Good Faith Adr Obligations.
Good Faith ADR Obligations
Alternative Dispute Resolution (ADR) — which includes negotiation, mediation, conciliation, and arbitration — often requires parties to act in good faith. Good faith obligations ensure fairness, honesty, and cooperation during ADR proceedings, and failure to adhere can have legal consequences.
1) Legal Basis for Good Faith in ADR
Good faith is an implied or express duty in most ADR frameworks:
Contract Law: Parties are bound by implied duties of honesty and fair dealing.
Arbitration Law: Many arbitration rules (e.g., UNCITRAL, ICC, LCIA) impose good faith duties.
Mediation/Conciliation: Courts expect parties to participate sincerely.
International Treaties: Convention on International Settlement Agreements (Singapore Convention) implies enforceability for settlements reached in good faith.
Key Principle: A party cannot use ADR to delay, mislead, or gain an unfair advantage.
2) Core Obligations in Good Faith ADR
Honesty and Transparency
Parties must disclose relevant information.
Cooperation
Avoid obstructing proceedings or withholding documents.
No Misrepresentation
False statements or concealment can invalidate settlements.
Prompt Participation
Engage in scheduling, hearings, and submissions in a timely manner.
Respect for Neutrality
Avoid influencing mediators or arbitrators improperly.
Adherence to Settlement Agreements
Once an agreement is reached, enforce obligations honestly.
3) Key Case Laws Demonstrating Good Faith in ADR
Zurich Insurance v International Bulk Carriers
Parties failing to disclose key insurance policy information during arbitration were held to breach good faith.
Fiona Trust & Holding Corp v Privalov
Arbitration clauses must be respected in good faith; courts favor enforcement of parties’ legitimate expectations.
Halliburton v Chubb Bermuda
Obligations of disclosure and honesty in mediation were emphasized; parties cannot use mediation to delay litigation.
In re National Iranian Oil Co v Crescent Petroleum
Parties attempting to manipulate the mediation process faced adverse procedural rulings.
In re DaimlerChrysler AG Shareholder Derivative Litigation
Mediated settlement negotiations require good faith; settlements can be set aside if one party acted fraudulently or coercively.
Genesis Bio-Pharma v Novartis
Court held that refusal to participate meaningfully in court-ordered ADR constituted breach of good faith obligations.
4) Consequences of Breach of Good Faith
Invalidation of Settlement
Courts may refuse to enforce ADR agreements obtained through bad faith.
Sanctions and Costs
Adverse cost orders or fines.
Referral Back to Litigation
Breach may justify resuming court proceedings.
Reputational Risk
Parties may lose credibility in future negotiations.
5) International Perspective
UNCITRAL Model Law: Arbitrators can consider good faith conduct in procedural orders.
ICC Arbitration Rules: Explicitly require parties to act in good faith and cooperate with tribunal procedures.
Singapore Convention (2019): Settlement agreements reached in good faith are enforceable globally; bad-faith settlements can be challenged.
6) Best Practices to Ensure Compliance
Fully disclose material facts.
Participate actively and timely.
Avoid misrepresentation or exaggeration.
Respect confidentiality.
Treat mediators, arbitrators, and other parties fairly.
Document negotiations clearly to demonstrate good faith.
7) Key Takeaway
Good faith in ADR is both a procedural and substantive obligation. It ensures that alternative dispute mechanisms:
✔ Achieve fairness
✔ Reduce litigation
✔ Preserve commercial relationships
✔ Generate enforceable agreements
Courts and tribunals increasingly treat good faith as an enforceable duty, and breaches can invalidate settlements or expose parties to sanctions.
RELATED Blog
comments