances --, so that the courts had to develop additional grounds for termination based on § 242 BGB, the UNIDROIT Principles contain a comprehensive regulation of the requirements for termination in Art. 7.3.1 - 7.3.4, which cover all the cases solved under German law by recourse to good faith and fair dealing, so that there is no need to develop an additional remedy of termination based on such principles. Of course, in the interpretation of Art. 7.3.1 (2), i.e. the definition of fundamental non-performance, the principle of good faith and fair dealing will have influence, too: The meaning of the requirement that strict compliance is of the essence under the contract (Art. 7.3.1.(2)(b)) will certainly be interpreted in the light of good faith and fair dealing between the parties.
But apart from these examples, where recourse to good faith and fair dealing is not necessary under the UNIDROIT Principles to provide the desired remedies, there are other cases where even the drafters of the UNIDROIT Principles have already considered the development of new remedies based on Art. 1.7. The remedy of estoppel can either thwart a given right or claim, or invalidate a certain [page 16] defence. The illustrations no. 1 to 3 given in the comments to Art. 1.7 are examples of such an extraordinary remedy against a party's claims or defences. In applying the CISG, the arbitration Court of the Federal Chamber of Commerce and Industry in Austria has granted the defence of "Verwirkung" based on a gap-filling general principle of good faith and fair dealing in order to help a buyer who had not given timely notice of defects, taking into account that the seller himself at first did not rely on this lack of notice and went on to renegotiate the contract. But here again it can be shown that the remedial instrument of estoppel, which in German law is based in many cases on § 242 BGB as "venire contra factum proprium" or as "exeptio doli specialis" or the maxim "dolo facit qui petit quod statim redditurus est", need not be developed out of Art. 1.7, because it has already found adequate reflection in specific provisions of the UNIDROIT Principles. As an example, one may cite Art. 2.18 sentence 2 of the UNIDROIT Principles, which regulates "preclusion" as a special case of estoppel.
5. All this could still be regarded as a "completion of the legislatorial plan", as Wieacker has phrased it. But some of my examples in regard to German law have already shown that it is a small step from completion to correction. The adjustment of contracts because of changed circumstances, introduced by the German Imperial Court in the twenties, certainly was not only a "completion" of the Civil Code but an alteration, necessary, because historical development had proved the legislatorial decision to be wrong. This function of correcting a given text is, of course, indispensable to compensate the process of the aging of a code, therefore much less important, perhaps not needed at all, in a new set of rules and principles. [page 17]
IV. Values and standards
The first level of interpreting what good faith and fair dealing could mean dealt with the functions and uses of this concept without answering the basic question: What is required by the commandment of good faith and fair dealing in a certain situation? What are the values and standards which we have to use in our understanding of this concept? Again, I have to begin with the observation that we have to distinguish between interpretations and results within a national context on the one hand and the international setting of the UNIDROIT Principles or the CISG on the other. First of all, it has to be supposed that there are national differences in values and attitudes: What might be permissible or tolerated as normal -- and therefore conforming with good faith and fair dealing -- in, say, a Mediterranean country, might already be regarded as intolerable in, say, Scandinavia, and vice versa. In Germany, three levels of values and standards used to flesh out such general principles as "Treu und Glauben" (or: contra bonos mores, sittenwidrig) can be distinguished. The highest level and the most important set of values are found in the German Constitution. Thus, the German courts have, for example, recognized a right of personality as granted and protected by the German Constitution, and this constitutional protection of a human being's personality has to be respected even in private dealings and contracts, which is achieved technically through the means of a general clause such as § 242 BGB. Therefore, to give an example, employers are not allowed to listen in to the telephone conversations of their employees, because these are protected by a right to privacy which is derived from the right of personality. But good faith and fair dealing prohibit employers not only from doing this, but also from making an agreement with an employee which would allow them to do so. To take another example: Equality of bargaining power between the parties has to be regarded as a constitutional prerequisite of freedom of contract, so that guarantees or sureties agreed upon by family members without means or income [page 18] of their own and no equal bargaining power can be regarded as contra bonos mores or violating the principle of "Treu und Glauben".
On a second level, values and standards may be derived from other parts of the legal order of Germany, including the Civil Code itself: The way in which the legislator evaluates and solves a certain conflict may allow inferences as to more general values and standards which can be used to interpret "Treu und Glauben". Thus, the limits of the obligation of an entrepreneur to cure defects of his work under § 633 (2) s. 2 BGB were generalized as a general maxim to be applied, by virtue of good faith and fair dealing provisions, to other situations of specific performance as well. The same idea is relied upon in Art. 7.2.2 (b) UNIDROIT Principles.
The last, although most important level of values and standards can be described as collective conviction, i.e. the belief that every reasonable human being would regard as fair and decent. Of course, it is hard to know what exactly this standard is, and quite often it is merely the opinion of the court deciding a case which is held out to be the conviction and moral standard of every fair and decent human being. There is also an interesting interplay between courts' views and public convictions: A standard that may at first only have been the conviction of a particular court (which, of course, will nevertheless claim to express the conviction of the general public), may in fact become a common standard through the effects of the decision itself. But it cannot be denied that, quite frequently, it is simply the individual judge's personal, political or religious conviction that is alleged to be a general and commonly accepted standard of good faith and fair dealing, and we have to realize -- especially in Germany, where past experience is evidence for this -- that a general clause like good [page 19] faith and fair dealing or "Treu und Glauben" may be abused by judges to exercise personal prejudices and biases.
The UNIDROIT Principles, by contrast, contain an important limitation and directive for the search for the standards for good faith and fair dealing in so far as they must exist "in international trade". This not only excludes values based on national constitutions or derived from a national code of obligation, but -- even more important -- renders most national judgements based on national convictions of what constitutes good faith and fair dealing almost useless. As the official commentary states: "Domestic standards may be taken into account only to the extent that they are shown to be generally accepted among the various legal systems" -- and therefore can be regarded as international. As remarked in the preliminary observations, standards which satisfy these criteria are probably very rare. But the commentary goes on stating that it is sufficient that the respective standards are established in the particular trade sector in which parties deal with each other. This, to me, is reminiscent of the definition of international usages in Art. 9 (2) CISG restricting the implication of an agreement of the parties to those usages which "in international trade are widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned". And it should conform to the good faith and fair dealing principle applied in CISG cases to the relations of the parties, too.
All this means, of course, that the values and standards to give concrete form to the concept of "good faith and fair dealing" have to [page 20] be explored in a given case and have to take account of the particular trade of the parties. This, very often, may require the help of neutral experts, e.g. of the International Chamber of Commerce as in the case of usages. Of course, we will experience -- as described for the application of "Treu und Glauben" by German courts -- that judges take their own convictions as to what good faith and fair dealing means as decisive, and that the respective judgements will indeed, as case law, create and form the necessary standards. It is also predictable that, contrary to the warnings contained in the commentary to Art. 1.7, courts and arbitrators will inject convictions based on their national law and tradition into what they consider good faith and fair dealing in international trade. This is hardly avoidable, but one has to be aware of this problem, and we all have to be careful not to let our personal or national conviction slip into our judgement of what the standards are or should be in a specific international trade. It is the invitation to talk about that topic here that provided me with a particular chance to realize what good faith and fair dealing could mean in international trade in contrast to a national legal setting, and I would like to express my gratitude for being invited to read this little paper. [page 21]
1. See for the history Bonell in Bianca/Bonell, Commentary on the International Sales Law, Mailand 1987, Art. 7, Comment 1.3. et seq. In the first period of interpretation of the Convention some legal writers, especially from the Common Law world, insisted on a restrictive interpretation of this provision, applying it only to the application of the Convention itself.
2. Usually, the principle of good faith and fair dealing is regarded as one of the gap-filling principles in Art. 7(2) CISG, see e.g. Schiedssprüche des Internationalen Schiedsgerichts der Bundeskammer der gewerblichen Wirtschaft in Österreich vom 15 June 1994 (SCH- 4366 und SCH-4318) RIW 1995, 590 ff.; OLG Celle 20 May 1995, 20 U 76/94, UNILEX no. ... to Art. 7. Very clear as to the possibility to use the principle of good faith and fair dealing on the basis of Art. 7(2) CISG as a rule for the contractual relations between the parties E.A. Farnsworth, Duties of Good Faith and Fair Dealing under the UNIDROIT Principles, Relevant Conventions and National Laws, 3 Tul. J. Int. and Comp. L. 1995, 56; see also Bonell in Bianca/Bonell, Art. 7 Comment 2.4.1 (p. 85): "Yet, notwithstanding the language used in Article 7(1), the relevance of the principle of good faith is not limited to the interpretation of the Convention. (...) ... if during the negotiating process or in the course of the performance of the contract a question arises for which the Convention does not contain any specific provision and the solution is found in applying, in accordance with Article 7 (2), the principle of good faith."; Enderlein/Maskow/Strohbach, Art. 7 Comment 9.1: "Die Konvention geht aber wohl noch einen Schritt weiter, indem sie auch Entscheidungen zuläßt, die selbst über die Rechtsanalogie hinausreichen und in den Bereich der schöpferischen Weiterführung des Rechts vorstoßen. Es scheint nach der Konvention zulässig zu sein, daß Entscheidungen auch aus Prinzipien, die die Konvention als solche formuliert und die nicht notwendig in Einzelregelungen ihren Niederschlag gefunden haben müssen, gewonnen werden können. Zu solchen Grundsätzen zählen (...) der des guten Glaubens (...)."; Honnold, marginal no. 95 (p. 125): "As we shall see, interpreting the Convention "to promote ... the observance of good faith" is related to the reference in Article 7 (2) to the "general principles" on which the Convention is based ..."; Lookofsky, Understanding the CISG in the USA (1995), § 2-10 (p. 19): "And since other (very) general CISG principles of loyalty and reliance-protection have also been deduced, the deduction of a general Convention principle requiring the parties to act in good-faith seems no great leap, even if it does seem to fly in the face of the traveaux preparatoires."; Neumayer/Ming, Art. 7 Comment 7: "En effet, les dispositions de la Convention ne font apparaître que peu de principes, comme par exemple .. le principe de la bonne foi (art. 7) ...". Some legal writers prefer to base the application of this principle directly on Art. 7 (1), see Herber in von Caemmerer/Schlechtriem, Art. 7 marginal no. 7: "Die Bedeutung der Regel [referring to "good faith" in Art. 7 I] dürfte - trotz der Beschränkung auf die "Auslegung" - auf eine Generalklausel ähnlich § 242 BGB hinauslaufen, die allerdings nur im internationalen Einverständnis der Vertragsstaaten zu handhaben sein wird."; Karollus, UN-Kaufrecht (1991), p. 12: "Auf den ersten Blick betrifft dies zwar nur die Auslegung der im UNK enthaltenen Bestimmungen, aus Art. 7 Abs. 1 wird aber dennoch auch eine allgemein für das Parteiverhalten geltende Treu-und-Glaubens-Maxime abzuleisten sein, die eine Herausbildung ergänzender Kooperations- und Rücksichtsnahmepflichten zuläßt."; Magnus in Staudinger, Art. 7 marginal no. 10: "Ferner gilt Art. 7 trotz seines Wortlauts nicht nur für die Auslegung der Konventionsvorschriften als solcher. Das Gutglaubensgebot ist auch im Verhältnis der Parteien zueinander zu beachten"; also Melis in Honsell (ed.), Kommentar zum UN-Kaufrecht, Berlin/Heidelberg 1997, Art. 7 no. 13.
3. Wieacker, Zur rechtstheoretischen Präzisierung des § 242, Tübingen 1956, S. 20 ff.
4. 21 March 1996, RIW 1996, 766, 770.
5. Judgement of February 8, 1995, not (yet) published.
6. Judgement of January 13, 1993.
7. J.P.J. 1995, 632 ff. with note by Kahn.
8. See n. 3 for citations of the respective decisions.
9. Compare BGH ZIP 1990, 1483, 1484.
10. This is an important difference to the European Principles of Contract Law, which do not contain such a useful, even necessary limitation, and therefore might be prone to be interpreted in the light of particular national convictions.
11. "Standard of business practice may indeed vary considerably from one trade sector to another, and even within a given trade sector they may be more or less stringent depending on the socio-economic environment in which the enterprises operate, their size and technical skill, etc."