Introduction

Arbitration is a consensual form of dispute resolution born as a result of increasing court costs, delays and congestion, and a need to provide for better and effective access to dispute resolution. The principle of party autonomy is an internationally recognised norm in arbitration through which parties can tailor and define a mechanism of dispute resolution that suits their needs. One such application of this principle is that the parties can choose that the arbitral tribunal can decide the dispute based on equity. The principle of equity is well established in the traditional form of dispute settlement and its traces can also be found in arbitration in the form of amiable composition or arbitrator ex aequo et bono. This article summarises the concept of amiable composition and attempts to throw light on its international reception with a special focus on India.  

What is Amiable Composition?

The concept of amiable composition was first developed in the Code Napoléon, 1804^[1] and the French Code of Civil Procedure, 1806.^[2] It is a variation of commercial arbitration in which the parties expressly agree that the arbitrator is not bound by the strict rules of law, but is free to give effect to the general considerations of equity and fair-play.^[3] Despite its ancient genesis, it can be found in most legal instruments,^[4] national arbitration laws,^[5] and institutional rules,^[6] and is subject to several interpretations. For instance, it may mean that the tribunal:

1. should apply the relevant rule of law ignoring purely formalistic rules, or
2. should apply the relevant rules of law ignoring rules that operate harshly or unfairly, or
3. should apply the general principles of law, or
4. decide completely on merits while ignoring any rule.

Generally, the fourth alternative is rejected, and the prevailing interpretation is that the tribunal has the power to decide according to equity, abiding by the general legal principle and ignoring strict rules of law.^[7]

It is, however, often confused with the Latin term ex aequo et bono which is interpreted as “according to equity and good conscience” or “according to what is good and just”.^[8] The power of the tribunal to decide ex aequo et bono means that the tribunal has to decide on equity and according to its own notions of justice, fairness, and good conscience, unlike amiable composition where general legal principles are applied.

There is some similarity as to the transnational nature between amiable composition and lex mercatoria. However, the fundamental difference between the two is that while the former is a variation of commercial arbitration,^[9] the latter is a body of substantive and procedural transnational rules that are applied in international arbitration either on express terms of the parties or by the decision of the tribunal.^[10]

Differential Notions of Common and Civil Law Countries

Traditionally, the concept of amiable composition faced a lot of scepticism from the English Courts and foreign awards passed by an amiable compositeur did not carry any legal effect.^[11] It was only in the 1970s that the concept started gaining acceptance pursuant to the decision of Eagle Star Insurance Co. v. Yuval Insurance Co.^[12] and the enactment of the Arbitration Act, 1979. Contrastingly, a civil law jurisdiction such as France had greater acceptance towards amiable composition. The first decision given by an amiable compositeur therein was in 1956.^[13] Subsequently, in 1981, a decree was passed which gave the parties unlimited freedom and allowed them to go through the path of amiable composition.

However, even today, there is a stark difference in the perception of amiable composition between the legal practitioners of common law and civil law jurisdictions. The former feels that there is a danger of subjectivism as it is devoid of true implementation of legal principles while the latter is not as critical. The important reasons for this difference are its origin and the controversies that surround it. It is uncertain whether the amiable compositeur has lesser than, equal to or more power than an arbitrator and whether the arbitrator has the power to rule on merits or procedural aspects or amend the contractual provisions. Furthermore, legal practitioners of common law countries are firm believers that the legal rules and facts of the case go hand-in-hand and are included in the ratio decidendi of a case,^[14] and an amiable compositeur rules after a meticulous analysis of the facts. On the other hand, legal practitioners of civil law countries believe that the concept of amiable composition not only widens but also deepens the analysis and understanding of the facts. These speculations, consequently, do not provide an opportune environment for common law practitioners who do not consider these decision-makers reputable as opposed to civil law practitioners.^[15]

Indian Jurisprudence

The jurisprudence on amiable composition in India is vague and uncertain. The first law governing domestic arbitration in India was the Indian Arbitration Act, 1940^[16] which was silent on amiable composition.^[17] Later in 1996, the Arbitration & Conciliation Act of 1996 (hereinafter, “A&C Act”) was enacted which expressly recognised the institution of amiable composition under Section 28 (2) of the A&C Act, leaving no doubt on its validity as a form of arbitration.^[18]

However, in 2008, the Delhi High Court^[19] held that the tribunal deciding on amiable composition is not required by law to give reasons in their award, unlike the traditional arbitrators. It is a statutory requirement under Section 31 of the A&C Act for arbitrators to give reasons unless it is made under Section 30 by way of mediation, conciliation, or other procedures, thereby holding amiable composition in the category of dispute settlement other than arbitration. Further, in 2016, the division bench of Delhi High Court^[20] held that, “Amiable compositeur acts as a mediator or conciliator rather than a decision-maker in a dispute between subjects of international law”. This was further referred and relied on by the Madras High Court.^[21]

Reversing their earlier stance, two single bench decisions of 2011^[22] and 2017^[23] held that amiable compositeurs are arbitrators authorised to abate the strictness of law in favour of natural equity and could do so on the express authorisation of the parties to the dispute, thereby holding amiable composition as a form of arbitration. Similarly, in 2019,^[24] the Kerala High Court held that the tribunal shall not disregard the law in the name of equity and take decisions on notions of fairness and good conscience unless expressly authorised by the parties to do so under Section 28 (2) of the A&C Act. Thus, we can see how some courts consider amiable composition as decisional form of dispute resolution, i.e., arbitration while others consider it as facilitative form of dispute resolution, i.e., mediation, conciliation, etc.

Conclusion

There is uncertainty amongst the Indian courts which fail to recognise whether the non-governmental character of the tribunal selected for resolution of dispute(s), the adjudicative procedures and a binding award, qualify amiable composition as a form of arbitration. This concept has helped resolve the problem of over-judicialisation, i.e., fossilisation of the arbitration procedure by allowing the decision-maker to rule on the basis of equity and fairness as opposed to the litigation-style proceedings. The amiable compositeur can be treated as an accessory to the rule of law and should cover up any deficiency in a particular law. Furthermore, when there is a contradiction between the rule of law and principles of equity, then the principles of international justice should be given priority where the arbitrators are required to determine a case ex aequo et bono or as amiable compositeur. This power enables the tribunal to exclusively base its decision on equity and fairness, disregarding the rights and duties in so far as their usage would result in an inequitable solution.

On the other hand, the opponents of this concept believe that the biggest threat of amiable composition is posed on the arbitrator’s power as it becomes prone to abuse. Awards decided by an amiable compositeur are challenged on the grounds of public policy and mandatory rules. Since amiable compositeurs settle disputes based on compromises, lawyers, dismissing it as an unknown object, believe that they are more or less similar to mediators or conciliators and thus, their awards will always be at the risk of being set aside.

In light of the above, it is advisable for the parties to analyse the advantages and disadvantages of deciding the dispute using amiable composition according to the country’s school of thought. Though, seeming to be an unsettled territory, the pros outweigh the cons, however, it must be kept in mind that an amiable compositeur does not have unrestrained power and it has to ensure that basic standards and principles of international justice are followed.

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References: 

[1]    Amiable Composition, Law Explorer (Oct. 05, 2015), https://lawexplores.com/amiable-composition/.

[2]   William Kirtley and Zuzana Vysudilova, France, French Arbitration Law 2019, https://iaa-network.com/wp-content/uploads/2019/03/French-Arbitration-Law-2019.pdf.

[3]   Gary B. Born, International Commercial Arbitration, 312, (3rd edn., Kluwer Law International 2021).

[4]   UNCITRAL Model Law on International Commercial Arbitration 1985, art. 28(2).

[5]   Arbitration and Conciliation Act, 1996, No. 26, Acts of Parliament, § 28(2), 46; Swiss Private International Law Act, 1987, art. 187(2).

[6]   CAAI Arbitration Rules, art. 31; ICC Rules of Arbitration, art. 21(3); ACICA Arbitration Rules, art. 29.2; LCIA Arbitration Rules, art. 22.4; Swiss Rules of International Arbitration, art. 33.2; SCC Rules, art. 27(3); HKIAC Administered Arbitration Rules, art. 35.2; SIAC Rules, art. 31.2; JCAA Rules, art. 60.3.

[7]   Blackaby Nigel, Constantine Partasides, et al, Redfern and Hunter on International Arbitration, 217, (6th edn., Kluwer Law International; OUP 2015).

[8]   S. Dinesh Babu v. C. Venugopalan, 2019 (1) K.H.C. 332.

[9]   Supra note 1.

[10]   Supra note 5.

[11]   Karyn S Weinberg, “Equity in International Arbitration: How fair is fair? A Study of Lex Mercatoria and Amiable Composition” (1994) 12 Boston University International Law Journal, 236.

[12]   Eagle Star Insurance Co v. Yuval Insurance Co., [1978] 1 Lloyd´s Rep.

[13]   Supra note 11.

[14]   René David and Ca mille Jauffret-Spinosi, Les grands systèmes de droit contemporains, 292 (10th edn., 1992).

[15]   Regis Bonnan, ‘Different Conceptions of Amiable Composition in International Commercial Arbitration: A Comparison in Space and Tim’, [2015] JIDS 531.

[16]   Arbitration in India- A story of Growth and Opportunity, Cyril Amarchand Mangaldas, https://www.cyrilshroff.com/wp-content/uploads/2019/06/Arbitration-in-India-%E2%80%93-A-Story-of-Growth-and-Opportunity.pdf.

[17]   Id.

[18]   Arbitration in India- A story of Growth and Opportunity, Cyril Amarchand Mangaldas, https://www.cyrilshroff.com/wp-content/uploads/2019/06/Arbitration-in-India-%E2%80%93-A-Story-of-Growth-and-Opportunity.pdf.

[19]   Jai Singh v. D.D.A. & Ors., 2008 (3) Arb. L.R. 667 (Delhi).

[20]  Prakash Atlanta v. National Highways Authority of India, 227 (2016) D.L.T. 691.

[21]   M/sVedanta Ltd. v. M/s GS India Pvt. Ltd., O.P.No.1115 of 2018.

[22]   M.S.T.C Ltd. v. M/s Jain Traders, (2011) 4 Comp. L.J. 387 (Delhi).

[23]   Ramakishan Singh v. Rocks Buildcon Pvt. Ltd., 2017 (2) Arb. L.R. 64 (Delhi).

[24]   Supra note 8.