Peter Sibley, a paralegal at Morgan Sports Law, examines the application of ex aequo et bono as the applicable law before the Basketball Arbitral Tribunal and other arbitral tribunals. This is the second article in a three part series on the Tribunal and its jurisprudence.1

The law applicable to the vast majority of disputes before the BAT is “ex aequo et bono, applying general considerations of justice and fairness without reference to any particular national or international law.”2 As explained in this article, the application of ex aequo et bono by the BAT appears entirely orthodox and consistent with a functional, ‘corrective equity’, approach to the principle.

1.       Approaches to ex aequo et bono

There are two approaches to ex aequo et bono. A literal approach and a functional approach. In summary, the former is a ‘limitless'3 jurisdiction, the latter is a ‘limited jurisdiction based on justice and fairness’.4 The latter approach is generally preferred for the following reasons; ‘[c]ontrolled equity as a procedure for applying the law would contribute to the proper functioning of international justice ; equity left, without any objective elements of control, to the wisdom of the judge reminds us that equity was once measured by "the Chancellor's foot"; I doubt that international justice can long survive an equity measured by the judge's eye.’5

The following will analyse the different approaches to ex aequo et bono and then compare these with the approach of the BAT.

a.      Literal approach

Ex aequo et bono literally means ‘according to the right and good.’6  This is an ‘ancient’7principle which can give a decision maker unfettered discretion in making decisions; so long as the decision is in accordance with ‘the right and the good.’ Such a decision maker is not bound to apply any particular law and is presented with a blank canvas. Therefore, ex aequo et bono can be described as belonging to the ‘extra-legal’8 realm, outside of the law, where considerations as diverse as the ‘moral, social and political’9 can be brought to bear. It can be described as ‘a basis of decision about whose outcome no predication can be made until the arbitral tribunal has actually published its award’10 or ‘as variable as the climate of the Hague.’11

b.      Functional approach

Trakman12 argues that decision makers inevitably place limits on the potential discretion afforded by ex aequo et bono, and that the limits imposed are ‘practical limits…determined functionally, not in terms of strict legal doctrine…’13  Under this approach, strict legal limits do not apply to ex aequo et bono decision makers, but that is not to say that no limits apply. Decision makers deciding ex aequo et bono will place practical limits, defined by the context of the field of the dispute, on their decision-making power to make ex aequo et bono a useful, and functional, concept.

In reality, if ex aequo et bono is applied it is seldom applied literally.  In this respect Trakman notes that even in Medieval times, ex aequo et bono decision making provided efficient justice in disputes between travelling merchants, taking into account the mercantile customs, practices and usages of the time.

A functional approach to ex aequo et bono casts the principle as a chameleon like concept; it is always coloured and constrained by the context in which it is applied.

c.      Corrective Equity

A functional approach to ex aequo et bono can be observed in the international law of maritime delimitation.14 The approach here is to adopt a two-stage analysis, to start with a clear and specific starting point and to then correct this through the application equitable principles. Tanaka, in commentary on recent jurisprudence in the field, observes that, ‘the important advantage of the corrective-equity approach is that it has a certain degree of predictability by incorporating a specific method of delimitation, ie, the equidistance method, into the legal domain. Indeed, equidistance is the only predictable method of drawing an initial line to be tested for equity. According to this approach, a consideration of equity may come into play at a second stage, but only in cases in which equidistance lines provisionally drawn produce inequitable results. To this extent, the corrective equity approach makes it possible to reduce the subjectivity and unpredictability of equitable principles.’15

d.       Ex aequo et bono in other contexts

The option for parties, by agreement, to apply ex aequo et bono as the applicable law is provided for in numerous international legal instruments and arbitration rules around the world.16

Several of these rules provide that if ex aequo et bono is selected as the applicable law, the contractual position between the parties shall be considered in the decision-making process.17This can be observed in the UNCITRAL Arbitration Rules (2013). Article 35 provides:

2. The arbitral tribunal shall decide as amiable compositeur or ex aequo et bono only if the parties have expressly authorized the arbitral tribunal to do so.

3. In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract, if any, and shall take into account any usage of trade applicable to the transaction.

These rules make clear that the application of ex aequo et bono in the contractual context results in the contract being a material consideration in the decision maker’s analysis. The contract becomes a functional constraint on the exercise of equitable discretion.

e.       Universal constraint of public policy

Whichever interpretation of ex aequo et bono is adopted, it is clear that public policy is an inescapable constraint on its application.18This constraint is expressly provided for in Swiss Law, under Chapter 12 of the Federal Statute on Private International Law.19

The Swiss Federal Court has held that respect for public policy includes the respect for ‘fundamental legal principles’. These include sanctity of contract or pacta sunt servanda.20 In BGE 116 II 634, the Court stated (unofficial translation);

The public appraisal of a claim in dispute infringes public policy only if it infringes fundamental principles of law and is therefore incompatible with the law and order of value. These principles include the principle pacta sunt servanda…

Therefore, where a dispute involves a contract, the contract constitutes a functional constraint on the application of ex aequo et bono, even if not expressly provided in the relevant arbitration rules. 

BAT Jurisprudence

The approach of the BAT to ex aequo et bono is a functional one, which is analogous to the application of ‘corrective equity.’ As previously explored,21 the BAT adopts a three-stage approach.

In a similar vein to the application of ex aequo et bono in maritime delimitation cases, a ‘corrective equity’ approach to ex aequo et bono is adopted by BAT tribunals, comprising of multiple stages. The first is to identify a clear starting point. In maritime delimitation, this is to draw a line equidistant between the two territories in question. Before the BAT, the starting point is to identify the position the parties agreed to be contractually bound by. Then, this starting point can be ‘tested for equity’ taking the context and surrounding circumstances into account, ‘at a second stage.’ As will be explored in Part 3 of this series, the BAT tends only to conduct such equitable intervention in accordance with established instances of doing so. In the BAT, there is then a third, procedural stage. This multiple-stage approach, beginning with a clear starting point, is intended to be a ‘predictable method of drawing an initial line to be tested for equity.’

The approach of the BAT can be observed in BAT award 0634/14, ‘[t]he wording of a contract is the starting point’22 and in BAT award 0756/15: ‘First, the proper interpretation of an agreement is of foremost importance…’23 and in BAT award 1149/18 where it is noted that ‘[a]t the heart of all BAT awards is the doctrine of pacta sunt servanda and routes for the discharge of contractual obligations are necessarily specific and limited.’24

The BAT’s functional, corrective equity, approach should thus, in principle, make ‘it possible to reduce the subjectivity and unpredictability of equitable principles’ whilst also adhering to public policy.

2.       Ex aequo et bono and amiable composition

References to ex aequo et bono are often accompanied by references to amiable composition. An example of which can be observed in the UNCITRAL Arbitration Rules (2013) which provide ‘The arbitral tribunal shall decide as amiable compositeur or ex aequo et bono...’25

These concepts are very similar and often the terms are used interchangeably.26 However, it is possible to discern subtle differences between them such that the two concepts can be ‘distinguished.’27

The concept of amiable composition is a French concept which began to be recognised in the 13^th century,28 and is a power which can be given not only to an arbitrator under French Law, but a judge.29

An amiable composition can be defined as ‘an analysis of the applicable law and of the contract to possibly moderate their effects if they are too rigorous.’30 It is ‘a dispensation, foreseen by the law itself, from strictly applying the rules of law’31 or alternatively the deciding of the dispute ‘not by the application of the rules of law alone’ but with the possibility to ‘adapt[..]’ this if necessary.32

The distinction, therefore, is that parties in amiable composition will have chosen a national or international law to apply to their dispute, which is not ex aequo et bono. The decision maker in amiable composition ‘should generally decide in accordance with the law’ but has power to modify this position in accordance with equitable discretion.33

An ex aequo et bono decision maker on the other hand simply approaches a dispute on the basis of equitable discretion (according to the whichever functionally-defined limits apply, as described above). There is no necessary involvement of national or international law.

Ex aequo et bono is equivalent to an applicable law, whereas amiable composition allows consideration of a national or international law as the applicable law but with power given to the decision maker to alter the precise application.

This is a fine distinction, which may be barely discernible in practice.34  In this regard, Trakman notes ‘the demarcation between discretion in accordance with law [amiable composition] or outside law [ex aequo et bono] ignores the continuum along which discretion is exercised in fact.’35

3.       Institutional implications of a tribunal empowered to decide ex aequo et bono

The potential freedom afforded to a decision maker empowered to decide ex aequo et bono can raise questions about the institutional role of an arbitral tribunal. To some, the potential freedom accorded to an ex aequo et bono decision maker is contrary to the function of an adjudicative body.36

Kroll37 notes that judicial dispute resolution is a ‘backwards orientated task’38 which focusses on the determination of pre-existing rights. One view is that arbitration – in effect a private judicial dispute resolution system – should equally be so limited. When an arbitral tribunal is empowered to decide ex aequo et bono however, it has freedom, potentially, to determine future orientated rights of the parties and to modify or even add to pre-existing rights. Kroll notes, in this way, ex aequo et bono can be ‘more rule making than dispute settlement’.39

The adoption of a ‘corrective equity’ approach to ex aequo et bono reduces the force of such concerns, in that the jurisdiction of the tribunal is functionally limited.

4.       Conclusion

The application of ex aequo et bono as the applicable law before the BAT is not a particularly unusual approach to dispute resolution and is indeed utilised in many different contexts around the world. Furthermore, and in summary:

a. The particular application of the principle before the BAT is what might be described as a functional, corrective equity, approach, where the contract is – to draw an analogy with the deployment of ex aequo et bono in the context of maritime delimitation – the ‘initial line’.

b. The BAT Arbitration Rules provide that the ‘Law Applicable to the Merits’40 is ex aequo et bono. Thus, in this context, there can be no confusion with amiable composition.

c. The functional, corrective equity, approach adopted by BAT tribunals should limit concerns about the potentially broad application of ex aequo et bono as the law applicable to the merits.