Amiable Composition

Chapter 9
Amiable Composition

Recourse to Extralegal Standards in Arbitration: Amiable Composition and Elements of Mediation

Amiable composition, as a competence which might be granted to arbitrators by the will of the parties, has a long history in international arbitral practice.¹ It has been acquired from domestic civil procedure regulations, developed in some continental legal systems since the nineteenth century. The origins of the notion of amiable composition can be traced back to the French 1804 Napoleonic Code and 1806 Code of Civil Procedure, which promoted conciliatory measures in private dispute resolution and aimed at preserving benign relationship between the parties.²

Such a basic understanding of this concept had been subsequently transferred and popularized in arbitration practice. The term, which has been traditionally translated literally as ‘friendly compromise’,³ denotes an authority granted to an adjudicator to abstain from an application of the rules of law to the merits of the controversy and to decide the case on the grounds of fairness and equity (amiable composition is often combined with a competence to resolve the case ex aequo et bono, or from equity and conscience, and sometimes these two terms are treated as interchangeable⁴). The parties can anticipate that the resolution of their dispute, based on strict application of the rules of law, would lead to undesired, inadequate or unsatisfactory outcomes; in such a case they can empower the arbitrators to act as amiables compositeurs when needed.

As often emphasized, amiable composition should be distinguished from conciliation and mediation, as well as from the decision of the case on the basis of lex mercatoria principles. Even if empowered with competences to decide the case on the basis of equity, and in fact often actually willing to offer a solution satisfactory to both parties, the arbitrators still render the award independently from the parties’ acceptance of it; once arbitral proceedings are commenced (and there is no successful attempt at settlement), their outcome no longer relies on the parties’ consent.

On the other hand, the binding force of a result of conciliation or mediation processes is dependent on the agreement of the disputants to adhere to it, and hence these ADR procedures by definition require consensual collaboration for finding a compromising stance. It should still be remarked that, while formally clearly distinguishable on the basis of the source of the binding force of the outcome, amiable composition and conciliation/mediation techniques might turn out to be very close, if not identical, in practice. Moreover, as observed by René David, historically amiable composition was oriented at only offering the possible solution to the parties, not at compelling them to accept and observe it.5 In its original version it was thus very close to the modern concept of conciliation, which Bruno Oppetit clearly defines as a process different from mediation. Whereas in the former a conciliator plays an active, managing role and proposes the final solution to the parties, mediation is characterized as more directly reliant on the continuous collaboration between the parties with the outcome created through a carefully worked out compromise.⁶

However, the boundary between mediation and conciliation becomes less clear when the facilitative mediation (the earliest form, characterized by the assisting role of the mediator and his or her abstention from offering advice, recommendations or opinions as to the possible outcome of the judicial resolution of the case) is distinguished from a more recent type, the evaluative mediation. In the latter, the legal positions of the parties (and not just their interests, preferences and needs) are being actively assessed by a mediator, who offers a proposed solution. The scope and character of the mediator’s intervention in the process has been indeed characterized as the object of the most intense, ongoing debate, with growing significance of the evaluative form being sometimes treated as a departure from the original character of mediation, based on the parties’ autonomy, preserved throughout the entire process.⁷

Due to the legal dimension strongly present in evaluative mediation, this form of ADR requires substantive legal knowledge applicable to the merits of the case, and the mediators, if they are not judges, are often practising attorneys. The direct presence of the parties is also not always necessary, as the discussion of the dispute takes place either between the mediator and the parties’ counsel, or between mediator, counsel and the parties themselves. The closeness of this form of mediation to judicial practice is not accidental – it has been indicated that evaluative mediation historically evolved from, and is still strongly rooted in, the practice of settlement conferences, held by judges. As Leonard Riskin observes, the prospect of settlement lies at the core of evaluative mediation:

[t]he mediator who evaluates assumes that the participants want and need her to provide some guidance as to the appropriate grounds for settlement … Conversely, the mediator who facilitates assumes that the parties are intelligent, able to work with their counterparts, and capable of understanding their situations better than the mediator and, perhaps, better than their lawyers.8

Some authors also recognize a third (and newest) type of mediation – a transformative one. It is aimed at deep, mutual recognition of the other party’s motivations and needs, as well as restoration of their relationship through a peaceful transformation achieved primarily by the parties, with a mediator playing a supportive role.⁹ While there is undoubtedly growing interest in this form of dispute resolution in both the theory and practice of mediation, its applicability to legal disputes of a commercial nature seems so far still relatively limited.

Increasing popularity of evaluative mediation, its relatively formal (for an ADR method) character, its orientation at legal standards and its close relations with the courts’ activity might be interpreted as the grounds for growing inclusion of its techniques into commercial arbitration practice as well. The need of parties for custom-tailored proceedings, when accompanied with an openness to the idea of settlement rather than confrontational procedure, might be addressed through a hybrid form of extrajudicial dispute resolution, such as med-arb or arb-med. The main point of critique of evaluative mediation – the risk of alienating the parties through a law-based solution proposed by a mediator, not forged by the disputants themselves – seems to lose much of its persuasive force when compared with a formal, binding character of an arbitral award, being rendered as an outcome of proceedings increasingly resembling litigation (see Chapter 5). Introduction of mediation (even evaluative mediation) components in the ICA proceedings arguably softens the adjudicatory, conclusive and external (not parties-driven) character of arbitration.

The problems with such a hybrid approach seem, however, worth consideration. The first issue seems to be that of competence: successful resolution of even numerous international commercial disputes through arbitration does not necessarily make an arbitrator similarly qualified to undertake the role of a mediator. The exercise of skills required from an arbitrator – in particular an ability to provide a neutrality of the procedure, including keeping a professional distance from the parties – might turn out to be disturbed if the same person is expected to get directly involved in seeking the final solution together with the parties as a mediator. The fact that an arbitral award is based on the rules of the law and does not have to be satisfactory for both parties (an arbitral case can be won or lost) also differentiates the role of an arbitrator from that of a mediator. It might be also particularly challenging for an arbitrator, after having formed an assessment of the case in the mediation phase, to keep a neutral position in the subsequent arbitration. The issues of neutrality and procedural fairness in the context of med-arb procedure have been an object of courts’ decisions. In the US Duke Group,10 as well as in the UK Glencot v Barrett,¹¹ it was upheld that just the fact of organizing private caucuses in the mediation phase can be interpreted as suggesting a bias in the med-arbitrator (although it was also decided that an objection on such basis may be an object of a waiver).

Finally, even most sincere mediation efforts in a combined, med-arb procedure might easily fail if the parties abstain from full participation and disclosure of relevant facts in an open and informal mediation procedure, while being aware that this information can be further used against them in the following arbitration part. In fact, the risk of being involved in a procedure in which the opponent is not necessarily participating bona fide should be taken into account. In med-arb the parties can be also particularly cautious about informing the mediator, who might be later called upon to arbitrate the same case, about the details of settlement proposals which they would consider accepting.¹²

On the other hand, the advantages of a hybrid procedure might be appealing to those parties who wish to possibly avoid the complications and formality, as well as the adversarial character of litigation or arbitration, while keeping an option of a smooth switch to it in case of a failure of the mediation phase. The disclosure of critical information in the mediation phase, even if it does not end with a settlement, might be perceived by the parties as beneficial, saving them time and effort in the following arbitration.¹³ This is possible as long as the mediator/arbitrator enjoys the undeterred trust of both contestants – which arguably makes his or her role doubly demanding. The reluctance of arbitrators to undertake a role of a neutral in med-arb due to different procedural demands in two phases, and the resulting, increased risk of challenges on the basis of insufficient neutrality, can be also moderated by the use of contractual waiver clauses in the med-arb agreement (where the parties agree that it is within the discretion of the med-arbitrators to use confidential information gathered throughout the proceedings in the arbitration phase, and that they will abstain from attempts at undermining an award on this ground).¹⁴

Med-arb and arb-med can be also perceived as practical solutions in certain contexts. Inclusion of elements of mediation into adjudicatory proceedings and the seeking of opportunities for settlement have been widely described as consistent with the East Asian approach to dispute resolution,15 characterized by Junji Nakagawa as the ‘conflict aversive culture of the region, where negotiated deals are preferred to formal dispute settlement’.¹⁶ An option of a recourse to a non-adversarial way of handling the controversy might be in such cases appreciated.

Even when considered in the context of cultural or regional preferences, the practice of combining two types of dispute settlement procedure (and two different neutral roles by the same person in one case) has been sometimes treated with far-reaching reserve. Pierre Lalive, in his response to Tang Houzhi, while presenting the views of a ‘Western European doctrine – or at least a “Swiss approach”’,¹⁷ advocates for clear delineation between arbitration, mediation and conciliation, and argues that:

‘Combining’ such different institutions may mean or involve various solutions or formulas, some of which may, in particular circumstances, be advantageous but are more often than not likely to create confusion and prove unprofitable … Suffice it to quote here one of the apt remarks of Mr. Carter who notes that ‘Arbitration clauses alone offer myriad examples of inconsistency and other pathologies. The possibility for drafting chaos is multiplied when several mechanisms are integrated.’¹⁸

This critique of the use of hybrid methods of dispute resolution due to practicality and rationality concerns and restraint on the side of arbitrators in regard to mixing the roles, might be changing in the future, though. Along with the growing rates of commercial exchange between East Asia, the EU and the US, and the fast-increasing exposure of Western practitioners to regional standards, the ability to handle a case under the rules of procedure providing for an easy ‘switch to mediation/conciliation’ (such as Art. 45 of the 2012 CIETAC Rules) might become part of the competences required from a counsel or arbitrator operating in such an environment. It is worth noting that, for instance, it is estimated that as much as 20 to 30 per cent of all cases resolved by CIETAC are currently resolved by the means of arb-med,¹⁹ with a vivid discussion following such cases as Gao Haiyan v Keeneye Holdings Ltd20 (arbitrated in the People’s Republic of China and sought to be enforced in Hong Kong, where the question of appearance of bias in arb-med as a basis for refusal of enforcement of the award on the ground of public policy had been considered).

Amiable Composition and Decision-Making Ex Aequo et Bono

As discussed above, despite sharp theoretical distinctions and the push of legal doctrine towards conceptual clarity, in practice acting as amiable compositeur may turn out to be very similar to conciliation or mediation attempts. This issue, as discussed above, has become increasingly important (and confusing), along with the growing saturation of ICA with elements of other methods of dispute resolution, especially in regional contexts. The difference, besides the binding, ‘external’ character of an award, lies also in the grounds for the decision. Whereas mediation and conciliation are characterized as driven primarily by a search for a possible compromise, amiable composition aims at a just and equitable solution of the controversy, consistent with the spirit of the law, even if not necessarily explicitly with its letter.

The scope of this term has been differently defined. In a sensu stricto version, amiable composition means decision-making based on the rules of law, from which the arbitrators may deviate if the considerations of equity so require. As Robert Briner remarks, this model has been traditionally associated with French legal doctrine and does not entitle an arbitrator to decide the case (directly) ex aequo et bono.²¹ However, as Rene David observed in a 1946 article on frustration of contract under the French law,

many commercial contracts contain in France a clause of submission to arbitration, which gives to the arbitrators the powers of amiables compositeurs. In this case arbitrators will be authorized according to French law to disregard rules of law and will be allowed to settle the case according to their conception of natural justice; they may of course do this by considering the change that has occurred in the attendant circumstances. It must be pointed out, nevertheless, that this does not commonly happen: amiable composition is stipulated in France, as a rule, not in order to allow, and still less to encourage, arbitrators to disregard rules of law, but essentially in order that their award should be final and that no appeal should be possible to the courts on the merits of such award.²²

Also in more recent French case law, this concept of amiable composition (as a power, explicitly conferred by the parties, allowing the arbitrators to abstain from strict application of the rules of law and to decide the case on the grounds of equity – équité) has been upheld.23

The narrow definition of amiable composition, as a competence resulting from an equity clause, had also been shared by early English case law, according to which it entitles an arbitrator to decide a case without being bound by ‘strictness of the obligations’ to follow the rules of law, yet not to ignore them entirely.²⁴ It is worth noting that, despite this evidence of relatively early adoption of the concept of amiable composition in England, Briner (after Stewart Boyd) comments on the traditionally cautious attitude and reluctance of the English courts and legal doctrine to recognize the validity of ‘equity clauses’, which has even led to discouraging the parties from including provisions of this type in their contracts. Courts’ decisions in such cases as David Taylor and Son Ltd v Barnett Trading Co²⁵ and Orion Compania Espanola de Seguros v Belfort Maatschappij voor Algemene Verzekgringeen²⁶ expressed the standard of inadmissibility of decision-making ex aequo et bono in arbitration, based on the assumption that ‘arbitrators cannot be allowed to apply some different criterion such as the views of the individual arbitrator or umpire on abstract justice or equitable principles’.²⁷ This averse approach to arbitration ex aequo et bono has, however, been moderated in the following decades, with legal doctrine gradually embracing the concept of contractual authorization for the arbitrators to depart from strict application of law, as long as the law itself permits it.²⁸ A widely discussed court’s decision in Eagle Star Insurance Co v Yuval Insurance Co²⁹ marked the shift towards recognition of contracts including an equity clause as valid and enforceable.

In this context, the renowned American equity-friendly approach in arbitration is notable and has been characterized as closer to French tradition than to the English one (with some commentators stating that amiable composition might be used in arbitration in the US perhaps even more frequently than in France³⁰). It has been explained by the high saturation of American law with equity principles and the fact that their use in adjudication seems as natural for the American judges as it is for arbitrators.

In the sensu stricto variation, exercise of amiable composition powers has been thus characterized as an ‘equity correction’,31 not a substitute for the rules of law in the process of arbitral decision-making. It is also emphasized that the departure from strict application of the rules of law is a competence of an arbitrator empowered as an amiable compositeur, not an obligation to be mandatorily fulfilled.³² An alternative, wider definition of the concept of amiable composition includes competences for deciding a case ex aequo et bono, or on the grounds of ‘“equity”, “fairness”, “équité” and “Billigkeit”’³³ directly. Such a model seems to have been adopted in Switzerland, where the Federal Code on Private International Law of 18 December 1987 (CPIL), Art. 187, in regard to applicable law in arbitration, stipulates that the parties may authorize the arbitral tribunal to rule according to equity, without recourse to the rules of law.

Recent popularity of the wide concept of amiable composition