Answer By law4u team
The principle of ex aequo et bono, derived from Latin meaning according to what is just and fair, is a unique concept in arbitration. It allows an arbitral tribunal to render decisions based on equity and fairness rather than strictly adhering to the strict provisions of law. This principle provides flexibility to arbitrators to consider factors beyond legal rights, enabling them to tailor decisions to the specific circumstances of the case. However, the application of ex aequo et bono requires the consent of the parties and is generally applied in situations where the law is insufficient or where fairness needs to take precedence.
Ex Aequo Et Bono in Arbitration
Definition and Concept
Ex aequo et bono refers to decisions made based on principles of fairness and equity, rather than the strict application of the law. In arbitration, it means the tribunal may use its discretion to consider what is just and reasonable, rather than relying solely on the letter of the law.
Unlike traditional legal proceedings, where judges apply the law to the facts, ex aequo et bono allows arbitrators to create a more flexible solution that can achieve a fair outcome, even if it means departing from strict legal principles.
Application in Arbitration
Consent of the Parties:
The application of ex aequo et bono is only possible if the parties to the dispute have explicitly agreed to it, either in their arbitration agreement or by agreement during the arbitration proceedings.
Circumstances for Application:
This principle is usually invoked when the legal framework governing the dispute is insufficient, unclear, or silent on certain issues, leaving the arbitrators with the discretion to apply fairness and equity. It may also be used when strict legal interpretation would result in an unjust outcome.
Ex Aequo Et Bono vs. Strict Law
Legal Framework:
In traditional arbitration, arbitrators must base their decisions on the applicable law or contract terms. However, under ex aequo et bono, arbitrators can base their decisions on what they believe is fair, considering not only the legal rights but also the circumstances of both parties involved.
Impact on the Award:
This means that ex aequo et bono can sometimes lead to awards that are not strictly legal but are intended to provide a just, fair, and equitable resolution. For example, in situations where legal rules might be rigid, ex aequo et bono allows for more humane and context-sensitive decision-making.
Implications in International Arbitration
Flexibility in Decision-Making:
In international arbitration, where parties from different legal systems and cultures may be involved, the principle of ex aequo et bono offers flexibility, enabling arbitrators to adapt the decision to the unique situation of the parties involved.
International Treaties and Conventions:
The principle is typically more common in certain types of international disputes, such as those governed by bilateral investment treaties (BITs), commercial contracts, or disputes involving sovereign states and private entities. International arbitration bodies like the International Court of Arbitration (ICC), LCIA, or UNCITRAL often include provisions that allow for the application of ex aequo et bono in specific cases, though it remains at the discretion of the arbitrators and the agreement of the parties.
How Does Ex Aequo Et Bono Affect the Arbitrators’ Decision?
Arbitrators’ Discretion:
Arbitrators applying ex aequo et bono have broad discretion to create a solution that reflects fairness and the equitable rights of the parties involved. This may involve considerations like justice, mutual benefit, and customary practices, rather than adhering strictly to a legal framework.
Dealing with Gaps in the Law:
When the law is not sufficiently clear, ex aequo et bono can be used to fill in gaps. For instance, in disputes involving cross-border contracts, different national laws may conflict, and applying ex aequo et bono could allow for a solution that balances the interests of both parties in a fair manner, even if it means deviating from any one jurisdiction’s legal code.
Examples of Ex Aequo Et Bono in Arbitration
Example 1:
A company and a contractor are in dispute over the interpretation of a contract, but the terms are ambiguous and the law provides no clear guidance. The parties agree that the arbitrator should decide the case ex aequo et bono, and the arbitrator bases the decision on the overall fairness of the agreement between the parties, taking into account industry practices and the specific facts of the case.
Example 2:
In an international trade dispute between a developing country and a multinational corporation, the tribunal may apply ex aequo et bono to ensure that the decision is equitable and does not favor one party excessively, especially if applying strict legal principles would disproportionately harm one party due to economic or power imbalances.
Limitations of Ex Aequo Et Bono
Consent Requirement:
The application of ex aequo et bono requires the express consent of both parties. Without this consent, the arbitrators are obligated to apply the law to the dispute.
Scope of Use:
This principle is rarely used in commercial arbitration, where parties generally prefer decisions based strictly on contractual terms and the law. It is more commonly seen in disputes involving humanitarian issues, investment arbitration, or where equity takes precedence over strict legal interpretations.
