Good Faith, International Trade and Article 7 (1) of the CISG

In the previous posts (Overview of CISG and Issues of Interpretation in the CISG), we talked about basics relating to CISG and a brief overview of the issues of interpretation involved in the CISG. We saw how Article 7 of the CISG plays a key role in this respect. Article 7 (1) 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.”

There are three important components of Article 7 (1):

1. ‘International character’

2. ‘Need to promote uniformity’

3. ‘The observance of good faith in international trade’

In the present post, we are concerned with the third aspect i.e. the good faith component. There are many definitions and meanings attached to ‘good faith’. One of the popular meanings defines ‘good faith’ as:^[1]

“An expectation of each party to a contract that the other will honestly and fairly perform his duties under the contract in a manner that is acceptable in the trade community.”

Thus good faith implies honest and just conduct on the part of both the parties in their dealings.^[2] We also saw that various instruments and conventions like the CISG^[3], the UNIDROIT Principles^[4], and the Vienna Convention on Law of Treaties^[5] etc. require good faith.

We see that Article 7(1) can be given a broad interpretation. However it must be remembered that good faith cannot exist in a vacuum and cannot come into picture unless the parties are willing to participate.[6] Good faith becomes extremely important in cases where the international sales contract has led to a dispute. In such cases, ‘good faith’ is very essential for a successful dispute resolution.[7]

Full disclosure is an important part of the good faith obligation. The parties should be fully willing to discuss their interests in a timely and effective manner.[8] The parties must not be subjected to legalisms and procedural niceties by the judges or the arbitrators. A technical and legalistic process is not at all desirable in such cases.[9]

The judges or the arbitrators must be willing to go beyond what is provided in the national legal systems. They must fully disclose any previous dealings or relationships that might give rise to any conflict of interest.[10] As Lord Hewart C.J. in R v. Sussex^[11] very succinctly stated that it is important that “justice should not only be done, but should manifestly and undoubtedly be seen to be done”.

We see that attention must be paid to the phrase ‘observance of good faith,’ along with the additional words ‘in international trade,’ as inserted in Article 7(1). There are two points that can be made about the reference to ‘good faith in international trade’.

1. The principle of good faith may not be applied according to the standards ordinarily adopted within the different national systems.[12] Thus ‘good faith’ must not be subjected to narrow domestic interpretation.

2. The principle of good faith as expressed in the CISG must be construed in light of the special conditions and requirements of international trade.[13]

In the next post, we shall do a greater scrutiny of Article 7(1) of the CISG and talk about international character and need to promote uniformity in the CISG.

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[1] William Tetley, Good Faith in Contract: Particularly in the Contracts of Arbitration and Chartering, 35 J. Mar. L. & Com. 561.

[2] Robert S. Summers, The General Duty of Good Faith--Its Recognition and Conceptualization, 67 Cornell L. Rev. 810, 820 (1982)

[3] Article 7 of the United Nations Convention on Contracts for the International Sale of Goods.

[4] Article 1.7

[5] Article 26 of the Vienna Convention on the Law of Treaties Signed at Vienna, 23^rd May, 1969.

[6] Robert S. Summers, The General Duty of Good Faith--Its Recognition and Conceptualization, 67 Cornell L. Rev. 810, 820 (1982).

[7] Ibid.

[8] Supra note 1.

[9] Ibid.

[10] Aneta Spaic, Approaching Uniformity in International Sales Law through Autonomous Interpretation, 11 Vindobona J. Int'l Com. L. & Arb. 237, 257 (2007).

[11] [1924] 1 KB 256.

[12] Supra note 1.

[13] Aneta Spaic, Approaching Uniformity in International Sales Law through Autonomous Interpretation, 11 Vindobona J. Int'l Com. L. & Arb. 237, 257 (2007).