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CS Professional · Arbitration, Mediation and Conciliation · Commercial Transactions

In a domestic arbitration seated in Pune, the contract between Sahyadri Foods Ltd and Deccan Packaging Ltd fixes a clear liquidated damages clause, and the trade usage in the packaging trade supports it. The sole arbitrator ignores both and decides on what she thinks is fair, though neither party authorised her to act as amiable compositeur. Sahyadri challenges the award. What is the correct position?

The tribunal erred. It must in all cases take into account the contract terms and applicable trade usages, and it may decide ex aequo et bono or as amiable compositeur only if the parties expressly authorised it. Neither party did so here.

  1. AThe tribunal acted properly, since fairness overrides contract terms
  2. BThe tribunal erred, because it must take into account the contract terms and applicable trade usages and may decide ex aequo et bono only if expressly authorisedCorrect
  3. CThe award is valid unless the parties had earlier agreed on institutional rules
  4. DThe tribunal erred only on trade usage, as contract terms are merely advisory

Explanation

The tribunal must in all cases take into account the terms of the contract and trade usages applicable to the transaction. It may decide ex aequo et bono or as amiable compositeur only if expressly authorised. Contract terms are not merely advisory, so option D is wrong, and fairness cannot displace them without authorisation.

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