Good faith and fair dealing in international commercial contracts : a quest for uniformity in application

Master Thesis


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University of Cape Town

This paper will cover the adoption of the concept in various instruments such as the Convention for the International sale of goods (CISG) in Article 7(1), the UCC of the United States, UNIDROIT in article 1.7, and the most important adoption on the European continent, the Principles of European Contract Law (PECL), specifically article 1: 202(1) and 1: 106 (1) of the principles. The question that will be raised and probably answered in the course of this paper is whether, the adoption of the concept of good faith and fair dealing has made a difference in international commercial contracts, the extent of its contribution, the hindrances faced, whether such problems can be addressed, how they can be addressed and finally whether uniformity in interpretation and application of the doctrine is maintained. Under domestic law, the adoption of good faith and fair dealing notion into various legal systems and its implementation and enforcement thereof will be looked into, an attempt will be made to determine the main reasons why some states refuse to adopt the doctrine, and whether adoption of the doctrine in such states would make a substantial impact on their legal systems. Under the approaches adopted by various domestic legal systems in incorporating the doctrine into their laws, and in trying to deduce whether uniformity in interpretation and application of the doctrine can be attained, the jurisdictions that will be looked into are; German, which is a pioneer when it comes to the adoption of the doctrine within the European Union. The German Treu und Glauben provides for such, and has been included in the BGB (German Civil Code). In the provisions of the BGB, one is not only required to act reasonably, but there must be a relationship of trust based on the commercial dealings of the parties in a particular transaction. It has been noticed that most European countries, for instance France and Italy have this similar approach towards the concept of good faith and fair dealing, of course there are always minor differences in every legal system, and these will be highlighted. England of course is an exception, and in this paper it will be considered separately. It is regarded different due to its historical background, thus the doctrine in England is approached differently, and there are limitations in its application. In the United States the doctrine of good faith and fair dealing has been adopted through the Uniform Commercial Code, section 1-203. This section unfortunately does not apply to the formation or negotiation of the contract. Numerous other sections seem to refer to the doctrine, even the Second Restatement on Contracts does touch on the concept. In fact it is the most recent re-enactment of some of the provisions in the Uniform Commercial Code. In the United States the doctrine basically applies to performance and enforcement in contracts. English law reluctantly recognizes a general duty to act in good faith, it arrives at similar results as those arrived at by other countries when it comes to the implementation of the doctrine, even though the avenues used are different. The starting point in English Law was the judgment of Justice Steyn in Banque Financiere and of course the judgment of Sir Thomas Bingham in the Interfoto case. The cause started by these judges was later fueled by the unwavering support of the European Community. Before long it had become accepted that the doctrine could not be ignored anymore in England, and slowly its inception began. Even though the concept is legally accepted, it has not yet managed to get complete acceptance from the English legal fraternity, it is still approached and applied with caution. This paper intends to discuss the reasons for such slow progress of the concept in England, and further compare the position to that of other European states. In South Africa the doctrine of good faith has existed for quite sometime, mostly referred to as bonae fides, a doctrine which played a great role in the development of Roman contract law, and further influenced the development of the principle of equity in civil law. But this did not give the doctrine of good faith formal acceptance in the South African legal system, it has over the years been regarded as an elusive concept which could only destabilize well established legal rules. Most judges regard the doctrine as a threat to their views on freedom of contract being an absolute basis of the law of contract. The concept was accepted in a couple of instances , for instance, in Eerste Nasionale Bank van Suidelike Africa Bpk v Saayman in 1997, it was later dismissed in Brisley v Drotsky, where it was held that the doctrine could not be accepted as a basis to set aside or enforce a contractual relationship. This was confirmed in Afrox Healthcare Bpk v Strydom in 2002, it is now settled that in South Africa, the concept of good faith cannot be used in dealing with cases involving contractual unfairness that cannot be handled by pre existing rules, but public policy can. This work intends to follow up on the development of the concept of good faith in South Africa, and the reasons for its subsequent dismissal in Drotsky, not forgetting to outline the doctrine's future in the country's legal system and the effects of dismissing such doctrine.