112
ICC DISPUTE RESOLUTION BULLETIN
2020 | ISSUE 2 | CASE DECISIONS
Simon Weber and Julie Martinez
Simon Weber is a PhD Researcher in international dispute resolution at King’s College London and a Research Assistant to Prof. J. Martin Hunter.
Julie Martinez is an Associate at Baker McKenzie in Paris.
The views expressed in this article are the authors’ own and do not, in any way, reflect the views of King’s College London or Baker McKenzie.
The principle of good faith is an often-invoked principle. In international arbitration, it is invoked among others in matters relating to the execution of the contract, the interpretation of the arbitration agreement or the conduct of the arbitral proceedings. This article gives an overview of different applications of the ‘good faith’ principle and shows how arbitral tribunals have applied the principle under both civil law and common law. This article does not propose a singular definition but rather descriptively lays out the various approaches arbitral tribunals have taken, with a particular focus on ICC disputes.
Many scholars, judges and arbitrators have attempted to define ‘good faith’. Although there is no universally agreed definition of the concept, different attempts have been made to explain what the principle of good faith entails. ‘Good faith’ originates from the Latin term bona fide, which can be understood as ‘a sincere belief or motive without any malice or the desire to defraud others’.
Some authors argue that good faith constitutes one of the general principles of international commercial law, beyond that of pacta sunt servanda, and serves as ‘basis for more specific rules, which may in turn become general principles’. Particular emphasis is also put on the obligation to arbitrate in good faith, or on the fact that ‘good faith, in its most accepted form, is defined as a general obligation of honesty, loyalty, whose source is not the contract but a permanent obligation of everyone’. Interestingly, for other authors ‘good faith’ amounts to moral standards and honesty:
[I]n a legal context, good faith has both a psychological and an ethical component. The former would consist of a belief that one is acting according to the law, and is designated as good faith-belief. The latter would consist in conducting oneself according to moral standards, and is designated as good faith-probity, or good faith-honesty, and is germane to ideas of loyalty and respect for the pledged word.
The concept of good faith carries in itself a set of values that are shared by all condign, fair and conscious persons such as loyalty, honesty, sincerity, cooperation, diligence, integrity, and even belief (in the latter, giving rise to the duty to protect legitimate expectations). It may be seen as a polymorphic and polyvalent legal institute, filled in by a miscellany of values intrinsic to the human nature when oriented towards the “good”.
At one end of a graduated scale, good faith amounts to honesty. At the other end, it amounts to paying proper regard to the interests of the other contracting party, perhaps even at the expense of one’s own practical interests. It should be further noted that the scope of
113good faith depends on the factual circumstances of every single case. Arbitrators must consider all the facts before concluding on the applicability of the ‘good faith principle’. ‘Good faith’ is therefore a dynamic, moving, ever-changing concept. It has been referred to by arbitrators as the ‘cornerstone of the legal order’ and a ‘safety valve’ of the legal system, allowing judges and arbitrators to redirect a decision that might have been formally correct, but would also have been contrary to general legal sentiments of fairness, correctness and reasonableness. Summarising the different approaches, we note that the concept can be described as a set of values that is just, fair, ethical, and genuine. Good faith is therefore an obligation to employ behaviour in accordance with a set of values.
The differences between the concepts of good faith in common law and in civil law have given rise to discussions and various ICC tribunals have addressed good faith in relation to the execution of contractual obligations, the interpretation of the arbitration agreement, or the principle of estoppel and non concedit venire contra factum proprium.
This article includes references to national jurisprudence and legislation, ICC previously published extracts of awards, and extracts published in this issue of the ICC Dispute Resolution Bulletin. To lay out the approaches to the principle of good faith in ICC awards, this article first provides general observations and illustrations as to the scope of the obligation to act in good faith (I). It then addresses the comparative approaches applied by ICC tribunals (II), and their recourse to international principles when defining and applying the good faith principle (III).
A study of ICC cases has shown that applications of the principle of good faith revolve around six categories of issues or sub-principles:
1. Parties must reach the common goal. Failure to comply with this requirement by one party may prompt the other party to suspend the execution of the contract. Furthermore, stating one’s unwillingness to perform a contract may constitute a breach of the principle of good faith.
For instance, in ICC Case 9593, the tribunal decided on the lawfulness of the respondent’s termination of several agreements. The tribunal noted that under Ivorian law and Art. 5.3 of the UNIDROIT Principles the parties must cooperate in good faith to reach the common goal contractually agreed upon. It found that the termination was unfair and ordered the respondent to pay compensation to the claimant.
One consequence of the principle recalled by Article 1134 para. 3 of the Ivorian Civil Code, according to which contracts must be performed in good faith, is that the parties must cooperate in good faith to reach the common goals contractually agreed upon. It is on the basis of the identical text of Article 1134 para. 3 of the French Civil Code that French courts have decided that good faith and loyalty oblige a party to a contract to facilitate the performance of its obligation by the other party ...
In this case, the arbitral tribunal however decided that ‘even if the Dealer was in breach of his contractual obligations, many breaches, even repeated, would not be considered as serious breaches allowing termination before the expiry of a period of two years’. Moreover, ‘[i]t appears from the facts of the case that, by its general behaviour, Respondent did not cooperate with Claimant in a way which would have allowed Claimant to strictly comply with all of its obligations’. Ultimately, the tribunal ruled that the termination of the contracts by the respondent was not justified and, therefore, abusive.
In ICC-FA-2020-007, the tribunal had to decide whether:
I)
the respondent had the right to terminate a basic cooperation agreement because of the claimant’s failure to pay the invoices issued by the respondent; and
II)
the respondent was nonetheless required to perform the contract and deliver the ordered goods despite not having received any payment for the claimant’s previous orders.
114
The tribunal first held that the respondent had the right to terminate the agreement since the claimant breached the contract when ‘during the pendency of the arbitral proceeding which it had just initiated, [claimant] expressly declared that it would not pay the outstanding invoices ... Invoices that, a matter of fact, do not appear to have ever been paid’.
The tribunal then decided that the respondent was allowed not to deliver the ordered goods in accordance with the concept of ‘anticipatory breach’, which is typically applied in common law systems but also known in civil law systems. Explaining its decision by referring to various decisions of the French Court of Cassation, the tribunal argued that expressing
the will not to perform its obligations arising out of the contract can be equated to a
failure to perform:
[P]rovided there is proportionality between the obligation destined to remain unperformed and the other party’s interest in receiving its performance, and furthermore that such party’s behaviour complies with the general duty of good faith. The legal rationale of the anticipatory breach is commonly found in the general duty of good faith in the performance of contracts, which is deemed breached by the party expressing the positive will to withhold its performance ...
Consequently, the arbitral tribunal required the claimant to reach the common goal contractually agreed by both parties. By stating its unwillingness to perform the contract, it forfeited its right to expect from the respondent to honour the deal – a contract is not a one-sided affair.
2. Both parties must respect the contract. In ICC Case 14005, in which the tribunal applied the contractual law of a common law country, the tribunal noted that the principle of good faith itself is also contained in Article 7 of the 1980 UN Convention on Contracts for the International Sale of Goods. According to the arbitrator, the principle of good faith required the respondent to fulfil its obligations arising out of the contract especially given that the claimant had duly performed all its obligations. In the same
vein, the tribunal in ICC Case 12127 had to interpret Article 1134 of the French Civil Code and clearly stated that a party breaches the principle of good faith if it ‘knows that, in reality, it is substantially circumventing the intention for which such provisos were agreed’.
We note that this requirement must be read as ‘doing everything possible’ to respect the contract. In a case administered by the Milan Chamber of Arbitration (CAM), the arbitral tribunal had to resolve a dispute between a supplier of glass works and other building material. The claimant argued that the respondent had breached its obligation of good faith as the goods were damaged when they reached their destination. Yet, the
tribunal decided as follows:
[I]f good faith means the contracting parties’ general obligation of correctness and mutual loyalty in the performance of their contractual relationship – essentially, the obligation of cooperating with and informing the other party – then [the respondent] cannot be accused of anything in this respect. Its approach and conduct toward [the claimant] in respect of the contractual performance are not at odds with an intention to perform under the contractual obligations.
As a result, the respondent respected the contract and even ‘constantly and coherently cooperated in the attempt to solve the various difficulties arising in the Contract’s performance.’ Hence, despite the goods arriving damaged at their contractually agreed destination, the respondent did not act in bad faith and did everything possible to respect the contract.
3. Good faith does not trump the terms of the contract. Several ICC cases show that the terms of the contract anchor the parties’ obligations. In ICC Case 14500, a civil law case, the tribunal ruled that the principle of good faith has a very broad scope. According to the principle, both the claimant and the respondent have an obligation to perform their obligations arising out of the contract in good faith. However, good faith cannot trump the terms of the contract. This goes in parallel with the judgement of the French Cassation Court, which decided that the principle of good faith, according to which the agreements must be executed, allows the judge to
115
sanction the ‘disloyal’ use of a contractual provision. Yet, it does not authorise the judge or the arbitrators to amend and change the substance itself of the rights and obligations as agreed between the parties.
In ICC Case 12198, the arbitrators applied common law (New Jersey law) and took the same approach. The tribunal decided that the principle of good faith cannot override the express and unambiguous terms of a contract as the ‘implied covenant of good faith and fair dealing cannot be utilized to obliterate express and unambiguous contractual terms’. The arbitral tribunal ruled as follows:
In conclusion, [Claimant] has failed on its implied covenant claim because: (i) the implied covenant of good faith and fair dealing cannot, as a matter of law, override an express and unambiguous contractual term such as Section 1.1; (ii) [Claimant] has failed to allege or prove any specific bad faith motive underlying [Respondent]’s actions; and (iii) all the evidence shows that [Respondent] acted in good faith based on legitimate business considerations.
In ICC Case 8694, the arbitral tribunal came to the same conclusion applying the law of New Hampshire. Quoting the decision in Smith v. Lucas, the tribunal emphasised that ‘[o]ne must consider the meaning of the words used, not what one may guess to be the intention of the parties’.
4. Burden of proof. It is noteworthy that, in general, there is a presumption of good faith. As a consequence, the burden of proof must lay with the party alleging a breach of the principle of good faith.
In ICC Case 12198 mentioned above, the arbitral tribunal required the claimant to submit relevant evidence as to the implied bad faith of the respondent:
[U]nder New Jersey law, [Claimant] cannot succeed on an implied claim unless it proves that [Respondent] acted out of a “bad faith” motive toward [Claimant]. Wilson v. Amerada Hess Corp., 168 N.J. 236, 251, 773 A.2d 1121, 1130 (N.J. 2001). “Without bad motive or intention, discretionary decisions that happen to result in economic disadvantage to the other party are of no legal significance.” (Id.)
[Claimant] has not even alleged (much less proved) that [Claimant] acted out of any particular bad faith motive ...
Similarly, in ICC Case 11651, the tribunal applied Egyptian law and decided that in order to prove bad faith, there must be evidence as to obvious fraud. This must be shown by documents or other means of clear proof. The tribunal deemed it particularly important to stress that the fraud must be ‘obvious’ fraud and the proof must be ‘clear’. Thus, the threshold to prove bad faith seems exceptionally high.
In ICC-FA-2020-002, (...) the respondent argued that the claimant has showed insufficient evidence in relation to its claim for breach of the implied
covenant of good faith and fair dealing. The respondent referred to Missouri law that “requires that [Claimant] demonstrate that [Respondent] acted in bad faith or engaged in unfair dealing”, and that Claimant’s allegations that Respondent was ‘malicious, antagonistic, or brutal’ are not supported by the evidence. In this case, the arbitral tribunal however held that the respondent acted in bad faith maybe due to the way it terminated the contract as explained below.
5. Termination of contract. One recent illustration lies in ICC-FA-2020-002, mentioned above, where the Tribunal disagreed with the respondent’s submission and held that the respondent did not act fairly when it terminated the contract:
The Tribunal considers that by terminating the Agreement in the way that it did, without giving [Claimant] due notice of its alleged deficiencies and an opportunity to cure them within one year as required by Article [X], [Respondent] did not act fairly. [Respondent] had an opportunity to terminate or amend the Agreement in ... which it did not take, nor did it indicate to [Claimant] at that time that it was
116
considering terminating the Agreement, even though this was one of the options discussed between [Respondent’s Chief Executive], and [Respondent’s representatives]. [Claimant] would have been justified in considering that its business relationship with [Respondent], which had existed for [decades], would continue at least for another 5 years. To that extent, therefore, the Tribunal finds that [Respondent] acted in breach of its implied duty of fair dealing.
In ICC Case 13730, the tribunal had to decide whether the termination of a long-term contractual relationship without a compelling reason was in breach of the principle of good faith and fair dealing as included in Article 1(2) of the Japanese Civil Code. It ultimately decided:
When a term is provided in the contract, the prevailing view is that the contract may be terminated or not renewed at the end of the term, without a compelling reason being necessary. However, the courts still look to determine whether the termination or the notification of non-renewal – validly done in accordance with the terms of the contract – was properly made, was not contrary to public policy, or made in breach of the principle of good faith and fair dealing, or an abuse of right (which may be considered equivalent to a breach of the principles of good faith and fair dealing).
The consequence of this decision was that the manufacturer had the right to terminate the contract, which was not even concluded for an indefinite period of time but rather renewed itself every year. There were decisions in Japanese jurisprudence, which the tribunal acknowledged, that a compelling reason was necessary to terminate such a long-term contract. However, the tribunal argued that an evolution of Japanese law can be noticed, and the issue of whether the termination was in breach of the principle of good faith or an abuse of rights should be analysed on a case-by-case basis.
6. Estoppel and non concedit venire contra factum proprium. It is noteworthy that the common law system has approached the principle of good faith from a different angle and developed the doctrine of ‘estoppel’. According to said doctrine, whose term stems from the French word ‘estoupail’ – a shutter or cork by which one stops something from getting out - a party is ‘stopped’ from taking a particular action. Diplock LJ in Thoday v. Thoday defined the term as follows:
“[C]ause of action estoppel” is that which prevents a party to an action from asserting or denying, as against the other party, the existence of a particular cause of action, the non-existence or existence of which has been determined by a court of competent jurisdiction in previous litigation between the same parties.
Bowden argues that at ‘the heart of estoppel is the notion that one party to a dispute should not be permitted to take a position, including by asserting legal rights, in circumstances where (i) were he to do so, that party would be acting in a manner inconsistent with a position he had previously taken and (ii) it would be unjust to the other party for him to do so’. Henriques notices that English courts seem to call upon the doctrine of estoppel ‘to solve exactly the same kind of problems that are addressed by the doctrine of good faith in “traditional” civil law jurisdictions’.
Said doctrine also goes in line with the principle of the prohibition of non concedit venire contra factum proprium in civil law jurisdictions, which, according to Bowden is twofold:
117
[S]ome assertion of rights by one party inconsistent with his previous conduct and a balancing between the conflicting interests of both parties to determine which of the two deserves protection.
In ICC Case 10671, the tribunal agreed that ‘the prohibition of “venire contra factum proprium” is a consequence of the principles of good faith that rule the commercial relationships’.
In ICC Case 14108, the tribunal argued that ‘certain aspects of the doctrine of estoppel may be applicable to this case as part of the general principle of good faith’. Yet, the doctrine of estoppel is not a principle of the respondent State’s law. However, the applicable law knows and accepts the principle of good faith. Hence, the tribunal argues that the principle comprises the doctrine of estoppel. Furthermore, it agrees that Art. 1.8 UNIDROIT Principles obliges the parties not to act ‘towards the other party in a manner which would be contrary to its previous behaviour because, in doing so, the other party’s understanding of the relationships, on which it relied, would be modified. It is a modern formulation of the principle of non concedit venire contra factum proprium, a principle applied in many international arbitration awards’. According to the tribunal in ICC Case 14108, which applied the principle of non concedit venire contra factum proprium to a factual scenario in which a Ministry had adopted an ambiguous and contradictory behaviour by making the claimant believe that an extension of an agreement had been granted:
[A] party is responsible [for] the consequences of its conduct, its representations or even its silence if the other party suffers damages for having reasonably relied on it.
An application of this concept under Romanian law (a civil law) in ICC-FA-2020-008, prompted the tribunal to state that parties ‘should act in good faith, and consequently cannot set themselves in contradiction to their previous conduct vis-a-vis the other Party particularly when those acts have enabled a Party legitimately to acquire rights’.
English judges have long been reluctant to recognise the existence of a good faith doctrine. This is interesting to note given the flexibility of the common law system. As Lord Bingham ruled in Interfoto Picture Library Ltd. v. Stiletto Visual Programmes, Ltd.:
English Law has, characteristically, committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of unfairness.
This reasoning goes in line with Lord Ackner in Walford v. Miles who considered ‘good faith inherently repugnant to the adversarial position of the parties when involved in negotiations’. Nonetheless, English courts have been progressively accepting the doctrine of good faith, as shown in Director General of Fair Trading v. First National Bank plc, in which the court noted that:
[G]ood faith was not an artificial or technical concept but connoted fair and open dealing, which required terms to be expressed fully and clearly, without hidden pitfalls and with appropriate prominence being given to matters which might operate disadvantageously to the customer, and required the supplier not to take advantage, deliberately or unconsciously, of factors indicative of the consumer’s weaker bargaining position.
118
Leggatt J in Yam Seng seemed to give the term a liberal approach, as he ‘goes to some length to show that recognising good faith as a duty of honesty is nothing more than a logical step in the development of English common law’. The judgment of Leggatt J establishes that there is no general doctrine of good faith, but that a duty of good faith may be ‘implied by law as an incident of certain categories of contract, for example contracts of employment and contracts between partners or others whose relationship is characterised as a fiduciary one’, with ‘no general default rule, into all commercial contracts’. Furthermore, this means that if a third party relied upon the behaviour of the other in good faith, it needs to be protected.
Thus, English law knows the concept, not only because it was included in legislation stemming from EU directives, but also because, as noted by Leggatt J, good faith is used for certain types of contract. For example, the duties of agents to their principals and an implied term of good faith may, in certain types of situations, sometimes be found by an English court. However, in earlier days, this was not to promote a general principle of good faith but rather to give effect to the reasonable expectations of honest people.
In the U.S., the notion of good faith can be traced back to as early as 1890. In Armstrong v. Agricultural Ins. Co, insurers were considered to be under an obligation of good faith when demanding proof of loss. In another judgement concerning arbitration, the court decided the following:
[T]he parties to an arbitration agreement are under a duty to act in good faith – each owes to the other the obligation to make a fair effort to carry out the provisions of the arbitration agreement and to accomplish the real object of the contract.
Furthermore, in ICC Case 12198, the arbitral tribunal noted that under New Jersey law ‘there is a covenant of good faith and fair dealing implied in every contract governed by New Jersey law’. In the case, the tribunal agreed that a distributor had the obligation to use its best efforts to sell the products of a manufacturer in a specified territory and added that ‘New Jersey courts have defined the ‘best efforts’ standard as a ‘form of good faith and sound business judgment’.
In the same vein, the sole arbitrator in case ICCPA- 2020-001 applied Washington law, which requires the parties to a contract to deal in good faith and in a fair way. The arbitrator interpreted said obligation as requiring the parties to cooperate ‘in order to fulfil ... the spirit of the contract’. Another tribunal applying the law of Missouri, in ICC-FA-2020-002, decided in their final award in 2009 that the respondent acted ‘unfairly’, and in breach of the principle of good faith, by terminating an agreement without cause and not giving the claimant ‘due notice of its alleged deficiencies and an opportunity to cure them within one year as required’ by their contract. In this particular case, it is to be noted that the respondent had the opportunity to terminate the agreement lawfully one year prior to the disputed termination.
Various national laws of civil law countries incorporate provisions expressly mentioning good faith. It is therefore undisputable that there is a broad acceptance and inclusion of the principle of good faith in the civil law texts.
Paragraph §242 of the German Civil Code (BGB) provides that ‘an obligor has a duty to perform according to the requirements of good faith, taking customary practice into consideration’. The good faith principle contained in §242 BGB is applicable to procedural matters also.
119
Under French law, Article 1134 French Civil Code places the notion of good faith within the sections dedicated to the law of contracts. It states that the agreements ‘must be performed in good faith’. Furthermore, Article 1464 of the French Code of Civil Procedure implicitly refers to the principle of good faith in regard to the conduct of the proceedings, via the concept of loyalty (‘loyauté’):
[B]oth parties and arbitrators shall act diligently and faithfully in the conduct of the proceedings. [Free translation]
Moreover, many other national laws provide for provisions referring to the principle of good faith such as Article 2(1) and (2) of the Swiss Civil Code, which states that ‘every person must act in good faith in the exercise of his or her rights and in the performance of his or her obligations’ and that ‘the manifest abuse of a right is not protected by law’.
Eminent practitioners agree that the principle of good faith also expands to the conduct of the arbitration. According to Veeder, there needs to be a level playing field between the parties, which starts with the concept of procedural fairness. Hanotiau takes this further in explaining that it is a ‘basic principle of international commercial arbitration that the parties have the duty to co-operate in good faith in the performance of their agreement as well as in the arbitral proceeding’.
In ICC-FA-2020-008, the tribunal interpreted the Romanian Civil Code, which ‘embodies the principle of pacta sunt servanda, according to which a contract is law between the parties. Contracts regulate parties’ legal relationship and immediately generate obligations to fulfil and perform parties’ promises in good faith. Consequently, contracts can only be modified or terminated by consent of the parties or in case the law provides it for’.Similarly, the tribunal in ICCFA-2020-003 stated in applying Romanian law that the ‘need for the protection of the bona fide reliance which a contracting party has placed on an agreement reached with the other, or on representations made by the other, and which is intended to be relied and acted upon reflects a general principle of contract law’.In particular Article 970(1) of the Romanian Civil Code incorporates the principle of good faith.
In Dutch law, Article 6:248 of the Dutch Civil Code contains a good faith – or ‘goede trouw’ – obligation. The tribunal in ICC Case 16920 referred to such article and stated that good faith used to be referred to as ‘reasonableness and fairness’. This is a normative description of how participants in a given social context (e.g. a contract) ought to behave towards each other. Furthermore, the tribunal in ICC Case 6490 stated that according to the Dutch Supreme Court the requirements of ‘reasonableness and equity’ govern not only the contract once it exists but also the making of the contract. This goes without prejudice to the statutory recognition of each specific classic ‘defects’ as error, undue influence, etc. The modern Dutch legislator defines ‘goede trouw’ as a description of the state of mind of a person who in all honesty errs about a legal situation, which the tribunal in ICC Case 6490 applied accordingly.
Furthermore, in ICC-FA-2020-008, the tribunal argued that the scope of the good faith obligation extends to addenda to the contract, which have been incorporated in the contract and have hence become part of the contract. To determine whether this is the case, the tribunal had recourse to a ‘reasonable man’ test:
“[R]easonable man” objective test, which derives from the principles of good faith and fair dealing, is, therefore, employed as a means against abuse of rights, and in court as in arbitration proceedings the judge or arbitrator personifies the “reasonable man”.
In conclusion, there can be no doubt that the principle of good faith in civil law jurisdictions is set in concrete and constitutes an applicable principle. There has even been an arbitral tribunal applying Swiss law, which considered that the above examined principle of venire contra factum proprium as applied in the common law jurisdiction stems from the principle of good faith. As already laid out above, the manifestations of good faith can be diverse and must be assessed by the arbitral tribunal taking into account the very circumstances of each case.
120
Finally, the principle of good faith has also been applied by an arbitral tribunal interpreting shari’a law. In ICC Case 17768, the tribunal clearly stated that ‘the general principle of good faith should govern the interpretation and implementation of contracts’, and noted:
The notion of good faith complies with the Koran verses that command people to be honest in their transactions and that prohibit fraudulent dealings. According to the Shari’a, good faith in commercial dealings is a primary obligation and all actions are judged by the underlying intents.
The principle of good faith is not unique to domestic laws only but is also known in the general practices of international commercial law. Whereas not always directly applicable, arbitral tribunals take inspiration from said practices. More precisely, the principle is mentioned in two international model laws. Article 1.7 of the UNIDROIT Principles of International Commercial Contracts 2010 states:
(1)
Each party must act in accordance with good faith and fair dealing in international trade.
(2)
The parties may not exclude or limit this duty.
The text continues in the same vein in Article 1.8:
A party cannot act inconsistently with an understanding it has caused the other party to have and upon which that other party reasonably has acted in reliance to its detriment.
Finally, Article 7(1) of the United Nations Convention on the International Sale of Goods (CISG) states that the principle of good faith ‘calls for the interpretation of the CISG with regard being paid to the observance of good faith in international trade’.
In several ICC cases, arbitral tribunals relied on the UNIDROIT Principles. For instance, in ICC Case 11375, involving a complex legal relationship between a consortium and a government, an arbitral tribunal ruled that the ‘requirement of good faith and loyalty to the other members of the Consortium’ was a ‘fundamental and necessary norm’ and that it was ‘perfectly clear that, in this complex legal relationship, good faith and “fair play”... were as indispensable as the previous normative elements’. In this case, the respondent’s witness referred to the UNIDROIT Principles as confirming that the parties were under an implied obligation to perform their obligations in good faith.
In ICC Case 9875, the tribunal decided that good faith was part of the lex mercatoria and mirrored in the UNIDROIT Principles (rules of interpretation contained in article 4 of the UNIDROIT Principles and the practice of good faith and fair dealing expressed in article 1.7).
Furthermore, in ICC Case 9593 between a distributor of motor vehicles and a British-Japanese car supplier, the arbitral tribunal applied Article 13(3) and 13(5) of the 1988 ICC Arbitration Rules, which states that the disputing parties are free to choose the law applicable to the merits and that the arbitrator shall take into account the provisions of the contract and the relevant trade usages. The underlying contract provided for Ivorian law to be applicable, which ‘stresses that contracts must be performed in good faith’. The tribunal also referred to the UNIDROIT Principles:
Further to a comparative study, Unidroit came to the conclusion that the obligation to cooperate in good faith in the performance of a contract amounted to a general principle applicable to international trade. Accordingly, this principle was reflected under Article 5.3 of the Unidroit Principles of International Commercial Contracts: “Each party shall cooperate with the other party when such cooperation may reasonably be expected for the performance of that party’s obligations”.
The same obligation was taken into account by the arbitral tribunal in ICC-FA-2020-004, which stated that an obligation of reasonable care and skill arises under Article 5.1.2. of the UNIDROIT Principles. At stake, this obligation comprised several limbs. First,
121the ‘[c]laimant had an obligation under the Agreement to provide its services, including in choosing and appointing subcontractors, with reasonable care and skill and, further, to ensure that any subcontractors appointed also carried out their services with such reasonable care and skill’. Second, it includes an obligation to supply goods of satisfactory quality. And third, those goods had to be fit for a particular purpose as known by both parties.
Under French law and the decision of the Cassation Court in Dalico, the existence, validity and scope of an arbitration agreement needs to be examined by reference to transnational rules and trade usages, which are the same as the commonly adopted rules for the interpretation of contracts of national law and are comprised of, inter alia, the principle of good faith. The tribunal in ICC Case 17146 applied this principle and ruled that when interpreting the terms of a contract, the arbitrators must look for the parties’ common interest and international usage rather than restricting themselves to examining the literal meaning of the terms used. In the same vein the tribunal in ICC Case 13355 decided that Brazilian law provides for a similar rule in Article 422 CC 2002.
In a dispute between a French claimant and a Romanian respondent (ICC-FA-2020-003), the tribunal ruled on the prohibition of abuse of legal and contractual rights (‘interdiction de l’abus de droit’) and the interplay between the different approach under common and civil law. It emphasised the influence of French and German law on the Romanian contract law and referred to ‘the common law tradition, in which unconscionable conduct by a contracting party may be sanctioned by equitable remedies such as estoppel, in particular promissory estoppel’. Finally, the tribunal noted that Articles 1.7 and 1.8 UNIDROIT Principles attempt to harmonise both approaches.
In ICC-FA-2020-006, the tribunal summarised the question as follows:
The existence of a duty of good faith in a contractual relationship is one of the issues which divides common law from civil law. This issue has also been discussed during the negotiations of the CISG. Whereas civil law delegates favoured imposing such a duty upon contracting parties, delegates from the common law countries strongly resisted it. Article 7 of the Convention was the compromise. It states explicitly that “[i]n the interpretation of this Convention, regard is to be had to ... the observance of good faith in international trade”.
The wording itself makes clear that the provision focuses on the interpretation of the Convention, not on the interpretation of contracts governed by the Convention. In contrast to the CISG, the 2004 UNIDROIT Principles of International Commercial Contracts, drafted after the CISG, contain a specific provision directed to the parties of an international commercial contract to observe these obligations in good faith in international trade. The tribunal finally concluded that no duty of good faith directed to the parties of a commercial contract can be derived from Article 7(1) CISG since it concerns only the interpretation of the convention. Hence, the arbitral tribunal found that Article 7(2) CISG introduces rules of international private law only in limited cases.
An opposing view can be found in ICC Case 13954, in which a sole arbitrator did not find ‘substantive’ rules such as the principle of good faith included in the trade usages. In relying in particular on Article 17 ICC Rules and Article 1496 of the French Code of Civil Procedure, the arbitrator decided that he ‘cannot agree with Claimant’s submission that legal principles such as good faith, apparent authority and estoppel fall within the meaning of trade usages.’
122
As we have seen, the principle of good faith as applied by ICC tribunals is multifaceted and encompasses several obligations under both common and civil law. First, it obliges the parties to reach the common contractual goal and to respect the terms of the contract. Second, good faith does not trump the terms of the contract. Third, there is a presumption of good faith and in order to prove bad faith, the proof must be ‘clear’. Thus, the threshold to prove bad faith is exceptionally high. Whereas civil law jurisdictions have accepted the principle and expressly included it in the provisions of their contract laws, common law jurisdiction seemed reluctant at first to recognise the principle. However, in recent years, the courts have started to be more open and even went further by connecting the principle of good faith with the principles of estoppel and venire contra factum proprium. Finally, both the UNIDROIT Principles of International Commercial Contracts 2010 as well as the United Nations Convention on the International Sale of Goods recognise the principle of good faith as it is expressly included in the texts. Hence, good faith is part of international trade and must therefore be recognised and applied by arbitral tribunals in international arbitrations.