Good Faith in Contract Performance in the Chinese and Common Laws

Abstract

INTRODUCTION Good faith has been something of a problem child in the law of contract. Some legal systems, mostly drawn from the common law, have viewed good faith with suspicion, if not hostility. On the other hand, some legal systems, mostly civilian in nature, including Chinese law, regard good faith as an essential component of any law of contract and cannot countenance its absence. These divergent views have at times manifested themselves in debates on the drafting of international conventions or restatements of contract law. The classic example is Article 7(1) of the Vienna Convention on Contracts for the International Sale of Goods (CISG), which provides 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. The text is a compromise between different legal systems which has been understood differently in different parts of the world. For some (most notably common lawyers), the Article is directed to courts and arbitral tribunals and it instructs them to promote observance of good faith in international trade in the interpretation of the Convention. It does not impose a duty of good faith on the parties themselves. For others, the Article cannot be understood in this restricted sense and it does impose a duty of good faith on the parties either directly or indirectly as one of the general principles on which the Convention is based. Chinese courts seem to follow the latter path and, where no other CISG provision is applicable to a disputed matter, simply deem as a truism that Article 7(1) imposes a legal duty on international traders to conduct their affairs in good faith, as does the domestic principle of good faith. In many ways the legal community has moved on from the debate on the application of the good faith principle under the Vienna Convention. Subsequent international restatements, such as the unidroit Principles of International Commercial Contracts, the Principles of European Contract Law and the European Draft Common Frame of Reference, have clearly and unequivocally imposed a duty of good faith on the parties and further have prohibited the parties from contracting out of that duty.