Good faith in mediation – pillar or platitude?

Good faith is a term one often hears at a mediation. In the morning, as an indication of a party’s good intentions; in the afternoon, as something that is lacking. Whatever the context, good faith easily falls within the top ten commonly used phrases in mediation, regardless of whether or not a good faith obligation is included in the mediation agreement the parties sign. Yet, unlike most other phrases one might hear, it is far from clear what it actually means!

English law has always had something of a strained relationship with good faith, at least in the context of negotiations. Indeed, Lord Ackner was no fan at all, commenting in Walford v Miles [1992] 2 AC 128, that “…. the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations.…… A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies.”

Things have moved on a little since Walford v Miles although, in the context of mediation, the challenge of reconciling a duty of good faith with the competitive nature of negotiation, remains.

This blog explores whether, even if an obligation of good faith is included in a mediation agreement, the words, in the context of a mediation, amount to anything more than an empty platitude.

Leaving aside the more philosophical concerns about good faith in the context of negotiation as exemplified by the comments of Lord Ackner, there is a practical difficulty in determining what an obligation of good faith actually requires of a party in any given situation, an inherent uncertainty as to the point in a party’s behaviour when such an obligation might be breached and no doubt considerable complexity in assessing any recoverable loss if a breach is proven. All of this goes some way to explaining why cases in which an obligation of good faith has been implied (absent the established situations e.g. insurance, partnership) are few and far between.

However, where an express term of good faith is included in a contract, the court will strive to give it meaning. So, for instance, in Berkeley Community Villages & Anor v Pullen & Ors [2007] EWHC 1330 (Ch) (07 June 2007), in interpreting a term of “utmost good faith”, the Court held that it imposed “on the Defendants a contractual obligation to observe reasonable commercial standards of fair dealing in accordance with their actions which related to the Agreement and also requiring faithfulness to the agreed common purpose and consistency with the justified expectations of the First Claimant”. In Astor Management AG & Anor v Atalaya Mining Plc & Ors [2017] EWHC 425 (Comm) (06 March 2017), it was said “A duty of good faith, where it exists, is a modest requirement. It does no more than reflect the expectation that a contracting party will act honestly towards the other party and will not conduct itself in a way which is calculated to frustrate the purpose of the contract or which would be regarded as commercially unacceptable by reasonable and honest people”.

Some academics and judges have approached the analysis by reference to the kinds of behaviour an express obligation of good faith excludes. In CPC Group Ltd v Qatari Diar Real Estate Investment Company [2010] EWHC 1535 (Ch) (25 June 2010), for instance, the Judge, (again examining the scope of an obligation of “utmost good faith”) commented that “…it might be hard to understand, as Lord Scott said in Manifest Shipping how, without bad faith, there can be a breach of a ‘duty of good faith, utmost or otherwise’”.

There is a dearth of English cases dealing specifically with good faith in the context of alternative dispute resolution. In Emirates Trading Agency LLC v Prime Mineral Exports Private Limited [2014] EWHC 2104 (Comm), the Judge held that he was “…not bound by authority to hold that a dispute resolution clause in an existing and enforceable contract which requires the parties to seek to resolve a dispute by friendly discussions in good faith and within a limited period of time before the dispute may be referred to arbitration is unenforceable…. In my judgment such an agreement is enforceable…..The agreement is not incomplete; no term is missing. Nor is it uncertain; an obligation to seek to resolve a dispute by friendly discussions in good faith has an identifiable standard, namely, fair, honest and genuine discussions aimed at resolving a dispute. Difficulty of proving a breach in some cases should not be confused with a suggestion that the clause lacks certainty.” However, the issue in Emirates was whether the clause requiring “friendly discussions” acted as a condition precedent to arbitration, which it did (albeit satisfied), rather than the standard of conduct during those “friendly discussions”, albeit they should be “fair, honest and genuine discussions aimed at resolving a dispute”.

The case that has probably come closest to examining conduct in a mediation is Earl of Malmesbury v Strutt and Parker and ors [2008] EWHC 424 (QB), where the Judge decided that “…. the claimants’ position at the mediation was plainly unrealistic and unreasonable. Had they made an offer which better reflected their true position, the mediation might have succeeded. It would be wrong to say more. As far as I am aware the courts have not had to consider the situation where a party has agreed to mediate but has then taken an unreasonable position in the mediation. It is not dissimilar in effect to an unreasonable refusal to engage in mediation. For a party who agrees to mediation but then causes the mediation to fail by his…. unreasonable position in the mediation is in reality in the same position as a party who unreasonably refuses to mediate. In my view it is something which the court can and should take account of in the costs order in accordance with the principles considered in Halsey”.

However, Malmesbury concerned costs rather than any alleged breach of an obligation of good faith, and both sides had waived privilege so conduct at the mediation could readily be considered. Nevertheless, it does illustrate where things could lead if parties’ conduct is too readily put under the spotlight because, for instance, of an allegation of breach of a duty of good faith. No party would want their offers made at a mediation subsequently measured by a Judge to see if they were regarded as reasonable or realistic, or their behaviour otherwise put under the microscope. A party who takes three hours to make an offer/respond to an offer/decide if they are going to make an offer; who embarks on pencil gymnastics with their stationary; who pulls faces/whispers/sniggers when the other side are speaking; or who moves up/down in de minimus increments, will begin to irritate the other party. And yes, such behaviour may well provoke comments about good faith (or more accurately, the lack thereof). But to categorise such behaviour as bad faith or similar (which, it is suggested, a party claiming a breach of a good faith provision would likely have to demonstrate), may be a stretch. In fact, it is just the kind of behaviour the mediator is there to moderate!

In any event, it would be difficult for a court to analyse possible breaches of a good faith obligation without considering the entirety of the process, and that would likely mean hearing from the mediator. Good faith is a highly subjective concept and mediators’ sensibilities will vary – who knows what they might say!

There would no doubt be some cases where it is obvious that behaviour fell on the wrong side of the line – a party turning up to a mediation, verbally abusing the other party and walking straight out again, may be an example – although assessing loss in such cases might still be a challenge (loss of chance? counter-factuals?….). And in truly egregious cases, there may well be other more obvious causes of action than breach of an obligation of good faith e.g. duress.

So, pillar or platitude? Good faith is a difficult to define, context dependent and highly subjective phrase. A good faith obligation, if expressly provided for in a mediation agreement, whilst perhaps not as clear and absolute as say, an obligation of confidentiality, would (it is hoped) be given some meaning by the courts in the event of egregious behaviour by a party. But parties don’t generally speak of good faith by reference to what is or isn’t written down in a mediation agreement. When a party says they are ‘here in good faith’ at the outset of a mediation, they usually mean it as shorthand for a declaration of an intent to engage in genuine efforts to try and resolve matters, despite the inevitable twists and turns and ups and downs, and yes, the occasional game playing that mediation brings. The words should not be taken for granted or dismissed as an empty platitude. To my mind, good faith underpins the whole process of mediation, even if a little tricky to explain precisely what it means!