„Good faith” seems to be predicated as intuitive sense of justice and have basic meaning in quality and functioning of market relations. „Good faith” liability in the Anglo-American Law system is not nearly as extensive as those in Continental Law and its existence in contract law is one of the major divisions between those systems of law. Instruments of European Law are giving vast range of protection of „good faith”, fair dealing and fairness.

Good faith and fair dealing in European and International law

Article 2:301 of Principles of European Contract Law (PECL)¹ states that the party, which has negotiated or broken off negotiation in „mala fides” (Latin: „bad faith”) is responsible for the losses caused to the other party. Bad faith in this case means for examples the lack of real intention to reach an agreement with the other party. Thus this Article cerates the obligation to negotiate in good faith and states the sanction to the party with commit „culpa in contrahendo”. However the Article does not specify the kind of responsibility of the party. Thus the official commentary states that the legislator has on mind the responsibility not only for „damnum emergens”², like the Polish one³, but also the party is liable for „lucrum cessans”⁴. According to PECEL, the parties during the negotiations are also obligated to disclosure information to the second party under the sanction of avoiding any resultant contract. Article 4:107 of the Principles of European Contract Law states: „A party may avoid a contract when it has been led to conclude it by the other party’s fraudulent representation, whether by words or conduct, of fraudulent non-disclosure of any information which in accordance with good faith and fair dealing it should have disclosed”.

The Article 2.1.15 of the UNIDROIT Principles of International Commercial Contracts (2004) states that there is the freedom of negotiations and the party is not liable for failure to reach an agreement⁵. Nevertheless a party which negotiates in „bad faith” is responsible for loses causes to the other party⁶. The Principles does not specify the meaning of „loses”. Is that means the „damage suffered by the other party who expected the agreement to be concluded”?⁷ Does „loses” include the lost expectation? UNIDROIT Principles states that the harm in the event of non-performance includes loses suffered by the party and the gain of which it was deprived. This is expressed in Article 7.4.2, which states: „The aggrieved party is entitled to full compensation for harm sustained as a result of the non-performance. Such harm includes both any loss which is suffered and any gain of which it was deprived, taking into account any gain to the aggrieved party resulting from its avoidance of cost or harm. Such harm may be non-performance and includes, for instance physical suffering or emotional distress”⁸. Thus the expectations in Article 2.1.1 would count only as gains and not as losses, because, if so, then it would be specified as it is in Article 7.4.2.

The requirements of „good faith” and fair dealing are the borders of the principle of „libertas contrahendi”(Latin: „the freedom of contract”). This principle is giving the individuals the freedom to bargain among themselves the terms of their own contracts, without governing interference. This basic rule of Polish law of obligation creates Article 353¹ of Polish Civil Code. Therefore, the parties entering into an agreement may shape their legal relationship at their discretion, however provided that its content is not in conflict with the nature of the relationship, the law or the principle of social co-existence. Consequently the sanction in this case when the party not worn those rules is very strict – the agreement is invalid. The principle of „libertas contrahendi” appears in the Article 1:102 of the PECL, which startes: „Parties are free to enter into a contract and to determine its contents, subject to the requirements of good faith and fair dealing, and the mandatory rules established by these Principles”⁹. Article 1:201 says: „Each party must act in accordance with good faith and fair dealing”. And also „the parties may not exclude or limit this duty”¹⁰. Thus the PECL states that the need to promote „good faith” is listed first and is ahead to „the principle of legal certainty”¹¹. Mr MacQueen claims that Article 1:201 refers to „good faith” in objective standard and arguments it by the fact that the legislator refers in this article also to „fair dealing”, which means „observance of fairness in fact which is an objective test”¹².

The concept of „good faith” can also mainly be found in the Article 1.7 of UNIDROIT, which obliges each party to act in accordance with „good faith” and fear dealing in international trade. The parties may not exclude or limit this duty¹³.

Furthermore, the principle of „bona fides” lays at the roots of many other legal institutions, like for example the general rule of law „pacta sunt servanta”. However, article 79(1) of the United Nations Convention on Contracts for the International Sale of Goods (called Vienna Convention)¹⁴, provides for exoneration for non-performance in the event of a change the circumstances and states: „A party is not liable for failure to perform any of his obligation if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences”¹⁵. Thus Vienna Convention stands in contrario¹⁶ to the rule „pacta sunt servanta”. Nevertheless, Mr. Goldman comments this matter by the motto: „if it were generally accepted – one could add the limitation of „pacta sunt servanta” principles by an implicit clause of „rebus sic stantibus” (things thus standing)”¹⁷. Thus the theory of changing the circumstances („rebus sic stantibus” in other words) is not in opposition to the principle that “pacts must be respected”¹⁸, because it only limits this principle, creates its borders. Consequently can be said that „bona fide” is the base of those principles and thus the base of those relations. Thus in the case of when the performance of the contract becomes excessively onerous because of the change of the circumstance, the parties are bound to enter into negotiations with the purpose to end the contract or adopt it in order to distribute between the parties the loses and gains resulting from the change the circumstances with the regard to fear dealing and „good faith”¹⁹.

The term stemming from the intention of the parties, purpose of the contract as well as „good faith” may be implied to the agreement. „In addition to the express terms, a contract may contain terms which stem from the intention of the parties, the nature and purposes of the contract, and good faith and fair dealing”²⁰. However the party may avoid that term when it has not been individually negotiated and have causes a significant imbalance in the parties` rights, contrary to the requirements of „good faith” and fair dealing²¹. This remedy cannot be excluded or restricted²². Nevertheless the remedies for mistake, incorrect information, non-performance may be excluded or restricted unless it would not be contrary to „bona fides”²³. The Article 7.1.6 of the UNIDROIT Principles states that with limits a party’s liability for non-performance or permits the party to tender the different performance may not be invoked if it would be grossly unfair to do so in the comparison with the purpose of the agreement²⁴. Thus the Principle protects the parties from unfair clauses in the contract. The Consumer Contracts Directive 1993²⁵ states that the contractual term, with has not been individually negotiated have to be regarded as unfair in the case when in the contrary to „good faith” that name causes a significant imbalance between the parties²⁶. Thus the directive in that way also protects the weaker (the consumer) part of the contract.

4. Conclusion

Instruments of European Law are giving vast range of protection of „good faith”, fair dealing and fairness. „Good faith” liability in the Anglo-American Law system is not nearly as extensive as those in Continental Law and its existence in contract law is one of the major divisions between those systems of law. The continental law jurisdiction states that „good faith” had to be applied to formation of contract and its performance. More marrow is common law system, with creates this obligation only to the performance of agreement. From the other side the Article 2:301 of the Principles of European Contract Law creates the exception from the general freedom of contracts and implements the „culpa in contarahendo” liability (obligations in negotiation). PECEL seek to maintain a balance between the contracting attitudes and concept of civil and common law in the process of harmonization. They are the product of compromise among law and embrace the concept of universal „lex mercatoria”. However the question “have we reached the state where „leges mercatoriae”²⁷ complements the self-supporting international order?”²⁸ still stays open. Thus PECEL is only exemplar for Polish, English and any other legislator, not the rule of law. The mentioned articles, basically Article 1:102 and 1:201 of PECL prove that this act contains the general duty of fair dealing in contract law. However some comments argue that this solution would undermine commercial certainty, because the application of this rule may be random. „Good faith” seems to be predicated as intuitive sense of justice and have basic meaning in quality and functioning of market relations, however there is also the danger because it can lapse into generality and can become unpredictable. Thus it has to be created stricter border in this aspect of soft law.

* Autorka jest doktorantką Uniwersytetu Londyńskiego I absolwentką prawa Uniwersytetu Rzeszowskiego.

¹ The Principles of European Contract Law prepared by the Commission on European Contract Law (1999 text in English). Those principles may form a part of future European civil code.

² Latin – „actual loss”. The harm consist of the lost suffered, loss occurring.

³ Article 415, 471 and others – Polish Civil Code.

⁴ Latin – „lost profit”. The gain lost, profit ceasing.

⁵ UNIDROIT Principles are the result of the quest for codifying the „lex mercatoria”. They become alternative to national contract laws in international disputes, as well as they have been accepted as model for reforming national laws. – Stefan Vogenauer, Commentary on the UNIDROIT Principles of International Commercial Contracts (2004), Aug. 2008.

⁶ UNIDROIT Principles of International Commercial Contracts, 2004.

⁷ That is the sanction in the same situation under Polish Civil Code (Article 72 (2)).

⁸ UNIDROIT Principles of International Commercial Contracts, 2004.

⁹ The Principles of European Contract Law prepared by the Commission on European Contract Law (1999 text in English).

¹⁰ Ibidem.

¹¹ „The principle of legal certainty” relates to the conceptual scale for weighing up and balancing between formal justice and material fairness in courts decisions. – J. Raitio, „the Principles of Legal Certainty in EC Law”, July31, 2003, Springer.

¹² H. MacQueen, R. Zimmermann, European Contract Law..., op. cit., Footnote no.15.

¹³ Ibidem.

¹⁴ United Nations Convention on Contracts for the International Sale of Goods, 1980 (CISG). This is a treaty offering uniform international sales law. However this Convention does not include the reference to good faith as one of the mains principles of contract formation and performance. The CISG refers only to this principle in the interpretation of the Convention.

¹⁵ Article 79 (1) of Vienna Convention, 1980.

¹⁶ Latin – „In opposition”.

¹⁷ S. Guillemard, A comparative stud y of the UNIDROIT Principles and the Principles of European Contracts and some dispositions of the CISG, Kluwer Law International, 23 May 1999, p. 83.

¹⁸ „Pacta sunt servanta”.

¹⁹ Article 6:111 of the Principles of European Contract Law (1999).

²⁰ Article 6:102 of the Principles of European Contract Law (1999).

²¹ Article 4:110 of The Principles of European Contract Law (1999).

²² Article 4:118 (1) of The Principles of European Contract Law (1999).

²³ Article 4:118 (2) and 8:109 of The Principles of European Contract Law

²⁴ UNIDROIT Principles of International Commercial Contracts, 2004.

²⁵ Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, O. J. L. 95, 21.4.1993.

²⁶ Article 3 of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, O. J. L. 95, 21.4.1993.

²⁷ „Leges mercatoriae” (basis from „lex mercatoria”) – Latin (Laws Merchant).

²⁸ I mean: „Have we reached the state to implement one international law system?”