Klaus Peter Berger*

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A key takeaway from today’s conference is that good faith is a “super principle” of utmost generality which is omnipresent in both substantive and procedural law. From a skeptical perspective, one is tempted to concede that we have not made much progress since the days of Cicero who argued that good faith as a principle of Roman law (bona fides) “has a very broad meaning”. Today’s conference has shown that we have not come closer to a concrete definition of good faith than to characterize this fundamental legal principle as a duty of honesty, loyalty, reasonableness and fair dealing.

However, the notorious vagueness of good faith also has a positive effect in that good faith can be qualified as a “multi-functional” super principle. It has a “creative”, a “restrictive”, a “decorative” and, depending on the applicable law, sometimes also a “distributive” function. Drawing a distinction between these different functions helps to evade the apparent dangers connected with the vagueness and openness of the concept.

Good faith has a creative function because it provides a source for a large number of more specific obligations which are in line with the commercial objectives pursued by the parties with their contract. Duties derived frarn good faith can be characterized as “accessory obligations”, without which the parties’ primary obligations have no or less effect. Prominent examples are the “dynamic” duties of cooperation, communication and renegotiation.

Good faith has a restrictive function because it sets limits on a party's excessive or unfair exercise of its contractual rights vis-a-vis its counterparty.

Good faith has a decorative functian because it allows arbitrators to provide a “spiritual or moral decoration’ to their legal reasoning and to their decisions reached on other legal grounds. This function is more relevant in arbitration than in proceedings before domestic courts. Parties opt for arbitration because they expect the arbitral tribunal to decide their dispute in a way that is fairer and more reasonable than a judgement from a domestic court. Consequently, arbitral tribunals have a strong inclination to confirm that their decision of the dispute is in line with the principle of good faith, fair dealing and reasonableness.

Finally, and depending on the Jegal system in which it is enshrined, good faith can have a distributive function by serving as the Jegal origin of concepts geared towards the adaptation of the contractual risk-distribution agreed upon by the parties to changed circumstances. The clausula rebus doctrine of Swiss law, the théorie de Imprévision of French law, the German doctrine of the disturbance of the foundation of the transactions (Störung der Geschdftsgrundiage) and the hardship principle of transnational law enshrined in the UNIDROIT or TransLex-Principles (www.trans-lex.org) are prominent examples of such concepts.

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The future of good faith in international arbitration can best be forecasted by providing answers to three salient questions.

Wil! good faith continue to be used effectively in the future in spite of its vagueness and the impossibility to define it in more detail?

The answer to this question is “yes” for two reasons. 

First, because international arbitrators, in general, tend to treat a good faith argument raised by a party during the proceedings, especially one that is raised without any connection to the doctrine and case law of the applicable substantive law, with caution. By deriving their jurisdiction from the agreement of the parties, international arbitrators have a natural tendency to uphold the parties’ contractual agreement, i.e. let the principle of pacta sunt servanda prevail over good faith. A second reason why this question must be answered in the affirmative is that what is relevant in international arbitral proceedings is never good faith as such, but always gocd faith in context. That means that arbitral tribunals will continue not to elaborate on what in abstracto constitutes good faith behavior. Instead, they will limit themselves to determining whether a party, on the facts of the case before them, for which the party alleging bad faith conduct of the other side bears the burden of proof according to the principle of “actor incumbit probatio”, has not complied with its duty of good faith. Consequently, we will continue to see negative determinations of bad faith, rather than positive definitions of good faith.

Will the gap between civil and common law as to the acceptance of good faith as a general principle of law remain?

Again, this question must be answered in the affirmative because of the fundamentally different perspectives of civil law and (English) common law on good faith. English law regards a general principle of good faith as an undue interference with the parties’ contractual risk assignment because good faith is (mis-)understood as a tool to escape a party’s contractual commitments. Civil law systems are based on the notion that the duty to act in accordance with good faith is externally imposed on the parties as an objective legal standard of conduct and as a mandatory rule of law. However, these fundamental conceptual differences between civil and commen law will not become relevant in many cases for two reasons. First, in a variety of fact patterns, common law and civil kaw arrive and will continue to arrive at the same result,

either by using the principle (or implied duty) of good faith or ather legal doctrines. Second, on the basis of an express contractual good faith provision (e.g., in large infrastructure, long-term delivery or similar contracts) both common law and civil law systems take a similar approach with respect to the effects of such provisions.

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Will problems remain in the application of good faith in IA?

This question also needs to be answered in the affirmative for three independent reasons. First, good faith will continue to be used by counsel as a “last ditch argument”, similar to the notion of public policy in setting aside proceedings before domestic courts. Second, very few cases will remain in which good faith will be used by arbitral tribunals as a carte blanche to deviate from the solution under the applicable law in order to justify a “fair and just" (= reasonable) decision of the case. However, cases in which an arbitral tribunal employs goed faith to disregard the applicable law and renders a decision in equity instead (so called “hidden amiable composition’) will remain extremely rare. Third, arbitrators, when dealing with the concept of goad faith will continue to be (directly or subconsciously) influenced by they own legal background, thus risking to distort the concept of good faith under the applicable law, because good faith as shaped by case law and doctrine of one jurisdiction must not necessarily mean the same as good faith in another jurisdiction.