Originally from  Limits to Party Autonomy in International Commercial Arbitration

INTRODUCTION

This chapter focuses on some contract law issues regarding party autonomy and its limits, particularly from the perspective of the doctrine of good faith and fair dealing. It will first enter into some conceptual definitions before moving to some conflict of laws issues and finally discuss the various functions of good faith and fair dealing in their relationship with arbitration. The perspective in this contribution is primarily comparative and international and relates to contracts only.  With respect to the latter, the arbitration agreement itself is also not covered as being the subject of another Conference contribution.

I.      GOOD FAITH AND FAIR DEALING IN CONTRACT LAW: CONCEPT AND MISUNDERSTANDINGS

Good faith is an essentially civil law concept which is based on and was developed in Roman law (bona fides) and did find its way into most civil law codifications, notably in France in the Napoleonic Civil Code of 1804 and in Germany in the codification of civil law entering into force in 1900. From there, the notion of good faith spread into other civil law jurisdictions and further developed at the time of recodifications such as in the 1992 Dutch Civil Code or, more recently, the Brazilian Civil Code of 2005. However, the concept no longer is exclusively civilian having been incorporated in the United States in the Uniform Commercial Code (“UCC”) as “good faith and fair dealing” and also finding its way into international conventions such as the Vienna 1980 Convention on the International Sales of Goods (“CISG”).

It is essential to understand that the notion of good faith in the civil law has two aspects. A first aspect relates to a person’s state of mind when concluding or performing legal acts; the second aspect relates to standards of behavior that can be expected and, thus, be imposed upon a person concluding or performing such acts. The first aspect is subjective and is often characterized as subjective good faith while the second is objective and qualified as objective good faith. Both notions may overlap as when a person intentionally breaches a contract only to harm the other party to a contract which may characterize both as violating the obligation to act in subjective good faith and the obligation to act in accordance with standards of behavior that a reasonable party in the same circumstances ought to observe. Notwithstanding these small areas of overlap, the objective aspect of good faith has deeper and broader ramifications than its subjective counterpart. In this respect, German scholars have identified a number of functions that can be attributed to objective good faith. Scholars in other civil law jurisdictions have followed this classification or – as in French law with its traditional reluctance to read too much into objective good faith – have only accepted some but not all of these functions or have refrained from basing a theoretical foundation of some of these obligations on good faith and provided some alternative basis.