Leiden Law Blog

Good faith and fair dealing: increasing the common character of the CESL?

Posted on by Rosanne van der Laan Bouma and Phinney Disseldorp in Private Law
Good faith and fair dealing: increasing the common character of the CESL?

On the 24th of September 2013 the Legal Affairs Committee of the European Parliament (JURI) presented its report on the Common European Sales Law (CESL). JURI stresses that its report is not an exhaustive paper and raises points that it wishes to put forward for further discussion. One of these is the general duty for the contracting parties to act in accordance with good faith and fair dealing (Article 2 (1) CESL). The notion that the principle of good faith and fair dealing can be used as a ‘sword’ as well as a ‘shield’ has met strong objections. JURI thus proposes to change the consequences of a breach of the duty and also suggests changing the definition of the duty.

Reasonableness and fairness in Dutch law

According to Article 6:2 of the Dutch Civil Code (DCC), contracting parties must treat each other in accordance with the standards of reasonableness and fairness. The principle of reasonableness and fairness plays an important role in the interpretation of contracts, and can be used to supplement or derogate a contract. Article 3:12 DCC specifies the principle on the basis of three objective elements: the generally accepted legal principles, the fundamental conceptions of law in the Netherlands and the relevant social and personal interests involved in the given situation. Despite these elements, the principle remains an open standard; a court is free to give weight to the particular circumstances of the case. 

Good faith and fair dealing in the CESL

In the CESL the principle of good faith and fair dealing appears to be interpreted in a more subjective way. According to Article 2 (b) RegCESL, the principle is a standard of conduct characterised by honesty, openness and consideration of the interests of the other party. This definition seems to be derived from Article 1:103 (1), Book I of the Draft Common Frame of Reference (DCFR). The Comments of the DCFR attempt to clarify how the subjective elements in the definition should be interpreted. Concerning the consideration for the interests of the other party, the Comments state that only ‘a basic level’ is required. However, what is to be considered a basic level remains unclear. JURI now proposes changing the definition, in the sense that ‘so far as may be appropriate, reasonable consideration for the interests of the other party’ is required. Although interpreting the words ‘appropriate’ and ‘reasonable’ might still be problematic, this proposal creates a much more graspable standard for the contracting parties than the ‘basic level’ of the DCFR. Furthermore, it puts more emphasis on the freedom of contract (Article 1 CESL). 

Sword and/or shield?

According to Article 2 (2) CESL, the consequences of the violation of the general duty to act in accordance with good faith and fair dealing are twofold. On the one hand the party in breach cannot rely on a right, remedy or defence which that party would otherwise have. The principle thus serves as a ‘shield’. On the other hand, Article 2 (2) also states that there might be a right to damages: the so-called ‘sword function’. The Dutch principle of reasonableness and fairness can also fulfill both functions. Not acting in accordance with the principle may lead to liability and a right to damages, even in the stage of pre-contract negotiations.

JURI proposes getting rid of the sword function. Seemingly it takes into consideration the comments on the CESL made by the United Kingdom, as good faith and fair dealing is not a general principle in common law. Even in regard to consumer rights, the principle only operates as a shield.

Regarding the consequences of a violation of the principle, the JURI proposal is more in line with the common law and resembles Article 1:103, Book III DCFR. This means that the duty to act in accordance with good faith and fair dealing can be considered more ‘common’ to all Member States and may be supported by a large majority.

Towards a common approach?

With the CESL, the European Union introduces a general duty to act in accordance with good faith and fair dealing. Regarding the content and the meaning of this duty, much is unclear and Member States have expressed their concerns. The JURI report attempts to provide a solution. Time will tell whether the Member States will agree with the proposed principle of good faith and fair dealing, and whether they will embrace the change in weaponry: no sword, only shield.

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