Friday, 19 December 2008

Article 7 CISG and Good Faith: A summary of lecture delivered at the University of Bristol (November 2008)

For the full article email the author at lucasvelozo@hotmail.com

International commercial law is a vital ingredient for the healthy functioning of the global economy. The need for achieving certainty in international commercial law is a fundamental objective, but one that is necessarily counter balanced by the need to maintain flexibility in the system. The role of good faith in international commercial contracts poses a number of implications in the execution and enforceability of these contracts. Indeed, good faith acts as the moralisation agent of contracts and is taken into account by State judges or arbitrators at the different levels of the contractual evolution: establishment, performance and termination. This short essay will aim to dissect the issues pertinent in this area of the law and suggest a number of strategies in addressing the problems identified.

The main issue surrounding good faith in international contracts is the difficulty to ascertain a clear understanding of the obligation of good faith given the varying constructions and inherent ambiguities which surround the notion of this concept. Indeed, the task of reconciling morality and commercial law within the concept of good faith has been faced very differently in the various legal systems and this is the reason why the principle of good faith, although playing an important role in domestic laws, differs greatly in its scope and application depending on the legal tradition which governs a particular commercial transaction.

The contrast can best be exemplified by juxtaposing civil law and common law systems. While civil law systems recognise a general duty to negotiate and perform contracts in good faith, generally speaking the common law approach to good faith is considered to be less encompassing. Within the common law system, however, the rigidity to good faith by the English legal system is not completely shared by the United States (i.e. section 1-203 of the American Uniform Commercial Code). A significant example of a good faith requirement in a common law country can be found in the American Uniform Commercial Code where good faith is defined as meaning ‘honesty in fact in the contract or transaction concerned.’ These developments show a gradual tendency towards the concept of good faith finding favour across the common law world, although considerable differences still continue to exist among the various legal systems.

The attempt to resolve the divisions existing among the civil law and common law systems on the question of the principle of good faith was one of the most challenging problems faced by the drafters at the debates that led up to the United Nations Convention on Contracts for the International Sales of Goods (CISG).

The first sub-paragraph of Article 7 of the CISG states that:

“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 and the observance of good faith in international trade. “

As Bridge notes, “the application of this provision is something of a mystery.”[1] Whether the principle of good faith in Article 7 is relevant only as an interpretative tool of the Convention or if it is also relevant as a standard of behaviour for the contracting parties is a current legal issue in international commercial law.

Indeed, Professor Farnsworth’s opinion argues that “[Article 7(1)] does no more than instruct a court interpreting the Convention’s provisions to consider the importance of [good faith].”[2] Thus, it can be construed that Article 7(1) does not impose on the parties an obligation to act in good faith. The latter approach has been endorsed by the International Chamber of Commerce.[3]

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, as there are many provisions in the CISG that would be meaningless without recognizing a general duty to act in good faith (see Art 8(3) CISG).

Considerable disagreement over the interpretation of Article 7(1) exists not only among the literature but also among those judges and arbitrators who apply the CISG’s provisions. Once again, this confirms the difficulty in establishing and maintaining a ‘uniform sales code’ and in deciding disputes in a manner consistent with the spirit of the CISG. Thus, ‘the only thing that seems clear through all these competing arguments is that the uniformity sought by the CISG is definitely lacking with respect to the existence of a good faith obligation’.[4]

Although many decisions of domestic courts recognizing the good faith duty under the CISG are to be found in the major data banks on the CISG, their analysis leads to the conclusion that there is still a definite lack of uniformity in the interpretation of this rule of the Convention.[5] However, the CISG is arguably as flexible an instrument as any other law and its meaning can therefore change with time.[6]

It is argued that good faith under Art. 7(1) CISG ought to be more readily interpreted as a contractual duty in international commercial contracts. The trend, however, tends to suggest otherwise. The problem can be tackled at various levels:

First, a new Treaty could be drafted to replace the CISG in order to address the interpretative difficulties faced by Art. 7 CISG. The Unidroit approach to good faith in international commercial law could be adopted by such a treaty. Unlike the ambiguities of the CISG, there is no doubt that the Unidroit ‘Principles of International Commercial Contracts’ impose a general duty of good faith on the contracting parties.

Second, greater judicial cooperation via a global Judicial Cooperation Network could be established to promote judicial comity and the uniformity of the application and interpretation of Art.7 in international sales contracts. The European Judicial Training Network (EJTN)[7] illustrates how such an institutional model could produce tangible results in the resolution of transnational conceptual difficulties at judicial level.

Third, the current CISG could be retained and a Protocol issued so as to clarify, inter alia, the position of good faith within Art.7 CISG.

Fourth, the ICC could engage in stronger advocacy across all business sectors in order to establish a greater need to oblige parties to act in good faith.

Finally, and due to international law’s atypical nature, other related commercial institutions, such as the WTO could demonstrate greater collaboration in resolving difficulties in this area of international commercial law.

It is argued that the synergy of these recommendations will contribute towards achieving greater fairness and uniformity in international commercial law.



[1] Bridge, M. (2007), The International Sale of Goods: Law and Practice, Second Edition, Oxford: OUP.

[2] Farnsworth, E.A., ‘The Eason – Weinmann Colloquium on International and Comparative Law: Duties of Good Faith and Fair Dealing under the UNIDROIT Principles, Relevant International Conventions and National Laws’ (1995) 3 Tulane Journal of International and Comparative Law 54-55

[3] ICC Award No 8611 of 1997

[4] Powers, P.J. ‘Defining the Undefinable: Good Faith and the United Nations Convention on Contracts for the International Sales of Goods’ (1999) 18 Journal of Law and Commerce 349

[5] Komarov, A.S, ‘Internationality, Uniformity and Observance of Good Faith Criteria in Interpretation of CISG: Some Remarks on Article 7(1)’ (2005) 25 Journal of Law and Commerce 75

[6] M H Bonell, ‘Article 7: Interpretation of the Convention’ in C M Bianca and M J Bonell (eds), Commentary on the International Sales Law – The 1980 Vienna Sales Convention (1987) at p.83.

[7]See URL: http://www.ejtn.net/www/en/html/index.htm [29-09-2008]

2 comments:

Anonymous said...

How would phrase the Protocol?

Lucas Velozo de Melo Bento said...

I think this will best be devised via an international conference!!