Sund-Norrgård, Kolehmainen and Suhonen, ‘The Principle of Loyalty and Flexibility in Contracts’

Flexibility is needed especially in long-term cooperative agreements, which should work over time and adapt to changing circumstances. The aim of this article is to highlight how the Nordic principle of loyalty can facilitate the conclusion of more flexible contracts. The method used is the traditional legal method (Rechtsdogmatik).

The principle of loyalty, the Nordic equivalent to the principle of good faith in the civil law countries of Continental Europe, requires that the parties to a contract have due regard to the other party’s interests during the contract negotiations and performance, but also after the contract has been executed. The principle of loyalty may, for example, oblige a party to inform the other party of issues that are relevant for his performance or require renegotiation of the contract due to changing circumstances. By clarifying for the parties the behaviour that can be expected of them, as well as what they can expect from others, the principle of loyalty facilitates trust and makes it easier for parties to dare enter into more flexible contracts. The parties can also ascertain that the principle of loyalty will be given weight in the interpretation of the contract through their drafting technique, as we show in the article.

Flexible, long-term contracts are likely to include gaps and leave room for interpretation, which increases uncertainty. In the article we argue that the principle of loyalty proves to be beneficial in these situations. As the principle of loyalty functions as a legal basis for protection of the parties’ legitimate expectations, the gaps of the contract can often be filled with what is perceived as “normal” for the type of contract within the said trade. This reduces the need for highly detailed, complete contracts.

As a result, the knowledge of the existence of the principle of loyalty might support the parties’ choice to conclude a flexible contract.

Sund-Norrgård, Petra and Kolehmainen, Antii and Suhonen, Onerva-Aulikki, The Principle of Loyalty and Flexibility in Contracts (March 10, 2014).

First posted 2014-03-12 17:37:13

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