General Principles of the United Nations Convention for the International Sale of Goods

In 1988, the United Nations Convention on Contracts for the International Sale of Goods came into force, after it was concluded in 1980 at Vienna. 83 states had adopted this convention as per the report of September 26^th, 2014 given by the United Nations Commission on International Trade Law. There is a universal scope of Vienna Convention, which brings the national differences under a single umbrella. Good faith plays a crucial role in interpreting and applying the convention. This is basically a legal notion which covers the meaning and also provides most of the debate which surrounds this convention generally, along with being in more depth under article 7 of this convention. Good faith is a principle which does not have a precise or clear meaning. This requires consideration to be given to the fact that there is a need for interpreting good faith. It is not just a legal term but it is also has behavioural function by its very nature. The courts, in order to understand the intent in full the parties or their queries, require inquires made with the objective intention, along with exploring the subjective intentions of the parties. This discussion involves a critical discussion on the principle of good faith in international sales law. In doing so, the focus would be on Vienna Convention or otherwise referred to as CISG. The discussion would also encompass the conflict views of different scholars, where some provide that the role of good faith is limited to interpreting CISG, whilst the other view is that CISG is a general principle under CISG, which governs the contracting parties conduct. This would help in presenting a comprehensive critique of the term good faith used in the international scenario.

There are just a handful of academics who disagree on the fact that good faith is amongst the most dominant principles which had participated in the commercial law development. This concept basically represents law’s internal morality of law. The principle of good faith is something which is a part of every society, religion and culture. This is a concept which every legislator introduces through different images, under the legislations. Every tribunal and court has had dealt with one or other form of good faith. Hence, the scope and interpretation of good faith has been present in the legal writings always. Though, as stated in the introductory segment, the academics have different opinions in this context and there view is divided. This is particularly on the manner in which good faith is to be exactly found and what exactly good faith is. Along with the national level, this is a concept which holds significance in the international level, and as a result of this, it is included in the international legal instruments. One of such international conventions is CISG. Massive efforts were made by the international community in producing CISG, and through it, the international sales rules were unified.

The Convention on the International Sale of Goods from the Perspective of the Common Law Countries

Even though good faith is taken generally as being a concept, a particularly definition of it cannot be provided, despite the number of attempts made in this regard. A definition which could define the duty of good faith as the representative of obligations and expectations on acting in an honest and fair manner regarding the contractual duties seems to be most appropriate. The contracting parties are expected to show a certain level of reasonableness. Even though this theory is true theoretically, its practical applicability is difficult. There is a need to note that this definition covers a big functional problem. This is because the definition only touches the good faith application to the contractual obligation; thereby it only covers a single function of good faith. There is no mention in this definition of the good faith treatment being applicable to the convention in its entirety. This is because the good faith concept cannot impose a requirement of acting in a fair and honest manner where the result is not applicable in a direct manner. To state it in precise manner, good faith is just a precondition and a holistic mind set, which has to be applied based on the concrete examples associated with the manner in which the parties behave. There is a need to analyse the good faith concept through different approaches, in place of analysing it through definitions. This becomes all the more important due to the number of cases in court where reliance is not placed on good faith in an express manner. It is instead raised through interpreting the results. In context of the specific contract, the concept of good faith can refer to different things.

To begin with the application of this concept under Vienna Convention, reference needs to be made to article 7 of this convention. This article presents that when the convention has to be interpreted, there is a need to give regard to the international character, where uniformity is promoted through its application and there is observance in the international trade of good faith. Where there are matters which this convention governs, but these are not covered expressly in the convention, it has to be settled based on general principles, which follow the law. There are basically three parts of this article. The first one sets out the international character of convention requiring the promotion of uniformity for interpreting convention. The second one establishes the relevance of observing good faith in international trade. The last one is setting of mechanism with which gaps present in convention can be filed. The Para 1 of this article emphasizes on interpretation of convention requiring three points. These three points are international character of convention, need of promoting uniformity, and observing good faith. The first two points are interrelated, as the second part is a logical result of the first, and the third aspect is one of significance here as it relates to the principles of good faith.

The Role of Good Faith in the United Nations Convention on Contracts for the International Sale of Goods

In the course of getting to Vienna Convention, the principles of good faith and fair dealing became obligatory on the contracting parties. The debate surrounding this issue was due to the fact that some supported the notion that the deletion of previous provisions made the acknowledgement that good faith was a principle which was highly desirable in the international commerce; yet they stated that the manner in which article 5 had been formulated, determined the concept of good faith as being too vague. I was argued that the national courts which applied the provisions of good faith and that of fair dealings necessarily were influenced by their social and legal traditions resulting that the different interpretations would result from convention provisions. Apart from this, the draft uniform law was silent on the result of failure in observing the principles of fair dealing and that of good faith. The result of this was that the consequence of breach of good faith and fair dealing principles would be left to the national laws, along with the result that there would be a lack of uniformity of sanctions being attained.

In order to support the retention of provisions, on the other hand, arguments were raised that as a result of the global recognition of good faith principles, there was very little harm in getting it included in the convention. It was argued for countering the objection that the earlier provisions did not cover the result of breaches that the sanctions had to be determined in a flexible manner by the courts based on the specific situation of every case. It had also been argued that in absence of such sanctions, the presence of provisions would be beneficial as it would result in attention of parties being drawn and even that of court, on the fact that high standards of behaviour was the expectation on the transactions in international trade.  There were certain compromising solutions suggested for resolving the difference in opinion. One related to include the substance of article 5 in preamble of convention. This resulted in the supporters of principle of good faith stating that its effect would be deprived. The next compromise proposal was incorporation of need of observing good faith in rules for interpretation of conduct of parties. The argument placed against this suggestion had been based on the notion that article 5 did not relate to intent of parties, and instead attempted to form a standard behaviour which the parties were under the obligation to follow. There was also the suggestion of incorporating this principle in article on interpreting convention principles. This was the suggestion which was eventually accepted as being a compromising solution and was present in the final version paragraph 1 of article 7.

The Concept of Good Faith in International Sales Law

It is worth noting in context of this paragraph that the placement of principle of good faith regarding operative provision deals with interpreting the convention creating uncertainties regarding the exact function, nature and scope of the principle under the convention. Again, there is division of scholarly opinion on this matter. There are some who insist on literal meaning of this provision. They provide that the principle of good faith is nothing more than being an additional criterion which has to be made use by the arbitrators and the judges, when they interpret this convention. Based on this approach, the principle of good faith is deemed as just being a tool for the purpose of interpretation, which is at the disposal of arbitrators and judges for neutralizing the danger of getting to inequitable results. Even when this principle was included in the convention as being the instrument of interpretation, it can create problems in attaining the ultimate objective of this convention, in terms of its uniformity in its application, as the principle of good faith have a number of different connotations under the legal system. As a result of this, it becomes difficult in having a uniform definition of this concept, and even with this convention, the principle of good faith can result in different interpretations.

There have been certain academic opinions which highlight that the duty of observing good faith in the international trade, as has been required under article 7(1) of Vienna Convention is actually directed to the parties to each individual sale contract. In effect, this suggests shows that the CISG interpreters were not the only arbitrators or judges, but the contracting parties also held this position. Again, this point is a topic of controversy. This is because where article 7(1) addresses the parties, then this provision would exclude them based on article 6 of this convention. This article provides that the parties can exclude the application of convention or vary or derogate from the effect of any of its provisions. In practice, this would be an unwelcome result as this would result in the uniformity of interpretation being hindered. The fact which is relevant here is that the drafter of this convention did not cover in the provisions of convention as being a basic duty of good faith of contracting parties as this concept is too vague and ultimately leads to varied interpretations by the nation courts of this convention. Where such interpretation results in parties being imposed with general obligation of good faith, it would be deemed as the interpretation of contract, instead of being the interpretation of the convention. Though, as the parties can, in an indirect manner, but necessarily interpret this convention, one cannot detach the convention’s interpretation from the contract’s interpretation. So, in the end, where the contracting parties do not apply the provisions of article 6, the convention would have a binding force on the parties.

Different Views on the Role of Good Faith in CISG

Another important point which needs to be discussed in context of principle of good faith as is covered under paragraph one of article 7 is that this principle has to be observed based on the requirements of international trade. As a result of this, the principle of good faith cannot be applied based on the standards which are generally adopted under the varied national systems. Two aspects have to be highlighted regarding this matter. The first one is that the convention specifically governs the commercial contracts and all of the consumer transactions have been expressly placed out of its operational ambit. In general, the domestic laws make a differentiation in the applicability of this principle in the commercial contracts, for instance under the contracts between the merchants, as compared to the consumer transactions. The rules which apply to the consumer transactions have the intention of protecting the inexperienced or the economically weaker party, and they are excluded when both parties contract, for the most part, in their professional capacity. Where the transaction is undertaken between the merchants, the general obligation of acting in good faith is understood in sense of special standards being observed, to the likes of observing reasonable commercial standards regarding the fair dealing. The second aspect which needs to be clarified here is that there is also a need of making further distinction as the convention deals only with the commercial transactions taking place globally. Hence, there are quiet substantial difference in between the commercial transactions which are domestic in nature, and the transactions which are undertaken at an international level.

It had been argued that in sale contract cases between the importer from developing nation and the exporter from highly industrialised nation, there could be presence of inconsistency in between the two parties’ bargaining power which corresponds to the one which is normally found under the consumer transactions which are undertaken at the nation level. This results in risk of oversimplification of the differences in between the international and the national trade. There are attempts made to establish the differentiation which is made in general in between the domestic laws in between the contracts of commercial nature and consumer transactions, which can be made use of for determining the exact meaning of good faith in the international trade. The implication of this is that the interpretation of convention can be made use of, for the purpose of protecting the weaker party. Though, it remains doubtful that this would be successful at an international level. Even though in general it is accepted that the variations between parties’ bargaining party to international contract is present, and that these variations in general are related to the role of the parties in the contract and to their economic environment, for equating these international commercial relationship to the consumer transactions being undertaken domestically, as being a stretch of any comparative value like the analogy beyond the legitimate limits. The contractual relations which had been present between the developing and the industrialized nations, it would not always be the party from the developing nation being the weaker party. One more substantial element which discounts this analogy’s value is the diversity which is exhibited in the business standards across the globe. As has been remarked in the legal literature in the correct manner, there is a shortfall in the uniformity being present in the regional or the domestic standards of business across the globe, which cover that in a specified line of conduct, it can be responsibly expected from thee merchants operation in same region or nation can hardly impose the party which belongs to other nation having social and economic structure. However, there can be certain value in comparative usage of differentiation made between consumer and the commercial transactions, for the purpose of determining the exact meaning of good faith under the international trade, like the analogy which comes with the inherent limit which is not to be underestimated.

The Significance of Good Faith as a Principle in International Commerce

The international trade has features of economic competition, polarization and objectivity of commercial transactions, and in this very context, there is a need to interpret the Vienna convention. Just because good faith is being observed in international trade, it cannot be equated with institution of material justice in between the parties. Good faith has to be deemed as the normal conduct amongst the tradesmen. The reference with regards observance of good faith in international trade under article 7(1) coves only the descriptive value and does not cover its normative value. It only addresses the interpretation of provisions of convention and attempts to elucidate the concept of good faith in the international trade, as it is used, instead of providing what the concept should mean in itself. Apart from this, the exact meaning of good faith observance is covered in the convention itself. This is particularly covered in the wordings of the preamble of this convention. The observance of this principle in international trade gets demarcated by the parameters of commercial transactions internationally. The good faith principle can not only be applied as per the ordinary standards adopted in different national systems, but also has to be constructed in light of special requirements of the international trade. Reference to equality in the preamble of this convention is not to be equated with imposing positive duties on parties, as it would be deemed as incompatible in quintessential nature of the commercial transactions and also in the legislative history of this convention. Thus, there is a need for the duty of good faith to be subsumed based on the principle of contractual freedom.

The key issue regarding good faith relates to the duty of actions of the contracting parties and this issue is contested. There have been scholars who provide that the article requires good faith to be observed as being a criterion for understanding the convention, instead of being something which is imperative for both the parties in embarking upon the contract being fulfilled. It has been argued by Farnsworth that good faith is smuggled from back door. On the other hand, there is Emily Houh, who refers to the good faith present in the contract law as being a synonym of empty vessel. This was all done to justify that observing good faith by parties to contract is quite difficult to determine. Conversely, there are scholars who constantly support the notion that the parties to contract had to act based on good faith, where they want to emphasize on meaningful practice. An example of this can be seen in the work of Koneru, who puts forth the argument that good faith is not present in vacuum. So, any such attempts of interpreting article 7(1) as allowing parties to escape their liability would result in the objective of promotion of good faith being undermined. This point has been presented rather succinctly by Keily who states that where the position covered under the quoted article does not result in an obligation of good faith being imposed on the parties to the contract, and it instead remains as a provision of CISG which has to be interpreted, the problem would continue. The rights and obligations of the parties under the international sales of goods are outlined through CISG. Further, the quoted articles provide that the good faith principle has to be made use of for the purpose of interpreting such provisions. So, CISG cannot be interpreted without indirectly affecting the parties conduct in terms of good faith.

Interpreting Good Faith in the Vienna Convention

This concept, as is covered under article 7 of CISG has attained a lot of attention from the scholars, particularly in context of its application, meaning and scope. Some of these scholars include Jorge Ovideo Alban, Alexander S. Komorav and Steven D. Walt. Though, the interpretation of this concept under the convention varies between the common law and the civil law scholars as each side presents different views in context of interpreting the principle of good faith.

The view of the common law scholars is that good faith is a matter of moral exhortation. This is the reason why it was antithetical to the certainty value under the commercial law. Hence, a question raised in contemplation is what exactly is embraced by morality? Further, the question was morality of which entity had to be enforced. The next issue was to what extent was the standard of morality required to be regulated by the commercial dealings. When these questions are answered, the certainty as is accustomed to Juenger is eroded. There were also the arguments that good faith results in the international character of CISG being undermined as it was bound to be context which was relevant to be influenced by social traditions and the legal traditions of national court.  As against the view presented by the common law scholars, the civil law scholars present the view that good faith was something which was recognized universally. Thus, to extend it to the instrument for regulation of international trade would simply compliment the code of conduct. There were also the arguments that the lack of uniformity can be overcome by interpreting and developing body of case law in a uniform manner.

In this context, case laws have presented different views with regards to the good faith meaning and its functioning in convention presents a practical aspect to this debate. There is a rapid development in the body of case law revolving good faith. Some of these have been discussed here. In the case of Oberlandesgericht (Provincial Court of Appeal) Mu ?nchen, or is otherwise known as the Automobiles case, the matter was heard before the German Provincial Court of Appeal (Munich). In this matter, the judge stated that the provisions of the CISG could not be interpreted in good faith where there was absence of interpretation regarding the consequence of conduct of parties to contract. In the case of Bri Production “Bonaventure” v Société Pan Africa Export, also referred to as Bonaventure case the court suggested that the contracting parties have a positive duty for regulating their conduct in good faith, along with the parties to initiate court proceedings in such cases where they are at a clear fault, as it is not in good faith. The matter of Hungarian Chamber of Commerce and Industry led to the court justifying reference being made to article 7(1) of the convention. They pointed out that observing good faith was not the sole criterion which had to be made use of, for the purpose of interpreting CISG. It is something which was a standard and had to be observed in performance of the contract by the parties.

Debate Surrounding the Inclusion of Good Faith Provisions in CISG

From the discussion undertaken in the previous segments, it can be concluded that in the international trade, the principle of good faith has gained a lot of significance and it is a concept which covers both aspects of the common law and the civil law systems. There is no need of getting to a strict definition of good faith. This concept can simply be applied when thee contracting parties are clear on their mission of cooperating with each other for streamlining the international sales contracts. However, the legal reality puts this notion on a different path altogether. The vacuum which is created owing to the varied perceptions of good faith under the two systems of common law and civil law is not even filed with the CISG. Even though the scope of this convention was adopting uniform rules governing international sales of goods contracts, such uniformity would not mean that uniform rules are established automatically. This is because uniformity is a difficult goal to attain particular when the convention is to be applied in different nations. Based on CISG, good faith is neither a general obligation, nor a general principle. Where good faith is considered as general obligation, it would result in positive duty being imposed on contracting parties for observing performance of contract. The convention is silent on sanctions on breach of good faith. Where the contracting party fails to act in good faith, it would not be a contravention of article 7(1) fundamentally. There is a need to thus bring out some standards of conduct with proper sanctions. All in all, good faith is a state of mind and thus the concrete results cannot be attained.

References

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