A Commentary on the Meaning of Objective Good Faith in the Translex Principles through International Arbitration: a Law & Economics Approach

Despite its numerous enunciations, the meaning of objective good faith remains obscure. The usual manner in which legal scholars have attempted to provide for such meaning is by presenting a definition of the general principle of good faith into more general principles, such as fairness. Objective good faith, as presented in the Translex Principles does not escape from this problem. This theoretical reflection attempts to provide for such a meaning in this particular codification. This will be achieved by means of the findings of economic institutionalism, paying attention to the transaction costs that potentially arise in context of wide information asymmetries, at which point, it is the objective of institutions to reduce said asymmetry. In international commercial transactions, opportunistic behavior is ripe. There is a demand for a legal institution that is able to, directly or indirectly, curtail opportunistic behavior, which from the standpoint of legal studies is equated to bad faith. In this sense, objective good faith is identified with a general legal institution, the aim of which is precisely to limit opportunistic behavior.