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Arbitration Agreement – ADR & ODR


The arbitration agreement is the formal expression of the parties’ common intention to settle the disputes arising out of the contract through arbitration and is the primary source of the power of the arbitral tribunal. All international commercial contracts generally encompass the following phrase ‘all disputes arising out of or in connection with this contract’ to empower the parties to the contract a reference of the dispute to arbitration. Based on the law governing the arbitration agreement containing the above-mentioned phrase, the arbitral tribunal may construe the agreement liberally or strictly to either include or exclude the dispute of adaptation of the contract from the scope of the arbitration agreement.

In order to determine the scope of the arbitration agreement, the arbitral tribunal while interpreting the agreement first applies the general principles applicable to contractual interpretation.[1] In the context of change in circumstances requiring adaptation of the contract, the arbitrators are generally reluctant in adapting the contract because the decision of the arbitrator results in creating a substantially different contract from the one that was entered between the parties.[2] More importantly, the ‘pro-arbitration’ principle has played a significant role in expanding the arbitrability of disputes by the arbitrators. The pro-arbitration presumption stipulates that in case of doubts with regard to the arbitrability of disputes by the arbitral tribunal, the arbitrators must resolve the ambiguity in favour of arbitration. This presumption has been accepted in a number of jurisdictions derived from the policies of international conventions relating to arbitration.[3]

The justification underlying the presumption of pro-arbitration is that once the parties have agreed to have their ‘disputes arising out of the contract through arbitration, it is reasonable to settle all the disputes relating to the same contract be resolved in a single forum, that is, arbitration. The United States applies the presumption without discriminating between the ‘broad’ or ‘narrow’ arbitration clause.[4]  In the seminal case of Fiona Trust,[5] the English court held as follows:

“The proposition that any jurisdiction or arbitration clause in an international commercial contract should be liberally construed promotes legal certainty. It serves to underline the golden rule that if the parties wish to have issues as to the validity of their contract decided by one tribunal and issues as to its meaning and performance decided by another, they must say so expressly. Otherwise, they will be taken to have agreed on a single tribunal for the resolution of all such disputes.”[6]

Though the scope of the arbitration agreement is restricted by the principle of party autonomy, it is argued by Prof. Gary B. Born that it is appropriate to adopt principles that construe the scope of international arbitration agreements in favour of arbitration.[7] Based on the wording of the arbitration agreement, the courts in various jurisdictions have attached different construction to the scope of the arbitration agreement. A significant number of jurisdictions have construed the scope of an arbitration agreement with the widest amplitude and content. Moreover, in cases involving long-term contracts containing the ICC Model Arbitration Clause along with a number of other provisions requiring modification over a period of time, the tribunal presided over by Lord Wilberforce has construed the arbitration agreement to include the power to adapt the contract.[8] This can be achieved by applying the rule of reading the contract as a whole for the purpose of construction of the contract, and every provision of the contract will be red in reference to the other provisions contained in the same contract.[9] In cases where the parties have covered provisions regarding modifications of the contract but not included any provision with regard to change in circumstances, it is reasonable to construe the contract to have implied authorized the arbitrator to adapt the contract within the scope of the arbitration agreement. In an absence of such implied power enunciated in the arbitration agreement, the next source of the arbitrator’s power to adapt the contract is the law governing the arbitration or lex arbitri.


If the contractual provisions are silent on the power of the arbitral tribunal to adapt or modify the contract to the changed circumstances and so is the arbitration agreement, then the lex arbitri can determine such power of the arbitral tribunal. The law applicable in arbitration is completely different from the law applicable to arbitration[10] and the lex arbitri deals with the latter. The lex arbitri deals not only with the regulation of the arbitration proceedings but also with non-procedural matters, for instance, the question of arbitrability[11], such as in the current consideration. The identification of the lex arbitri applicable to the dispute follows the same procedure that is employed in determining the law governing the arbitration agreement.[12] While exercising the power under the applicable lex arbitri the arbitrators should be careful, if no authority exists within the law of arbitration, the final award may be set aside under New York Convention.[13] However, only a trifling number of national legal systems contain express provisions with regard to adaptation or supplementation of contract by the arbitral tribunal.

The Dutch Code of Civil Procedure under Article 1020 (4) (c) allows the parties to the contract to submit the dispute with regards to contractual adaptation to arbitration in case of change in circumstances.  The provision is reflected in Art. 258 of Book 6 of the Dutch Civil Code is liberal and the threshold that must be met for invoking the provision of contractual modification is that of “reasonableness and fairness”, contrary to the “excessive” onerousness criteria reflected in Unidroit Principles.[14] Similarly, the Egyptian Civil Code[15] stipulates that if exceptional circumstances occur which could not have been foreseen by the parties at the time of conclusion of the contract, then the judge can adapt the contract in order to balance the obligation in the interest of both the parties.[16] Likewise, the Swedish Arbitration Act, 1999[17] allows the parties to the contract to authorize the arbitral tribunal to supplement the contract beyond the construction of the contract. In order to ease the excessive burden imposed on one of the parties to the contract, the Peruvian Civil Code[18] allows the parties to refer the matter to the court for adaptation in the event of a change of circumstances.

Moreover, the power of the arbitrator is a corollary to the power of the courts in this regard.  This is expressed in the principle of synchronized competencies. According to this the power of the arbitral tribunal is placed on equal footing with that of the power of the jurisdictional courts.[19] In this regard, in order to determine the power of the arbitrator to adapt the contract, one has to assess the competence of the domestic courts to modify the contract in event of a change of circumstances.[20] However, it must be remembered that the power of the arbitral tribunal is wider than the general powers conferred on the competent court and this is reflected in the principle which allows the arbitrators to decide case ex aequo et bono or as amiable compositeur.[21] In the absence of any such power to adapt the contract under the applicable procedural law agreed by the parties or as determined to be applicable under the test laid down above, the arbitral tribunal may refer to the substantive law of that jurisdiction to determine the applicable power to adapt the contract. For instance, there is no express authorization to adapt the contract in the event of changed circumstances under the procedural law of Germany, but the substantive law, that is, Section 317 of the German Civil Code, authorizes the courts to adapt the contract in case the parties fail to determine the modus of contractual adaptation.[22]

If, however, both the substantive and procedural law applicable is silent on the power of the court or arbitral tribunal to adapt the contract, the authority to adapt the contract in the event of changed circumstances can be judged according to the law applicable to the contract, that is, the lex causae.[23]


In the absence of an express choice of law governing the arbitration agreement, the generally accepted principle is to apply the law that governs the rest of the contract.[24] The rationale behind this is that, since the arbitration agreement is one of the multiple provisions contained in the contract, the law that generally applies to the contract, as chosen by the parties, is to be made applicable to the arbitration agreement. However, the doctrine of separability of the contract has been identified as a general impediment in considering the notion that the law governing the underlying contract should also govern the arbitration agreement. According to the doctrine of severability of the arbitration agreement, the arbitration agreement though contained in the same contract is a separate agreement that can stand alone in the event of a challenge to the validity of the underlying contract. The primary consequence of the doctrine of severability of the arbitration agreement from the underlying contract is the possibility of a different law governing the arbitration agreement as against the law governing the underlying contract.[25]

In the context of international commercial contracts, the parties generally agree to govern the substantive obligations of the contract by accepted international principles such as the Unidroit Principles or PECL or CISG. The substantive standard of contractual adaptation is governed by the lex causae of the contract.[26] The accepted governing law of the contract can necessarily be applied in order to determine the adaptation of the contract within the limits of applicable mandatory rules of the law applicable to the contract.[27]

In this regard, while demarcating the law governing the substantive obligation and the law governing the procedural aspects of the arbitration, the arbitrator's power to perform a specific function can be determined according to the applicable laws, thus the power is implied either from the lex arbitri or lex causae.

[1] Gary supra note 83, at 1063.

[2] ICC Partial Award No. 7544 (1995), [1999] J. D. I. 1062.

[3] Gary supra note 83, at 1067.

[4] See, e.g., Chevron U.S.A., Inc. v. Consolidated Edison Co., 872 F. 2d 534, 537-38 (2d Cir. 1989) (United States of America); Advanstar Comm. Inc., v. Beckley-Cardy, Inc. 1994 W. L. 176981, at 3*(S. D. N. Y. 1994) (United States of America).

[5] Fiona Trust & Holding Corp. v. Privalov, [2007] U. K. H. L. 40 (United Kingdom).

[6] Id.

[7] Gary supra note 83, at 1081.

[8] Berger, supra note 11, at 8.

[9] Westmoreland Coal Co. v. Entech, Inc., 100 N. Y. 2d 352, 358 (2003) (United States of America).

[10] Jan Paulsson, Arbitration in Three Dimensions, 60 I. C. L. Q. 291 (2011).

[11] Alastair Henderson, Lex Arbitri, Procedural Law and the Seat of Arbitration, 26 S. Ac. L. J. 886, 887 (2014).

[12] Supra, ¶2.2, p. 24.

[13] Berger, supra note 11, at 10.

[14] Frederick R. Fucci, Hardship and Changed Circumstances as Excuse for Non-performance of Contracts: Practical Considerations in International Infrastructure Investment and Finance, April 2006, available at (Last visited February 4, 2020).

[15] The Egyptian Civil Code, Art. 147 (2)

[16] Pascale, supra note 42, at 46.

[17] The Swedish Arbitration Act, 1999, paragraph 1(2).

[18] The Peruvian Civil Code, Art. 1440

[19] P. Sander, International Encyclopedia of Comparative Law, Vol. 16 70 (2014).

[20] Charles H. Brower II, Mind the Gap, 2016 BYU L. Rev. 1 (2016), at 18.

[21] Julián Bordacahar, The Rule of Law As Created by Arbitrators – An Update on the Discussions At The Recent IBA Arbitration Day in Buenos Aires, Kluwer Arbitration Blog, April 8 2018, available at (Last visited February 5, 2020).

[22] Berger, supra note 11, at 11.

[23] See Konrad Zweigert/von Hoffman, Bernd, Zum internationalen Joint-Venture, in: Festschrift Martin Luther, 203, 211 (1976).

[24] Channel Tunnel Group Ltd. v. Balfour Beatty Construction Ltd [1993] A. C. 334 (United Kingdom).

[25] Nigel supra note 66, at 159 ¶3.13.

[26] Berger, supra note 11, at 11.

[27] See UN Doc. A/CN.9/WG. II/WP.44, ¶30.

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