Chapter 4 Interpretation of Good faith and CISG’s

jurisprudence
4.1. Introduction
Given the extensive nature of good faith and different modes of interpretation of Article 7,
the duty of good faith has been interpreted and determined in different manners. It has also
created substantial issues for both common and civil jurisdictions. According to Michael
Bridge, good faith duty under international law has influenced much. Consider the common
law jurisdiction of New Zealand wherein court of Appeal said in Integrity Cars (Wholesale)
Ltd v Chief Executive of New Zealand & another case that “[m]uch more significant are the
facts that the Court is faced with interpreting [international] legislation – and not, directly at
least, with applying the common law … [and] it would be singularly inappropriate to import
into the construction … technical rules of the common law”.1

However, in domestic cases, the common law court usually refrains from extracting external
principles into domestic cases. Justice Kirby also opined in this regard in Royal Botanic
Gardens and Domain Trust v South Sydney City Council.2

“In Australia such an implied term appears to conflict with fundamental notions of
caveat emptor that are inherent in common law conceptions of economic freedom. It
also appears inconsistent with the law as it has developed in this country in respect of
the introduction of implied terms”.3

Essentially, courts were reluctant to give effect to the good faith. However, later the approach
of courts changed. It became further changed after the ratification of CISG. However, some
academics believe that good faith application had been recognised by court before the
ratification.

It has said earlier that good faith must be observed whenever there is a case of international
trade. Consider the case of Povey v Civil Aviation Safety Authority and Others 4 the court
recognised the international principles in its international character yet it could be construed
from domestic laws. In this way, court further recognised that Article 7(1) can be employed
in domestic contracts even in cases of implied terms. It shows the difference from what has
been observed in the previous chapter.

In the interpretation of domestic contracts Article 7 can be employed in domestic context.

There is no restriction on having interpretation of good faith as it is configured and used by
US courts as well as some degree by Canadian courts. In establishing an international
construction of good faith, it needs to be configured and preferred regardless of its
ethnocentric views. Therefore, the good faith principle in Australia should be developed in a
robust otherwise it would lead to problems for foreign litigants. This was later adopted by
Jude Priestley in the seminal case of Renard Contructions v Minister for Public Works.5
Similarly, in the case of South Sydney District Rugby League Football Club v News Ltd
1
Integrity Cars (Wholesale) Ltd v Chief Executive of New Zealand & another [2001] NZCA 113
2
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5
3
Bruno Zeller, ‘Good faith- It it a contractual obligations’(2003) 15(2) Bond Law Review 215, 216
4
Povey v Civil Aviation Safety Authority and Others [2002] VSC 580
5
Renard Contructions v Minister for Public Works [1992] 26 NSWLR 234
(South Sydney)6 the court referred to the application of good faith as enshrined under Article
7(1). In the former case, the court emphasised on the approach taken under CISG in respect
of good faith. the court also made it a necessary obligation to observe. However, the courts of
Australia did not articulate about the content of interpretation, it only asked for application of
good faith as given under CISG which commonly means international importance of good
faith.

In addition, the court in South Sydney did comment that the full effect of good faith had not
achieved considering the enforcement as well as performance of contract. Despite any such
ambiguity, the Australian court in South Sydney did notice that there is a need of full force of
Article 7(1) of CISG in domestic application. Although initially there were variety of shades
of good faith that was also noted by Carlin.

“Given the tortured development of the doctrine of good faith in contractual

performance in Australia, the hallmark of which seems to have been misconstruction
heaped upon misconstruction”.7

However, in the wake of development and incorporation of good faith in Australia, the
application has had been considered in its entirety. It is the job of judges or judiciary to
consider the interpretation of good faith per CISG. The interpretation is subject to contracts
as well as rights and obligations of seller and buyer. It provides that parties must also observe
good faith in its absolute way. this was also expressed by court of Appeal of Grenoble in the
case of SARL Bri Production Bonaventure v Societe Pan African Export (Bonaventure).8 It
means the interpretation and observance of good faith is a case of court a well as parties. In
essence, there is broad application of CISG must be considered for given absolute effect to
good faith.

In SARL BRi Production Bonaventure" v. Society Pan African Export,9 it was agreed upon in
a commercial contract that the products (primarily of jeans) would be sent to South America
and Africa after being sold by a seller headquartered in France to a buyer based in the US.
The seller of the items demanded documentation of the delivery and subsequent conditions of
the goods throughout the negotiating period and after performance. The merchandise was
resold. It was discovered that the items had been sold to Spain against the terms of the deal.
The vendor disclaimed making any more sales or delivering the products to the US-based
buyer.10 In the meanwhile, the purchaser brought a lawsuit before French domestic courts.
The buyer had obviously broken Article 25 of the CISG, according to the court, which
consistently applied the CISG's rules. The buyer of the jeans had broken the terms of the
contract by bringing them to Span, which was specifically forbidden, and for failing to
properly tell the seller of the trousers' final destination.11

Similarly, no controversy also exists when the application of good faith is considered in
respect of international trade. Parties as well as judiciary must view it thoroughly too. The
only obligation on courts is to consider CISG when good faith is considered per

6
South Sydney District Rugby League Football Club v News Ltd (South Sydney) [2000] FCA 1541
7
Bruno Zeller, ‘Good faith- It it a contractual obligations’(2003) 15(2) Bond Law Review 215, 218
8
SARL Bri Production Bonaventure v Societe Pan African Export (Bonaventure) [1995] Grrenoble
9
Ibid
10
Ibid
11
Bruno Zeller, ‘Good faith- It it a contractual obligations’(2003) 15(2) Bond Law Review 215, 217
interpretation. Whosoever is interpreting must comply with the CISG, this is true whether is
taken from subjective or objective sense per Article 8 of CISG. This application of good faith
per CISG provides that it is free of any jurisprudence element, since it is considered in every
case.

Consider the important case of Sinn und Zweck der Vorschrift where the court had to consider
the relationship between Article 48 and Article 49 of the CISG that speak for the rights of
buyer against the seller in curing of defects.12 The court said that it will only apply if there is
fundamental breach as to non-conforming goods. The court said that the seller could
discharge himself from the duty of fundamental breach if he made delivery of substitute
goods without convince the buyer. In essence, the principle of good faith is used in a free
manner in respect of CISG. This open approach is contrary to implied approach because the
latter approach is limited in nature. the general application can be applied regardless of any
policy objectives or considerations.

The implied approach is not tentative in nature because it largely depends on the type of
contract and also certain policy considerations. This essentially restricts the application in all
types of contracts. However, the US court of Colombia provides that good faith is rather
common when bad faith is also important to provide. In Queen Mary Case the Colombian
court states that

“There is nothing more against reality: in all juridical systems that recognize the
principle of good faith, validation is a form of granting security to the life of business
and, in general, to all judicial relationships”.13

It provides that good faith is substantive in nature and it does not attract any penalty or
remedy upon breach of it. This was reiterated by court in Bonaventure. The court said that
Article 7(1) does not provide for remedies in case of breach of any provision of CISG per
good faith.

4.2. Interpretation and Application of Article 7: European

civil legal Courts
“In Chapter 3, the content, application, and scope of GF was analysed under Article 7 and in
English common law. it was noted that good faith duty is not implied nor recognised as a
freestanding general obligation in commercial contracts in the UK. This is to prevent lack of
certainty, infringement on freedom of contracts, and limit judicial discretion in rewriting the
terms of the contract to arrive at ‘fair’ decisions. For these reasons, despite recent
developments, it is an entrenched position of English law that good faith duty cannot be an
implied duty nor be used as an interpretive tool. The opposite is true for civil law
jurisdictions and Article 7 and other provisions of CISG. This chapter is concerned with
substantive and interpretive role of GF in Convention and its application by domestic national
courts. Having analysed how common law jurisdictions which ratified Convention interpret
and apply Article 7, this section analyses interpretation of Article 7(1)&(2) by European civil
legal jurisdictions.”
12
Sinn und Zweck der Vorschrift [1997] Oberlandesgerich Koblenz
13
Bruno (n 25) 223
4.2.1. Content of good faith in Article 7 and civil law
jurisdictions
To reiterate, the reference to GF in Art. 7(2), along with other measures for standardisation of
interpretive rules and provisions of CISG, seeks to establish a uniform standard for
interpreting the Convention and promote fairness in commercial contracts. 14 Prima facie,
Article 7 does not require implying good faith duty in a broad and expansive manner in
international commercial contracts.15 However, the interpretive duty can lead to a substantive
and role, nonetheless. Due to the impact of the European Community on global commerce,
the Convention is crucial in the European context, as all EU Member States have ratified the
Convention.16 Convention and the EU have made an effort to combine and harmonise
numerous legal principles while maintaining individuality. PECL article 1:102 states that
parties are free to negotiate a contract's terms and to enter into one, as long as they do so in
good faith.17 PECL codifies the general and common principles applicable to the
interpretation of contracts. The substantive role of good faith in Article 7 is enabled by
domestic recognition of good faith for various reasons. 18 This includes reference to good faith
standards in various provisions of CISG and how domestic courts have applied Article 7.

GF is, therefore, made to be a necessary component of every contract and, by extension, of all
business interactions, under PECL and Convention.19 Additionally, this obligation is
unchained by PECL Art. 1:201. As stated in Chapter 2, the European civil law system has a
solid basis for the GF theory. It indicates that the parties must also negotiate the contract in
GF and is not simply restricted to the contractual interaction between the parties during the
fulfilment of the conditions.20 This indicates that, as emphasised by scholar Powers, GF has a
far larger role to play in the civil judicial system, whether under the Convention or local law.
Due to this, Lord Bingham in Interfoto Picture Library Ltd v. Stiletto Visual Programmes
Ltd21 recognised and noted significance of GF in European civil law. The GF has historically
played a significant role in European civil law and is a principle that parties must consider
while performing or creating a contract. 22 It does not specify that parties are not free to
conceive or conceal. But it must be properly understood by every legal system. 23 This effect
may be measured by acting fairly and entering the room with clean hands. In conclusion, it is
a positive step that assures fair and transparent dealing.
14
Bruno Zeller, CISG and the Unification of International Trade Law (Routledge 2007) 223
15
Bruno Zeller, ‘The significance of the CISG for the harmonisation and transplantation of international
commercial law’ (2002) Victoria University Working Paper 14, 16
16
John E Murray Jr, ‘The neglect of CISG: a workable solution’ (1998) 17 JLC 365, 368
17
NILS JANSEN and REINHARD ZIMMERMANN, ‘Contract Formation and Mistake in European Contract
Law: A Genetic Comparison of Transnational Model Rules’ (2011) 31(4) Oxford Journal of Legal Studies 625,
631
18
Horst Eidenmüller, Florian Faust, Hans Christoph Grigoleit, Nils Jansen, Gerhard Wagner and Reinhard
Zimmermann, ‘The Common Frame of Reference for European Private Law: Policy Choices and Codification
Problems’ (2008) 28(4) Oxford Journal of Legal Studies 659, 662
19
Reinhard Zimmermann and Simon Whittaker, Good Faith in European Contract Law (Cambridge University
Press 2008) 172
20
Philip Hackney, ‘Is the United Nations Convention on the International Sale of Goods achieving uniformity?’
(2001) 61 LLR 473, 476
21
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1987] EWCA Civ 6
22
L A DiMatteo, ‘An international contract law formula: the informality of international business transactions
plus the internationalisation of contract law equals unexpected contractual liability’ (1997) 23 SJILC 67, 737
23
SR Harjani, ‘The Convention on Contracts for the International Sale of Goods in United States courts’ (2000)
23 HJIL 49, 55
This is a direct recognition of the significant role that the fair dealing and general fairness
principles must play. The GF theory is a sign of fairness and justice in case determination, in
contrast to the widespread perception of European civil legal principles as being rigorous and
devoid of judicial discretion in law formation.24 Due to its legislative foundations, the GF
concept under the general aegis of Convention has been used and examined by courts in
many settings when dealing with international transactions. Article 242 of German civil law
posits that “An obligor has a duty to perform according to the requirements of [GF], taking
customary practice into consideration.” The same position can be found in French civil
code.25

This indicates that GF is a component of a prominent European civil law system's public
policy; in fact, since it cannot be changed or omitted from by a contract, it is known as the
“queen of rules.”26 It serves as a tool for construing contractual terms, deciphering intent,
assuring performance, attributing liability, implying substantive duties, and having parties
made accountable for performance as implied by precontractual agreements. 27 Such
considerations and implied terms are not possible in English contractual interpretation, unless
parties specifically require such duties – nor does English contract law allow pre-contractual
negotiations as admissible28 for construing objective intention of parties in commercial
contracts.29 If it is used in the UK's current legal system, good faith is deemed as antithetical
to freedom of contract, party autonomy, and certainty of interpretation. 30 The inequality of
arms and imbalance in bargaining power of parties are irrelevant factors in determining
meaning and intention of parties in English law 31; whereas, in PECL and by reference to good
faith and fair dealing, courts can review contractual terms, in light of pre-contractual
negotiations and other factors, to strike a fair bargain, ex facto.32

4.2.2. Application of Article 7 in interpretation of Convention

The issue is whether good faith promotes uniform interpretation of Convention across various
legal systems. The case of common law jurisdictions and some European civil legal systems
has been explored broadly. GF itself is a well recognised implied duty and tool of
interpretation in said jurisdictions. If it promotes uniform and harmonized interpretation of
Convention,33 it strengthens the role of Convention as uniform, standardised, and harmonized
legal framework for international sales of goods. UK courts can therefore be required to
contribute to the international jurisprudence on Article (as court decisions are also source of
convergence or divergence of international standards34).
24
Eyal Zamir, ‘The Inverted Hierarchy of Contract Interpretation and Supplementation’ (1997) 97(6) Columbia
Law Review 1710, 1801
25
F Ancel and B Fauvarque-Cosson, Le nouveau droit des contrats, Guide bilingue à l’usage des praticiens,
(2019) 117 LGDJ 130, 132
26
Shida Galletti, ‘Contract interpretation and relational contract theory: a comparison between common law and
civil law approaches’ (2014) 47(2) The Comparative and International Law Journal of Southern Africa 248, 250
27
Gerard McMeel, McMeel on Construction of Contracts (Oxford University Press 2017) 15
28
Per Lord Hoffman, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR
896
29
Richard Calnan, Principles of Contractual Interpretation (2nd Edition, Oxford University Press 2014) 46
30
Ibid
31
Ibid 47
32
Klaus Peter Berger, ‘Harmonisation of European Contract Law the Influence of Comparative Law’ (2001)
50(4) ICLQ 877, 890
33
GL Neuman, ‘The Uses of International Law in Constitutional Interpretation’ (2004) 98(1) AJIL 82, 85
34
Anthea Roberts, ‘COMPARATIVE INTERNATIONAL LAW? THE ROLE OF NATIONAL COURTS IN
CREATING AND ENFORCING INTERNATIONAL LAW’ (2011) 60(1) ICLQ 57, 63
It should be noted that good faith is not just found in Article 7 in its limited form (due to
compromise between civil and common law systems). Rather, it is a general standard of
conduct in other articles of the Convention, such as Articles 8, 16, 29, 32, 40, 60, 77, and 80.
This is akin to duty of cooperation, reasonableness, and objective conduct found in English
law. however, it goes beyond the minimum content of good faith in English law to make
good faith part of general principles of lex mercatoria, as reflected in estoppel, loyally
principle, and principle of mitigation of damages in the Convention. This can be highlighted
by analysing use of Article 7 as interpretive tool in relation to some other provisions of the
Convention.35

4.3. Conclusion
The duty of good faith after the adoption of CISG has practiced in extensive way. Courts
recognise the approach in view of its international character, yet it has expanded the scope of
good faith. Countries such as New Zealand and Australia have given maximum effect to
CISG. Even in scenarios where CISG has not articulated much, domestic courts have given
full effect to good faith. It is not only considered in pursuant to Article 7 in fact courts have
borrowed the application of good faith in other provisions of CISG. In essence, Article 7 is
construed broadly.

35
Alexander S Komarov, ‘INTERNATIONALITY, UNIFORMITY AND OBSERVANCE OF GOOD FAITH
AS CRITERIA IN INTERPRETATION OF CISG: SOME REMARKS ON ARTICLE 7(1)’ (2006) 25 JLC 75,
77