In the following article, I unpack the concept of good faith from a legal perspective.
Why is this important for conciliation or mediation? I consider it an essential ingredient of ensuring the trust-based negotiations that lead to lasting, positive outcomes particularly in workplace complaints, small business disputes and corporate mediations.
How can I help? I have written this article to assist human resources managers, legal officers and business owners decide whether good faith exists. For further advice or to design a dispute resolution process where there may be a lack of good faith, please reach out for a confidential discussion.
Dispute resolution processes, such as mediation and conciliation, which rely on parties to negotiate directly and agree on outcomes, require parties to act 'in good faith'. This approach to communication is essential for ensuring the fairness of proceedings and instilling confidence in any resulting agreement. Good faith in conciliation and mediation processes is, in my view, more important than in court proceedings, as parties in conflict are encouraged to interact directly and come up with their own solutions to the dispute. This simply isn't possible without a level of trust and goodwill between the parties.
Generally speaking, to show good faith, parties must demonstrate their willingness to resolve disputes by taking necessary steps in the most simple and cost-effective manner.
The term ‘good faith’ has wide application across legal domains, including contractual obligations, employment and workplace relations, and native title. The real meaning of this term has been much debated, despite its extensive use. Because of its lack of a precise technical definition or statutory interpretation, 'good faith' is considered an 'intangible and abstract quality'. 1
Nonetheless, its essence is believed to remain consistent irrespective of the specific context. In Barrett v South Australia 2 , Millhouse J defined ‘good faith’ as a standard of behavioural conduct and a state of mind. This was later affirmed by the Federal Court in FMG Philbara v Cox 3 , emphasising that ‘good faith’ concerns the quality of the party’s conduct. In addition, the Court established in Aiton Australia v Transfield Pty Ltd4 that good faith requirements must be assessed individually based on the facts of each case.
Teo (2022) noted that two observations arise from the Australin court decisions regarding ‘good
faith’:
1. The obligation of good faith relates to the parties’ state of mind during the dispute resolution process. Precisely determining such a mindset is challenging and thus, the court can only infer it objectively from the parties’ actions during the process.
2. The “quality of a party’s conduct” highlights that the duty is tied to the ADR process, not its outcome. Hence, if an agreement is not reached, the outcome should not detract from
recognising parties’ genuine efforts in negotiation.
What exactly does ‘good faith’ entail? Professor Tania Sourdin provides an extensive examination of this concept in her article, where she defined good faith with the notion of a ‘genuine effort’ 5 , entrusting parties with the responsibility of exerting such effort in adhering to several principles, including:
A duty to act with honesty, respect, and transparency.
Resolving the dispute in the most simple and cost-effective manner.
Attending scheduled meetings on time.
An adherence to standards of fair dealing and reasonableness within the circumstances.
An open and co-operative mindset.
Exertion of ‘every reasonable effort’ to take genuine steps to resolve or clarify disputes.
Directing the parties’ attention to missing information that may be relevant.
Showing commitment to the process by demonstrating a willingness to listen, compromise, and propose options to reach an agreement.
To be clear, a party acting in good faith does not necessarily have to act on behalf of the other party, act against their own interests, pursue a particular outcome, or refrain from withdrawing from negotiations if they no longer consider it to be in their best interests.
Overall, case law suggests that parties should be presumed to act in good faith unless their conduct suggests otherwise; therefore, comprehending what ‘bad faith’ may entail can help determine whether a party has acted in ‘good faith’. Bad faith may encompass, among other things:
A failure to co-operate with the process by adopting an obstructive attitude, closed mind, or not considering settlement options.
Dishonesty or withholding relevant material.
Sending negotiators without authority to settle.
Delaying, turning up late, or not showing up to meetings.
Displaying actions that are inconsistent with verbal assurances.
Exploiting a position of dominance or power.
Disingenuous conduct.
Displaying arbitrary or ulterior motives.
If you are in the midst of a workplace complaint or dispute, or considering whether corporate mediation or conciliation may assist with a contract or community conflict, please contact me if you would like support in assessing whether the parties are acting in good faith, and to support you in designing the most appropriate dispute resolution process.
References:
Meehan v Jones (1982) 149 CLR 571.
Barrett v South Australia (1994) 63 SASR 208.
FMG Philbara v Cox [2009] FCAFC 49.
Garry Rogers Motors (AUST) Pty Ltd v Subaru (AUST) Pty Ltd [1999] FCA 903.
Western Australia v Taylor 143 FLR 211.
Aiton Australia v Transfield (1999) 153 FLR 236.
Macquarie International Health Clinic Pty Ltd v Sydney South-West Area Health Service [2010]
Edmund J. Sikorski Jr. and Randolph T. Barker. (2019, February ). From “No Pay” to Play, Revisiting Good Faith in Mediation. Michigan Bar Journal, 28-31.
Kerr, J. D. (2013). AAT Guidelines - Duty to Act in Good Faith in ADR Processes at the AAT. Administrative Appeals Tribunal. Retrieved from
Sourdin, P. T. (2012). Good Faith, Bad Faith? Making an Effort in Dispute Resolution. Dictum - Victoria Law School Journal, 2(1), 19-30.
Teo, S. (2022). Obligations of Good Faith in Mediation: Takeaways from Australia's Experience with
National Native Title Mediation. In M. L. Joel Lee (Ed.), Contemporary Issues in Mediation
(Vol. 7, pp. 1-10). Singapore. doi:https://doi.org/10.1142/9789811268724_0001