Forged arbitration clause containing a waiver of any appeal ?
The case involved a Share Purchase Agreement, between a company in Belize and another governed by Jordanian law, providing for LCIA arbitration in Zurich. The contract contained a clause waving any appeal against the arbitral award.
A request for arbitration was filed and the Defendant raised a jurisdictional defense based on the fact that the signature on the contract containing the arbitration clause (and the waiver) was not genuine. However, to raise this very defense, they had, of course, to appear in front of the arbitrator and acknowledge his jurisdiction, albeit on a Kompetenz-Kompetenz basis !
Arbitrator Philipp Habegger rejected the request, essentially finding that the signature on the contract was not genuine. In the subsequent appeal to the Federal Tribunal, the issue was whether the (tacit) acceptance of the arbitrator’s jurisdiction came with or without the waiver contained in the (forged contract).
The Court recalled its well established case law on waivers (see § 3.1 of the opinion) and then essentially held – rightly in our view – that a party cannot deny the authenticity of the arbitration clause and then claim that by proceeding on the merits it would still enjoy the benefit of the waiver contained in the forged document. The developments at § 3.4 of the opinion are particularly interesting in this respect.
Charles Poncet Despina Mavromati
Judgment of January 18, 2017
First Civil Law Court
Federal Judge Kiss, Presiding,
Federal Judge Klett,
Federal Judge Hohl,
Federal Judge Niquille, and
Federal Judge May Canellas.
Clerk of the Court: Mr. Carruzzo
X.________ Inc., represented by Mr. Antonio Rigozzi and Mr. Sébastien Besson,
represented by Mr. Balz Gross, Mrs. Stefanie Pfisterer, and Mr. Bénédict Thomann,
On November 13, 2013, X.________ Inc. (hereafter: X.________), a company domiciled in Belize, relying on the arbitration clause inserted in Art.18 of the Share Purchase Agreement (hereafter: the Contract), which it claimed to have entered into on March 18, 2012, with A.Z.________ Investment Fund (hereafter A.Z.________ ), a company governed by Jordanian law, submitted a request for arbitration against the latter to the London Court of International Arbitration (hereafter: LCIA) with a view to obtaining payment of the contractual penalty of USD 93'854'376 stipulated in the Contract in the event that A.Z.________ did not fulfil its commitment to sell 38’782’800 common shares of the Jordanian Bank B.________ (hereafter B.________ ) to X.________ at a price of USD 469’271’880. The LCIA appointed a sole arbitrator (hereafter: the Arbitrator), a Zurich lawyer.
In its response of December 12, 2013, to the request for arbitration, A.Z.________ raised an objection of lack of jurisdiction and, in the alternative, submitted that the application should be rejected in its entirety. It argued in support that the signature at the end of the Contract by Dr V.________, CEO of A.Z.________, along with that of X.________'s representative, had been forged and that the company itself had not been aware of the Contract before receiving the request for arbitration.
However, in a document dated November 20, 2014, A.Z.________ asked the Arbitrator to take note that it tacitly accepted the Arbitrator’s jurisdiction ("1. [...] that Respondent enters an unconditional appearance."), and then to reject the claim in its entirety due to the falsification of the signature of Dr V._______, the alleged co-signer of the Contract.
After hearing the case, the Arbitrator rendered a final award on August 20, 2015. In essence, he rejected the application and found that the Contract had not in fact been signed by Dr. V.________, the alleged signature on the document having been forged. The Arbitrator declared that he had jurisdiction because the defendant had proceeded to the merits without reservation, thus abandoning by that conclusive act the objection to jurisdiction which it had initially raised. In addition, the Arbitrator rectified the designation of this party, with no effect on its standing to be sued, replacing A.Z.________ by Z.________ Corporation (hereafter Z._______), the former entity being only an administrative unit of the latter. The Arbitrator then devoted most of his reasoning to demonstrating the falsification of the Contract.
On September 21, 2015, X.________ (hereafter: the Appellant) filed a civil law appeal, based essentially on the violation of its right to be heard (Art.190(2)(d) PILA2), submitting that the award of August 20, 2015, should be annulled.
On September 28, 2015, Z.________, the Respondent, applied for security for costs. By order of December 21, 2015, the Presiding Judge of the First Civil Law Court accepted this request and invited the Appellant to pay the amount of CHF150'000 to the Office of the Federal Tribunal by January 20, 2016. The Appellant complied with the time limit, which had been extended by one month at its request.
In the meantime, the Arbitrator sent the case file to the First Civil Law Court on a USB drive. On February 18, 2016, without expressing a view as to the merits, he explained why, in his opinion, the case at issue was not capable of appeal.
The Respondent, in its answer dated April 25, 2016, submitted primarily that the appeal was inadmissible and, in the alternative, that it should be rejected.
The Appellant, in its reply dated January 3, 2017, and the Respondent, in its rejoinder dated January 17, 2017, maintained their initial submissions.
In a submission dated November 8, 2016, the Respondent spontaneously filed two new exhibits, to which the Appellant objected in a letter dated November 25, 2016, to which it also added a new exhibit.
According to Art. 54(1) LTF,3 the Federal Tribunal issues its decision in one of the official languages,4 as a rule in the language of the decision under appeal. When the decision was issued in another language (here English), the Federal Tribunal uses the official language chosen by the parties. In the arbitration, they used English, while, in the appeal briefs sent to the Federal Tribunal, they used French, pursuant to the requirements of Art. 42(1) LTF in connection with Art. 70(1) CST5 (ATF 142 III 5216 at 1). The Arbitrator, for his part, used German to make his observations on the admissibility of the appeal. According to its practice the Federal Tribunal shall consequently issue its judgment in French.
2.1. The Federal Tribunal bases its decision on the facts found in the award under appeal (see Art.105(1) LTF). It may not rectify or supplement the findings of the arbitrators on its own motion, even if the facts have been established in a manifestly inaccurate manner or in violation of the law (see Art.77(2) LTF, ruling out the applicability of Art.105(2) LTF). When seized of a civil law appeal against an international arbitral award, it may only to consider whether the admissible grievances raised against the award are justified. It may not decide with full power of review, as in an appellate jurisdiction. Allowing the parties to state facts other than those found by the Arbitral Tribunal, apart from the exceptional cases reserved by case law, would no longer be compatible with such a mission, even though these facts may be established by evidence contained in the arbitration file (Judgment 4A_386/2010 of January 3, 2011 at 3.2). However, as was already the case under the Federal Law of Judicial Organization (see ATF 129 III 727 at 5.2.2; 128 III 50 at 2a and the decisions cited), the Federal Tribunal has the power to review the facts underlying the award under appeal if one of the grievances mentioned in Art.190(2) PILA is raised against them, or new facts or evidence are exceptionally taken into account (ATF 138 III 297 at 2.2.1 and the decisions cited).
2.2. Exhibits 44 and 47 of the consolidated statement drawn up by the Appellant on May 17, 2016, (n. 39) bear dates subsequent to the date of the award under appeal. This is new evidence and, therefore, inadmissible as such at this stage of the proceedings (see Art. 99(1) LTF, which is not among the provisions that Art. 77(2) LTF declares inapplicable). The same is true of the aforementioned exhibit, which was submitted by the party on November 25, 2016, (n. 51), and of the accompanying explanatory note (n. 50). For the same reason, this Court will give no consideration to Exhibits Nos. 2, 51, 52, 53, and 54 of the Respondent's consolidated statement, n. 47, attached to the aforementioned explanatory note of November 8, 2016, (n. 46), or to that note.
On the other hand, although they were also established after the award under appeal, the legal opinions produced by the Appellant (n. 39, Exhibit 46) and by the Respondent (Exhibit 47, Exhibit 46) will not be excluded from the file (ATF 138 II 217 at 2.4, BERNARD CORBOZ, in Commentary on the LTF, 2nd edition 2014, No. 27 ad Art. 99 LTF).
The admissibility of the present appeal presupposes, among other conditions, that the parties have not excluded the possibility of bringing an action within the meaning of Art. 190 PILA.
3.1. Art. 192(1) PILA states that:
[i]f the two parties have neither domicile, habitual residence nor a place of business in Switzerland, they may, by explicit declaration in the arbitration agreement or a subsequent written agreement, waive the right of appeal against the awards of the arbitral tribunal; they may also waive the right of appeal only for one or other of the reasons listed in Article 190(2) PILA.
Curiously, the definite article "the", inserted between the terms "If and "two" in the text reproduced above, has disappeared both from the printed version of the Systematic Collection of Federal Law (RS 291 p.57 ) and the electronic version of the same collection (RS 291, page 67), the latter of which is now the prevailing version (Art.15(2) of the Federal Act of June 18, 2004, on the Federal Law Reports and the Federal Gazette [Law on Official Publications, LPubl; RS 170.512] in its new content according to Chapter I of the Federal Act of September 26, 2014, in force since January 1, 2016 [RO 2015 3977]). Doubtless this is only a lapsus calami, but this clerical error deserves to be corrected, as the sentence in question, with this definite article amputated, could be interpreted as meaning that, in an international arbitration involving more than two parties, it would be sufficient for two of them to make the explicit declaration provided for in Art.192(1) PILA for the others to be considered as having also waived the right to any appeal against the award concerning them. However, such is clearly not the meaning of the provision cited, for which the German ("Hat keine der Parteien ...") and Italian ("... le parti...”) versions show better than the French version the condition requiring that the waiver emanates from all parties to the arbitral proceedings. In any case, the text reproduced at the beginning of this paragraph corresponds to the one published in the Official Collection of Federal Laws (RO 1988 II 1821), which prevails in case of divergence from that of the printed or electronic version of the RS (Art.15(1) LPubl).
Federal case law has progressively developed the principles that result from the provision under review. It follows, in essence, that the practice only admits exclusionary agreements in a restrictive manner and considers that an indirect waiver is insufficient. As for the direct waiver, it does not have to include the reference to Art.190 PILA and/or Art.192 PILA. It is sufficient for the explicit declaration of the parties to show clearly and unequivocally their shared desire to waive their right to any appeal. Whether this is the case is a matter of interpretation (ATF 134 III 2608 at 3.1; see also Judgment 4A_633/20149 of May 29, 2015, at 2.2.1 and the precedents cited). This is the place to note that the waiver of the right to appeal covers all the grounds listed in Art. 190(2) PILA, including the one alleging the lack of jurisdiction of the arbitral tribunal (ATF 134 III 260 at 3.2.4 p.265, Judgment 4A_631/201110 of December 9, 2011, at 3), unless the parties waived the right of appeal for one or other of these reasons (Art. 192(1) in fine PILA).
3.2. In the third paragraph of the arbitration clause corresponding to Art.18 of the Contract, which has been reproduced on pages 11 and 12 of the appeal brief, the following passage appears:
The decision of the arbitrator in any such proceeding will be final and binding and not subject to judicial review. Appeals to the Swiss Federal Tribunal from the award of the arbitrator shall be excluded...
It is indisputable that the clause in question satisfies the conditions laid down by Art. 192(1) PILA and related case law for a valid waiver of the right to appeal. The Appellant is aware of it, which sets out, under nn. 94-99 of its appeal brief, the reason for which the application of this provision should not be taken into account in this case. In addition, the Appellant – addressing the Respondent, who had tried to establish the validity of the clause in light of this legal provision – stated in n.15 of the reply, that it "[had] never contested the text of the arbitration clause".
However, this partial conclusion does not exhaust the subject. The parties and the Arbitrator have, in fact, put forward different arguments, some of which challenge the applicability of the aforementioned clause to the circumstances of the specific case, some of which justify it. This Court, therefore, being bound to examine this condition of admissibility of the appeal, will begin by summarizing the opposing points of view before deciding the question at issue.
3.3.1. Referring spontaneously to this issue at the beginning of its appeal brief, the Appellant emphasizes that the Respondent, a defendant in the arbitral proceedings, immediately raised a jurisdictional defense on the ground that the Contract containing the arbitration clause had not been concluded at all, given the falsification of Dr. V________’s signature, before eventually accepting the Arbitrator's jurisdiction on November 20, 2014, by entering an unconditional appearance.
In its view, as the Arbitrator's jurisdiction arises from this tacit acceptance (Einlassung), and not from the arbitration clause inserted in the Contract, the waiver of the right to appeal set out in that clause would not apply in this case.
3.3.2. While admitting to having entered an unconditional appearance on the aforementioned date, the Respondent, in its answer to the appeal, challenges the conclusion that the Appellant drew from this circumstance. According to it, entering an unconditional appearance did not result in the conclusion of a new arbitration agreement, but simply the loss of its right to sustain the objection of lack of jurisdiction which it had raised in limine litis. Consequently, this tacit acceptance of the Arbitrator's jurisdiction was accompanied by an agreement, at least implicit, given by it, the Respondent, to the implementation of the arbitration under the conditions set out in the arbitration clause (seat of arbitration, choice of arbitral institution, number of arbitrators and language of the proceedings), including the waiver of any right of appeal against the pending award.
The Respondent argues, moreover, that the position adopted by the Appellant violates the principle of good faith in that it contains an irreducible contradiction of maintaining, on the one hand, that the Contract was validly concluded by the authorized representatives of the two parties and, on the other, that they would not be held to one of its clauses, namely the waiver of the right of appeal.
3.3.3. For his part, the Arbitrator forms two hypotheses, each of which leads to the matter being incapable of appeal, subject to the proviso – admitted by this Court – that the waiver of the right to appeal complies with the requirements of Art. 192(1) PILA.
The first hypothesis, which he rejected, is that a not-falsified Contract had come into force with all its constituent parts. Under this hypothesis, the Arbitrator considers that all the clauses of the Contract would continue to apply, including the clause relating to the waiver of the right to appeal, as the entering of an unconditional appearance by the Respondent released him only from the duty of examining further his jurisdiction, but not from inquiring whether the Contract existed or not. And the Arbitrator, still considering the scenario in which (having decided that the matter was within his jurisdiction because of the tacit acceptance of it by the Respondent) he accepted the submissions on the merits of the Appellant – contrary to what he did – and wonders whether in this case, the Appellant, faced with an appeal brought by the Respondent against the award, could have argued that the waiver of the appeal was inoperative.
The second hypothesis – that of the falsification of the Contract, which would necessarily result in the non-existence of the waiver of the right of appeal forming one of the clauses of the same Contract – and the hypothesis which was adopted in this case, leads the Arbitrator to question whether the Appellant should not simply have to live with it, in the context of the abuse of rights, for having argued in bad faith, throughout the arbitral proceedings, that it was bound by the Contract including the waiver of the right of appeal.
3.3.4. In its reply, the Appellant seeks to refute the arguments raised by the Respondent and the Arbitrator.
First, the Appellant maintains that the Arbitrator's jurisdiction is not based on the arbitration clause inserted in the Contract, instead arising solely from the Respondent entering an unconditional appearance in the arbitration proceeding. In its view, it would in fact be entirely artificial to maintain, in the absence of any conclusive demonstration of will, that the Respondent's act expressed the latter's agreement that the arbitration be continued on the basis of the arbitration clause contained in a contract which it claimed not to have concluded. According to the Appellant, the "timing" of this very late entry of an unconditional appearance – i.e., only five days after the rejection by the Arbitrator of the Appellant’s request to produce its own forensic expert report to counter the one ordered by the Arbitrator – was highly unusual, even suspect. Again according to the Appellant, it may have escaped the Respondent that the waiver of the right to appeal is a specific agreement, subject to special requirements, and that, failing to meet the conditions of validity of Art.192(1) PILA, an Einlassung cannot include a valid waiver of the right to appeal. Moreover, the principle of separability, anchored in Art. 178(3) PILA, would not apply to such waiver.
Second, the Appellant disagrees with the accusation that it violated the rules of good faith. According to the Appellant, the Arbitrator's two-fold hypothesis in his answer to the award under appeal is absurd and even shocking. If the Arbitrator had accepted its case, he would have held that the Contract was valid and accepted the claims, so that it would not have had to apply to the Federal Tribunal for reinstatement of its rights. However, it is the opposite solution that he chose, judging the Contract fraudulent. Accordingly, as the consequence of this solution must also apply to the waiver of the right to appeal, the latter cannot bind the Appellant. The argument that the Respondent and the Arbitrator would like to draw from the principle of good faith would, moreover, turn against them: it is they, in fact, who respectively argued and decided that the Contract containing the waiver clause had not been concluded, it being a falsified document; that is to say that it is difficult to see how they could, in good faith, rely today on this clause to challenge the admissibility of the appeal. In the end, the Appellant considers that it has not committed any abuse of rights or acted in any kind of bad faith by choosing the legal recourse open to it, given the circumstances, and that it would not have needed to do so if it had won its case.
3.3.5. Insisting that entering an unconditional appearance merely deprived it of the right to maintain its objection to jurisdiction, but that the terms of the arbitral jurisdiction (number of arbitrators, seat of arbitration, language of the proceedings, etc.) could in no way be based on this single document, the Respondent maintains, in its Rejoinder, that its Einlassung had the effect of rendering the arbitration clause contained in the contract effective. Moreover, it dismisses the Appellant's accusation relating to the timing of this unconditional appearance, considering it not only unfounded but also irrelevant, as the timing of when said act took place had no impact. The Respondent further argues that the Contract containing the waiver of the right to appeal should be treated as an offer and the Respondent's unconditional appearance as the acceptance of that offer, thus rendering the waiver clause valid. As to the rest of the argument, it states that in the very particular circumstances of the case at issue, it would be contrary to the principle of good faith to allow that the Appellant, who falsified the signature of the representative of one of the parties to the Contract and inserted an arbitration clause containing a waiver of the right to appeal in the latter, might not be bound by this undertaking.
3.4. There is no need here to examine the merits of the arguments put forward on both sides, most often formulated as hypotheses, as the reasons given below justify the decision of this Court to hold that the case at issue is incapable of appeal.
The contradictory behavior adopted by the Appellant in this case appears to be incompatible with the rules of good faith (Art. 2(1) CC,11 venire contra factum proprium). Indeed, this party invoked the Contract, which contains an arbitration clause including a waiver of the right to appeal to the Federal Tribunal that satisfies the requirements of Art. 192(1) PILA, in order to submit a pecuniary claim against the Respondent and to base its request for arbitration on it. The Respondent, for its part, contested the very existence of the Contract, on the ground that one of the two signatures affixed to the foot of this document was falsified, and, with that, the jurisdiction of the Arbitrator based on Art. 18 of the Contract. It then tacitly waived its objection of lack of jurisdiction by proceeding on the merits. The Arbitrator rejected the claim in its entirety because the Contract on which it is supposed to rest does not, in his view, exist, as it is a document with a forged signature.
By appealing to the Federal Tribunal, the Appellant intends to have the award under appeal annulled, in the hope that a new award will recognize the validity of the Contract and, consequently, will grant the claim that follows therefrom. The problem is that it argues both the non-existence of the Contract (just as the Respondent, who convinced the Arbitrator, did) in order to circumvent the waiver clause to which it validly consented (having not disputed the veracity of the signature affixed to the foot of the Contract by its chairman); and the existence of the Contract, to obtain the payment of the USD 93 million it claims from the Respondent. In other words, the argument put forward by the Appellant in order to justify the validity of the referral to the Federal Tribunal follows the one on which the Respondent based its justification for its objection of lack of jurisdiction. Containing an irreducible contradiction, it violates the rules of good faith. One cannot have it both ways. Either the Contract existed, or it did not exist. In the first hypothesis, all its clauses would be enforceable on the parties, including the arbitration clause with a waiver of the right of appeal; in the second, the Appellant could certainly appeal, but it would no longer have any interest in doing so, as the precondition to this recourse, i.e., the admission of the non-existence of the Contract, would prevent it from asserting the claim raised by it on the basis of this non-existent document from the very outset.
It does not matter that the Respondent subsequently tacitly agreed to be summoned before the Arbitrator for the sole purpose of having the Arbitrator find that the Contract did not exist and to obtain the entire annulment of the opposing party’s request; the "timing" of such acceptance is also not determinative, as is the fact that the Arbitrator to whom the grievance was referred decided that it was within his jurisdiction on the basis of this Einlassung. Such circumstances are not decisive to judge the good or bad faith of the Appellant, because they are beyond the control of this party. On the other hand, the situation would likely have been different, from the Respondent's point of view, had the Arbitrator found the Contract valid and granted the Appellant's request. The Respondent, in lodging a civil law appeal with the Federal Tribunal, could hardly be seen as contradicting itself in violation of the rules of good faith, as in arguing that the Contract did not exist, it would have behaved in a manner consistent with challenging both the validity of the waiver of the right of appeal included in the arbitration clause that shared the fate of a non-existent Contract, on the one hand, and the very basis of the claim in dispute inferred from the Contract, on the other.
Be this as it may, the determining behavior to decide if the matter is capable of appeal is not that of the Respondent, but that of the Appellant. So the decisive question in this respect can be phrased in these terms: is it in accordance with the rules of good faith that a party claiming to have signed a contract in which it has undertaken, by means of a clause of waiver in accordance with the requirements of Art. 192(1) PILA, not to challenge any award before the Federal Tribunal, even if the Arbitrator called upon to rule on the merits would conclude that the Contract was non-existent because of falsification, can nonetheless file a civil law appeal procedure before this Court? Put differently, and more succinctly, the same question could be worded as follows: can a party that has promised the other to submit to any future award aimed at resolving a dispute resulting from the contract signed by them, unilaterally free itself from its commitment? The answer is obviously negative in both cases.
It must therefore be held that the matter at hand is not capable of appeal.
The Appellant, who is unsuccessful, must pay the costs of the federal proceedings (Article 66(1) LTF) and pay costs to the Respondent (Art. 68(1) and (2) LTF). The compensation granted to the latter will be taken from the security for costs provided by the Appellant.
For these reasons, the Federal Tribunal pronounces:
The appeal is rejected.
The judicial costs, set at CHF 100’000, shall be borne by the Appellant.
The Appellant shall pay Respondent an amount of CHF 150’000 for costs; this amount shall be taken from the security for costs deposited with the Office of the Federal Tribunal.
This judgment shall be communicated to the authorized representatives of the parties and to the sole Arbitrator.
Lausanne, January 18, 2017
On behalf of the First Civil Law Court of the Swiss Federal Tribunal
The Presiding Judge: The Clerk of the Court:
- 1. Translator’s Note: Quote as X.________ Inc. v. Z._______ Corporation, 4A_500/2015.The decision was issued in French. The full text is available on the website of the Federal Tribunal, www.bger.ch.
- 2. Translator’s Note: PILA is the most commonly used English abbreviation for the Federal Statute on International Private Law of December 18, 1987, RS 291.
- 3. Translator’s Note: LTF is the French abbreviation for the Federal Statute of June 17, 2005 organising the Federal Tribunal, RS 173.110.
- 4. Translator’s Note: The official languages of Switzerland are German, French and Italian
- 5. Translator’s Note: CST is the French abbreviation for the Swiss Federal Constitution.
- 6. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/federal-tribunal-upholds-indepe...
- 7. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/jurisdiction-of-the-cas-upheld-...
- 8. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/renunciation-to-appeal-against-...
- 9. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/res-judicata-revisited
- 10. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/the-federal-tribunal-rejects-a-...
- 11. Translator’s Note: CC is the French abbreviation for the Swiss Civil Code, the Federal Statute of 10 December 1907 on the civil law, RS 210.