When an arbitral tribunal is confronted with adjudicating a case where applying domestic law to international law is the specific issue, the established trend is to follow the interpretation that favours reaching a just solution, i.e a result that the arbitral tribunal is convinced to be fair and balanced.

In arriving at such a conclusion, many arbitrators invoke an argument based on the analysis of what objectively conforms to the legitimate expectations of the contracting parties at the relevant time, either when the agreement was concluded (if the issue in question relates to the validity or extent of the obligations they intended to be created), or at the point when the relationship came to an end due to resiliation, termination or an intervention of a third party or force majeure.

In many cases, we notice the arbitrators’ inclination to search for the mutual expectations of the parties, either through the careful analysis of the correspondence exchanged, or the attitudes undertaken by both parties, reflecting what they hoped to achieve or avoid.

An early demonstration of this arbitral tendency is the decision of Judge Gunnar in a 1963 ICC International Court of Arbitration case in which a citizen of a Latin American country filed a claim against a European company who failed to pay for services rendered in a military procurement deal. During the hearings, the judge-arbitrator became aware that the person to whom the commission had been awarded was in fact the brother of the Minister representing the purchasing government.

In the absence of a clear rule that renders such an agreement invalid, Judge Lagrengen denied payment to the claimant, relying on the fact that the commission was expected to take place legally, which is contrary to international public policy.

Another case that illustrates the effect on the arbitral tribunal with regard to expectations is the Aminoil case against Kuwait.

In 1978, the Kuwaiti Government terminated the company’s 60-year oil concession agreement, which had been granted in 1948. In deciding the appropriate compensation for premature termination, the Arbitral Tribunal (presided by Professor Paul Reuter, with Sir Maurice Fitzmaurice and Professor Hamed Sultan as Co-arbitrators) arrived at a decision in March 1982 to fix an amount based on correspondence exchanged between the parties during the months preceding the termination of the Concession Agreement. The records submitted to the tribunal in this respect were clearly reflecting the mutual expectations of the parties at that point in time regarding the value of the terminated agreement, and by arriving at that conclusion the tribunal found no need to wait for the second phase of the arbitral procedures, which were set to discuss the reports submitted by the claimants’ experts about the value of the concession according to the discounted cash-follow method. Thus, it can be ascertained that priority was given to the mutual expectations of the parties in fixing the compensation due as a result of the contract’s termination before the expiration of its term.

In light of the precedents set in these two cases, we frequently encounter reference to the parties ‘mutual legitimate expectations’ in arbitral cases, as the appropriate method within the context of the interpretation and characterization to achieve justice and fairness in the adjudication of pending cases, whether they are purely commercial or touching long-term developmental transactions.

Another equally important subject relating to the flexibility needed while governing contractual relationships is the special application of the Lex mercatoria, which we can call Lex Petrolia, where arbitrators have to take into consideration the necessary application of established practices and patterns of behaviour reflecting oil and gas practices which determine the technical and professional requirements that should be observed in conducting contractual operations, in the sense that liability emerges on behalf of an operator who fails to observe appropriate oil and gas practices, particularly in a manner that causes environmental damages that are no more tolerated in accordance with the prevailing patterns adopted in that industry the world over.