(iv) The mandatory nature of the principle of good faith and fair dealing

The parties’ duty to act in accordance with good faith and fair dealing is of such a fundamental nature that the parties may not contractually exclude or limit it (paragraph (2)). On the one hand, the principle of freedom of contract allows the parties to specify which actions are expected or prohibited among them. On the other hand, it is impossible to foresee all possible exceptions that might arise and should reasonably mitigate the scope of an obligation to act (or not to act).

Being more specific. The mandatory nature of a principle becomes more specific, for example, in the similarly overriding principle that no contractual right or obligation is valid or enforceable if it has been invoked or assumed in a context of fraud, threat, gross disparity or illegality (see Unidroit Principles Article 3.1.4). Also, the parties may have provided that in case of early termination or payment of a specified amount in case of non-performance, which would generally be enforceable. However, in view of the actual circumstances and a gross disparity between the harm of non-performance, the principle of good faith might ‘demand’ the agreed amount is mitigated (Unidroit Principles Article 7.4.13).

Notwithstanding the somewhat interruptive nature of the principle of good faith, nothing prevents parties from agreeing on a duty to observe stringent standards of behaviour. The more specific the parties are about contractual rights or obligations, the more unlikely any interference should be with reference to a general standard such as good faith and fair dealing (see, for example, Article 5.3.3).