Introduction
In
my last post, we discussed the importance of fairness in International
Commercial Arbitration. In the present post, we shall talk about ‘good faith’
in a similar context. There are many definitions and meanings attached to ‘good
faith’. One of the popular meanings defines ‘good faith’ as:[1]
“An
expectation of each party to a contract that the other will honestly and fairly
perform his duties under the contract in a manner that is acceptable in the
trade community.”
We
see that good faith implies honest and just conduct on the part of both the
parties in their dealings.[2]
We also saw that various instruments and conventions like the CISG[3],
the UNIDROIT Principles[4],
and the Vienna Convention on Law of Treaties[5]
etc. require good faith. These instruments stipulate that “all parties to
arbitration, including lawyers, the arbitrators, the arbitration institution
(if chosen), and the actual disputing par-ties themselves must enter into the
arbitration with a mutual obligation to act in good faith”.
Full
disclosure is also an important part of the good faith obligation. The parties
should be fully willing to discuss their interests in a timely and effective
manner. An important point to remember is that the parties must not suffocate.
These means that the parties must not be subjected to legalisms and procedural
niceties. A technical and legalistic process is not at all desirable in arbitration.
The
arbitrators must be willing to go beyond what is provided in the national legal
systems. The arbitrators must fully disclose any previous dealings or
relationships that might give rise to any conflict of interest. As Lord Hewart
C.J. in R v. Sussex[6]
very succinctly stated that it is important that “justice should not only be
done, but should manifestly and undoubtedly be seen to be done”.
We
know that there many advantages of arbitration over the traditional legal
process. However, these perceived advantages of arbitration are lost if there
is no ‘good faith’. ‘good faith’ itself can provide many advantages such as
quick dispute resolution, low cost etc. The presence of lawyers in the
arbitration process continues to be a big impediment in this respect. A lot of
litigants are not satisfied with arbitration because most of the lawyers
inadvertently want to adopt the court room procedure in arbitration as well.
And if that does not happen, the lawyers start seeing arbitration as inferior
to litigation, thereby forfeiting the whole purpose of the process. This is a
test for the parties, the arbitrators as well as the counsels. Good faith needs
to be present in each one of them to make the arbitration process efficient and
effective.
Standard of Good Faith in Ad Hoc Arbitrations
Ad
hoc arbitration means that there is no formal administration by an established
arbitral organization; rather, the parties create their own rules and
procedures. There are usually three methods to employ this method:
a.
Drafting ad hoc procedures in the contract or the agreement itself.
b.
By Reference – This means that the agreement can refer to a set of ad hoc
arbitration rules such as UNCITRAL Arbitration Rules etc.
c.
Once the matter is before an arbitration tribunal, the arbitration tribunal
itself creates some rules and procedures of its own.
We
see that Ad Hoc Arbitration is clearly flexible and elastic in its approach.
Thus there is a lot of burden on the parties to effectuate such kind of
arbitration. Intentional delays or any other kind of mischief by the parties
could frustrate the whole arbitral process. Thus a very high standard of good
faith is required in Ad Hoc Arbitration.
Standard of Good Faith in Institutional Arbitrations
Institutional
arbitration means that the proceedings are administered or supervised by an
organization in accordance with its own rules of arbitration. Under
Institutional Arbitration, the parties depend upon the skill and the expertise
of the institution concerned for selecting the arbitration and administering
the arbitration process.
Unlike
Ad Hoc Arbitration, Institutional Arbitration is not so cheap and cost
effective. A compulsory fee needs to be paid to the body or the organization
that is administering the whole arbitration process. Also, Ad Hoc arbitration
can work well if all the parties and their lawyers are cooperative and act in
good faith. But many times it happens that one of the parties is not willing to
cooperate in the arbitration proceedings. The party at fault starts
intentionally delaying the arbitration process that can cause unnecessary costs
and unforeseen consequences. Thus without good faith on part of all the
parties, there are more than respectable chances of failure of the arbitration
process. Well-established arbitral institutions can deal quickly and
efficiently with many such tactics and/or assist the arbitral tribunal to do
so. A good institution can also remove any arbitrator who lacks independence or
is otherwise not performing his or her functions properly.[7]
Well-established
arbitral institutions can deal quickly and efficiently with many such tactics
and/or assist the arbitral tribunal to do so. Moreover, ICC can efficiently
deal with many procedural issues that might otherwise have to be resolved by a
domestic court if ICC was not involved. A good institution can also remove any
arbitrator who lacks independence or is otherwise not performing his or her
functions properly.[8]
In the coming posts, we shall talk about the duties of arbitrators and counsels in International Commercial Arbitration.
[1] William Tetley, Good Faith in
Contract: Particularly in the Contracts of Arbitration and Chartering, 35
J. Mar. L. & Com. 561.
[2] Robert S. Summers, The General
Duty of Good Faith--Its Recognition and Conceptualization, 67 Cornell L.
Rev. 810, 820 (1982)
[3] Article 7 of the United Nations
Convention on Contracts for the International Sale of Goods.
[4] Article 1.7
[5] Article 26 of the Vienna
Convention on the Law of Treaties Signed at Vienna, 23rd May, 1969.
[6] [1924] 1 KB 256.
[8] Ibid.
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