The French Reinsurance and Insurance Arbitration Centre (Centre Français d’Arbitrage de Réassurance et d’Assurance, CEFAREA) has recently adopted a new set of arbitration rules. These incorporate changes as a result of the recent reform of French arbitration law, as well as deliberately opting for “amiable composition”.

CEFAREA was created to promote arbitration or mediation as a means of resolving disputes between the various players in the insurance market (i.e. insurers, reinsurers, brokers, insured etc.). It endeavours to offer arbitration and mediation rules tailored to this sector. It has been working in partnership with the Paris Mediation and Arbitration Centre (Centre de Médiation et d’Arbitrage de Paris, the CMAP) since 2006.

The new rules are unusual because they provide that arbitrators should act as “amiables compositeurs” (ruling in accordance with principles of fairness rather than strictly applying the law), unless otherwise agreed by the parties (CEFAREA arbitration rule 23.1). This is a reversal of the normal position under French law, under which arbitrators render a decision in accordance with the rules of law, unless the parties instruct them to act as “amiables compositeurs” (Article 1478 of the French Civil Procedure Code).

This new approach has given rise to concerns, some of which are legitimate, as the parties probably lose in legal certainty what they may gain in equity. However, it should be noted that the “amiable compositeur” rules do not give arbitrators unfettered discretion.

“Amiable composition” is a form of waiver by the parties of their strict contractual or legal rights. It implies a willingness by the parties to cooperate in good faith, which is ideal in an industry in which the players wish to maintain good commercial relations despite tensions that result from circumstances in which the parties have competing interests.

Powers

The “amiable compositeur” has the power to disregard certain rules of law or to limit, moderate or modify any effects that may be inequitable. The rules of law which can be set aside are the “subjective rights” of the parties, that is to say those rights which they may choose to waive. The reference to “equity” in this context does not correspond to the English equitable rules, but merely to the notion of balance or fairness.

By way of example, an arbitrator acting as “amiable compositeur” may moderate the application of a penalty clause without being constrained by the provisions of Article 1152 of the French Civil Code. He can find debtors to be jointly liable even when this has not been expressly stipulated, and choose the fairest compensation. The arbitrator may also alter the rules of evidence – although the courts are still reluctant to acknowledge this.

Duties and limits

Although the parties confer power on the “amiable compositeur”, he is also under a duty. He must use the exceptional powers conferred on him to adjudicate “ex aequo et bono” – fairly and justly. In addition, he does not have complete and unfettered freedom as regards the rules of law.

He cannot, in principle1, ignore public policy rules, whether internal or international. Public policy rules, of which there are many in insurance law, cannot be ignored as they pertain to a fundamental public policy to safeguard the general interest. Arbitrators must abide by them in all circumstances.

Furthermore, the CEFAREA rules provide additional safeguards by requiring at rule 23.3 that “at all times, the arbitral tribunal must comply with the terms of the contract and take into account industry practices”

Case law has acknowledged the moderating power of an arbitrator acting as “amiable compositeur” as regards contractual clauses, subject to the condition that he be motivated by “equitable” considerations2. The obligation to comply with the terms of the contract should nevertheless restrain the arbitrator’s power – he cannot modify the economic outcome of the contract, due to the risk of undermining it3.

The arbitrator’s obligation to take into account industry practice should also guide him towards rendering decisions which are compliant with CEFAREA.

“Amiable composition” remains arbitration

It is important to note that an arbitrator acting as “amiable compositeur” does not become a mediator or conciliator, but remains an arbitrator. He must use his “judicial” power to render a decision which disposes of the substantive issues and must accordingly respect the specified arbitral procedure. His decision must, moreover, be reasoned (rule 26).

There are several consequences which emanate from the judicial nature of an arbitration by “amiable composition”. Firstly, the procedure retains the advantages of arbitration, such as speed, confidentiality, and the arbitrator’s expertise tailored to the dispute. Secondly, the claimants benefit from using established and well-recognised arbitral procedures, with awards recognised and enforceable at home and in other jurisdictions. Moreover, extensive case law imposes a duty on the “amiable compositeur” to comply with normal rules of natural justice4.

Finally, whether arbitration is by “amiable composition” or according to the ordinary rules of law, the options for judicial review remain the same. The “amiable compositeur’s” decision is final and binding. Only a claim for annulment, which is restricted to certain serious grievances, is available to parties seeking to challenge it – and in international arbitrations, the parties may expressly agree to waive this challenge (rule 27).

Conclusion

In a relatively restrained market, the CEFAREA rules offer an interesting alternative for arbitrating disputes. When parties wish to preserve their future commercial relationship and favour an outcome which will be balanced rather than dictated by the strict terms of the contract or legal principles, arbitration by “amiable composition” may be the solution. It is nevertheless prudent carefully to weigh the risks and possible consequences of such a decision.