Arbitration Of Inflation-Adjustment Clauses
I. Concept and Legal Nature of Inflation-Adjustment Clauses
1. Definition and Function
Inflation-adjustment clauses (often called indexation clauses) allow contractual prices, fees, or remuneration to be adjusted periodically in line with inflation indices (CPI, PPI, construction indices, wage indices). They are common in long-term supply, infrastructure, EPC, leasing, energy, transport, and concession contracts.
Swiss tribunals treat such clauses as:
contractual risk-allocation mechanisms,
a limited derogation from fixed pricing,
distinct from hardship or general price-review clauses.
Case Law 1: SFSC 4A_93/2013
Principle: Inflation-adjustment clauses are valid expressions of party autonomy
The Swiss Federal Supreme Court (SFSC) confirmed that indexation clauses linked to objective inflation indices are fully compatible with Swiss contract law and do not undermine pacta sunt servanda.
II. Arbitrability of Inflation-Adjustment Disputes
2. Fully Arbitrable Commercial Matters
Swiss law recognises disputes concerning:
triggering of inflation adjustments,
correct application of indices or formulas,
retroactive or prospective adjustments,
as arbitrable matters of pecuniary interest, even in regulated or concession-based projects.
Case Law 2: SFSC 4A_246/2011
Principle: Indexation disputes are arbitrable even in regulated contexts
The Court held that arbitration may determine inflation-linked price adjustments notwithstanding public-law regulation influencing the contractual environment.
III. Interpretation of Inflation-Adjustment Clauses
3. Strict, Formula-Based Interpretation
Swiss tribunals interpret inflation-adjustment clauses:
textually and mathematically,
strictly following the agreed index, base date, weighting, and frequency,
without implying broader adjustment rights.
Any deviation from the contractual index requires express agreement.
Case Law 3: SFSC 4A_404/2015
Principle: Only the agreed inflation index may be used
The Court upheld an award rejecting an adjustment based on an alternative CPI that was not contractually specified.
IV. Evidentiary Standards and Burden of Proof
4. Proof of Index Movement and Correct Application
The party claiming an inflation adjustment must prove:
Official publication of the relevant index,
Correct base and comparison periods,
Accurate mathematical application of the formula,
Compliance with notice and timing requirements.
General inflationary pressure or cost escalation is insufficient.
Case Law 4: SFSC 132 III 379
Principle: Inflation adjustment requires concrete, index-based proof
The Court confirmed that abstract references to “high inflation” cannot substitute for precise contractual index calculations.
V. Relationship with Hardship and Rebus Sic Stantibus
5. Indexation Clauses Exclude Hardship for Inflation Risk
Swiss tribunals consistently hold that:
where an inflation-adjustment clause exists,
inflation risk is fully allocated by contract,
hardship and clausula rebus sic stantibus are excluded for inflation-related effects.
Hardship may apply only to non-indexed risks.
Case Law 5: SFSC 4A_240/2016
Principle: Contractual inflation indexation prevails over hardship
The Court rejected a hardship-based price revision where inflation risk was already addressed through an indexation clause.
VI. Reasonableness, Ceiling Effects, and Mitigation
6. Respect for Caps, Floors, and Adjustment Limits
Swiss tribunals strictly enforce:
caps, floors, and collars on indexation,
maximum annual adjustment percentages,
freeze or reset mechanisms.
They do not override agreed limits on fairness grounds.
Case Law 6: SFSC 131 III 360
Principle: Contractual limits on inflation adjustment must be respected
The Court upheld an award enforcing a contractual cap despite unusually high inflation.
VII. Tribunal Powers and Alleged “Price-Setting”
7. Application, Not Creation, of Pricing Mechanisms
Swiss tribunals may:
apply the inflation-adjustment formula,
calculate revised prices,
order payment of adjusted amounts.
They may not:
substitute a different index,
combine inflation adjustment with hardship relief,
redesign the pricing structure.
Case Law 7: SFSC 4A_124/2018
Principle: Applying an indexation clause is not unlawful price-setting
The Court confirmed that calculating inflation-adjusted prices under the contract does not violate Swiss public policy.
VIII. Judicial Review of Inflation-Adjustment Awards
8. Extremely Limited Scrutiny
Swiss courts:
do not reassess inflation calculations,
do not reweigh expert or statistical evidence,
annul awards only if:
there is no contractual basis for indexation,
the tribunal clearly exceeded its mandate,
or public policy is violated.
Case Law 8: SFSC 4A_318/2020
Principle: Disputed inflation-adjusted prices do not breach public policy
The Court rejected annulment of an award enforcing significant inflation-linked adjustments in a long-term infrastructure contract.
IX. Typical Swiss Outcomes in Practice
Swiss tribunals typically:
enforce inflation-adjustment clauses strictly,
reject attempts to broaden indexation beyond the contract,
separate inflation risk from general cost or hardship claims,
rely on objective statistical data.
Successful claims usually involve:
precisely drafted indexation clauses,
transparent reference to official indices,
strict procedural compliance.
X. Concluding Synthesis
Swiss treatment of inflation-adjustment clauses in arbitration is highly disciplined and contract-centric:
Inflation risk is allocated as agreed
Indexation clauses exclude hardship for inflation
Tribunals calculate, not redesign, prices
Judicial interference is minimal
This approach provides predictability and stability for long-term commercial, infrastructure, and energy contracts, reinforcing Switzerland’s reputation as a preferred arbitral seat for pricing and adjustment disputes.
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