COMPARATIVE PRIVATE LAW GOOD FAITH University of Oslo

COMPARATIVE PRIVATE LAW GOOD FAITH University of Oslo Prof. Giuditta Cordero Moss

Case I – Withheld information under formation • A food producer sells one of its buildings (formerly a bakery, however not operative for some years) to a small baker. • The seller knows that the buyer intends to start a bakery in that building, and knows that due to a recent change in regulations the building cannot be used for that purpose • None of these circumstances is mentioned during the negotiations or in the contract

Withheld information: Breach of precontractual duty to disclose? • Norwegian law: duty to disclose; loyalty • German law: good faith, duty to disclose • Italian law: good faith • UNIDROIT, PECL: good faith (? ) • English law: no duty to disclose • CISG: (N/A) (? )

Case II – Distributorship affecting calculation of royalty • A licence agreement regulates the calculation of the royalty due to the licensor as a percentage of the price charged by the licencee to the distributor of the products • The licencee establishes a wholly owned company and appoints it as distributor • The price to the distributor is very low, therefore the royalty due to the licensor is very low • The distributor makes a large profit; the licencee benefits of the distributor’s profit

Affecting calculation of royalty: breach of duty to act in good faith? • Norwegian law: Duty • English law: no duty to act loyally, duty of to act in good faith care • CISG: (N/A) no duty • German law: Duty to to act in good faith act loyally, duty of care • Italian law: Duty to act in good faith • Unidroit, PECL: good faith (? )

Possible aims of rules on good faith • Ensure that relationships are fair beyond formulations in the contract • Ensure exact and precise performance according to the terms of the contract

Norwegian law • Avtl. § 33: a party is not bound if enforcement would be unfair because of circumstances known to the other partiy at the moment on entering into the contract • Sale of goods act § 19(1)(b): liability in sale ”as is”, if lacking disclosure of material matters that could reasonably be expected and this has induced purchase • General duty of care (hvtjl. ), good faith

German law • § 242 BGB: good faith (also precontractual): implied duties to ensure accurate performance, implied limits to avoid abuse of rights • § 241 BGB: duty of care: protect the other party’s rights or things, disclosure • § 442 BGB: if fraudulent non-disclosure, buyer does not loose remedies even if acted with gross negligence

Italian law • Art. 1175 CC: good faith • Art. 1337 CC: good faith in negotiations • Art. 1375: good faith in performance. Implied duties to ensure accurate performance • Art. 1491 CC: buyer looses remedies if negligence. Fraudulent non-disclosure: exemption clause not valid (1490)

English law • No duty of disclosure • Mere silence is not equal to misrepresentation • Duty to perform contract exactly and precisely according to its terms

CISG • No general duty of good faith – 7. (1): 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. • Art. 35: – Requirements contained in the contract – Ordinary purpose – Particular purpose expressly or impliedly made known to seller: • Only if reasonable to expect that seller judges • Only if buyer did not know or could not have known

UNIDROIT • Art. 1. 7: Duty to act in good faith • To be determined according to standard in international trade

PECL • Art. 1: 201: Duty to act according to good faith • Art. 1: 202: Duty to cooperate • Not to be determined according to national standard

Good faith – international standards • http: //www. trans-lex. org – Legal doctrine – Arbitral awards (mainly: corroboration) – Principles – CISG – National court decisions – National Legislation • Contractual practice?

Contractual practice: Letters of Intent • Parties want to achieve: – No commitment to execute the contract – Uncommitted description of terms – Exclusion of liability • Enhances duty of loyalty in Civil law – No unjustified break off – Duty of information – Cannot exclude culpa in contrahendo

Further reading: • G. Cordero Moss, THE FUNCTION OF LETTERS OF INTENT AND THEIR RECOGNITION IN MODERN LEGAL SYSTEMS, in Schulze, R. (ed. ), New Features in Contract Law, Sellier. European Law Publishers, 2007, pp. 139 -159 http: //folk. uio. no/giudittm/The%20 Function% 20 of%20 Letters%20 of%20 Intent. pdf

Recognition of Letters of Intent in Restatements? • Unidroit, PECL: Good faith under negotiations (Civilian model) • Good faith to be interpreted as in international trade • Contract practice important source • Contract practice: Letters of Intent that exclude good faith obligations and duty of loyalty

Common features • Misrepresentation • Fraudulent silence = misrepresentation?

Parties’ duty to act according to good faith