Paris, 29 November 2018

Yves Derains (Partner, Derains & Gharavi, Paris, Chair of the ICC Institute of World Business Law) and the conference co-chairs Dorothy Udeme Ufot, SAN (Managing Partner, Dorothy Ufot & Co, Nigeria; ICC Institute Council member) and Fabio Bortolotti (Founding Partner, Buffa Borlotti & Mathis, Italy; ICC Institute Council member) welcomed the participants, introduced the topic of the day, and presented with a few words the different angles the various panels would cover throughout the day. Mr Derains also announced the date of next year’s conference, which will take place on 17 December 2019.1

The evolution of the rules on hardship

Professor Marcel Fontaine (Professor Emeritus, Université Catholique de Louvain, Belgium; ICC Institute member) began with a presentation on the evolution of the rules of hardship. He traced the evolution of hardship clauses starting from their ‘discovery’ in 1976 by the Working Group on International Contracts, a group of academics and corporate counsel meeting at the University of Liège, in Belgium, to the regulation of hardship at the international level, as evidenced by the inclusion of hardship clauses in international harmonization instruments like the CISG, the Unidroit Principles, and the OHADA Draft Uniform Act on Contracts. He then turned to the regulation of hardship in domestic legislation, which he illustrated by describing how many Central and European countries have reformed their contractual obligation regimes to provide for provisions on change of circumstances in the aftermath of the political changes of 1989.

The point of view of business regarding contract adaptation by courts/arbitrators in case of hardship

This second panel was comprised of a group of senior in-house counsel from major international companies with experience of contract adaptation in cases of hardship: Delphine Jaquemont (Projects, Infrastructure, Energy Lawyer, France), Pietro Galizzi (Head of Legal and Regulatory Affairs, ENI Gas e Luce, S.p.A, Italy) and Abhijit Mukhopadhyay (President (Legal) and General Counsel, Hinduja Group, United Kingdom). They each offered their perspective on whether and to what extent they consider it acceptable or appropriate to have a court or an arbitral tribunal adapt the conditions of a contract in situations of hardship, and all agreed on the importance of ensuring that the decision-maker understands the underlying project, in particular the specificity of long-term agreements. Pietro Galizzi also highlighted the importance of adopting an approach in line with the current international focus on corporate social responsibility.

The adaptation of international contracts by arbitrators

Pascale Accaoui Lorfing (Researcher, International and Investment Contracts and Arbitration, France; ICC Institute member) discussed the realities and perspectives of the adaptation of contracts by arbitrators. She examined the sources of contract adaptation by arbitrators, as well as the methodology arbitrators apply when adapting a contract, depending on whether they seek to adapt the contract based on legal provisions, international rules or contractual provisions. She further considered the extent and limits of contract adaptation by arbitrators. Ms Accaoui Lorfing ended her presentation with drafting tips for parties who may wish to avoid (or conversely, secure) contract adaptation by arbitrators. In particular, she encouraged parties wishing to achieve the former to include in their contracts an express provision excluding contract adaptation by arbitrators, and parties wishing to achieve the latter to precisely define in their contract what would be considered as hardship, and with what cconsequences.

Rules on force majeure as illustrated in recent case law

Christoph Brunner (Partner, Peters & Partners International, Switzerland) gave an overview of the most relevant arbitral awards and domestic cases addressing the different aspects of force majeure events. He noted that in the context of international commercial contracts, force majeure events are more often than not regulated by the terms of a contractual clause, leaving little room for the corresponding domestic doctrines of force majeure to apply. He also noted that despite the application of different underlying domestic laws, arbitral practice reveals a rather uniform approach to the interpretation and application of force majeure clauses, in line with the general contract principles as reflected for instance in the CISG and the UNIDROIT principles,2 which, despite some differences in the drafting generally cover the ground covered in common law systems by the doctrines of frustration and impossibility of performance and in civil law systems by the doctrine of force majeure.

Drafting force majeure clauses: common law and civil law approach

Dominique Brown-Berset (Partner, Brown & Page, Switzerland) and David Brown (Partner, Clyde & Co, France) started the afternoon session by looking at the challenges that drafting force majeure clauses may present. Taking a comparative approach, they explained the difference between civil law and common law traditions and how the doctrine of force majeure manifests itself in the drafting of such clauses; with civil lawyers insisting on the inclusion of a general definition of force majeure and common lawyers inclined to include listed events. On the topic of contractual drafting, Dominique Brown-Berset stressed the importance of using standard clauses when incorporating force majeure clauses into contracts. David Brown stressed the need for parties to contracts governed by English law to expressly provide for force majeure clauses in their contracts, since there is no general theory of force majeure under English law.

The approach to force majeure and hardship in Middle East and African countries

Ramy Bassily (Counsel, Kosheri, Rashed & Riad, France) sought to identify common trends in how Middle Eastern and North African countries interpret and apply force majeure and hardship clauses, with particular reference to the Egyptian Civil Code, which inspired the laws of a number of countries in the region. Dr Emilia Onyema (Reader in International Commercial Law, SOAS University of London) undertook a similar exercise for African states. She drew attention to the diversity of the 54 countries located in Africa, and stressed the impact colonial times, specifically the legal tradition of the colonizing states, had on the development of the doctrines of force majeure and hardship in each country.

ICC model clauses

Professor Filip de Ly (Erasmus School of Law, Erasmus University Rotterdam; ICC Institute Council member), a member of the task force that drafted the ICC 2003 Force Majeure Clause, then analyzed the main aspects of the model clause. He explained its structure (a mix between the common law list approach and the civil law open-ended approach), the general standard it enunciates (impediment beyond control, unforeseeability, unavoidability and reasonableness), as well as the effects of a force majeure event (temporary exemption from liability and not contract termination).3

Professor Ercüment Erdem (Partner, Erderm & Erdem, Turkey; ICC Institute Council member) reported on the current status of the work of the ICC Commission on Commercial Law and Practice, which has been tasked with revising the ICC force majeure and hardship clauses. He explained that while the initial purpose of the Commission was to draft shorter and simplified versions of the clauses, the revised clauses will come with some novelties. The changes to the force majeure clause are mainly structural, with the substance remaining largely unchanged, save for the addition of a separate paragraph on the notice requirement, and the possibility to terminate the contract if the impediment exceeds 120 days. Fundamental changes were however made to the new hardship clause, which now includes an option for adaptation or termination by a judge or arbitrator. The new clauses should be published in fall 2019.

Force majeure clauses and their relationship with the applicable law, general principles of law and trade usages

Moving away from the ICC model clauses, Professor Klaus Peter Berger (Center for Transnational Law, University of Koln, Germany; ICC Institute Council member) looked at the complicated relationship between force majeure clauses, the applicable law, general principles of law and trade usages. He examined three ICC arbitral awards4 in which the tribunals considered the issue in more detail and concluded that while the trend is that while arbitrators are generally mindful of the significance of contractual force majeure clauses, parties wishing to insulate their contractual force majeure regime from the uncertain influences of the applicable law should make express stipulations to that effect in their contract.

Economic sanctions and force majeure

The last panelist of the day, Mercédeh Azeredo da Silveira (Baer & Karrer SA, Switzerland), focused on the impact of economic sanctions on contracts as force majeure events. When a party claims that it should be freed from pre-existing obligations on the ground that its performance has become prohibited by an economic sanction, she suggested that the extent to which the economic sanction in question may be characterized as an impediment justifying exemption from liability for non-performance depends on the nature of the sanction itself (multilateral sanction versus unilateral economic sanction). In the case of unilateral economic sanction, she explained that the characterization of the sanction will also depend on how the sanction is characterized from a private law perspective: if a sanction is characterized as a factual element, its effect on pre-existing contracts will be examined through the prism of contractual law, but if the sanction is characterized as a legal norm, its effect on pre-existing contracts must addressed pursuant to both rules of conflict of laws and rules of substantive law.


1
For sponsor opportunities of the event, please visit https://iccwbo.org/about-us/partnerships/arbitration/icc-event-sponsorship-opportunity-icc-annual-meeting-institute-world-business-law-paris /.

2
Article 79 of the CISG provides that: ‘A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences’. Article 7 of the Unidroit principles similarly provides that ‘Non-performance by a party is excused if that party proves that the non-performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences’.

3
ICC Force Majeure Clause / ICC Hardship Clause (2003), https://iccwbo.org/publication/icc-force-majeure-clause-2003icc-hardship-clause-2003/.

4
National Oil Corporation v Libyan Sun Oil Company, First Award on Force Majeure and Final Award, ICC Case No. 4462, 31 May 1985, Yearbook Commercial Arbitration 1991 – Vol. XVI (van den Berg (ed.); Jan 1991); ICC Award No. 19299 of 1 July 2015 (Gujarat State Petroleum Corp. et al v. Republic of Yemen et al.), https://www.italaw.com/cases/4209, ICC Case No. 8873 (1997), Collection of ICC Arbitral Awards 1996–2000, p. 500.