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Introduction

In simple language Good Faith is honest intent to act without taking an unfair advantage

over another person or to fulfill a promise to act, even when some legal technicality is not

fulfilled. The term is applied to all kinds of transactions. But in legal terms Good Faith is

an abstract and comprehensive term that encompasses a sincere belief or motive without any

malice or the desire to defraud others.

Utmost good faith is usually divided into 3 components: representations, concealments,

and warranties and failure of fulfillment of these three tools direct the situation to the

practice of Bad Faith.

It is an important part of USA law and followed in most country commercial laws. The High

Court ruled that parties to commercial contracts could owe each other an implied duty to act

in good faith, even if the contract didn't expressly require them to do so (2003). Previously,

parties to a commercial contract only had to act in good faith if the contract specifically

required them to do so. The relevant background to a commercial contract included not just

the facts but also the parties shared values and norms of behavior based on Industry law

(2006) These could include a shared expectation that each would act in good faith, for

example, that each would act honestly and avoid improper or unacceptable behavior falling

short of actual dishonesty; and behave consistently with the values and norms implicitly

underpinning the contract. The dominance in the world economy is evolved from the capacity

and capability to up hold traditions with unique blend of modernization. South Asian

countries are mostly developing countries with many developing industries. In this study,

emphasis had been given to identify different practices taken by companies. The main

objectives of the study are to understand the existing commercial law practices by local

companies in sub-continental countries and to find out ways to apply good faith practices into

organizations to gain more competitive advantage in global business environment (Arthur,

1994; Huselid, 1995; Ichniowski et al. 1997; Katou and Budhwar, 2007; Miah and Bird

2007).

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Good Faith in Civil Law and Common Law

At first lets talk about good faith Under English law; there is no generally applicable

definition of "good faith" in performing contracts. It is clear from the authorities that the

content of a duty of good faith is heavily conditioned by its context. There may be a core

meaning of honesty but, put into context, the meaning of the phrase will call for further

elaboration. Examples of different interpretations by the courts include: faithfulness to an

agreed common purpose, acting within the spirit of the contract, observing reasonable

commercial standards of fair dealing and acting consistently with the justified expectations of

the parties. In a recent case, the Court of Appeal found an express obligation to co-operate in

good faith meant the parties would work together honestly endeavoring to achieve the stated

purposes expressly linked to the duty.

Finally, cases seem to suggest that lack of good faith entails bad faith. Whilst good faith has a

core meaning of honesty, not all bad faith involves dishonesty. Bad faith conduct could

include behavior which is seen as commercially unacceptable, improper or unconscionable,

but which is not actually dishonest. So, a failure to act in good faith (or not to act in bad faith)

does not necessarily require fraud or other dishonesty.

When drafting an express obligation to act in good faith, think about what this involves in the

context of the contract. The drafting should be clear and precise, with no room for different

interpretations - consider including a non-exclusive list of examples of "good faith" behavior.

In common law, good faith, as a general principle, is accepted by the law of the United

States, whereas English law has refused to develop the principle as a general one. As is

widely known, English law has previously declined to adopt a general principle of good faith.

It has been said by a leading author that, the predictability of the legal outcome of a case is

more important than absolute justice. A civil law author, Hein Ktz, comments on this

approach: The English do not seem to appreciate that the technique of going forward

cautiously from this case or that case, as justice in each case requires, is equally possible

where the judge has to work on the basis of a loosely textured statutory formula, such as good

faith principle. Some of them believe that such form would be positively dangerous.

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The tendency of a legal system to embrace good faith or explicitly require it

In a narrow range of particular situations is likely to be related to a number of historical,

cultural and institutional factors. As has been shown hitherto, the concept of good faith is not

static. For example, the notion of good faith has evolved recently in countries such as Canada

and Australia, which having the past ended to follow the distrustful English lead with regards

to good faith in the development of their contract law Another example is the mixed system

of Scots law in which good faith appears to be increasing its influence.

In civil law countries good faith is accepted as a general principle of contract law. However,

it is not always understood in the same way. Good faith has allowed continental judges to

create new solutions without invading the area of the legislator. The German example where

judges have overcome obstacles and legal gaps deriving the decisions under section 242 BGB

is conspicuous, as will be seen.

Sometimes contractual good faith reaches, in continental law, such levels of amplitude that,

for example, in Italy its creative role has been recognized. Two leading scholars testify so.

Galgano asserts. The principle of good faith allows identifying other prohibitions and duties

besides those foreseen by the law.

Massimo Bianca states that, beyond the role of integration that good faith plays, the principle

prevails even over the determinations and clauses of the contract. The Italian courts have

embraced this view as well: a recent verdict by the Corte di Cassazione has affirmed the

criterion that good faith is an instrument in the judges hands to control and even to modify

and integrate the agreement.

Good Faith in Civil Law:

Civil Law, in contrast, is codified. Countries with civil law systems have comprehensive,

continuously updated legal codes that specify all matters capable of being brought before a

court, the applicable procedure, and the appropriate punishment for each offense. Such codes

distinguish between different categories of law: substantive law establishes which acts are

subject to criminal or civil prosecution, procedural law establishes how to determine whether

a particular action constitutes a criminal act, and penal law establishes the appropriate

penalty. In a civil law system, the judges role is to establish the facts of the case and to apply

the provisions of the applicable code. Though the judge often brings the formal charges,

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investigates the matter, and decides on the case, he or she works within a framework

established by a comprehensive, codified set of laws. The judges decision is consequently

less crucial in shaping civil law than the decisions of legislators and legal scholars who draft

and interpret the codes.

The twentieth century, specifically in the 1930s, scholars saw good faith as a tool in the

judges hands for adjusting the contract to new and unforeseen events in opposition to the

inflexibility of articles 6 and 1134 line 1 of the Civil Code.To the question of whether such

flexibility of the contract could bring more trouble than benefits, the scholars answered that

they rather feared a rvolte des faits contre le Code Ripert in LOrdre conomique et la

Libert Contractuelle considered that the regulation of the contract had passed from flexible

to semi rigid. In his view, the legislator had supplanted the parties in the regulation of

contractual obligations under the pretext of law and order. To avoid the limitation of

contractual freedom, he advocated for a tool in the judges hands which allows shaping the

contract according to the circumstances. Ripert stated that it is difficult to find a technical

way for that, but he imagined several ones in the theory of imprvision, which is a theory that

had been applied on numerous occasions by the Counseil dEtat and other administrative

courts allowing the adjustment of administrative contracts due to the public interest

involved.At the end of the fifties and during the sixties good faith started to be accepted by

courts.

Good Faith in Common Law:

Common law is generally unmodified. This means that there is no comprehensive

compilation of legal rules and statutes. While common law does rely on some scattered

statutes, which are legislative decisions, it is largely based on precedent, meaning the judicial

decisions that have already been made in similar cases. These precedents are maintained over

time through the records of the courts as well as historically documented in collections of

case law known as yearbooks and reports. The precedents to be applied in the decision of

each new case are determined by the presiding judge. As a result, judges have an enormous

role in shaping American and British law. Common law functions as an adversarial system, a

contest between two opposing parties before a judge who moderates. A jury of ordinary

people without legal training decides on the facts of the case. The judge then determines the

appropriate sentence based on the jurys verdict.

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Practice of Good Faith in Countries other than Bangladesh

Many Law have not yet recognized a general duty of Good Faith on contracting parties.

ThoseLaw prefers and incremental and piecemeal approach in solving conflicts. For example,

Thomas Henry Bingham, Baron Bingham of Cornhill (13 October 1933 11 September

2010) stated in the case of Interfoto Picture Library Ltd v Stiletto Visual Programmes

Ltd [1989], In many civil law systems, and perhaps in most legal systems outside the

common law world, the law of obligations recognizes and enforces an overriding principle

that in making and carrying out contracts parties should act in good faith. This does not

simply mean that they should not deceive each other, a principle which any legal system must

recognise; its effect is perhaps most aptly conveyed by such metaphorical colloquialisms as

'playing fair', 'coming clean' or 'putting one's cards face upwards on the table.' It is in

essence a principle of fair open dealing English law has, characteristically, committed

itself to no such overriding principle but has developed piecemeal solutions in response to

demonstrated problems of unfairness. Sir Bingham was a British judge and jurist and served

in the highest judicial offices of the United Kingdom as Master of the Rolls, Lord Chief

Justice and as Senior Law Lord.

This rigid position about Good Faith differs from the position of this concept from many

other countries including France, Germany, United States, Canada and Australia,

which, to some extent or another, recognize some form of overriding principle that, in

agreeing and performing contracts, the parties should act in good faith.

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Supreme Court of Canada imposed general duty of Good Faith in contract through the case of

Bhasin v. Hrynew and the court acknowledged that Canadian contract Law comes with a duty

of Good Faith that requires all concerned parties to perform their contractual obligations

honestly. Mr. Justice Thomas Cromwell, a Canadian jurist and current Puisne Justice on

the Supreme Court of Canada supported this decision by stating, Finding that there is a duty

to perform contracts honestly will make the law more certain, more just and more in tune

with reasonable commercial expectations.

Practice of Good Faith in Bangladesh

To analyze the practice of Good faith in Bangladesh we choose insurance sector at first place.

To know the reason firstly we have to know what actually insurance is. A contract of

Insurance is a contract between two parties whereby one party, called the Insurer, agrees to

pay the other party a certain sum of money on the happening of a specifies contingency, or

agrees to indemnify the other from losses arising from certain specified events. The other

party to the contract, called the Insured or Assured pays an agreed sum of money, called the

Premium, as consideration. One of the essentials characteristics of a Contract of Insurance is

Good Faith. The main objective of every insurance contract is to give financial security and

protection to the insured from any future uncertainties. Insured must never try to misuse this

financial cover. This implies that it is lawful for any insurance contract to practice Good Faith

from the perspective of both insurer and insured. And it is the duty of the Insured person to

disclose all material facts concerning the subject matter of the insurance. This discloser

should be full and fair, and if in case of misinterpretation or fraud, the insurer will have the

option of avoiding the contract.

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Analysis of Survey findings

To get an idea about the perception of insurer and insured about the existence of Good Faith

in our national law and the current level of practice of Good Faith and the importance of

implementation of Good Faith more prominently in a contract from both side of insurer and

insured person we did a survey on some selective questions with the help of employees in

who work in insurance sector. And the result of this analysis is given below:

1. According to you what is Good Faith?

In our first question we wanted to know that how many people know about the actual

meaning of Good Faith and we found that a good number of people (46%) know the actual

meaning of Good Faith. And about 31% knows Good Faith to be Customizing your service

according to customers desire and about 23% knows Good Faith as Attracting customers

with Good reputation. Hence about 51% people do not know the actual meaning of Good

Faith.

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2. Does Good Faith exist in our commercial Law?

Then we wanted to know that how many people are aware of the existence of Good Faith in

our Commercial Law. According to our analysis we found that 61% of our target people are

aware about the existence of Good Faith in our Commercial Law and 31% does not have clue

about Good Faith being a part of our Commercial Law. From this analysis we can see that

even as majority of people are not aware of the actual meaning of Good Faith they are aware

of Good Faith being a part of our Commercial Law as they are working in an Industry related

to Good Faith.

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3. How prominently Good Faith is stated in our National Law?

How prominently Good Faith is stated in our Commercial Law? this question was asked to

know about how many people are aware about the importance of Good Faith in our

Commercial Law. And only 8% believes that Good Faith holds a strong position in our

Commercial Law. About 38% supports a moderate position and according to 31% it holds a

weak position. Ironically 23% believes that Good Faith is not a part of our Commercial Law.

4. Is the current concept of Good Faith in the sense of cooperation a desirable

outcome?

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When we wanted to about the desirable outcome of the existence of the concept of Good

Faith in the sense of cooperation, 31% believes that the outcome is appreciable whereas 69%

believes in an undesirable outcome. This situation states that in spite of the presence Good

Faith in Commercial Law, the practice is rare.

5. Do you think the concept of Good Faith is likely to change over time?

In our next question we wanted to know if the participants want the concept of Good Faith is

likely to change over time. Surprisingly majority (54%) of our participants dont know that

weather it should change or not and about 38% thinks it should. Only 8% think that it should

go on as it is.

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6. Should Government impose restrictions and increase inspections to make sure

that every company practices Good Faith?

Majority (77%) people think that Government should impose restrictions and increase

inspections to make sure that every company practices Good Faith but 23% disagreed. This

implies that most people support an honest practice of business whereas there are people who

are still looking for loopholes.

7. Do you have an insurance account with the company you are working for or any

other?

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We wanted to know about the acceptance of insurance, not only as an insurer but also as an

insured person, and thus we asked if they are holding any insurance contract for their own

purpose with their own or any others. We found that 54% is holding account with their own

company, and about 23% do not hold any contract. But 23% holds one with other companies.

It implies that a huge number believe in insurance contract on their own company but still a

great number prefer other companys policy over their own.

8. If you answered anything other than Yes then please state the reason

In the previous question 23% stated that they are holding an insurance contract with other

company but their own and as reasons behind this act 29% stated that other companies

offered more attractive features than their own and 14% believed that their own company will

not be able to practice a Good Faith when it comes to claiming.

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9. If you have an Insurance Contract then did any situation came up when you had

to claim for remedy, and how was the response toward your appeal from the

company.

When it came to claiming for remedy, maximum participants, about 77% expects the

insurance companies to practice good faith. Whereas about 15% people who actually claimed

for remedy ended up not getting a proper response and 8% had positive response.

10. If your application was rejected then do you think the company practiced Good

Faith?

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When we wanted to know if the companies who rejected the participants application

practiced Good Faith, about 15% thought that the company did practice Good Faith even

though their application got rejected whereas majority meaning 46% thought the company

did not. And the 31% percent of people who have not yet claimed for remedy expects a

proper response and 8% thinks a company should abide by Good Faith no matter what the

situation is.

Practice of Bad Faith in Insurance sector by the insurer:

Though insurance policy maker are morally and lawfully bound to practice Good Faith still

there are many activities going on which leads the situation toward the practice of Bad Faith

Instead of Good Faith and these are:

Confusing Customers with Insurance-Industry and Legal Speak:

The truth is, most average consumers are not well-versed in legal terminology and have a

very basic understanding of their own insurance policies. So policy makers use such plenty of

ways to confuse policyholders by using legal terms rather than plain English and avoid

fair compensation. To avoid this situation many states in the U.S. have enacted laws that

require insurance policy contracts to be communicated in "plain English," and it is to be

implemented to all other countries.

Advertising with misrepresentation of information:

Insurance companies sometimes design advertising with misrepresentation information or

with half-true information. They do not disclose all the relevant material information

regarding what the policy covers and what it does not. Their advertisements often include

incorrect information regarding the cost of the policy so that they seem more attractive to the

potential policyholders. They often advertise themselves as the best in the market by making

false statement about the competitors. They misrepresent the competitors policies to gain

competitive advantage. When a company releases such advertisement they engage in

unethical practices.

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Hiding the policy limitations:

Insurance companies have a duty to disclose all the information regarding the insurance

policy to their policyholders otherwise it will be a violation of the duty of good faith and fair

dealing. The insurer has the duty to disclose all applicable benefits and costs. They should

clearly inform the insured about the situations under which the insurance benefit will not be

paid. If the insurance company fails to do so it will then be a case of fraudulent

misrepresentation. The insured will be entering into the contract without free consent because

he/she was unaware of some of the facts. So this can be considered as example of bad faith

practice in insurance sector.

Changing the Policy:

The insurance companies sometimes change the terms of the insurance policy without

informing the policyholders. Later, when the insured files a claim they deny it on the basis of

the newly incorporated terms and conditions. This is a clear example of practicing bad faith.

Practice of Bad faith by insured:

There are lots of cases where insurer practices Bad faith while dealing with a customer but

also a huge number of facts where insured person do unethical things to get greater benefit

by:

Misrepresentation of Facts:

One of the significant problems that have seemed to outbreak the insurance industry is

misrepresentation of information by the insured person about the facts related to the

insurance policy. The misrepresentation may be either oral or written and is the basis of many

of the legal problems the industry has encountered. Although in most cases

misrepresentations appear to happen unintentionally -- the misrepresenting agents believing

that they are being truthful -- the agent's ignorance is not a defense against liability arising

out of this unintentional misrepresentation. The existing laws that hold agents responsible for

misrepresentation are generally based on the premise that agents have an ethical duty to know

what they are selling and to present policies in a truthful manner.

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Recommendation:

The most important step toward a well-practiced industry with Good faith is to inform

both party of any contract about the importance of Good faith and educate them

properly about this, that how it should function and positive outcomes of this practice.

Explanation about all coverage and providing examples to policyholders by using

plain English rather than legal terms so that the policyholder has a complete

understanding of the insurance contract is must.

Personal awareness of policyholder is a must. Policyholders should always read the

small print. The policyholders often fail to read the documents properly and only

realize something is not covered when they file a claim.

One party should inform another before making any kind of changes to the clause of

agreement and should state all the terms clearly to the paper. No misrepresentation, no

half true information should be part of any agreement.