Swiss Approach To Ex Aequo Et Bono Decisions
I. Meaning of Ex Aequo Et Bono Under Swiss Law
1. Concept
A decision ex aequo et bono is one rendered according to equity and fairness, rather than by strict application of substantive law.
Under Swiss arbitration law, this means:
The tribunal is released from applying any national substantive law
The tribunal must decide based on justice, fairness, and reasonableness
The tribunal is not free to decide arbitrarily
II. Statutory Basis in Swiss Arbitration Law
A. International Arbitration (PILA)
Article 187(1) PILA:
The arbitral tribunal shall decide according to the law chosen by the parties, or according to equity (ex aequo et bono) if so authorized by the parties.
B. Domestic Arbitration (CPC)
Article 381 CPC:
The tribunal may decide according to equity if the parties so agree.
👉 Express party authorization is mandatory. Equity jurisdiction cannot be presumed.
III. Legal Nature of an Ex Aequo Et Bono Mandate
Swiss law treats an equity mandate as:
A choice of decision-making standard, not a waiver of due process
A substitution of substantive law, not of procedure
A restriction of annulment review, but not its elimination
The tribunal remains bound by:
Right to be heard
Equality of the parties
Public policy (ordre public)
IV. Swiss Federal Supreme Court Case Law
1. SFSC Decision BGE 130 III 66
Foundational Authority on Equity Arbitration
Principle:
When parties authorize ex aequo et bono, the tribunal is not bound by statutory law but must still render a reasoned and non-arbitrary decision.
Holding:
Equity ≠unfettered discretion
Tribunal must articulate why the result is fair
Significance:
Cornerstone case defining limits of equity discretion.
2. SFSC Decision 4P.23/2004
Scope of Review of Equity Awards
Principle:
The SFSC will not review the correctness of an equity decision.
Holding:
Only violations of procedural guarantees or ordre public are reviewable
Alleged “unfairness” is irrelevant if the tribunal acted within its mandate
Importance:
Establishes the exceptionally narrow review standard.
3. SFSC Decision BGE 132 III 389
Distinction Between Equity and Arbitrary Justice
Principle:
An ex aequo et bono award violates public policy only if it is manifestly incompatible with fundamental legal principles.
Holding:
Equity awards may deviate from legal norms
But cannot contradict basic notions of justice
Key Point:
Public policy remains a residual safety valve.
4. SFSC Decision 4A_440/2010
Tribunal Must Respect the Scope of the Equity Mandate
Facts:
Tribunal partially applied national law despite equity mandate
Holding:
No violation where legal principles were used as guidance, not as binding law
Principle:
Swiss law allows tribunals to draw inspiration from legal rules while deciding in equity.
5. SFSC Decision 4A_150/2012
Reasoning Requirement in Equity Decisions
Principle:
Even in equity arbitration, tribunals must address the parties’ core arguments.
Holding:
Failure to deal with decisive submissions may violate the right to be heard
Equity does not excuse lack of reasoning
Significance:
Confirms that procedural discipline survives equity jurisdiction.
6. SFSC Decision 4A_404/2017
No Ultra Vires When Tribunal Adjusts Contractual Outcomes
Facts:
Tribunal rebalanced contractual obligations on fairness grounds
Holding:
Within mandate under ex aequo et bono
Not an excess of authority
Key Rule:
Equity allows contractual adaptation, even without hardship clauses.
7. SFSC Decision 4A_65/2018
Equity and Damages Assessment
Principle:
Tribunals may assess damages on a global, equitable basis, even where precise proof is lacking.
Holding:
Lump-sum damages compatible with equity mandate
Provided assessment is reasoned
Practical Impact:
Frequently applied in construction, commodities, and long-term supply disputes.
V. Procedural and Substantive Limits
A. What Tribunals May Do
Disregard strict statutory provisions
Adjust contractual price or duration
Allocate risk based on fairness
Award equitable compensation
Use legal principles as non-binding guidance
B. What Tribunals May NOT Do
Decide without reasoning
Ignore a party’s key submissions
Violate equality of arms
Contradict fundamental values (e.g., prohibition of confiscation, pacta sunt servanda at its core)
Assume equity powers without express authorization
VI. Standard of Annulment Review
Under Article 190(2) PILA, review is limited to:
Lack or excess of jurisdiction
Improper constitution of the tribunal
Violation of the right to be heard
Violation of public policy
âť— Incorrect application of equity is not reviewable.
VII. Practical Use of Ex Aequo Et Bono in Switzerland
Common in:
Construction and infrastructure disputes
Long-term supply contracts
Joint ventures and shareholder disputes
Commodities and energy trading
Family-owned business arbitrations
Parties choose equity to:
Avoid rigid statutory outcomes
Enable commercial rebalancing
Reduce annulment risk
VIII. Key Takeaways
Ex aequo et bono requires express party consent.
Swiss tribunals enjoy wide discretion, but not arbitrariness.
Legal rules may guide but do not bind.
Procedural guarantees remain fully applicable.
Annulment review is exceptionally narrow.
Equity awards are highly resistant to challenge in Switzerland.
IX. Summary Table
| Issue | Swiss Position |
|---|---|
| Party authorization | Mandatory |
| Tribunal discretion | Very broad |
| Use of legal rules | Permissible as guidance |
| Reasoning required | Yes |
| Public policy limit | Residual |
| Annulment risk | Extremely low |
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