In everyday life, morality and ethical norms play a major role in preventing certain kinds of bad behaviour. Even in business relationships, the parties are often interested in preventing behaviour contrary to “good faith”, but what if they are not able to prevent this kind of behaviour themselves? This paper investigates two different approaches to the legal requirements of ”good faith” within business relationships. Danish contract law recognizes the “good faith” principle and within CISG it is also recognized as a general principle of the Convention. The requirements of “good faith” are met through the interpretation and modification of contracts. The parties are obliged to care for each other’s interests and to give each other information that is necessary in order to mitigate losses, as well as to avoid acting contrary to previous behaviour (estoppel) and to avoid an abuse of rights. English contract law, on the other hand, does not recognize the legitimacy of a general principle of “good faith” and English courts apply narrow doctrines or legal rules to similar problems instead. In general, the English courts seem more reluctant to intervene in commercial contracts than both the Danish courts and the foreign courts deciding cases within CISG. Despite the obvious differences, however, Danish and English contract law often lead to rather similar results. The paper further investigates whether the legal requirements of “good faith” can be justified from a Law and Economics perspective. In respect to the legal aspect “abuse of rights” it seems that in most cases the courts only intervene, when it is necessary to do so. From an economic point of view the courts need to trade off the costs and benefits of intervening in each and every case, in order to maximize social welfare. A court decision does not only have an effect on the parties of the particular case, it also implies incentive effects on future business relationships and it affects the administrative costs of the court system. When the courts intervene, there is a possibility of making the particular contract more efficient ex post, because contracts are inevitably incomplete as a result of transaction costs and uncertainty. However, the courts also create legal uncertainty when they intervene. The “good faith” principle can be justified from a Law and Economics point of view, to the extent the courts are able to trade off the need for legal flexibility in regards to incomplete contracts, with the need for legal certainty. The courts should only intervene if the need for legal flexibility is larger than the need to avoid legal uncertainty, caused by the intervention. Despite their different approaches to the “good faith” principle, both Danish and English courts seem able to perform an optimal trade off in most cases, in regards to the legal aspect “abuse of rights”.
|Educations||MSc in Commercial Law, (Graduate Programme) Final Thesis|
|Number of pages||119|