Much has been written about the use of the UNIDROIT Principles of International Commercial Contracts2 in arbitral awards and in particular those awards rendered by tribunals acting under the ICC Rules of Arbitration.3 It has not been thought necessary to systematically list the awards that have been published previously or to reiterate what has already been written about the Principles in documentary sources that are accessible to any interested person. The purpose of the present article is rather to analyse recent ICC arbitral awards4 and the practice of the ICC International Court of Arbitration. To be fully understood, this contribution to the study of the Principles should therefore be read in the light of the findings of previous writings on the use of the Principles in ICC arbitration.

The Principles play a dual role in ICC arbitration. On the one hand, they may exert some influence on arbitration practice, which is often reflected in arbitral awards. In this respect, the Principles make a contribution to ICC arbitration (I). On the other hand, arbitral tribunals' references to the Principles produce certain effects on the Principles, and in this sense ICC arbitration makes a contribution to the Principles (II). This mutual influence, as we shall see, is not without interest.

I. Contribution of the Principles to ICC arbitration

This contribution can be seen in the various uses made of the Principles (A), even if such use is subject to certain limits (B).

A. The various uses of the Principles

Reference to the Principles may be made by the parties to the dispute submitted to arbitration (1) or by the arbitrators (2).

1. Reference to the principles by the parties

It may be the parties themselves or their counsel that refer to the Principles. In ICC case 10578, for example, the claimant expressly requested the arbitral tribunal to apply general principles of international trade law, which included the Principles. The arbitral tribunal took the view that the provisions of the contract and the applicable law were sufficiently detailed to deal with the claims made by the [Page66:] claimant and therefore did not consider it necessary to apply the Principles. In case 11227, the claimant referred to the Principles in order to corroborate the solution said to be arrived at through the applicable law.

The awards show that the parties and their counsel do not always state why they refer to the Principles and if they do so it is often not done explicitly. An arbitral tribunal is in this case faced with an ambiguous reference to the Principles and must determine whether they have been considered as applicable law, as complementary to the applicable law (i.e. certain provisions of the Principles complement or replace certain provisions of the applicable law), and whether the reference to the Principles derives from an agreement between the parties. This situation is illustrated by the final award in case 9771, where the sole arbitrator was required to rule on the applicable law as the parties had not included an express provision on the subject in the contract underlying the dispute. The arbitrator expressly notes the vague nature of the claimant's reference to the Principles and consequently decides that they shall not be applied.

It is sometimes the witnesses produced by the parties or their counsel who refer to the Principles, as illustrated in the partial award rendered in 2002 in case 11375. At a hearing, a witness produced by the respondent mentioned the Principles and pointed out their likely relevance to an international dispute. The witness's words as reported in the award do not point to a specific criterion that would lead to the application of the Principles. Should this lack of precision be taken to mean that the mere fact of a dispute being international should automatically lead arbitrators to consider applying the Principles or making an express reference to them?

2. Reference to the Principles by arbitrators

It should be mentioned, to begin with, that arbitrators do not always say whether they are applying the Principles on their own initiative. Nor do they always indicate whether the Principles have been referred to earlier in the procedure or whether the question of their application has been the subject of discussions that may, for instance, have ended in a procedural decision on the applicable law.

In several awards arbitrators refer to the Principles although there is no reference to them in the contract (whether in the arbitration clause or in any other clause), the Terms of Reference, or the parties' submissions.

In an interim award rendered in 2001 in case 11295, the sole arbitrator enquired whether the Principles should be applied subsidiarily. In the Terms of Reference, the parties had chosen a national law as the main applicable law. Their choice was worded in such a way as to allow recourse to other rules of law. The parties then developed reasoning on the basis of another identical law. The sole arbitrator rejected this second law, as it had no connection with the dispute, but stated that the Principles could be used to complement the law initially chosen by the parties in the Terms of Reference. However, given that the Principles did not provide a solution to the issue in dispute and that this issue was not dealt with in the law chosen by the parties in their contract, the arbitrator did not apply the Principles directly but pointed to some general features of the Principles that were capable of justifying the legal solution subsequently arrived at. In this award, the reference to the Principles could be explained by the wording of the applicable law clause in the Terms of Reference. It is interesting to note that the sole arbitrator did not refer here to the ICC Rules of Arbitration and the freedom they give arbitrators to choose the applicable rules of law. [Page67:]

When enquiring into the substantive law applicable to the dispute in case 10385, the arbitral tribunal examined the procedural law and legal literature and decided that neither the national law of the two parties nor two other laws without any link to the dispute-one of which was the law at the seat of the arbitration-were applicable. Yet, the arbitral tribunal did not apply the Principles, even though it conceded that they had sometimes been applied in ICC arbitral awards for the purpose of filling gaps in the applicable law. It discussed them only when considering the possibility of applying lex mercatoria, stating that they complement or even 'compete with' lex mercatoria and would appear to represent an attempt to unify certain general or specific principles of contract law. The arbitral tribunal interpreted the will of the parties on the sole basis of the terms of the contract underlying the dispute and, when these were ambiguous, on the basis of the rules of law it deemed to be appropriate. Did the tribunal's refusal to apply the Principles in this case reflect its aversion to them, or was it due to the fact that the points the tribunal had to decide and which were not covered by the contract did not come within the scope of the Principles either?

The final award in case 104225 offers an example of an arbitrator's almost systematic application of the Principles of his own accord in order to solve the points in dispute or corroborate his findings. When identifying the applicable substantive law-for the contract merely provided for the adoption of 'neutral legislation', which was defined neither in the contract itself nor subsequently by the parties-the arbitrator applied Article 17(1) of the 1998 ICC Rules of Arbitration in order to determine the appropriate rules of law. According to the arbitrator, the parties' shared wish was for a 'neutral solution' and for this reason he chose as the applicable rules of law 'the rules and general principles of international contracts or lex mercatoria'. He stated explicitly that the Principles were part of lex mercatoria inasmuch as they constitute 'a faithful transposition of the rules which business people involved in international trade recognize as applicable to international contracts'. This qualification led the arbitrator to exclude some of the Principles from the scope of lex mercatoria, including, notably, hardship.

The final award in case 10422 is also interesting in that it illustrates an unusual dual application of the Principles. Although the Principles are sometimes applied by arbitrators on their own initiative to determine a legal solution, they are more widely used to reinforce findings reached pursuant to the applicable law. In the final award in case 9950, for example, the arbitral tribunal refers to two national laws-the law applicable to the merits as chosen by the parties in their contract and the substantive law at the seat of the arbitration-and the Principles in order to insist that arbitrators have discretion in the assessment of harm and damages, although such discretion does not amount to their acting as amiable compositeurs. The tribunal backed up its reasoning based on State law with an explicit reference to certain of the Principles.6

Likewise, in the final award in case 9994, the arbitral tribunal referred to specific articles of the Principles to support the solution derived from the applicable law. There is nothing in the award to suggest that the Principles were applied other than by the arbitrators themselves.

In the final award in case 11051, the sole arbitrator was required to decide the date from which interest due by the respondent to the claimant should start to run. He expressly mentioned that the solution arrived at through the applicable law was identical to that derived from 'the relevant custom of international trade, of which the Unidroit Principles are an expression'. The arbitrator did not explain in his award why he made reference to the Principles. One explanation might lie in [Page68:] Article 17(2)7 of the 1998 ICC Rules of Arbitration, since this provision would be applicable to the parties and the arbitrator, without any need for an express reference to it, as a result of the parties' choice of the ICC Rules of Arbitration. Article 17(1) of the Rules, according to which, if the parties have not agreed on the law applicable to the merits of the dispute, 'the Arbitral Tribunal shall apply the rules of law which it deems to be appropriate',8 was not applicable in this particular case as the parties had agreed on the applicable law.

The Principles have also been referred to in support of a solution based on laws not directly applicable. In the final award in case 9078, German law was the applicable substantive law. The arbitral tribunal noted that neither this law nor legal writings or court decisions said anything about the legal issue to be decided-compensation for a lost opportunity. It recognized, however, that a legal rule existing in other laws and in the Principles-namely, recognition of harm caused by a lost opportunity, for which compensation can be sought-applies, unless excluded by the applicable law. The Principles would appear to have been referred to by the arbitral tribunal on its own initiative.

On the basis of the awards studied, one might express a wish for greater clarity on the part of arbitrators in their references to the Principles. When reading their awards, it is sometimes hard to know whether the Principles have been referred to on the arbitrators' own initiative or whether they were invoked by the parties or their counsel. This lack of clarity limits recourse to the Principles, which both arbitrators and arbitration institutions could help to avoid.

B. Limits upon use of the Principles

The Principles are based on the premise that the existence of a set of rules relating to international contracts is of benefit to international trade. The awards seem to show, however, that parties and arbitrators are somewhat hesitant in applying the Principles alone. This raises the question of the appropriateness of a single set of rules (1). The additional questions also arise of whether the Principles constitute a complete set of rules (2), whose use is affected by geographical considerations (3). Each of these limits upon the use of the Principles will be considered in turn.

1. Appropriateness of a single set of rules

Given the multiplicity of legal rules that exist, the consistency of the various instruments, practices and court decisions that may apply or be relevant is likely to be a problem.

For example, in two recent ICC cases,9 the arbitral tribunal was required to examine a legal question in accordance with the UNIDROIT Principles and the Principles of European Contract Law. In one of the cases, the arbitral tribunal interpreted the parties' choice of the lex mercatoria as authorizing it to refer to both sets of rules. In the other case, the claimant called for the application of the Principles of European Contract Law 'in the light of the Principles of International Commercial Contracts - 1994 ("UNIDROIT Principles")'.

When identifying the applicable rule of law, arbitral tribunals may consider the UNIDROIT Principles as part of10 or as an alternative to11lex mercatoria. Depending on the approach taken, the Principles will be considered as either a complete or self-sufficient set of rules, or a fragmentary or incomplete set of rules requiring the concurrent application of other additional rules. [Page69:]

2. A complete set of rules

The awards rendered in international commercial arbitrations would tend to suggest that arbitrators generally regard the Principles as a complete set of rules. However, some arbitral tribunals do not hesitate to point out and even emphasize the limited use of the Principles and their subsidiary nature.12 In the latter case, the Principles are used to support solutions reached by the arbitrators pursuant to the applicable national law. Thus, two rules that may occupy different positions in the hierarchy of rules are used simultaneously or, rather, jointly.

Recent ICC awards show that when individual provisions of the Principles are referred to, as opposed to the Principles as a whole, a limited number of articles (18)13, drawn from five14 out of the seven chapters of the 1994 edition, are cited. One likely explanation is that arbitral tribunals have deemed it necessary to refer to the Principles only in a limited number of circumstances relating to specific legal points.

Arbitrators sometimes note the gaps in the Principles, or their limited purpose or substantive or geographical scope.15 This can sometimes lead arbitrators to exclude certain articles.16

3. Geographical considerations

In an award17 submitted to the International Court of Arbitration in 2004, in which Japanese law was applicable pursuant to the terms of the arbitration clause, the arbitral tribunal considered that as the Principles did not form part of Japanese law they should not be applied. It is interesting to note that the initial draft award submitted to the Court pursuant to Article 27 of the ICC Rules of Arbitration expressly mentioned that the Principles were not applicable as they had not been incorporated into Japanese law and did not reflect commercial customs, at least between Japanese trading partners.

If use of the Principles is recognized as being affected by geographical considerations, to what extent should the origins of the parties,18 the procedural law, the substantive law or any other factor, such as the place where the arbitral award is likely to be enforced, be taken into account when applying the Principles? The answer depends on the legal nature of the Principles. Are they usages, commercial customs, a component of lex mercatoria, or simply contractual proposals that trading partners may incorporate in their legal relationship? On these questions, ICC arbitral decisions make a real contribution to the Principles.

II. Contribution of ICC arbitration to the Principles

ICC arbitration's contribution to the Principles can be seen on a practical level (A) and on a theoretical level (B).

A. On a practical level

The Principles now regularly appear in ICC arbitral awards. Sometimes the reference is in general terms19 and at other times mentions specific articles or their content. [Page70:]

The publication by arbitration institutions of arbitral awards referring to the Principles is an important means of disseminating and promoting the Principles. It helps to counter the criticism that the Principles are merely an academic exercise devoid of any practical significance.

Arbitral decisions concerning the interpretation of the Principles tend to show their usefulness, clarify their wording, and create a series of rules of interpretation. It will be interesting to consider the importance such decisions acquire during the coming decade when a sufficient quantity of awards have been rendered to allow a meaningful analysis to be made. Will a body of precedents be identified mutatis mutandis, with arbitral tribunals considering themselves bound by previous interpretations of the Principles on a particular point of law? Conversely, will the existence of divergent interpretations be a stumbling block for the legal harmonization that Principles seek to achieve?

The references to a limited number of the Principles' articles in ICC arbitral awards, the nature of the contracts20 giving rise to the disputes in which the Principles are used, and the nationalities of the parties and arbitrators21 in the cases in which the Principles are mentioned, may lead UNIDROIT and the international business community to adapt the Principles, for instance by revising certain articles and adopting new Principles. It was such concerns as these that led to the 2004 version of the Principles.

One practical effect of the publication of the new version of the Principles has already been seen in an ICC arbitration case: when scrutinizing the draft award pursuant to Article 27 of the 1998 Rules of Arbitration, the Court asked the arbitrators to specify which version of the Principles was applicable, so as to avoid any ambiguity.

The practical influence of the Principles is closely linked to their legal nature, upon which their application will be dependent. An analysis of ICC arbitral awards helps in determining the legal nature of the Principles and illustrates the theoretical contribution made by ICC arbitration to the Principles.

B. On a theoretical level

The issue here is the legal nature of the Principles: what are they? In their contracts, submissions or the Terms of Reference, the parties may explicitly or implicitly characterize the Principles.22 For example, the Principles may be considered as the applicable law or as being applicable instead of the applicable law.23 Failing any indication by the parties, can the solution be found in the ICC Rules of Arbitration?

An initial answer is provided by Article 17(1) of the Rules: the Principles may be the rules of law that the arbitral tribunal deems to be appropriate. In none of the awards studied was it explicitly mentioned that the Principles were being applied as such.

Articles 13(5) of the 1988 Rules of Arbitration and 17(2) of the 1998 Rules of Arbitration state that in all cases the arbitral tribunal shall take account of the provisions of the contract and the relevant trade usages.24 Thus, the arbitrators are under an obligation to apply-on their own initiative, if necessary-relevant trade usages. [Page71:]

In one case, the arbitral tribunal recalled this obligation but also mentioned that its role was not to discuss the definition or the scope of lex mercatoria, or the complementary nature of the Principles and lex mercatoria and their consistency with each other. The tribunal went on to interpret the parties' intention on the basis of the contract and, when this was unclear, the rules of law that it deemed to be appropriate.25 The decision not to apply the Principles in this particular case may be interpreted, a contrario, as meaning that they were not considered as 'relevant trade usages'.

In another case26 the arbitrators refused to apply the Principles as trade usages within the meaning of Article 13(5) of the 1988 Rules of Arbitration.

Was the decision not to apply the Principles in these two cases due to the circumstances of the cases (causing them to be rejected for lack of relevance) or the nature of the Principles (as they were not characterized as usages)?

Article 17(2) of the 1998 Rules of Arbitration mentions trade usages, but not commercial customs. If the Principles are not applied as usages, could they be applied as international commercial customs? Assuming that the Principles are customs, the question arises as to whether opinio juris, which traditionally distinguishes usage stricto sensu from custom,27 allows arbitrators to apply, of their own accord, legal rules that they regard as deriving from custom. If so, custom would be recognized as having the nature of a mandatory rule in international legal relations. The obligation to apply custom as true rules of law could also be based on Article 17(1) of the 1998 ICC Rules of Arbitration.

In case 11051, the sole arbitrator applied the Principles as an expression of 'the relevant custom of international trade'. Although this would appear to affirm the legal nature of the Principles as custom, the use of the adjective 'relevant' raises two doubts.

The first concerns the mandatory nature of such custom and their dependence on outside factors that would need to be identified and which would justify their relevance, such as the sector of activity, the type of contract, or the nationalities of the parties.

The second concerns the interpretation of Article 17(2) of the 1998 Rules of Arbitration. The wording used corresponds to that of Article 17(2), with the term 'custom' being used instead of 'usages'. Should the latter term be interpreted lato sensu and thus be equated with custom? If so, the two terms would be interchangeable and it would be impossible to attribute opinio juris to any rule of law deriving from a constant and repeated practice. It would be strange indeed for the ICC Rules of Arbitration, through Article 17(2), to make it mandatory to take into account a rule defined by the awareness international business operators have of the compulsory nature of its application. It would not seem possible to equate custom with usage, and custom must therefore be apprehended solely through Article 17(1) of the 1998 Rules of Arbitration.

There can be no doubt that this theoretical discussion arising from an interpretation of the ICC Rules of Arbitration raises the question of the legal nature of the Principles. The answers given by arbitral tribunals will perhaps help to clarify this legal issue, which is of undoubted theoretical and even greater practical significance for the Principles and the harmonization of international trade law. [Page72:]

Conclusion

The fifteen or so cases received each year by the Court, in which reference is made to the Principles, would seem to reflect an increasing interest in this set of rules on the part of the players in international arbitration. Through symbiosis, the Principles will enrich ICC arbitration and ICC arbitration will in return provide examples of actual applications indispensable to any rules whose purpose is to harmonize law. However, there is evidence of a lack of uniformity in the approach adopted by these same players when using the Principles. Although this undoubtedly shows the flexibility and practicality of the Principles, it undermines the legal certainty to be expected from such an instrument of uniform law.

There is no doubt that the continuing publication of decisions-especially arbitral decisions-relating to the use of the Principles will help to identify certain key themes in the application and interpretation of this innovative instrument of international trade law. Once clarification has been achieved, international business operators will perhaps be in a better position to appreciate the usefulness of the Principles and to employ them more frequently, be it in their contracts or when resolving disputes, and thereby contribute to actual harmonization of the law.

1
The author assumes sole responsibility for the views expressed in this article. ICC cannot be held responsible for any inaccuracies it might contain or the opinions expressed therein.

2
Referred to hereinafter as 'the Principles'.

3
See e.g. F. Marrella & F. Gélinas, 'The UNIDROIT Principles of International Commercial Contracts in ICC Arbitration' (1999) 10:2 ICC ICArb. Bull. 26 ; F. Gélinas, 'La jurisprudence arbitrale de la CCI et les Principes UNIDROIT' Gaz. Pal., Cahiers de l'arbitrage, 1-2 December 2000, 37 ; F. Marrella, 'The UNIDROIT Principles of International Commercial Contracts in ICC Arbitration, 1999-2001' (2001) 12:2 ICC ICArb. Bull. 52 ; F. Marrella, La nuova lex mercatoria: Principi UNIDROIT ed usi dei contratti del commercio internazionale (Padua, CEDAM, 2003).

4
Extracts from most of these awards are reproduced hereinafter.

5
See J.D.I. 2003, pp. 1142-56 (Annot. E. Jolivet).

6
This award expressly mentions the year of the Principles (1994), which is not typical of the awards studied.

7
This provision reads as follows: 'In all cases the Arbitral Tribunal shall take account of the provisions of the contract and the relevant trade usages.'

8
Article 17(1) reads in full: 'The parties shall be free to agree upon the rules of law to be applied by the Arbitral Tribunal to the merits of the dispute. In the absence of any such agreement, the Arbitral Tribunal shall apply the rules of law which it determines to be appropriate.'

9
Unpublished.

10
See final award of 2001 in case 10422, J.D.I. 2003.1142 (Annot. E. Jolivet).

11
See final award of 2002 in case 10385.

12
Interim award of 2001 in case 11295; final award of 2001 in case 10578.

13
Article 1.3: Binding character of contract; Article 2.11: Modified acceptance; Article 2.13: Conclusion of contract dependant on agreement on specific matters or in a specific form; Article 2.14: Contract with terms deliberately left open; Article 4.1: Intention of the parties; Article 4.5: All terms to be given effect; Article 6.2.2: Definition of hardship; Article 6.2.3: Effect of hardship; Article 7.3.1: Right to terminate the contract; Article 7.3.2: Notice of termination; Article 7.3.5: Effects of termination in general; Section 7.4: Damages; Article 7.4.1: Right to damages; Article 7.4.2: Full compensation; Article 7.4.3: Certainty of harm; Article 7.4.9: Interest for failure to pay money; Article 7.4.10: Interest on damages.

14
Chapter 1: General provisions; Chapter 2: Formation; Chapter 4: Interpretation; Chapter 6: Performance and Chapter 7: Non-performance.

15
See interim award of 2001 in case 11295.

16
See final award of 2001 in case 10422, J.D.I. 203.1142 (Annot. E. Jolivet).

17
Unpublished.

18
In the awards studied, the parties came from the following countries: Cameroon, Chile, Cyprus, Egypt, France (three times), Germany (twice), Guinea, Italy (three times), Poland, Portugal, Spain, Sweden (twice), Switzerland, Taiwan, United States (twice).

19
Obligation of good faith in negotiations; general principles of international trade law; international commercial law; the Principles represent 'international practice'; the Principles are an expression of the relevant custom of international trade; rules and general principles for commercial contracts (lex mercatoria); proposed Unidroit rules; Unidroit Principles that since 1994 supplement or compete with lex mercatoria and try to unify certain general or specific principles of contract law.

20
Exclusive commercial concession agreement; commercial agency agreement; contract for the sale and transport of goods; exclusive contract for placing neon advertisements on the respondent's building; contract for the construction of a chemical plant; construction contract; invitation to tender and performance of a concession contract relating to the construction and management of public infrastructures; memorandum of understanding on the acquisition of a majority interest in a company; licence agreement; exclusive know-how licensing agreement.

21
In the cases studied the arbitrators were from the following countries: Canada, Egypt, France (five times), Germany, Italy (twice), Lebanon, Spain, Sweden (twice), Switzerland (five times) and the United States (twice). In five cases the arbitral tribunal comprised a sole arbitrator and in six cases three arbitrators.

22
See the possible uses of the Principles in the Preamble to the 2004 edition, UNIDROIT Principles of International Commercial Contracts (Rome, 2004) at 3ff.

23
See final award of 2001 in case 9771.

24
See supra note 7. Article 13(5) of the 1988 Rules read as follows: 'In all cases the arbitrator shall take account of the provisions of the contract and the relevant trade usages.'

25
Final award of 2002 in case 10385.

26
Final award of 2001 in case 9771.

27
See 'coutume' and 'usage' in Vocabulaire juridique, Association Henri Capitant, under the direction of G. Cornu, 6th ed. (PUF, 2004).