Arbitration in Equity versus Arbitration in Law

In June 2007 Division B of the Commercial Court of Appeals declared inadmissible an appeal against a decision of the General Arbitration Tribunal of the Buenos Aires Stock Exchange to reject a motion appealing the award rendered in re Mahle de Argentina SA v Carleti.[1] The appeal was denied on the grounds that Division B was unable to verify whether the award had been rendered through arbitration in law or arbitration in equity, since the appellant had not submitted the arbitration agreement to the court.  

The arbitration tribunal had rejected the appeal on the grounds that arbitration in equity (or amiable compositeur) awards, whether due to express agreement of the parties or to the absence of an agreement regarding the type of arbitration chosen, are not subject to appeal under Sections 2 and 64 of the Arbitration Rules of the Tribunal of the Buenos Aires Stock Exchange. Parties may submit a claim to request the nullification of an amiable compositeur award, but not an appeal based on essential procedural violations, an award rendered after the time limit or an extra petita award, in accordance with Section 760 of the Civil and Commercial Procedural Code.  

An arbitration in equity through absence of express agreement is also provided for in:

i)              Section 2 of the Arbitration Rules of the Tribunal of the Rosario Stock Exchange;

ii)              Section 766(2) of the Civil and Commercial Procedural Code; and

iii)              local procedural laws (with the exception of the laws of Rio Negro province).

However, most international arbitration rules and several Argentine sets of rules take the opposite stance - that is, that a tribunal cannot rule as an amiable compositeur unless the parties have expressly authorized it to do so.[2]

As the rules of the tribunals of the Buenos Aires and Rosario Stock Exchanges provide for arbitration in equity as the default option, parties are often required to take part in arbitration in equity because of an oversight, rather than because they purposely chose that option.

However, in a similar manner to arbitration in law, the arbitration in equity process still recognizes the right to a fair trial and the right of due process, including the arbitrators' duty to justify their decisions (unless otherwise agreed).  

Amiable compositeurs, who render arbitration awards in equity, do not have to apply statutory law, which in some cases allows a decision to be made that is fairer than the legally prescribed solution. Although 'rendering the award in equity' is the key feature of this type of arbitration, there is no consensus in Argentina regarding the precise scope of this concept. Instead, opinions vary from it being “a personal, subjective and full judgment, with no other grounds than the best of the arbitrators' knowledge, who are not bound by legal rules”,[3] to what Barrios de Angelis called a tool “to sweeten the law in order to protect parties from the severity of its application”.[4]

Even though many authors praise one of these two modes of arbitration procedure and discredit the other, neither of them seems to be, in abstract terms, more advisable or advantageous, depending finally on the particular circumstances of each case, such as:

i)             the specific issues of fact or law and the commercial transactions involved;

ii)            the urgency with which the dispute must be settled;

iii)            in the case of arbitration in law, the legislation to be applied, particularly its legal framework and permanence;

iv)           the prevention of conflicts of law concerning international contracts, the rights of the parties and the formalities of the arbitral proceedings;[5]

v)            the parties and their counsel; and

vi)            the arbitrators’ qualifications and integrity.

In respect of the last issue, certain members of the General Arbitration Tribunal of the Buenos Aires Stock Exchange and the Arbitration Tribunal of the Rosario Stock Exchange, who may act as amiable compositeurs or arbitrators in law depending on the case, all have experience as former federal judges or as lawyers. In contrast, the Grain Exchange Arbitration Courts, whose arbitrators act exclusively as amiable compositeurs, are presided over solely by businesspeople, agricultural producers and grain merchants from the agricultural industry. Although by law these arbitrators are lay people, they are experts in accepted commercial practices in that sector, as discussed by Roque J Caivano.[6] One of Caivano’s conclusions makes light of the apparent differences in the reasoning of arbitrators in law and arbitrators in equity:

"And seldom have I heard reasoning of arbitrators in equity that differs substantially from the general principles of law, and I insist those arbitrators were not lawyers but merchants. I consider, summing up, that if it is like this, it is not because general principles of law are contained within a legal provision. It is because they are the common-sense basic principles with which it is difficult not to agree... basic principles that are the grounds of law and give it sense and the very reason for being."