Academic journal article American University International Law Review

Good Faith in International Arbitration

Academic journal article American University International Law Review

Good Faith in International Arbitration

Article excerpt

I. INTRODUCTION

It is difficult to find any international arbitration award not based on, or that does not at least mention, good faith. The omnipresence of good faith does not mean (rather quite the contrary) that it is clearly understood, that we know how to use it, or that we are able to predict how an arbitral tribunal may apply good faith in a particular case. Throughout my experience in arbitration I have repeatedly faced the need to resolve claims based on good faith, and will discuss three proceedings by way of example.

At the beginning of my career, I was appointed, by the International Chamber of Commerce (ICC) International Court of Arbitration, chairman of an arbitral tribunal, known today principally by the name of the plaintiff: NORSOLOR.1 The case involved a commercial conflict surrounding a sale and purchase agreement between the French company Norsolor, and the Turkish company Pabalk. The parties agreed to ICC arbitration without specifying either the place of arbitration or the applicable law.2 The ICC International Court of Arbitration selected Vienna as the place of the arbitration, and Austrian procedural law. Absent an express agreement between the parties, the arbitration would be arbitration at law.3 When it came time to deliberate, the tribunal was of the opinion that it could choose French or Turkish substantive law.4 However, depending on whether one law or the other was applied, the arbitration could conclude in a diametrically different manner. The tribunal upheld as a reasonable solution the application of the general principles of international economic law, invoking the lex mercatoria it believed to be in force between international merchants.5

The party in disagreement, namely Norsolor, petitioned for annulment of the award in the Austrian courts on the basis that the tribunal was required to conduct the arbitration at law and, as a consequence of invoking lex mercatoria, had actually decided in equity.6 Austria's Supreme Tribunal held that the arbitrators had proceeded correctly by invoking the general principles of international law and applying lex mercatoria.7 The dispute over the award later reappeared before the French courts when one of the parties, namely Pabalk, petitioned for exequatur to enforce the award.8 Norsolor argued the violation of public policy on the basis that an arbitration, which was supposed to be conducted as arbitration at law, had been converted into an arbitration in equity precisely because it was decided pursuant to lex mercatoria.9 The Court of Cassation once again affirmed the correctness of the arbitration, on the basis that general principles of international law form part of the sources of law.10 Therefore, by applying said principles, the initial arbitral tribunal had likely acted correctly in its obligation to arbitrate pursuant to international law. This first appearance of lex mercatoria in international arbitration would give rise to a heated controversy; Professors Berthold Goldman and Clive Schmitthoffinitiated a series of lectures and congresses, with their opposing positions on the role of lex mercatoria in international law, that still appears in doctrinal writing today.11

Years later I was appointed to an important arbitration between Abbott Laboratories and Baxter International, Inc, with two prominent colleagues: Japanese professor, Kazuo Iwasaki, and Texan attorney, Gaynell Methvin.12 The seat of the arbitration was Chicago; the applicable law was Illinois law.13 The arbitration concerned a patent assignment agreement with strong implications in various Middle Eastern countries. Our American colleague, whom we had appointed chairman, considered that good faith could not be a legal basis to decide the claims.14 Nevertheless, the majority of the panel upheld that the international efficiency of the contract in question required the direct application of the general principle of good faith.15 The dissenting opinion of our minority colleague, based on his Anglo-Saxon training, did not convince the majority,16 and did not prevail in the subsequent judicial challenge to this arbitration award. …

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