1. The Rules on the regulation of contractual relations came into force in 1978. Since then, no request has been submitted to the Standing Committee for regulating contractual relations that was set up by these Rules.

Accordingly, the ICC Commission on Intern Arbitration is rightly considering whether it is appropriate to maintain these rules in force, or whether to withdraw or revise them.

  1. In trying to answer this question, I intend firstly to point out the needs that the group that drew up the Rules was seeking to address (I). This will enable us to establish the likely reasons for practitioners' lack of interest (II) and to make a number of suggestions (III).

I - Aims of the Rules

  1. The aims of the Rules on the regulation of contractual relations, which were the result of studies carried out following a report by Professor Bruno Oppetit, are to facilitate the performance of contracts. As the introduction to Publication N° 326 points out, the rules enable an independent third party to be entrusted with the following tasks:

  • adding to an initial agreement that the parties know is incomplete; or,
  • adapting a contract to changes in circumstances; or,
  • overcoming disagreements between partners to a joint venture.

At the parties' discretion, the independent third party is empowered:

  • either to make a recommendation that the parties undertake to take into consideration in good faith,
  • or to take a decision that the parties undertake to carry out on the same basis as the contract in which it is incorporated.

  1. These Rules came into being at a time when international arbitration specialists were trying to define arbitrators' powers in relation to the filling of gaps in contracts. In particular, the discussions at the Fifth Congress of the International Committee for International Arbitration (ICCA) in New Delhi in 1975 will be recalled, especially Professor Giorgio Bernini's and Mr. Howard Holtzman's respective reports. This was a time when a distinction was drawn between "initial gaps" and "supervening gaps" and when comparisons were being made between legal systems where arbitrators were empowered to fill in gaps in the contract and those where a narrowly jurisdictional concept of arbitration prevented this.
  2. It was above all in the light of the latter type of legal system that the Rules for the Regulation of Contractual Relations were created. The main idea was to provide practitioners with a contractual procedure enabling an independent third party to adopt measures necessary for the continuation of the contract that the arbitrator did not always have the power to decide. Moreover, as specified in the introduction to the Rules, it was felt that the length of time needed for constituting an arbitral tribunal was unlikely to be compatible with the need for speed - an essential requirement in such cases.

  1. The question particularly concerns long-term contracts or contracts involving the performance of a series of acts: supply contracts, agreements for the supply of industrial units, joint ventures, etc. (cf. on this point B. Oppetit "L'arbitrage et les contrats commerciaux à long terme," Rev. Arb. 1976, 91). In the course of negotiating a contract it is quite common for parties to be unable to make special provision for all the conditions of performance: certain parameters which will have to be taken into account during the lifetime of the contract are subject to changes that the parties know are unforeseen (the basis for calculating the price, for example). Likewise, in the course of the performance of the contract, the parties may come up against unforeseen circumstances that disrupt the whole basis of the contract, and wish to restore the balance of their contractual relationship. In the case of joint ventures, deadlock situations that the parties are unable to resolve and that put the higher interest of the project at risk sometimes occur.

  1. In all these cases, it was felt there was a need for a mechanism for regulating the performance of the contract. It is now clear that Publication N° 326 failed to fulfil this need. The reasons for this failure should be explained.

II- The Failure of the Rules on the Regulation of Contractual Relations

8. One thing that is certain is that the failure of the Rules on the regulation of contractual relation is not the result of disadvantages encountered by parties in practice. Practitioners have simply ignored these Rules.

This lack of interest appears to result - as is always the case in similar circumstances – from a whole series of factors, the most important of which (apart from a certain lack of promotion on the part of the ICC) are the following:

  • the misleading title of Publication N° 326;
  • problems of overlap with other ICC Rules;
  • the dangers of a "contractual" decision with no right of recourse.

A. The misleading title of Publication N° 326

9.The Rules on the regulation of contractual relations are set out in Publication N° 326, entitled "Adaptation of Contracts."

Yet, adaptation of contracts is only one of the aspects of contractual performance covered by the Rules. The Rules are not restricted to providing a mechanism enabling the adaptation of a contract, in other words, from the viewpoint of practitioners, modifying the contract to suit new circumstances. More widely, the Rules on the regulation of contractual relations are aimed at ensuring that the contract is kept alive in circumstances that the parties had not foreseen, whether knowingly or otherwise. This will sometimes imply an adaptation of the contract, but not necessarily. The role of the independent third party may be to take a decision that adds to the contract so as to resolve an unexpected problem, without however amending the contract for the future. Adaptation is just one instrument for regulating the contract among others. It is not the aim of the Rules, as the title of the Publication leads practitioners to believe.

However, the concept of adaptation of contract is abstract and, as such, is only likely to concern people involved in international business in exceptional circumstances. Such people want their contracts to be performed as they stand. They do not perceive either the filling of gaps - whether "initial" or "supervening" - or the overcoming of deadlock situations as a modification of their contractual relationship. Rather, they view these as a pro-active deepening of these relations. It is not clear that the concept of regulation of contractual relations expresses this approach of pro-active deepening in a readily comprehensible manner. And it is certainly the case that the concept of adaptation of contracts does not do so.

B. The problems of overlap

10. When the Rules on the regulation of contractual relations were published in 1978, the ICC was then offering the following Rules to people involved in international business:

  • Rules for Conciliation;
  • Rules of Arbitration;
  • Rules for Technical Expertise.

In 1990, Rules on Pre-Arbitral Referee Procedure were added to these. The concepts of Conciliation, Arbitration and Expertise are well-known, although there are problems of defining the boundaries dividing one from the other (see in this connection La notion de l'arbitrage by Charles Jarrosson). The concept of the pre-arbitral referee procedure is perceived as akin to the "Judicial Referee" procedure in those legal systems where such an institution exists, although the two are not exactly parallel. What is the difference between the role of the Referee assigned the task of ensuring the regulation of contractual relations and the role of the conciliator, the expert, the arbitrator and the arbitral referee? There is disagreement among arbitration specialists on this point, especially if amiable composition is considered as well as arbitration decided according to law. Under these circumstances, it is not surprising if parties to international contracts are unable to make sense of it.

11.Their confusion is bound to be compounded still further in view of the fact that under the Rules on the regulation of contractual relations the independent third party may

  • either make a recommendation;
  • or take a decision.

In the case of a recommendation, the opinion of the independent third party is akin to that of a conciliator or an expert, in cases where the parties have not decided, as the ICC Rules for Expertise allow, to give the expert's recommendation binding force.

In the case of a decision, the independent third party's intervention is then akin to that of an arbitrator, or an arbitrator ruling as a "referee" or, alternatively, that of an expert if the parties have opted to give the expert's recommendation binding force.

It thus seems that parties are able to find solutions comparable to those offered by the Rules on the regulation of contractual relations in various other ICC Rules. As these other Rules refer to know institutions, and - apart from the Pre-arbitral Referee Procedure - to ones that are tried and tested, it is of no surprise that Publication N° 326 has not aroused any interest from people involved in international business.

C. The dangers of a contractual decision with no right of recourse

12. However, the reason for this lack of interest is not solely the imprecision of the institution proposed by the Rules on the regulation of contractual relations and the confusion this causes. A survey of practitioners who have studied these Rules closely has highlighted another cause of their failure: the fear of a "contractual" decision with no right of recourse.

Under article 11 (3) of the Rules, where the independent third party is expressly empowered to take a decision, this has the same binding force on the parties as the contract in which it is incorporated.

Although some view this classification of a decision as "contractual" as useful, it is bound to give rise to fears. Indeed, it excludes all rights of recourse, even the limited rights that would apply to an arbitral award. The power of the third party is thus deemed excessive. On the other hand, the same critics consider this power inadequate where the third party's task is limited to making a recommendation.

III– Conclusions

  1. . As a result of the above, the Rules on the regulation of contractual relations, as drafted, were unlikely to be favourably received by people involved in international business.

It is doubtful whether a revision of the rules would change this situation. Indeed, the institution established by them has no clearly defined place alongside existing mechanisms regulated by the ICC (Expertise, Conciliation, Arbitration and the Pre-Arbitral Referee Procedure).

  1. . It is nonetheless of interest to note that mechanisms for the regulation of contracts have been set up in contractual practice. The engineer in FIDIC contracts fulfils that function in part. So does the panel of experts in the contracts concluded in the context of the construction of the Channel Tunnel.

In each case, a third party (the engineer, the panel of experts) takes a decision to enable the parties to overcome difficulties in the performance of the contract, whether there is a clearly defined dispute, imprecision in the contractual provisions or merely a gap. However, the decision is not final in nature unless no action is taken to challenge it before an arbitral tribunal.

  1. . No doubt the same service could be provided by the establishment of an interactive relationship between the various ICC Rules and this would thus fulfil the needs targeted by the Rules on the regulation of contractual relations, with no need for an additional set of Rules.

One solution that might be envisaged is a combined application of the Rules for Expertise, in their recently revised form, and the Rules of Arbitration. Thus, the ICC might propose an expertise clause giving binding force to the expert's recommendations, in the absence of appeal to the International Court of Arbitration within a certain specified time limit.

The use of the Pre-arbitral Referee Rules might also be envisaged in this context.

  1. . Hence the conclusion of this report is as follows:

  • Publication N° 326 should not be revised;
  • this document should be withdrawn from ICC publications;
  • the possibility of setting up a mechanism for regulating contracts by drafting a clause enabling the interaction of the various existing ICC Rules should be studied.