If good faith emerges in a transaction between two parties, and one party had to be honest with the other, the burden of proof of good faith in pursuing the transaction falls on the party that is under such general obligation. This confirms that good faith has always been a sacred principle of Bahraini law, and remains so.
Good Faith: What does it mean?
The duty to perform contractual obligations in Good Faith is not limited or confined to the provisions expressly stipulated by the contracting parties, but extends to include other matters which constitute necessary sequel thereto as stipulated in Article 127 of the Bahraini Civil Code.
It entails both acts and omissions, passive and active duties on the contracting parties, these include:
An obligation of cooperation amongst the parties for the proper execution of a contract.
An obligation to transparently disclose any matter or event that may impact or influence the performance of the contract.
An implied obligation to avert any act or omission that may adversely impact the performance of the contract.
An obligation to act consistently with prudence and observe commercial standards of dealing
An obligation to mitigate damage/harm if sustained by either party.
All of the above constraints and duties are but examples and variants of the necessary sequels of the contract in view of the legal requirement of good faith, equity and customary practice.
Good Faith: The Practice
In practice, however, establishing that a party has not acted in good faith can prove very difficult reflecting the absence of a definition in law or jurisprudence.
The starting position is an assumption that the exercise of a right is lawful. Therefore, the burden of proof lies on the person alleging that the right has been unlawfully exercised.
If the only intention of such exercise is to cause injury to another person. The question of intention is always difficult to establish, and becomes even more difficult when qualified as being the ‘sole’ intention.
The interests to be realized are in themselves, unlawful. The owner of a property has the right to let it out to others, but such right does not extend to letting that property for any use which is considered unlawful.
The interests intended to be achieved through the exercise of the right are of little importance so that they are entirely out of proportion to the injury caused to a third party by the exercise of the right. In this case, it is recognized that some interest will be achieved by a person as a result of the exercise of a right, but the injury that will be suffered by a third party significantly overshadows such interest.
The exercise of right results in grave unusual injury to another person - the “lesser of two evils should be chosen”. The example provided is where an ox owned by one person sticks it’s head in the jar of another, and where the ox’s head cannot be removed except by breaking the jar or cutting the ox’s head. In such an instance, it would be a grave and unusual injury for the owner of the ox if the owner of the jar were to kill the ox in order to save his jar.
Good Faith vs. Contract Terms
It is important to note that in most jurisdictions in this region, including Kuwait, the UAE and Qatar, contracting parties are also expressly required by the provisions of the Civil Code to perform their contracts in good faith. Even though the Oman Civil Code contains no equivalent provision to Article 129 of the Bahraini Civil Code, Omani lawyers generally accept that, as a matter of Omani jurisprudence, an identical principle also applies in the Sultanate of Oman.
The doctrine of good faith cannot be used as a tool to adjust, circumvent, or dilute the effect of a contractual term. If good faith could override contractual terms that could leave parties uncertain as to whether or not an agreed contractual term must be adhered to.
As such, parties are bound by the contract terms they have agreed to and the duty of good faith does not alter their contractual rights or obligations. In fact, it could be argued that a party seeking to circumvent agreed contractual terms through the application of a good faith argument may itself not be acting in good faith in attempting to do so.
Good Faith: Concluding Remarks
The doctrine of good faith applies as a pervasive duty which the parties must adhere to in performing their duties and exercising their rights under a contract. It requires contracting parties to act honestly and fairly towards each other, in a way that does not frustrate the purposes of the contract.
Follow LexTalk World for more news and updates from International Legal Industry.