Decision Ex Aequo et Bono and the Amiable Compositeur

An arbitral tribunal ordinarily decides according to law. Section 28(2) of the Arbitration and Conciliation Act, 1996 permits a different mode of decision, in which the tribunal resolves the dispute by what it considers fair and good rather than by the rules that would otherwise govern, but only if the parties have expressly authorised it. The two expressions used, ex aequo et bono and amiable compositeur, come from different traditions and describe different degrees of the same freedom. Neither is common in Indian practice, and the consequences of assuming the power without authority are severe.

1. The Provision

The sub-section reproduces Article 28(3) of the UNCITRAL Model Law. Its structure is prohibitory rather than enabling: the tribunal shall decide in this manner only if expressly authorised, so the default position is a decision according to law under Section 28(1), and the power is an exception which the parties must create.

The range of decision-making, and the point at which authorisation becomes necessary

2. The Two Expressions

The distinction is one of degree, and Indian law treats the two together in a single sub-section requiring the same authorisation for both. In practice the difference matters at the drafting stage rather than at the challenge stage: parties who want the tribunal to have some latitude, without abandoning the law altogether, should say so in terms rather than relying on the label they use.

3. What the Power Is Not

A tribunal deciding according to law is not confined to the mechanical application of rules, and much of what parties imagine requires authority under Section 28(2) does not.

• Construing the contract. The tribunal interprets the bargain, and a construction which the court would not have adopted is not a departure from law. The limit is that no fair-minded person could have read the contract that way.
• Applying equitable doctrines that form part of the law. Waiver, estoppel, restitution, relief against forfeiture and the rules on penalties are law, not fairness at large.
• Exercising a statutory discretion. The discretion as to pre-award interest under Section 31(7)(a) and as to costs under Section 31A is conferred by the Act and needs no further authority.
• Assessing damages on limited material. Where a loss is established but its quantification is difficult, the tribunal makes the best assessment it can; that is an ordinary judicial function.
• Encouraging settlement. Section 30 permits the tribunal, with the agreement of the parties, to use mediation or other procedures to encourage settlement. A consent award under that section is not a decision ex aequo et bono; the parties have decided, not the tribunal.

4. The Requirement of Express Authorisation

1. Express, not implied. The word express excludes inference. A widely drawn clause referring all disputes to arbitration, a direction to decide the dispute amicably, or a term that the arbitrator shall not be bound by technicalities does not confer the power.
2. By the parties. The authority comes from the parties and not from the tribunal's view of the case, and not from an arbitral institution unless its rules, adopted by the parties, so provide.
3. When it may be given. Ordinarily in the arbitration clause, but there is nothing to prevent the parties from conferring the power after the dispute has arisen, by a separate agreement or by a recorded joint statement before the tribunal. The safer course is a signed written record, since the burden of showing the authority lies on the party relying on the award.
4. How it should be drafted. State that the tribunal is authorised to decide the dispute ex aequo et bono, or as amiable compositeur, and say whether the law is displaced entirely or merely moderated; add that the award must still state reasons.

5. The Limits of the Power

Even where the authority is conferred, three limits remain, and they are what make the power far less useful than it first appears.

• Mandatory law and public policy. A tribunal cannot give effect to an arrangement the law forbids, however fair it may think it. An award offending the public policy of India is liable to be set aside under Section 34(2)(b)(ii), and enforcement of a foreign award may be refused under Section 48(2)(b), regardless of the authorisation.
• The terms of the contract. Section 28(3) requires the tribunal in all cases to take into account the terms of the contract and the trade usages applicable to the transaction. The sub-section is not displaced by an authorisation under Section 28(2), so the parties' bargain remains the starting point even where the tribunal is permitted to temper its operation.
• Procedural fairness. Section 18 applies whatever the mode of decision. A tribunal authorised to decide on fairness must still hear both sides and must still base its decision on material disclosed to them.

6. Consequences of Deciding Without Authority

An arbitrator who decides by his own notion of fairness without the authority required by Section 28(2) has not decided in accordance with Section 28 at all. Three consequences follow, and they may be pleaded together.

• Excess of mandate. The award deals with a matter, or applies a criterion, outside the terms of the submission, which is a ground under Section 34(2)(a)(iv).
• Patent illegality. In a purely domestic award, a decision contrary to the substantive law of India, or one which ignores the terms of the contract, may be set aside under Section 34(2A), subject to the limitation that the ground is not available merely for an erroneous application of the law or on a re-appreciation of evidence.
• Foreign awards. Enforcement may be refused under Section 48(1)(c) where the award deals with a difference not contemplated by or not falling within the terms of the submission.

7. Why the Power Is Rarely Used in India

Three reasons explain its rarity. Commercial parties choose arbitration partly for predictability, and a decision by fairness is less predictable than a decision by law. An award made ex aequo et bono is harder to defend against a challenge, because the natural answer to a complaint that the tribunal departed from the contract is that the parties authorised it, and that answer depends on proof of an express authorisation which is often absent or ambiguous. And in a domestic reference the power sits awkwardly with Section 34(2A), under which an award contrary to the substantive law of India may be set aside as patently illegal; the authorisation cannot cure a departure from mandatory law, so its practical scope is confined to matters within the parties' disposition.

Where a party wants an outcome shaped by fairness rather than by strict entitlement, the better route in Indian practice is mediation, or a settlement recorded as an award on agreed terms under Section 30, which achieves the same result with the parties' own consent to the outcome and without the risk to enforceability.

8. Related Topics and Provisions