Application Of Good Faith Principles In Arbitration
1. Meaning and Scope of Good Faith in Arbitration
Good faith refers to:
Honesty in conduct
Fair dealing
Absence of abuse of rights
Observance of reasonable commercial standards
In arbitration, it operates at multiple levels:
Contract formation and performance
Conduct during arbitral proceedings
Enforcement of arbitral awards
2. Sources of Good Faith in Arbitration
(a) National Laws
Many legal systems incorporate good faith explicitly (e.g., civil law countries) or implicitly (common law doctrines like equity and estoppel).
(b) Arbitral Rules
Institutional rules (e.g., SIAC, ICC) indirectly embed good faith through:
Duty to proceed efficiently
Prohibition of dilatory tactics
(c) International Principles
UNIDROIT Principles of International Commercial Contracts (Article 1.7 explicitly mandates good faith)
General principles of international law
3. Application of Good Faith in Arbitration
(a) Good Faith in Pre-Arbitration Stage
Parties must comply with multi-tier dispute resolution clauses (negotiation, mediation).
Bad faith refusal to negotiate may affect admissibility of claims.
(b) Good Faith During Arbitral Proceedings
No abuse of procedural rights
No frivolous claims or defenses
Duty to disclose conflicts of interest
(c) Good Faith in Evidence and Disclosure
Parties must not conceal material facts
Fraud or misrepresentation can invalidate awards
(d) Good Faith in Enforcement Stage
Courts may refuse enforcement where:
Award obtained through fraud
Conduct violates public policy
4. Key Case Laws (At Least 6)
(1) ICC Case No 1110
Principle: Early recognition of good faith in international arbitration.
Tribunal emphasized that contracts must be performed in good faith.
Established that arbitral tribunals can apply general principles like good faith even without express contractual provision.
(2) ICC Case No 8873
Principle: Abuse of rights and procedural bad faith.
Tribunal rejected claims brought in bad faith.
Affirmed that arbitration cannot be used as a tool for harassment.
(3) Methanex Corporation v United States
Principle: Transparency and fairness in proceedings.
Tribunal emphasized procedural integrity and good faith conduct.
Reinforced that parties must act honestly throughout arbitration.
(4) Waste Management Inc v Mexico
Principle: Good faith in state conduct.
Tribunal linked good faith to fair and equitable treatment standard.
Held that arbitrary or inconsistent state actions violate good faith.
(5) Azurix Corp v Argentina
Principle: Legitimate expectations and good faith.
Tribunal found that failure to honor commitments breached good faith obligations.
Good faith was tied to investor protection standards.
(6) Tecmed v Mexico
Principle: Transparency and consistency as elements of good faith.
Tribunal held that states must act consistently and transparently.
Established that lack of clarity undermines good faith.
(7) World Duty Free Company Ltd v Kenya
Principle: Corruption and absence of good faith.
Contract obtained through bribery was declared unenforceable.
Tribunal refused to uphold claims based on bad faith conduct.
5. Doctrines Linked to Good Faith
(a) Estoppel
Prevents a party from acting inconsistently with prior conduct.
(b) Abuse of Process
Filing multiple proceedings
Delaying tactics
(c) Clean Hands Doctrine
A party acting in bad faith cannot seek equitable relief.
6. Role of Arbitral Tribunals
Tribunals ensure good faith by:
Imposing cost sanctions
Dismissing abusive claims
Drawing adverse inferences
Protecting procedural fairness
7. Challenges in Applying Good Faith
(a) Lack of Uniform Definition
Different jurisdictions interpret good faith differently.
(b) Tension with Party Autonomy
Strict enforcement may limit strategic behavior.
(c) Evidentiary Difficulties
Proving bad faith (e.g., intent, fraud) is complex.
8. Emerging Trends
Increasing reliance on transparency and disclosure obligations
Stronger sanctions for procedural abuse
Integration with investment arbitration standards
Greater emphasis on ethical conduct of counsel
9. Conclusion
The principle of good faith is a cornerstone of modern arbitration, ensuring fairness, efficiency, and legitimacy. It governs both substantive rights and procedural conduct, preventing abuse and reinforcing trust in arbitration as a dispute resolution mechanism. Judicial and arbitral trends increasingly recognize good faith as an indispensable element in maintaining the integrity of the arbitral process.
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