INTRODUCTION

The adaptation of contracts by arbitrators is admitted by legal and contractual provisions under certain conditions. Arbitrators are allowed to intervene in contracts when circumstances impact contract performance and alter substantially its equilibrium.

Historically, arbitrator’s adaptation of contracts was not admitted because of the duality of arbitration in some Civil law systems. According to this approach, the judge settles a legal dispute, while a third-party fixes a contractual element.¹ The criteria that distinguishes between the two categories is that the judge (so the arbitrator) settles legal disputes, which is not the case when he may adapt the contract². Scholars and practitioners have disagreed on the question whether arbitrators have power with respect to the contract, but not for the same reasons. Some authors argue that the power to adapt the contract is not within arbitrators’ jurisdictional power.³ Contract adaptation by arbitrators is also not admitted by the two doctrines of Common Law that deal with the change in circumstances theory: frustration of purpose and commercial impracticability. These doctrines that recognize the judge’s power to rescind the contract, lead equally to the refusal of adaptation of contracts by judges.

The reluctance to admit arbitrator’s contract adaptation is also reflected in ICC instruments. In 1978, the ICC Rules for the Regulation of Contractual Relations⁴ provided for contract adaptation by a third party, whose binding decision would be of contractual nature and therefore, would be inserted in the contract.⁵ These rules however have never been applied.⁶ The actual ICC Hardship Clause 2003 provides that the parties failure to agree on adaptation will bring a claim to "arbitration or litigation under the general dispute resolution terms in the contract (…)"⁷ without any reference to arbitrator’s power to adapt the contract. The ICC instruments mentioned above do not provide for arbitrators’ intervention in the contract and do not give a solution that will enable its continuation.

Moreover, arbitrators’ adaptation of contracts hits the principle of intangibility of contract that governs international contract law. This principle requires the necessary agreement of parties for any modification or revision of their contract. Adaptation of contracts by arbitrators is therefore an exception to this principle. It allows parties to pursue the execution of the contract under conditions different from which fundamentally altered the contract equilibrium. In arbitral matters, the respect of parties’ will by arbitrators is a fundamental rule whether for applicable rules that govern the contract or for the obligations that bind the parties. This principle nevertheless is limited by international mandatory rules and by public policy rules of the law of the seat of arbitration and by the law of the enforcement of the arbitral award, where possible recourse against the arbitral award could be brought.

Adaptation of contracts by arbitrators is of great interest in international commercial contracts. The evolution of contractual practice has led to the creation of contractual clauses that deal with typical situations of long-term contracts and of great complexity. In addition, ensuring contract performance has been recognized as part of contributing to its stability. International contractual practice thus reflects the need of maintaining the contract if external circumstances modify contract conditions rendering its execution always possible but at excessively imbalanced conditions. Contractual provisions related to change in circumstances reveal the parties’ obligation to renegotiate contract conditions as to adapt it to new circumstances.

The grounds on which arbitrators may intervene in a contract in order to adapt it, in case of change in circumstances, are the following: Arbitrators adaptation of a contract is admitted if (i) the parties expressly provide for such power in the contractual provisions; (ii) the applicable legal provision on hardship expressly provides for courts’ intervention to adapt the contract (so do the arbitrators) or (iii) maybe if arbitrators act as amiables compositeurs pursuant to the power that the parties have expressly granted to them.

In this paper I will focus on realities and perspectives of contract adaptation by arbitrators. The realities of legal provisions on hardship result from a careful analysis of contractual and legal provisions on hardship and the power given to arbitrators (I). The perspectives of contract adaptation by arbitrators will determine its conditions, scope and limits (II).

I. THE REALITY OF CONTRACT ADAPTATION BY ARBITRATORS

The common denominator of hardship conditions in legal and contractual provisions is that the triggering event renders performance excessively onerous, albeit not impossible, which affects the party in charge of said performance. We will focus on contract adaptation by arbitrators according to legal provisions (I.A.), to contractual provisions (I.B.) and to arbitrators’ power when acting as amiables compositeurs (I.C.).

I.A. Current status of legal provisions on hardship: lack of uniformity

The main purpose of legal provisions on hardship is to maintain the original equilibrium between the parties’ obligations during the performance of the contract, in the face of situations that may lead to the disruption of such balance. This may include the power to adapt the contractual provisions to that end in national legal provisions on hardship (I.A.1.) as much as in international legal provisions (I.A.2.).

I.A.1. National legal provisions on hardship

National legal provisions on hardship do not necessarily provide for judicial adaptation of contracts in case of hardship (a). Furthermore, parties’ failure to agree on contract adaptation is not always a prerequisite for judicial intervention when admitted (b).

a. National legal provisions do not necessarily provide for judicial adaptation of contracts in case of hardship

Many national legal provisions on hardship do not foresee judicial intervention to adapt the contract. A quick analysis shows that either judicial intervention with the view to adapting the contractual terms is not provided for at all (i), or it may only lead to contract termination as a sole solution (ii).

i. No judicial intervention at all

The fact that legal provisions contain no reference to the judge’s role in hardship situations does not necessarily mean that the contract will be maintained under unbearable or unfair conditions for one of the parties. Legal provisions on hardship usually provide for parties’ intervention. The disadvantaged party may request the resolution of the contract unless the other party offers to equitably modify the contract. This is possible in the case of Italian, Portuguese and Brazilian laws.

Article 1467 of the Italian Civil Code allows the prejudiced party, if the conditions for hardship are met, to ask for the resolution of the contract. However, resolution may be avoided if the other party offers to equitably modify the contractual terms:

(…) the party who is obliged to such performance can demand the resolution of the contract (…) The party against which the resolution is demanded may prevent this by offering to modify equitably the conditions of the contract.

Article 437 of the Portuguese Civil Code also does not provide for the judge’s intervention to adapt contracts:

(…) If the circumstances on which the parties have based their decision to contract change unexpectedly, the burdened party has a right to terminate the contract, or to alter it according to fair judgment, (…).

In the same vein as the Italian Civil Code, Article 478 of Brazil Civil Code provides:⁸

(…) the disadvantaged party may request the termination of the contract.

And Article 479 states that:

Termination may be avoided if the defendant agrees to modify equitably the terms of the contract.

On the other hand, national legal provisions on hardship may foresee judge intervention in the contract but not necessarily to adapt the contract.

 

ii. Judicial intervention to terminate the contract in situations of hardship

Other national legal provisions on hardship allow the intervention of the judge in the contract—not necessarily to adapt it, but rather to terminate it.

Thus Article 112 of the Slovenian Civil Code provides, in its § 1, after recalling the conditions for hardship:

(…) the party whose obligations have been rendered more difficult to perform or the party that owing to the changed circumstances cannot realise the purpose of the contract may request the rescission of the contract...

In § 5, said Code provides for the court’s intervention in the following terms:

If a court rescinds a contract owing to changed circumstances it shall at the request of the other party instruct the party that requested the rescission to reimburse the other party for an appropriate part of the damage incurred for reason of the rescission of the contract.

Under English law, a party is committed to perform its contractual obligation even where it is objectively unable to do so (Paradine v Jane).⁹ A party is however excused from performing its obligation in the case of the perishment of a person or a thing that the existence of which the performance was dependent on (Taylor v Caldwell).¹⁰ The concept of frustration of purpose developed by courts, implied that the contract had been frustrated because the parties’ contractual assumptions had disappeared (Coronation cases).¹¹

The doctrine of the frustration of purpose was applied to situation of change of circumstances in a case where the court held:

Frustration occurs when the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which the performance is called for would render it a thing radically different from that which was undertaken by the contract.¹²

In other words, according to the doctrine of the frustration of purpose, when applied to a change of circumstances, the performance is no longer possible ("a contactual obligation has become incapable of being performed") because the conditions have become totally different from what the parties have agreed upon at the time of the conclusion of the contract.

In conclusion, according to English law, one can say that in case of change of circumstances, parties may either continue to perform their contract or terminate it. English courts have no power to adapt the contract to the changed circumstances.¹³

Similarly, the doctrine of commercial impracticability (United States) leads to the termination of the contract where its performance becomes impracticable, i.e. performance would only be possible "at an excessive and unreasonable cost".¹⁴ However, the Uniform Commercial Code (UCC) that includes this notion in its provision s 2-615, provides:

(…) a delay in delivery or non-delivery in whole or in part by a seller (…) is not a breach of his duty under a contract of sale, if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made (…).

 

The provision’s official comment no. 6 states:

In situations in which neither sense nor justice is served by either answer when the issue is posed in flat terms of "excuse" or "no excuse", adjustment under the various provisions of this Article is necessary, especially the sections on good faith, on insecurity and assurance and on the reading of all provisions in the light of their purposes, and the general policy of this Act to use equitable principles in furtherance of commercial standards and good faith.

The American legal doctrine of commercial impracticability is about an event that renders the performance of the contract extremely burdensome or difficult for one party, granting power to the court to release such party of its duty to perform. This concept stands between two civil law code concepts: that of "hardship", as the trigger event may substantially impact contract conditions, and that of "force majeure", as by court decision, a party may be excused from performing its obligation.

Parties may accept to revise the terms of the contract, but such revision is not the court’s role. In Aluminium Company of America (ALCOA) v Essex Group Inc (1980)¹⁵ the judge, however, determined a new mechanism of price calculation. He did not consider the contract’s termination as the best solution in a case where the claimant had pointed to an extraordinary increase in the price of the goods and a potentially huge loss for it, according to the contractual period. This approach has not been followed by other judges.

In Common law systems, the change of circumstances that impacts substantially the performance of the contract leads to the court’s intervention in order to terminate the contract by excusing parties from performing it, but by no means in order to adapt it. This approach focuses on a judicial relief—partial or total—for parties in case of unexpected circumstances having a detrimental effect on the performance of the contract.

In addition, where legal provisions on hardship provide for judicial intervention in the case of hardship, they do not necessarily subject such intervention to the condition of a prior disagreement between the parties on how to adapt the contract.

b. Parties’ failure to agree on contract adaptation is not always a prerequisite for judicial intervention

Under some legal provisions on hardship, parties have no legal obligation to renegotiate contract terms, i.e. they are not obliged to try to adapt the contract when faced with a situation of hardship.

The meeting of the conditions for hardship to be deemed to exist is therefore sufficient to allow the judge to intervene in the contract. This is what most legal provisions in the Middle East & North African (MENA) countries provide for.¹⁶ They allow judicial intervention in hardship situations without considering the role of parties in such situations.

Article 147 (2) of the Egyptian Civil Code¹⁷ stipulates:

1. The contract is the law of the contracting parties; it may not be revoked or amended except by the parties’ agreement or for the reasons provided for by law.

2. However, if public exceptional circumstances occurred and could not have been expected, and the occurrence of which makes the fulfilment of the contractual obligation, though not impossible, but exhausting to the debtor to the extent that it threatens him with grave loss, the judge may reduce the exhausting obligation to a reasonable margin after balancing the interests of the two parties and taking into consideration the [surrounding] circumstances. Any agreement to the contrary shall be void.

In other legal provisions on hardship, the judge may be asked by the burdened party to intervene in the contract without any consideration of the parties’ role in contract adaptation. The parties’ role is limited to request the judge’s intervention, as provided for in Article 6 :258 of the Dutch Civil Code:

1. The Court may, upon request of one of the parties (…);

and by Article 1440 of the Peruvian Civil Code:

the aggrieved party may request a court to reduce or increase the consideration, such that the excessive burden will cease.

If this were not possible due to the nature of the performance, the circumstances or if the defendant so requests, the court will order the termination of the contract. The termination shall not extend to the obligations already performed.

The analysis of national legal provisions shows that, far from being uniform, adaptation of the contract by a court (or by an arbitral tribunal) is not necessarily the solution that parties may expect when faced with a situation of hardship and that contract termination is a real option which they should bear in mind.

International legal provisions on hardship are illustrative of contract adaptation by arbitrators.

I.A.2. International legal rules on hardship (UNIDROIT and PECL)

International legal rules on hardship employ practically the same wording regarding the adaptation of the contract by arbitrators, where parties fail to agree.

The 2016 UNIDROIT Principles confirm the parties’ obligation to perform the contract in the event of hardship (Article 6.2.1), provide a definition of hardship (Article 6.2.2.) and lay out the effects of hardship in Article 6.2.3, including the following powers of the court:

3. Upon failure to reach agreement within a reasonable time either party may resort to the Court.

4. If the Court finds hardship it may, if reasonable,

a. Terminate the contract at a date and on terms to be fixed, or,

b. Adapt the contract with a view to restoring its equilibrium.

Similarly, the Principles of European Contract Law (PECL)¹⁸ provide in Article 6:111 (3) on Change of Circumstances:

3. If the parties fail to reach agreement within a reasonable period, the Court may:

a. Terminate the contract at a date and on terms to be determined by the Court; or

b. Adapt the contract in order to distribute between the parties in a just and equitable manner the losses and gains resulting from the change of circumstances.

In either case, the Court may award damages for the loss suffered through a party refusing to negotiate or breaking off negotiations contrary to good faith and fair dealing.

If these Principles apply in a given arbitration, these provisions allow arbitrators to adapt the contract.

Consequently, hardship is admitted if parties foresee the application of UNIDROIT Principles in a choice-of-law clause. Express submission by the parties to the UNIDROIT Principles as governing law of a contract is however rare.¹⁹ Generally, the application of these Principles by arbitrators results from the reference made by the parties in the choice-of-law clause to "general principles of law"²⁰ or "rules of natural justice" or "fairness"²¹. In the absence of a choice-of-law clause, arbitrators may apply "the rules of law"²² they consider appropriate. They may choose the UNIDROIT Principles, by reference to transnational principles²³ or to avoid any choice of national law by interpretation of the parties’ intention²⁴.

Arbitrators have stated that the UNIDROIT Principles "rather than [being] vague principles or general guidelines (…), are mostly constituted by clearly enunciated and specific rules coherently organized in a systematic way (…)"²⁵ and consequently "have enjoyed universal acceptance and, moreover, are at the heart of those most fundamental notions which have consistently been applied in arbitral practice (…)."²⁶

Nevertheless, these Principles are only applied "as far as they can be considered to reflect generally accepted principles and rules"²⁷. This clearly means that these Principles may not reflect generally accepted principles. They may not be applied, for instance, in the case where there is a "theory of changed circumstances that does not form part of widely recognised and generally accepted legal principles."²⁸

One can therefore conclude that the reference to general principles of law or to an equivalent notion does not lead to the application of concepts that are not yet generally accepted (be it by application of the UNIDROIT Principles or not), as it is for the concept of hardship. Furthermore, in the absence of a clear expression of the parties’ will, arbitrators are generally reluctant to admit the theory of changed circumstances²⁹. Among many others, three examples are picked up and analysed below.

The first, ICC Case no. 8486 (1996)³⁰, relied on the application of a national law that provides for the theory of changed circumstances, to be complemented by the Principles. The arbitrator interpreted the concept in a restrictive manner. In the presence of a choice-of-law clause designating Dutch law as the law applicable to an international contract between a Dutch party and Turkish parties, the tribunal referring to Article 6:258 of the Dutch Civil Code on hardship, stressed the exceptional character of this concept of hardship and interpreted the provision not only according to Dutch law but also by reference to the UNIDROIT Principles which recognise the concept³¹ in the international context. The sole arbitrator gave effect to the UNIDROIT Principles and upheld the parties’ obligation to perform the contract, stating that the conditions of the Dutch provision on hardship were not met. The sole arbitrator justified his approach by reference to Dutch legal doctrine.³² This case is particular as it seems that the applicable—national—law, according to the national legal doctrine, relied upon by the arbitrator, must be applied in light of UNIDROIT Principles when applied in an international context.³³ This is to say that this approach may not be widely applicable, given that not all national laws require decision-makers to submit to the UNIDROIT Principles in international cases. For some authors this approach is unwelcome as it may lead to uncertainty for parties.³⁴

On the other hand, the sole arbitrator in this case stated that the conditions for hardship had not been met and therefore the parties had to continue performing the contract. The questions that come to mind then are: what would have happened if the sole arbitrator had concluded that hardship conditions had been met and what provisions would have been applied? While the Dutch provision on hardship provides for contract adaptation or termination by the court, the UNIDROIT Principles and the PECL provide that parties should renegotiate the contract as a first step and that the court’s intervention should only take place once the parties have failed to agree on new terms. The issue to be determined would have certainly been more complicated in that case, given that the Dutch provision is mandatory,³⁵ i.e. parties "may not derogate contractually from it".³⁶

In the second example, ICC Case no. 7110 (April 1998), the arbitral tribunal had to decide if, and to what extent, the theory of changed circumstances in Articles 6.2.1 to 6.2.3 of the UNIDROIT Principles was in accordance with general principles of law or usages over which there is an international consensus. The approach of the arbitral tribunal is interesting as it is different from an earlier interim award rendered in the same case, in June 1995³⁷.

The former award (1995)³⁸ was about two parties, an English company and an Iranian government agency, that had entered into nine equipment supply contracts that contained no express choice-of-law provision. Certain provisions in some of these contracts referred to the "rules of law" or to "natural justice" as rules to be applied to settle any issue. The arbitral tribunal’s reasoning was based on the interpretation of the parties’ apparent intention to exclude the application of domestic law. The majority of the tribunal with a dissenting opinion held that, in the absence of a choice-of-law provision, the contract is submitted to general principles of law by the reference made to the UNIDROIT Principles that are considered as an expression of these general principles of law³⁹.

The second arbitral award in ICC Case no. 7110 (April 1998)⁴⁰, stated that "the theory of changed circumstances does not form part of the widely recognised and generally accepted legal principles", doing so without any reference to UNIDROIT provisions on hardship. This means that, according to the arbitral tribunal, the theory of changed circumstances does not constitute a general principle of law as it is not accepted by legal principles. This confirms arbitrators’ reluctance to modify the contract—or even to admit the existence of a hardship situation—in the absence of express parties’ intention. It is interesting to note on the other hand that arbitral awards have not recognised that hardship is an established usage either.

In the third case, the tribunal had to decide whether the theory of changed circumstances as stated in Articles 6.2.1 to 6.2.3 of the UNIDROIT Principles is a trade usage that has to be taken into consideration in all cases.

In ICC Case no. 8873 (1997) the dispute arose between two companies, a Spanish one and a French one, for the construction of works in a third country that faced unforeseen circumstances which substantially increased the cost of construction. The choice-of-law clause had designated Spanish law to govern the contract "to the exclusion of any other law".⁴¹ The contractor requested the renegotiation of the contract and pleaded for the application of the UNIDROIT Principles, namely Articles 6.2.2. and 6.2.3. as these Principles represent trade usages to be taken into consideration by arbitrators under Article 13 (5) of the ICC Rules of Arbitration and Conciliation and Article VII of the 1961 Geneva Convention on International Arbitration. The tribunal stated first that according to Spanish law, which applied to the merits, trade usages must be taken into consideration in the absence of applicable rules.

The reasoning of the arbitral tribunal had two steps. The tribunal stated first that the UNIDROIT Principles may be applied where parties have accepted that their contract should be submitted to those Principles or where they have stated that their contract shall be governed by the general principles of law, by lex mercatoria or an equivalent set of rules. As the parties had made no reference to any general principles of law in their contract, and as they had chosen Spanish law to govern their contract, there was no room left for the application of the UNIDROIT Principles.

The tribunal stated then that the only way to justify the application of the UNIDROIT Principles was to consider them as a "codification" of existing usages and that the UNIDROIT Principles should be applied as "codified usages". To reach this conclusion, the tribunal had to prove that the rules invoked by the claimant, especially related to hardship, equated an internationally and generally established usage.

The tribunal’s conclusion was that, even if there was a tendency in favour of the equilibrium of the contract as illustrated by contractual provisions on hardship, "the obligation to equilibrate the contract (…) is however exceptional, only admitted within the framework of contractual provisions that has to determine precisely the case that justifies the hardship and its consequences". It should then "exclude to consider the provisions on hardship contained in the Principles as ‘usages du commerce’". The arbitral tribunal pursued: "It is, on the contrary, rules that do not correspond, at least as is actually, to the usual practice of business in the international commerce and by consequence could not be applied unless the parties made an express reference to them, which is not the case here."⁴² This award stated in a precise and unambiguous manner that the notion of change of circumstances is not a trade usage. It has an exceptional character and should be accepted only by virtue of an express contractual provision.

 

As far as the UNIDROIT Principles and PECL are concerned, and more specifically as to the change of circumstances according to ICC arbitral awards,⁴³ neither the change of circumstances that impacts the execution of the contract is a "widely and generally accepted legal principle", nor does it represent an international trade usage to be taken into consideration in any case by arbitrators. Consequently, one may conclude that the concept of change of circumstances and more specifically the adaptation of the contract by the court, as stated in the UNIDROIT Principles and PECL will not be applied by arbitrators if the parties do not refer explicitly to it, i.e. by clearly stipulating the arbitrators’ power to adapt the contract. On the other hand, the concept of hardship is by no means a trade usage that arbitrators should take into account in "any cases", i.e. even where the parties did not express their will in that sense. Contract adaptation by parties and/or by courts/arbitrators should be provided for expressly in order to be admitted and implemented.

Contractual provisions on hardship may also provide for the contract adaptation by arbitrators.

I.B. The realities of contractual provisions on hardship

Contractual provisions on hardship may reveal the parties’ intention to adapt the contract. They may provide for the adaptation of the contract by arbitrators. A careful analysis may, however, inform on the parties’ intention not to allow arbitrators to adapt the contract (I.B.1.). Contractual provisions on hardship may also not always specify how arbitrators should adapt the contract (I.B.2.).

I.B.1. The exclusion of contract adaptation by arbitrators

The exclusion of contract adaptation by arbitrators may result from parties’ express exclusion of arbitrators to adapt the contract. In that respect, parties may predict that their failure to agree on hardship does not lead to the adaptation of the contract by arbitrator: "the failure of the parties to agree to any such revision shall not be a dispute subject to settlement by arbitration under art. (…)".⁴⁴ Parties may be more explicit. They may exclude their failure to agree on adaptation in the wording of the arbitration clause itself: "failure to agree to a proposed modification may under no circumstances give a right to ask for an arbitration pursuant to art. (…)."⁴⁵

The exclusion of arbitrators to adapt the contract may result from the parties’ projection of the contract fate if they fail to agree on hardship. The contract may remain in force "while the revision did not take place, price provisions in force will still be applicable…";⁴⁶ or may be terminated "if parties fail to agree, neither the buyer nor the seller are therefore bound by the contract." In the latter case, the contract is terminated without indemnity, by an advance notice under specific contractual conditions.⁴⁷ Furthermore, arbitrators may come to the same conclusion after interpreting the parties’ will not to maintain the contract if they fail to agree on the price.⁴⁸

Arbitrators may not adapt the contract when parties provide for the adaptation of the contract by a third party that is not an arbitrator. Contractual provision on hardship may provide for an expert to determine the meaning of hardship.⁴⁹ It may also designate an expert to determine the issue of the contract when parties were unable to adjust the contract. The provision usually specifies a period of time after parties fail to reach an agreement on adjustment before the intervention of an expert, and mentions the conditions of his nomination, his power, and the extent of its decision⁵⁰.

Parties should be aware of the difference between an expert and an arbitrator. The expert renders a technical decision on a technical point. The decision once agreed upon is part of the contract. Its non-execution is equivalent to the inexecution of the contract and that may lead to arbitration. The arbitrator exercises a judicial power; parties are bound by the decision he renders that is an award, although this can be challenged for excess of authority.

This has been clearly stated in an arbitral award⁵¹. An expert was nominated by parties⁵² who "reserved their rights to assert their legal views on the definition of this contractual term if an arbitration should become necessary".⁵³ The tribunal concluded that "the definition submitted to the Expert was not therefore intended to become a legally binding interpretation of the hardship Clause."⁵⁴ This approach is focusing on the fact that an expert is different from an arbitrator. On the other hand, what is stated in front of an expert does not equal what is stated in front of an arbitrator, i.e. it has no legal value concerning the interpretation of parties’ contractual provisions.

Contractual provisions on hardship that provide contract adaptation by arbitrators do not necessarily clarify how arbitrators should proceed.

I.B.2. A lack of guidelines on how arbitrators should adapt the contract

Parties may provide for contract adaptation by arbitrators in a general way.⁵⁵ It is possible that contractual provisions do not determine useful guidelines that would help arbitrators to adapt the contract. For example, when it is stated: "(…) Failing an agreement within 120 days either Party may refer the matter to arbitration in line with the provisions on arbitration of the Contract,"⁵⁶ the only requirement is the parties’ disagreement on adaptation. Parties may fall short of giving sufficient indications to arbitrators as to how they should proceed practically to adapt the contract.

Parties may however give some tiny indication by stipulating that "(…) Failing to reach agreement on such equitable solution, the matter may be referred by either Party to arbitration pursuant to Article 31."⁵⁷ Here, arbitrators adapting the contract should search for an "equitable solution"⁵⁸ too.

An example of parties’ lack of guidance to arbitrators in a contractual provision on hardship is illustrated in J. S. C. Techsnabexport v Palmco Corporation (2006),⁵⁹ even if this case provides an example of an absence of legal ground for contract adaptation by arbitrator. The analysis of the contract provisions by the arbitral tribunal establishes a lack of indications and parameters on the price that may have permitted the arbitral tribunal to adapt the contract.⁶⁰

In another case,⁶¹ the parties’ dispute concerns an indexation clause and a price review clause in the contract. The reference, in the price review clause, to a parameter⁶² is made without any specification. The arbitrators mentioned the "absence of a clear contractual basis for attributing a special meaning on the term (…)."⁶³

 

The analysis of contractual provisions shows that parties may exclude arbitrators’ adaptation of the contract or provide for it. In the latter case, however, contractual provisions lack to provide arbitrators with useful guidelines as to their expected role.⁶⁴

The adaptation of the contract by arbitrators also depends on their power to act as amiables compositeurs.

I.C. The realities of arbitrators’ power to act as amiables compositeurs

Arbitrators’ power to act as amiables compositeurs allows them to temper the harsh effect of legal and contractual provision (I.C.1.). The issue is to determine whether their decision, based on equity could involve the adaptation of the contract (I.C.2.)

I.C.1. Arbitrators’ power of amiable composition

Under most arbitration laws and rules, the arbitrators’ power to act as amiables compositeurs should expressly and precisely be granted to them by parties and, consequently, precisely stipulated in the arbitral agreement. The limits to that power are delineated by the parties’ will and by international public order. Arbitrators, acting as amiables compositeurs, may derogate from the application of rules of law if such application leads to an unequitable solution. They have the same power with regard to contractual provisions. Contractual clauses that grant arbitrators the power to act as amiables compositeurs reflect parties’ will to avoid a strict application of the contract where it would lead to an unfair situation.

The equitable solution that arbitrators are expected to render is with respect to the parties’ will and aims at finding an acceptable solution for them. Consequently, the decision rendered by arbitrators acting as amiables compositeurs will be guided by their conception of fairness and justice. The use of this power is left to arbitrators’ appreciation, even if some scholars consider this power as an "intense obligation"⁶⁵. This means that arbitrators may render a decision based on the applicable law, but this is not an obligation⁶⁶, since their power to act as amiables compositeurs allows them to dismiss or remove the rules of law if their application leads to an unfair solution⁶⁷. Arbitrators may therefore, on behalf of fairness, modify the meaning of a strict rule of law or discard the strict application of a contractual provision.

The equitable solution expected from arbitrators acting as amiables compositeurs would consist for example in fixing a reasonable time-limit to perform contractual obligations⁶⁸ in the absence of such an indication in the contract. It is also within their specific power to grant additional time for performance, based for example on certain difficulties in the international context.⁶⁹ Thus, amiables compositeurs have the power to interpret the contract according to its surrounding circumstances. In one case, where the parties had failed to agree on a definitive price, the amiables compositeurs interpreted the sense and the scope of a revision clause,⁷⁰ just like arbitrators ruling in law would have done. They analysed the parties’ respective positions according to the circumstances—the existence of several contractual provisions on the price, a letter of engagement that fixed an upper limit price, and granted the buyer a price reduction comparing to other prices fixed between the buyer and other clients and decided to choose a price that had been mentioned by one of the parties. The amiables compositeurs created no new obligation in that case, but rather ensured the efficiency of the existing one.

The analysis of some arbitral awards mentioned above gives an indication of how arbitrators exercise their power of amiable composition. It would appear that the exercise by arbitrators of their power of amiable composition has been within the respect of the contractual balance, in accordance with the respect of parties’ will⁷¹.

Does arbitrators’ power of amiable composition allow them to adapt the contract in the absence of express parties’ authorisation, for example in a situation of hardship?

I.C.2. Effects of arbitrators’ power to act as amiables compositeurs

Arbitrators who have the power to act as amiables compositeurs may temper the consequences of rules of law or of contractual provisions based on equitable considerations, such as those cases where their implementation would lead to an unfair situation for one of the parties.⁷² Nevertheless, this power, given to arbitrators acting as amiables compositeurs in order to temper the harsh effect of legal or contractual provisions, has limits. It does not comprise the power to revise the contract or modify the general economic foundation of the contract.

In fact, it is by no means the objective of arbitrators, when acting as amiables compositeurs to adapt the contract in the absence of a clear intention of parties granting them such power.⁷³ But it may well be that, in a given situation such an adaptation may nevertheless be the effect of the power granted to them. Indeed, some authors consider that the power of amiable compositeur given to arbitrators does authorise them to adapt the contract,⁷⁴ in view of the harsh conditions imposed on a party who is victim of a hardship situation. Thus, the inequitable effects of unforeseen circumstances on the performance of contractual obligations may sometimes lead to their adaptation.⁷⁵

However, this is not the position adopted by arbitral tribunals in general. The double limits that are imposed on arbitrators acting as amiables compositeurs lie in their lack of power to revise the contract and to modify the general economic foundation of the contract.

The first limit, i.e. amiables compositeurs’ lack of power to revise the contract,⁷⁶ has been expressly stated by arbitral awards.⁷⁷ In the absence of a specific power to do so given by the parties, arbitrators are not allowed to substitute themselves to parties in order to reinstate the balance of the contract, even in situations where the parties fail to agree when they themselves try to do so.⁷⁸ In addition, it has been stated that the power of amiable compositeur is not an authorisation given to arbitrators to exceed the framework of the dispute, nor to revise the contract by replacing the parties’ renegotiation of the contractual terms.⁷⁹ An arbitral tribunal stated explicitly that the power of amiables compositeurs does not allow them to revise the contract or to modify its terms even in a situation where the original circumstances surrounding the contract have changed, thus impacting the performance of the contract.⁸⁰

Arbitrators’ power to act as amiables compositeurs does not allow them to modify the general economic foundation of the contract in the sense that the modification of such economic foundation is the substitution of the existing obligations for new ones that do not or may not reflect the parties’ intention.⁸¹

French courts have held this position⁸² at a time where there was no legal provision on hardship. In the well-known case EDF v Shell⁸³, the court, who had the power to act as amiable compositeur found that, if the parties failed to reach an agreement, the court will determine

according to the solutions that parties would have proposed, if the formula that would be suitable from the financial point of view, modify the contractual conditions and therefore will forbid the judge to impose it.⁸⁴

Arbitrators when granted the power to act as amiables compositeurs may take into account equitable considerations when rendering their award if the solution under the applicable law may lead to an unfair situation. The equitable character of their decision could sometimes lead, according to the parties’ express will, to an adjustment of the contract, if the performance of the contract according to the conditions that resulted from the change in circumstances proved to be too onerous or unfair for one of the parties.

However, amiables compositeurs may not impose obligations on parties, nor create new obligations that the parties had not envisaged. They may only temper the effects of the existing ones.

The reality of contract adaptation by arbitrators enlighten the perspectives that may be drawn in that respect.

II. THE PERSPECTIVES OF CONTRACT ADAPTATION

BY ARBITRATORS

Once admitted, contract adaptation by arbitrators request the verification of the existence of hardship and its effects (II.A.), before the examination of the scope (II.B.) and the limits of the power of arbitrators to adapt the contract (II.C.).

II.A. Verification of the existence of hardship and its effects

One of the tasks of arbitrators is to determine the existence of hardship and its effects. They must assess first, whether the conditions for the existence of hardship are met (II.A.1.). They further have to verify whether the parties have renegotiated the contract and, if that is the case, they must evaluate the way they did it (II.A.2.).

II.A.1. Meeting of hardship conditions

Prior to adapting the contract, arbitrators must assess whether a hardship situation exists in the particular contractual relationship. Arbitrators identify the conditions and the effects of events on the contractual terms by applying legal or contractual provisions, in search of the parties’ intention. This assessment is within their judicial power. First, arbitrators determine the ground on which their analysis will be based (contractual term/legal provision). They enumerate the hardship conditions and analyse the circumstances and their consequences on the equilibrium of the contract.

Arbitrators apply the legal interpretation rules of the applicable law and set out "the legal principles (they) consider relevant to the dispute issues of contractual interpretation."⁸⁵ Their analysis takes into consideration the contract—its significant terms, the relevant circumstances—and the parties’ intention. If the contractual terms are clear, the tribunal will not search for extrinsic evidence.

An example of clear contractual terms that identify hardship conditions can be found in Article 6.2.1. of UNIDROIT Principles. A hardship situation has an exceptional character, and it takes place after the conclusion of the contract. The event giving rise to the hardship situation must not have been reasonably taken into consideration by the disadvantaged party at the conclusion of the contract and the risk of the occurrence of such event must not have been undertaken by the disadvantaged party. With regard to the impact of said event, Article 6.2.1. states: "There is hardship where the occurrence of events fundamentally alters the equilibrium of the contract either because the cost of a party’s performance has increased or because the value of the performance a party receives has diminished". Hardship is an "exceptional situation",⁸⁶ illustrated "[w]hen supervening circumstances are such that they lead to a fundamental alteration of the equilibrium of the contract".⁸⁷

In the presence of a contractual provision on hardship, arbitrators will focus on the foreseen requirements related to the change of circumstances that is beyond the parties’ control, its impact on the contract and the criteria to take into consideration when assessing the disequilibrium. The change of circumstances may be in a specific field, on the energy market for instance. The change of circumstances may have occurred in comparison to what parties have reasonably expected when entering into the contract or related to the price formula included in the contract that "does not reflect the development of the said marginal market".⁸⁸ The change of circumstances should be beyond parties’ control, which is not difficult to determine when the criteria are objectively outside parties’ will.

Concrete examples are given by arbitral awards on how hardship provisions are implemented. A change of circumstances may be illustrated by the change of the index that is required to the determination of the price, according to some specific criteria contractually mentioned that are obviously outside the control of the parties.⁸⁹

ICC case no. 15051 (2010)⁹⁰ is related to a dispute concerning gas price and supplies between a producer and a buyer and specifically addresses the existence of an extraordinary price review due to hardship, which was contested by respondent. The arbitrators’ approach was first to verify whether there was a contractual provision on hardship in order to establish the parties’ intention. In that particular case, Article VIII and Article 8.3 (b) of (contract 1 and contract 2) required the following cumulative conditions namely

A change of the circumstances upon which the Parties relied for establishing the general provisions of the Contracts and which is

a. Significant

b. Beyond the control of the Parties (extraneous event);

c. Not of temporary nature

d. Unforeseeable; and

e. Causing significant hardship to a Party"⁹¹.

The arbitral tribunal analysed an extraordinary price review that was drafted with the same wording as that of the UNIDROIT Principles. The conditions of such contractual provision were the following: an unforeseeable and significant change of the circumstances upon which the parties had relied for establishing the general economic provisions of the contracts, beyond the control of the parties (extraneous event) and not of temporary nature, that caused significant hardship to a party.⁹² The arbitrators then determined the meanings of the hardship conditions, according to the nature of the agreement and its environment. Thus, the tribunal held that the "wording ‘general economic provisions of the Contracts’ refers to the price formula of the (Contracts) and both parties are in fact in broad agreement within this interpretation".⁹³ The tribunal established then that "the relevant market" was the "international energy market" as the parties’ intention was to include "pivot points referring to Brent prices".⁹⁴ Accordingly, the tribunal concluded that the "evolution of the Brent price was part of the parties’ shared assumptions (…and …) that a disruption of this predicate could possibly destroy the equilibrium upon which the contracts were concluded".⁹⁵

A significant change of circumstances was the second hardship condition. The arbitrators analysed it in accordance with the parties’ intent⁹⁶: "will depend upon the magnitude of the increase of the Brent price during the reference period"⁹⁷ and "will call for some kind of extreme and drastic change of the system, an exceptionally high yardstick"⁹⁸ before assessing that the "requirement of a significant clause is satisfied".⁹⁹

In addition, the rise of the Brent price was obviously an extraneous event given its general character.¹⁰⁰ The extraneous event requirement is determined according to the environment of the contract as stated by arbitrators in this case: "Regarding the extraneousness of the rise of Brent price, it goes without saying that this development was not caused by or linked to a Party, given the general character of this event. This condition is therefore satisfied".¹⁰¹

The non-temporary nature of the hardship led the tribunal to assess the duration of the rise, i.e. it had to choose a span of time according to the specific contractual circumstances and it concluded that this condition was also satisfied.¹⁰²

As for the unforeseeable character, the tribunal’s analysis was to determine "i) what development may or may not have been foreseeable, ii) what is the period of reference to apply the test of unforeseeable character... [and] iii) whether such test should be applied in concreto or in abstracto"¹⁰³. It was clear for the tribunal that what was at stake was the foreseeability of the intensity of the fluctuation¹⁰⁴ during a period of reference.

The significance of hardship is of a great importance as it may or may not "consist in a reduced profit (lucrum cessans) and would not be limited to actual losses (damnen emergens)".¹⁰⁵ In this case, the tribunal assessed such significance by analysing the parties’ intention expressed in the letters they had exchanged.

The importance of the prejudice would determine to what extent extraordinary conditions impact the contract. In the case under analysis, the tribunal stressed that the change of circumstances must cause a "certain imbalance that would require immediate relief, namely adjustment of the prices before the expiration of the ordinary price revision period. (…) there is a need for a deep imbalance before an ‘extraordinary’ (the word implies an exceptional event) review takes place".¹⁰⁶ This was not the case according to the tribunal who found that an average price differential of 24% was not sufficient to constitute a significant hardship.¹⁰⁷

ICC Case 11265 (2009)¹⁰⁸ was related to the extreme difficulties that claimant had to face in order to perform its contractual obligation. The arbitral tribunal rejected the allegation of hardship asserting that a legal provision on hardship should not be the occasion for a party to escape its commercial miscalculation.¹⁰⁹ The tribunal applied UNIDROIT Principles with no opposition from the parties. According to the tribunal, the increase in the cost of the delivery of the goods by the claimant did not lead to the fundamental alteration of the contractual equilibrium as stated in Article 6.2.2 of the UNIDROIT Principles.¹¹⁰ The other requirements of the provision had not been met: the contractual risk of change of circumstances had been undertaken by the defendant (the delivery of 30 trucks). As for the unforeseeable character, the tribunal held that, the affected party had significant experience in the field. It was reasonable to conclude that such party should have taken into consideration the situation. As to the requirement of the event to be beyond parties’ control, the tribunal stressed that the defendant should have exercised its influence on decisions taken during the meetings, and that the defendant did not do his best to obtain the trucks.¹¹¹

Another example of price revision clause is present in ICC case no. 13989,¹¹² where the underlining contract provided in Article 11.6:

(1) if at any time either Party shows that circumstances on the energy market, beyond the control of the Parties, have changed as compared to what Parties reasonably expected when entering into this Contract and/or if the Price resulting from the price formulae hereof does not reflect the development of the said marginal market, then such Party may request other Party, in writing, substantiating the grounds for the Price revision (…).

This clause provides for a change of circumstances in the energy market, beyond the parties’ control. Such change must be analysed in comparison with what the parties expected at the time of the conclusion of the contract ("what parties reasonably expected when entering into this Contract"), and/or the change of the price formulae—that is no more than a reflection of the "development of the said marginal market".

The meaning of the conjunction "and/or" was at issue in that case. To claimant, it meant that both criteria may be "used either jointly or alternatively" as "the first part or limb focussed on the origin or the cause of the change; the other part or limb focussed on its effect".¹¹³ The respondent’s approach focused on the interpretation of the provision keeping in mind "that the key second limb must have been satisfied, whether individually or collectively, with the first limb". The tribunal concluded that "either party may invoke the price revision procedure (…) demonstrating that it complies with either or both of the criteria in the parts or limbs of paragraph 1 of that Article".¹¹⁴

The tribunal’s reasoning is interesting. In its interpretation of the meaning of the provision it states that "Neither criterion permits a price revision to be sought unless there have been either significant changes in circumstances on the energy market, as described in the first criterion, or significant disparity or disparities between the price established under the price formulae and the development of "the said marginal market". Satisfying the latter criterion may also mean that the former will also have been met but it does not follow that the reverse is not possible".¹¹⁵

The tribunal decision was that "construing the phrase ‘and/or’ to allow a party to invoke price revision under the contract, by showing that either or both criteria have been met gives effect to both the word ‘and’ and the word ‘or’, which according to the general principles on which the parties have agreed, is the right meaning of this paragraph of Article 11.6 (…)".¹¹⁶

However, contractual provisions on hardship may be unclear and lead to a dispute between the parties on the scope of the hardship and its meaning. Arbitrators should then establish the meaning of the provisions according to the applicable law. We can find an example of this in ICC Case no. 15610,¹¹⁷ on an underlying contract that contained the following contractual hardship clause:

18.2 (1) in the event that, during the term of this Contract and due to circumstances, which could not have been reasonably foreseen as of the date in which the Contract was entered into,

(2) either Party suffers severe and unforeseeable hardship for a periodic of time not shorter that 6 (six) months (…),

(3) The Party which is suffering the above mentioned severe and unforeseeable hardship shall give, to the other Party written notice thereof,

(4) which will specify (i) the date and nature of the event or events which caused the change alleged by it; (ii) an evaluation of the hardship that has been suffered; and (iii) the proposal made by that Party to remedy that hardship.

This contractual provision inserted in an LPG¹¹⁸ contract shows that the conditions for the existence of hardship are related to the unforeseen circumstances that begin to exist after the conclusion of the contract and that cause suffering to either party during at least 6 months. Such lack of any other requirement led the arbitral tribunal to hold that "it will, of course, be necessary to consider much more of the Parties’ contractual wording than this brief extract. It will be noted, however, that the phrase ‘severe and unforeseeable hardship’ is not expressly defined in the LPG Contract".¹¹⁹.

According to the claimant, the hardship clause that was inserted in the contract—drafted in an ambiguous manner—"requires the restoration of the ‘equitable character’ of the contract when the ‘gateway’ of severe and unforeseeable hardship occurs" on the ground that "references to ‘equity’ appear stated in the hardship clause".¹²⁰ The claimant’s reasoning is of interest as that party considered that the contract was "a fair and equitable agreement" at the time of its conclusion and that in case of hardship, parties must "restore the equitable character of the contract" as a remedy.¹²¹ Nothing in the provision, as it is reproduced, indicates, however, any reference to the fair and equitable standard. The respondent’s position was that the clause requires to determine the existence of "severe and unforeseeable hardship", and the contract does not provide any lesser "equitable" standard. The respondent seems not to reject any role for the equitable solution.¹²² The arbitral tribunal interpreted the contract according to New York law as commonly accepted by the parties as the applicable law. It "well established principles (…) that common sense and good faith (…) of contractual interpretation (…) to arrive at the objective meaning jointly intended by the parties".¹²³ In the presence of a contractual disposition on hardship as a lex specialis, the arbitral tribunal found inappropriate "to have regard to Section 2-615 of the New York Uniform Commercial Code of the common law doctrine of commercial impracticability".¹²⁴ The arbitral tribunal found that the parties’ intention was clear enough to exclude extrinsic evidence to establish their "common or objective understanding of the basis for pricing under the LPG Contract (…)". In doing so, the tribunal took into consideration the "(…) Project and the Natural Gas Agreement as part of the factual material relevant to the interpretation of the LPG Contract’s Hardship Clause".¹²⁵

As a next step, once the arbitral tribunal has verified the meeting of the hardship conditions, it will evaluate the contractual renegotiation by the parties where this requirement is provided for in legal or contractual provisions on hardship.

II.A.2. The contractual renegotiation by parties

As mentioned above, the requirement for contractual renegotiation may not be included in legal or contractual provisions on hardship. Nevertheless, when it is provided for, parties are under the obligation to renegotiate the contract.¹²⁶ It may not lead to an obligation to reach an agreement unless otherwise mentioned. The role of the arbitrators is therefore to verify that the parties renegotiate contract conditions (a) and that they renegotiate them in good faith (b).

a. The assessment of the parties’ renegotiation of the contract

Parties are under the obligation to renegotiate contractual conditions when such renegotiation is required in contractual or legal provisions. Such renegotiation, however, should not be the occasion for a party to escape its commercial miscalculation,¹²⁷ or to escape from the contract.¹²⁸ Even if it is of an exceptional character, it has been held that "the fundamental change of circumstances entitled each of the Parties to unilaterally request, if not the termination of the Contracts, then at least an adaptation of its terms, in particular the postponement of the contractual dates by a reasonable period of time".¹²⁹

As stated by Article 6.2.1. of UNIDROIT Principles and by legal provisions on hardship, parties are bound to perform their obligations when performance becomes more onerous for one of the parties. Meanwhile, they have to renegotiate their contract in order to try to perform it under conditions that will reduce the impact of events that were at the origin of the hardship situation.

An example of a contractual provision that provides for the parties’ renegotiation is analysed by the arbitral award in ICC Case no. 13898 (2014).¹³⁰ In that case, a contractual provision on price revision (Article 11.6) provided in its § 4 that "the Parties shall make their best endeavour to reach a reasonable revision in pricing formulae (…)". While parties have an obligation to renegotiate their contract, there is, however no obligation to reach an agreement on adaptation as parties should make "their best endeavour".

To sum up, parties should meet after the occurrence of the hardship triggering event that impacts contractual conditions substantially. Usually, the prejudiced party informs the co-contracting party of the excessive situation, asking for a meeting to discuss the issue. Such notification marks the starting point of the renegotiation. The other party should therefore reply by accepting the meeting and exchange propositions to try to find a mutually-accepted solution. This would not mean that the latter party has accepted the adaptation of the contractual terms, but that it agrees on the process to achieve it. The parties’ behaviour during this process may be subject to arbitrators’ assessment. Such assessment is within their jurisdictional power.

The parties’ renegotiation may lead or may not lead to an agreement on the issue to be determined, i.e. the adaptation of the contract. If they agree on new contractual terms, the parties resume the performance of the contract and arbitrators will not have to intervene in order to adapt the contract.

Parties may not agree on the existence of hardship or on hardship’s negative effects on one of the parties to the contract. In that case, arbitrators will have to determine the reasons for the parties’ failure to agree.

b. The assessment of the parties’ renegotiation according to good faith requirements

Arbitrators assess parties’ behaviour during the contract renegotiation process in order to establish its conformity with good faith requirements.

The parties’ failure to agree on the existence of hardship and of its impact on their contractual obligations may result from their behaviour during the renegotiation process that was contrary to good faith¹³¹. For instance, the co-contracting party may avoid the renegotiation process by not responding to the party who is suffering the impact of hardship¹³², or by making unreasonable offers.¹³³ The party may try to unduly improve its contractual position,¹³⁴ or refuse a reasonable offer.¹³⁵ Arbitrators have then to determine which party is responsible for the disagreement and may invite the parties to resume their negotiation.

The failure of parties to agree on the adaptation of their contract allows arbitrators to adapt the contract, provided this is stipulated in the contract or required in applicable legal provisions on hardship. The scope of contract adaptation by arbitrators needs therefore to be specified.

II.B. Scope of contract adaptation by arbitrators

Contract adaptation by arbitrators, when provided for in legal provisions on hardship, is an option and not an obligation (II.B.1.). Consequently, where contract adaptation in the face of a change of circumstances is not favoured by arbitrators, other solutions may apply (II.B.2.).

 

II.B.1. Contract adaptation by arbitrators is an option, not an obligation

Arbitrators’ intervention in order to adapt the contract may result from legal provisions on hardship. These provisions usually designate the judge and determine the scope of the latter’s intervention. Arbitrators’ intervention in order to adapt the contract may result also from contractual provisions on hardship. Usually, a specific authorisation for arbitrators to adapt the contract is given within the contractual provision on hardship. Such clauses state that if parties fail to agree on whether the contract should be adapted or how it should be adapted, either party may refer such matter to arbitration¹³⁶. In some cases, parties allow for a certain period of time to attempt to reach an agreement.¹³⁷

Arbitrators’ intervention may result from the parties’ implicit intention. The parties’ disagreement may lead to the implementation of the arbitration clause in the absence of any specific power given to arbitrators by parties. In that case, the applicable law will determine arbitrators’ powers and their scope.¹³⁸

Legal provisions on hardship give an option to arbitrators to adapt the contract. This is reinforced by the term "may" that is used in the legal provision when it is stated that the "judge" or the "court" may adapt the contract. This option is especially important where those legal provisions are of a mandatory nature. Therefore, phrases such as "According to the circumstances",¹³⁹ or "After weighing up the interests of the parties",¹⁴⁰ or "Taking into consideration the interests of both parties"¹⁴¹ and "If justice so requires"¹⁴² reinforce the choice given to arbitrators. This wording should help arbitrators to decide whether or not to adapt the contract. When taking their decision to adapt the contract or not to adapt it, arbitrators must give particular care to the contract’s environment, the interests of both parties, and the continuation of the contract under the best conditions.

Is the same option left to the discretion of arbitrators by non-mandatory legal provisions? Non-mandatory legal provisions on hardship take the same approach to the adaptation of contracts by arbitrators. Arbitrators have the faculty to choose between the adaptation of the contract or its termination. The adaptation of the contract by arbitrators is hence a solution among others. Legal provisions on hardship act as guidelines that help arbitrators when adapting a contract. Their general wording gives arbitrators latitude to decide, depending upon what arbitrators consider essential for their decision to be taken. Such guidelines are nevertheless not without limits, as arbitrators are usually careful to render an award that is acceptable by both parties, i.e. not challengeable on the ground of excess of authority.

Given that contract adaptation by arbitrators, where provided for by legal provisions on hardship, is an option and not an obligation, other solutions may be possible as Article 6.2.3 of UNIDROIT Principles indicates. Art. 6.2.3. UNIDROIT Principles deals with Effects of hardship and provides:

(4) If the court finds hardship, it may, if reasonable,

(a) terminate the contract at a date and on terms to be fixed, or,

(b) adapt the contract with a view to restoring its equilibrium.

Commentaries on the UNIDROIT Principles state that contract adaptation or termination of the contract by the court may not be appropriate and "in consequence the only reasonable solution will be for the Court either to direct the parties to resume negotiations with a view to reaching agreement on the adaptation of the contract, or to confirm the terms of the contract as they stand."¹⁴³

The option given to arbitrators whether to adapt the contract or not is the one chosen by Lithuania in Article 6.204 of its Civil Code¹⁴⁴ which states:

(…) The court may

1. dissolve the contract and establish the date and terms of its dissolution;

2. modify the conditions of the contract with a view to restoring the balance of contractual obligation of the parties.

The same option is left to the judge by Article 1091 of the Civil and Commercial Code of the Argentine Republic¹⁴⁵ while the former Civil Code provided for the contract termination by the prejudiced party unless the other party offers to adapt the contract equitably.¹⁴⁶

The choice given to arbitrators between contract adaptation and termination of the contract -in part or in its entirety- is the solution adopted by The Netherlands in Article 6 :258 of the Dutch Civil Code and in Greece by Article 388 of the Greek Civil Code.¹⁴⁷ The same solution has been adopted by Peru in Article 1440 of its Civil Code and France in Article 1195 of its Civil Code.¹⁴⁸

Do MENA countries’ legal systems give the same option to arbitration on hardship? Generally speaking, they provide for judicial intervention in the contract to reduce to reasonable limits the obligation that has become excessive. Arbitrators have the power to analyse the circumstances surrounding the contract by taking into consideration the interests of both parties. Arbitrators have a choice, not an obligation, as they "may" reduce to "reasonable limits" the obligation that has become excessively onerous. What if in a particular case, contract adaptation is not possible? May arbitrators terminate the contract if circumstances and parties’ interests point to that solution? Or is their choice limited to maintaining the status quo or adapting the contract to the changed circumstances? The wording used by legal provisions gives arbitrators large leeway to choose the solution they deem the best, i.e "if justice so requires".¹⁴⁹

To invite the parties to resume their negotiations is also within arbitrators’ power and it may appear more appropriate in particular cases, even in the absence of such an option in the legal or contractual provisions on hardship. Arbitrators may invite the parties to find a solution, such as price indexation or price revision provisions. This does not mean that arbitrators have no power at all.

The arbitral tribunal’s approach in ICC Case no. 10351 (2001)¹⁵⁰ is of interest in this regard. The parties disagreed on the application of an indexation price formula for the purchase of a liquefied natural gas under a long-term sales contract. The parties had frequently modified the pricing clause in many of their contracts. The latest revision concerned a price formula that included a correction factor. The calculation resulted from a complex formula, the implementation of which resulted in higher prices. In a partial award, the arbitral tribunal ordered the parties to negotiate the revision of the correction factor¹⁵¹ within a period of time (3 months). The tribunal’s final award would then confirm their agreement on a particular formula. If the parties disagreed, the tribunal would determine the formula and the amounts according to the parties’ respective arguments and submissions.

Arbitrators may provide for the adaptation of the contract. As a consequence, the extent of their power should be specified.

II.B.2. The extent of contract adaptation by arbitrators

The extent of contract adaptation by arbitrators is clarified according to the meaning given to their power (a) and to the methodology applied by arbitrators (b).

a. Meaning of contract adaptation by arbitrators

Where admitted by legal provisions, contract adaptation by arbitrators is often set out in such a way that it narrows the scope of their intervention. Mandatory legal provisions fix in practically the same terms the limits of arbitrators’ intervention to adapt the contract.

According to legal provisions on hardship, the meaning of contract adaptation by arbitrators is close to an adjustment of contract conditions to a reasonable level that allows parties to perform the contract. Such adjustment is made according to what parties would have agreed upon at the conclusion of the contract.

Therefore, contract adaptation by arbitrators means, according to legal provisions on hardship "[to] reduce to reasonable limits the obligation that has become excessive"¹⁵² or "to reduce the debtor’s performance to the appropriate extent".¹⁵³ Other legal provisions on hardship provide more indications to arbitrators such as: "[to] reduce to reasonable limits by lessening its extent or increasing its consideration, the obligation that has become excessive".¹⁵⁴ Interestingly, some legal provisions define arbitrators’ contract adaptation thus: "to reduce the oppressive obligation to a reasonable degree either by narrowing its extent or by awarding a balancing interest"¹⁵⁵ or "to return such onerous obligation to a reasonable level".¹⁵⁶

Other legal provisions on hardship give no detail or specification on the extent of arbitrators’ power to adapt the contract or even on how they would proceed. These provisions usually provide for a revision of the contract without any further elaboration. This is the case, for example, of Article 1195 of the French Civil Code, that provides for the judge to revise the contract, while Article 6 :258 of the Dutch Civil Code provides that "the Court may (…) modify the effects of an agreement", and section 388 of Greek Civil Code provides that the "Court may (…) reduce the debtor’s performance to the appropriate extent (…)". Section 2411 of the Hungarian Civil Code states briefly that "the court may amend a contract when (…)".

Art. 6.2.3. (4) (b) of the UNIDROIT Principles states that arbitrators "may (…) adapt the contract with a view to restoring its equilibrium". This is to say, and the commentary sheds light on it: "the court will seek to make a fair distribution of the losses between the parties".¹⁵⁷

Legal provisions on hardship grant arbitrators’ powers within certain limits. Their role is often limited to reducing the excessive effects of hardship on contract conditions to a reasonable level by a proper balancing of interests. Contract adaptation by arbitrators is therefore far from a revision of contract conditions. Contractual provisions on hardship may provide for contract adaptation by arbitrators in the arbitration clause and/or in the contractual provisions that deal with changes of circumstances or price indexation. Arbitrators’ power to adapt the contract is not so much the re-establishment of the original contractual equilibrium, i.e. the one that existed at the time of the conclusion of the contract. It consists rather to eliminate the excess of increased onerosity in the contractual obligation by reducing it to a reasonable level—within the normal risk of the contract.

Once the existence of hardship is determined, arbitrators undertake the adaptation of the contract.

b. Methodology of contract adaptation by arbitrators

Arbitrators may choose not to adapt a contract, not necessarily because it is an option left to their discretion,¹⁵⁸ but they may conclude that hardship conditions are not met. On the other hand, when adapting a contract, arbitrators may depart from contractual provisions based on parties’ intention.

Accordingly, arbitrators may choose to invite the parties to resume a revision of the contract. Following the solution adopted by the parties, the arbitrators will render an award that reflects the parties’ intention, if they agree on a formula, or if they submit their indications on a proposed one.¹⁵⁹

Arbitrators, when adapting a contract are bound by contractual and legal provisions on hardship. The guidance provided thereby helps or should help arbitrators in settling the issue.

Arbitrators adapting a contract may face a lack of clarity of the particular contractual provisions. Even though, "in the absence of clear meaning of a contractual term, arbitrators interpret the contract",¹⁶⁰ arbitrators shall rely "on the general principles of (the contract law of the State whose law is applicable) (…) in accordance with the plain and ordinary meaning of the words thereof as read in the particular context in which the relevant terms are used by the Parties".¹⁶¹ When such common intention cannot be established by arbitrators, the contract should be interpreted in such a way to give a meaning to all the provisions and according to the reasonable meaning given by parties in the same circumstances.¹⁶² On the other hand, contractual provisions that are "clear and unambiguous (…) must be enforced by a court or tribunal according the plain meaning of (their) terms, without reference to extrinsic materials outside the four corners of the instruments."¹⁶³

This is a methodology to be applied by arbitrators when adapting a contract.

Thus, the legal provisions give indications that help arbitrators in adapting contracts. Arbtirators may render an award "according to the circumstances"¹⁶⁴ and "after weighing up the interests of the parties".¹⁶⁵ When "taking into consideration the interests of both parties",¹⁶⁶ arbitrators have the same latitude as a court in their appreciation¹⁶⁷ to render an award "if justice so requires".¹⁶⁸ The UNIDROIT Principles are more specific as the adaptation "will not necessarily reflect in full the loss entailed by the change in circumstances, since the court will, for instance, have to consider the extent to which one of the parties has taken a risk and the extent to which the party entitled to receive a performance may still benefit from that performance."¹⁶⁹

Arbitral awards provide examples of the methodology applied by arbitrators.¹⁷⁰ Careful attention is given on parties’ intention to interpret the contractual provision according to the way it was drafted.

When adapting the contract, arbitrators have "to comply with the intention of the parties"¹⁷¹ to determine if their intention was the contract adaptation and not its termination. The adjustment will be in accordance with the existing indices or substitution of one of them, in order "to be nearly comparable to the effects sought from the original indices as any reliable data then available will allow."¹⁷²

Arbitrators who adapt a contract should also focus on the "interpretation of the contractual price formula currently in force" as mentioned in ICC Case no.10351 (2009).¹⁷³ In that case, the dispute arose after a change in the Platts formula that was the link for determining the gas price in the contract. The contractual provision on price revision had been applied without success. The arbitrators note:

If we consider the circumstances in which Rider No. 7 was made, this tells us a lot about the interpretation of the contractual price formula currently in force. It highlights the tensions between the gas producer, concerned about changes in oil prices, and the gas purchaser, anxious to sell within its gas market the quantities it undertook to buy in the very long term (take-or-pay)... More specifically, it shows that, when they negotiated Rider No. 7, the parties were aware that the indexation of the price of LNG to Platts’ FOB breakeven prices did not mean that they were being indexed to a basket of products in competition with natural gas. This is attested by the following facts.¹⁷⁴

Arbitrators adapting a contract interpret the parties’ intention in such a way as to reach a "fair and equitable revision"¹⁷⁵ as stated by the parties in the contractual provision on hardship. Arbitrators should then follow the same model that should have been applied by parties. In Gas Natural Aprovisionamientos SDG, SA v Atlantic LNG Co. of Trinidad and Tobago,¹⁷⁶ the Court’s reasoning was as follows: "It is undisputed that the Tribunal was specifically charged with the duty to revise the pricing scheme once it determined that the contractual preconditions were met. The Tribunal having made that determination, Article 8.5(a) required it to reach ‘a fair and equitable revision’ of the contract price".

Arbitrators also give importance to parties practice during the life of a contract.

Arbitrators interpreting the parties’ intention will focus on the parties’ behaviour during the performance of the contract and shed the light on their intention on contract adaptation. The following ICC Case no. 10351 (2001)¹⁷⁷ gives a good example of arbitrators’ approach: the parties were in a disagreement over changes in the indexation of gas prices in a long-term contract for the purchase by the claimant of liquid natural gas from respondent. Article VIII of the contract on the fixation of the price had been, by parties’ agreement (Amendment 7), replaced by another reference for the price formula that resulted in higher prices. Claimant argued that the previous formula was to be applied and claimed reimbursement of the amounts it had paid in excess. Article IX of the contract, on the price revision, determined the procedural conditions in detail stating for the parties agreement to proceed to the adjustment of the contractual price and provided certain conditions mentioned in that clause. The parties’

performance of the contract revealed that they modified the reference for the fixed price (Art. VIII).¹⁷⁸ This helped arbitrators to determine their agreement on the price reference and its articulation with the revision provision. The parties’ disagreement on the meaning and the scope of the contractual indexation formula (Art. VIII (3))¹⁷⁹ was thus analysed in the light of all the elements mentioned above.

In ICC Case no. 12936¹⁸⁰ shows the importance of the parties’ practice during the implementation of the contract that is different from what was foreseen in the contract. A significant change in the practice impacts the nature of the supply agreement.¹⁸¹ In that case, the arbitral tribunal pointed out the oral and tacit amendments by parties to their contract, that showed an "intention of the parties to make an amendment subsequent to the conclusion of the contract".¹⁸² The parties’ practice could thus lead to change the contract without following the contractual procedure. According to the arbitrators, this also had a consequence on the nature of the contract and its consequences. The "(master supply agreement) had clearly become a framework agreement, fixing certain terms and conditions for sale contracts yet to be made".¹⁸³

In some cases, arbitrators apply the existing contractual formula showing the limitation of the scope of their intervention.¹⁸⁴ Arbitrators may also adapt the contract by respecting the contractual provisions already existing.¹⁸⁵ The question is then to what extent arbitrators should adapt the contract, i.e. should they offset the whole of the economic hardship or only remove the substantial element of hardship? An answer is given by Superior Overseas Developement Corp.¹⁸⁶ The court members were divided between those who were in favour of removing the whole economic hardship and those who considered they should focus on the substantial part of the hardship. The decision taken favoured the removal of the substantial element of the hardship.¹⁸⁷

Once arbitrators have established the methodology they will use, the question is then to what extent arbitrators should adapt a given contract.

An analysis of arbitrators’ adaptation of contracts shows that they pay a careful attention to the provisions on hardship, the way contractual provisions are drafted, the environment of the contract and the usages in the parties’ field of activity, as explained below.

The adaptation of the contract by arbitrators is, however, not without limits.

II.C. Limits of contract adaptation by arbitrator

The limits to contract adaptation by arbitrators are those specified by parties in the contractual provisions (II.C.1.). Such limits also result from challenges against arbitral awards (II.C.2.).

II.C.1. Limits fixed by legal or contractual provisions

Contractual or legal provisions on change of circumstances outline arbitrators’ power. They provide for the scope of the arbitrators’ jurisdiction if parties fail to agree on the existence or the effects of hardship.¹⁸⁸ Arbitrators interpret the scope of the existing contractual provisions; they do not create new legal obligations.¹⁸⁹ As a consequence, arbitrators’ adaptation of the contract is within their jurisdictional power.¹⁹⁰

Contractual provisions may provide the criteria for the adaptation of a contract by arbitrators, or at least give indications that might help them achieve that goal. Contractual provisions, however, may not be as clear as expected or sufficient to enlighten arbitrators’ decision-making process. Even though, arbitrators follow their methodology in searching the parties’ intentions.

Once the power to revise the contract is given to arbitrators, they will adapt it according to the limits set out by the legal rules applicable to the contract and by contractual provisions. The limits fixed by legal rules on hardship when adaptation of the contract is envisaged are those to render a decision "according to the circumstances (…) if justice requires (by) taking into consideration the interests of both parties". The limits also are those according to the power of amiable compositeur. On the other hand, when arbitrators are to revise the contract, they will first look at the contractual provisions. Normally, arbitrators should first determine if contractual preconditions are met; secondly, they should adapt the contract in a way which fits what parties stated in the provisions. Parties should be aware of this when drafting contractual provisions. The more precise the provisions are, the clearer the limits for arbitrators will be.

An example of the above is the EDF v Shell¹⁹¹ case. The power of amiables compositeurs had been given to the court by the parties. An adaptation clause was included in the contract, but the parties could not reach an agreement on the terms of such adaptation. The court invited them to resume their negotiations and decided that if the parties failed to reach an agreement again, it would choose the financial equation to be applied in order to modify the contractual terms among those to be proposed by the parties. In fact, the court chose not to impose any particular equation on the parties, but only one chosen among those advanced by the parties.

The more indications are given in the contractual provisions, the more restrictive the arbitrator’s power of contract adaptation will be. In ICC Case no. 13898 (2014),¹⁹² a price revision provision may be an example of this. In its § 4, the provision stated:

The Parties shall make their best endeavor to reach a reasonable revision in pricing formulae with due regard to the location of Gas reserves, reservoir productivity, average Gas daily delivery and Gas quality as well as terms and conditions thereof. Likewise, gathering, compressing, transportation and all elements affecting pricing formulae including but not limited to being and acting as an efficient and prudent operator on the part of Seller shall be considered.

The § 5 states:

Moreover, such elements shall include relevant conditions at Buyer’s market, the cost of distribution and transmission as well as all relevant factors and circumstances being pertinent to the said market and the Gas industry as a whole.

And § 9 specifies that

In any case, the Contract Price provisions shall allow Natural Gas supplied hereunder to be sold in the competition with marginal substitutable forms of energy in the Buyer’s market.

However, in practice, contractual provisions on hardship may contain less details on the way the parties may or should adapt the contract. This would be the case, for instance, when the price review provision requires the parties to reach "a fair and equitable revision"¹⁹³ of the contract price. When parties fail to reach an agreement, the arbitrators’ adaptation of the contract will have to be fair and equitable too. That is to say that a broad discretionary power is recognised to arbitrators on the ground of the wording of the contractual provisions.

The limit of contract adaptation by arbitrators is the parties’ lack of satisfaction with the award rendered. Indeed, arbitrators may impose an undesirable contractual adjustment. This would raise the question of the suitability of arbitration as a forum for resolving disputes especially in long-term contracts in specific field sectors such a gas. An arbitrator’s award on adaptation of the contract may be challenged by an unsatisfactory party.

II.C.2. Challenges against the arbitral award

Once rendered, an arbitral award is final and binding for the parties. Arbitral awards may be challenged for annulment before the national courts of the seat of arbitration according to the rules set by its applicable arbitration law. Their enforcement may also be challenged, as stated by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York 1958)¹⁹⁴ on seven exclusive grounds upon which courts may refuse to recognise or enforce an award.

The legal grounds upon which courts may refuse to recognise an award are very restrictive. The excess of arbitral power is among them, as provided in Art. V (1) (c) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York 1958) which states that a court may refuse to enforce an arbitration award if it

deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.

Similarly, the UNICITRAL Model Law on International Commercial Arbitration of 1985 (with amendments in 2006) (UNCITRAL Model Law) sets out the same grounds as the 1958 New York Convention for refusing recognition or enforcement of an arbitral award.¹⁹⁵

An illustration of this is given by Gas Natural Aprovisionamientos, SDG, SA v Atlantic LNG Company of Trinidad and Tobago.¹⁹⁶ In that case, the parties failed to agree on the application of a price review clause that was inserted in the contract. The seller referred the matter to arbitration in order to settle the issue. The tribunal rendered an award introducing a new two-part pricing mechanism with retroactive effect. This new formula impacted the seller who had to reimburse the buyer. The seller challenged the award for excess of authority before the competent court, arguing that the arbitrators had actually rewritten the contract between the parties.

In the Gas Natural case, the challenging party invoked Article V(1) (c ) of the 1958 New York Convention, as implemented by 9 U.S.C. § 207, which similarly provides that a court may refuse to enforce an arbitration award for excess of authority.

The Court pointed out that the vacatur of an arbitration award is infrequent, and the provision referred to above is interpreted narrowly. The excess of authority that may give rise to a challenge of the arbitral award is to be understood as

whether the arbitrator had the power, based on the parties’ submissions or the arbitration agreement to reach a certain issue, not whether the arbitrator correctly decided that issue.¹⁹⁷

Moreover,

As long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority that a court is convinced he committed serious error does not suffice to overturn his decision.

In its interpretation of contractual provisions,

arbitrator may not ignore the plain language of the contract (…) a court should not reject an award on the ground that the arbitrator misread the contract.

The court made sure that the arbitral tribunal established the meeting of contractual preconditions. The arbitral tribunal analysed the impact of the event on the contract conditions¹⁹⁸ and confirmed the unexpected impact of U.S. prices on the Spanish market price of LNG, that satisfied the hardship requirement.¹⁹⁹ As to the power to revise the contract, the court’s approach was that it had to make sure that the Tribunal had the power to decide whether the requirements for a price re-opener had been met, and that the arbitrators had the power to revise the contract.²⁰⁰ The court then went on to analyse the wording of the contractual provisions that provides the parties to reach "a fair and equitable revision" of the contract price.²⁰¹ Another contractual provision establishing a pricing scheme was analysed by the seller to argue the excess of arbitrators’ powers by imposing another price scheme.²⁰² The Court dismissed the assertion by holding that the parties had omitted to fix limitations to the arbitrators when adapting the contract:

Indeed, Atlantic’s submissions to the Tribunal acknowledged the Tribunal’s broad authority in this regard. In them Atlantic opined that the relevant contractual terms "do not appear to expressly limit this Tribunal’s award to the imposition of a single pricing formula." Atlantic’s argument concerning the dual pricing formula is better understood as a challenge to the merits of the Tribunal’s decision. Such a challenge is unavailing since the Court does not review arbitration awards for legal or factual errors.

Moreover, the court pointed out that the contractual provisions applicable in that case failed to impose limits to the tribunal authority to impose a price:

Atlantic has not shown that the parties reached any agreement that limited the Tribunal’s authority to impose a dual price structure. It is true that when the Tribunal requested post-hearing briefing from the parties as to "[w]hether it is possible to have two different prices based on two different markets," both parties argued against such a scheme. GNA argued in favour of a single Spanish price for all deliveries; Atlantic contended that a single price based on the New England market should apply to all deliveries. These arguments over the wisdom of a dual pricing scheme, however, cannot be reasonably construed as an agreement to restrict the Tribunal’s authority to adopt that scheme.

 

On the other hand, the court pointed to the parties’ admission in principle of two different prices fixed by the Tribunal.

Indeed, in opposing the Tribunal’s suggestion of a two-price system, Atlantic limited its analysis to "the present facts," while accepting that under certain circumstances "it might, in theory, be possible to ‘have two different prices based on two different markets.’" Thus, Atlantic foresaw that a dual scheme would be permissible, and it points to no stipulation by the parties depriving the Tribunal of the power to fashion such a price.

The court concluded that the arbitral tribunal did not exceed its power in adapting the contract:

These arguments over the wisdom of a dual pricing scheme, however, cannot be reasonably construed as an agreement to restrict the Tribunal’s authority to adopt that scheme.

The Gas Natural case shows a concrete application of a hardship provision in a manner that parties did not intend. The arbitrators’ imposition of the dual pricing scheme was possible because of lack of "structural limitation on permissible prices revisions" in the contract’s provisions and the ability left to arbitrators to reach a "fair and equitable revision of the contract price", as stated in the hardship provision. The arbitral tribunal’s solution resulted from a careful analysis of the parties’ intention, notably the acceptance by one party (claimant) of the admission of two different prices fixed by the tribunal. The Gas Natural case shows the importance of drafting contractual provisions on change of circumstances and more specifically concerning the scope of the arbitrators’ power to adapt the contract.

The same approach was adopted in Quintette Coal arbitration (award of 28 May 1990)²⁰³. In 1981, Quintette Coal Ltd and a group of ten Japanese companies entered into a long-term coal sale contract that entailed the opening of a new mine in an isolated region. Contractual provisions were inserted on indexation, price review²⁰⁴, hardship²⁰⁵ and inequity review²⁰⁶, providing for parties’ review of the contract conditions in a spirit of cooperation and best efforts, beside an arbitration clause²⁰⁷.

The arbitral tribunal adapted the contract by fixing, based on Articles 7 (Review Price) and 9 (Iniquity Review), many prices for the next five years as requested by the parties. The tribunal considered the intention of the parties, the general decrease of coal price and the evolution of circumstances as expected by the tribunal. The arbitral award was challenged on the ground of arbitral tribunal’s excess of authority. In fact, Quintette held that the arbitrators lacked the power to proceed with a variation of the price. According to the claimant, the arbitrator’s adaptation of the contract was outside the parameters set out by the parties. Indeed, the arbitrators had actually modified the contract, as opposed to adapting it. The court rejected the challenge against the award as Article 9 of the contract granted jurisdiction to the arbitrators to interpret the parties’ will. The decision of the tribunal has been however criticised by many scholars²⁰⁸ for excess of power on the part of the arbitrators.

CONCLUSION

The adaptation of contracts by arbitrators is now recognized. It may result from the specific power given by parties to arbitrators in a contractual provision on hardship. Applicable law to the contract may also provide for the same option. This assertion has nevertheless its limits.

A careful analysis of legal provisions on hardship shows a lack of uniformity as to the judge power to adapt the contract. Some legal provisions on hardship do not foresee the adaptation of contracts by judges (so by arbitrators). Arbitrator will not adapt the contract if the contract is also governed by a Common Law system. Furthermore, in the absence of clear intention of parties as to contract adaptation by arbitrator, article 6.2.1.to 6.2.3 of UNIDROIT Principles on hardship will not be applied. In the same vein, hardship concept is not yet considered as an international trade usage. Therefore, the arbitrators will not take it into account "in any case" according to national and international legislation on arbitration.

A careful analysis of contractual provisions on hardship reveal that adaptation of contracts by arbitrators is not necessarily the option chosen by parties. Finally, the power of amiable compositeurs given by parties to arbitrators will allow the arbitrators to reduce the inequitable effects of applicable legal rules and of contractual provisions. The reduction of inequitable effect by arbitrators may not have an effect of the adjustment of contract.

Nevertheless, the perspectives of contract adaptation by arbitrators reveal that arbitrators may adapt the contract according to scope and limits given by parties and by legal provisions on hardship with a view of possible challenges against the arbitral award.

Contract adaptation by arbitrators implies henceforth the choice of legal provision on hardship that recognizes contract adaptation by arbitrators. It may also result from the insertion of a contractual clause on hardship that does not exclude it or that foresees it. In this latter case parties would be well advised to determine the criteria that will guide arbitrators in their approach. Parties should be also aware to determine the scope of adaptation of contracts by arbitrators.

An ICC Model Clause on hardship would be the reflection of international contractual practice. The ICC Model Clause will determine the powers of arbitrators, the scope and the limits of their mission. The ICC Model Clause should be drafted as follows: In the context of contractual provision on change in circumstances that impacts the contract equilibrium, arbitrators may intervene when parties try to renegotiate and fail to agree on contract adaptation. Arbitrators then invite parties to resume their negotiations and try to reach an agreement. If parties reach an agreement on contract adaptation, arbitrators will include it in their arbitral award that will bind the parties. If Parties fail to reach an agreement after having tried to renegotiate the contract, arbitrators will ask them to bring propositions that they will take into account in their arbitral award.²⁰⁹ Another suggestion would be to consider whether parties’ failure to agree paves the way to adaptation of contract by arbitrators.

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