Claim of award ultra petita (rejected) ; claim of violation of public policy and of due process (rejected)
This is the second one issued by Arbitrator Pascal Hollander in a case that has previously produced an opinion of the Federal Tribunal, on April 13, 2010 (4A_582/2009).
Tthe first opinion involved some interesting developments as to the procedural nature of a “preliminary award” Mr. Hollander had issued, essentially ordering one of the parties to transfer the inventory to its licensor and ordering a provisional payment.
On June 17, 2010, the arbitrator issued his final award, which was appealed to the Federal Tribunal by the Swiss company. The following points are interesting in the opinion:
- Seized of an argument of ultra petita, the Federal Tribunal repeated that international arbitrators sitting in Switzerland are free to qualify the claim in different legal terms and to allocate the various items differently as long as it does not go beyond the total amount sought by the party concerned (see section 3 of the opinion in this respect).
- Two “classical” arguments were advanced, namely a violation of the principle of equal treatment of the parties and an argument of public policy. Both were rejected and the opinion is quite interesting on the former as it shows once again that the Federal Tribunal does go into the issues quite thoroughly (see particularly section 4.2 of the opinion in this respect).
- As to public policy, the Federal Tribunal emphasized once again the very restrictive meaning it gives to the rule of pacta sunt servanda (see sections 5.1 and 5.2 of the opinion in this respect).
Judgment of January 7, 2011
First Civil Law Court
Federal Judge KLETT (Mrs), Presiding
Federal Judge CORBOZ,
Federal Judge ROTTENBERG LIATOWITSCH (Mrs),
Federal Judge KOLLY,
Federal Judge KISS (Mrs),
Clerk of the Court: M.CARRUZZO.
Represented by Mr. Christophe Sivilotti
Represented by Mr. Jean-Yves Hauser
Y.________ BV (hereafter: Y.________) a company governed by Dutch law owns the exclusive operation rights for trademark A.________ (hereafter: the trademark) for clothing. In November 2005, in circumstances which need not be recalled here, X.________ SA (hereafter: X.________) a company governed by Swiss law, took over the operation of shops under the sign A.________, as well as the manufacture and distribution of clothes baring the trademark, from a third party. It sought from Y.________ the conclusion of a new license to operate the trademark from January 1, 2006. The two companies then began discussions, which proved to be difficult.
A license agreement was finally concluded on January 31, 2008. Y.________ granted to X.________ an exclusive license for the operation of the trademark in various European countries through a network of boutiques excluding department stores against payment of a yearly fee equal to 5% of the turnover but not less than EUR 600,000. The contract was concluded for one year and was conditionally renewable. It provided for various possibilities to terminate immediately at its Art. 14, in particular for a serious breach of the mutual commitments. Art. 16 set forth the procedure to be followed after termination. Among other obligations, the licensee was under a duty to sell the inventory in its possession within the shortest possible time. The license agreement contained an arbitration clause pursuant to which any dispute between the parties was to be submitted to arbitration pursuant to the Expedited Arbitration Rules of the World Intellectual Property Organization (WIPO; hereafter: the Rules). The venue of the arbitration was in Geneva, the language of the arbitral proceedings was French, and the dispute was governed by Dutch law.
Also on January 31, 2003, the Parties entered into an agreement entitled “Settlement” (hereafter: the settlement) with a view to putting an end to the disagreements between them as to the period from January 1, 2006, until December 31, 2007. The settlement provided, among other things, for an amount equal to 5% of the effective net turnover of the period as final compensation for the trademark royalty and for installments of the payments due to Y.________ by X.________ pursuant to the settlement.
Problems in the performance of the license agreement divided the Parties from the end of July 2008, and they tried to resolve them.
In a registered letter of January 26, 2009, Y.________ notified X.________ that the contract was terminated for serious breach of its obligations. In its answer two days later, the Swiss company expressed its great surprise to receive such a letter and denied any breach of contract. Yet in a letter of February 26, 2009, it decided to accept the immediate termination of the contract, i.e. as from January 21, 2009, whilst expressly reserving its right to seek compensation for the damages the situation was creating for it.
Putting together the procedure provided at Art. 16 of the contract for the liquidation of the relationship between the Parties gave rise to some difficulties. Y.________ claimed that X.________ was trying to sell its stock outside the selective distribution network whilst the latter claimed that the former prevented it from selling its inventory.
On August 1, 2009, most A.________ boutiques operated by X.________ or its distributors were renamed “B.________.” They continued to sell the A.________ items remaining in the inventory.
On August 3, 2009, X.________ filed a request for damages for breach of the license agreement and a request for provisional remedies to the WIPO Arbitration and Mediation Centre (hereafter: the Centre). In its final submissions on the merits at the hearing of March 19, 2010, it sought a finding that the termination of the license agreement was void; an order that Y.________ pay damages amounting to EUR 4,679,588.30 for non-performance and breach of the license agreement; an order that Y.________ should pay back the amount of EUR 210,000 X.________ had paid as a contribution for the international harmonization of the trademark; the award of compensation for moral prejudice to be set by the arbitral tribunal; the payment by Y.________ of fair compensation to be set by the arbitral tribunal but equal at least to 10% of the turnover realized by X.________ in 2008 for the added value it had given to the Dutch company by the efforts made to relaunch the trademark; a setoff of its claims with those recognized to its opponents; and finally, an order that the latter pay fair compensation for procedural and legal costs. The Claimant also sought the rejection of the counterclaim raised by the Defendant.
In a letter of August 19, 2009, the Centre notified to the Parties that Mr Pascal Hollander, an attorney at the bar of Brussels, had been appointed as sole arbitrator.
On August 20, 2009, Y.________ sent an answer to X.________’s request to the Centre as well as an unquantified counterclaim for damages for non-performance of the license agreement with a request for provisional remedies.
On October 7, 2009, the Arbitrator issued a “preliminary award” as to the provisional remedies sought by both Parties. X.________ appealed that decision to the Federal Tribunal on November 20, 2009, and the Federal Tribunal declared that the matter was not capable of appeal on April 13, 2010, (ATF 136 III 200).2
In its post-hearing memorandum of February 26, 2010, Y.________ asked the Arbitrator to order X.________ to take or to refrain from taking a certain number of steps within fifteen days with damages beyond that date, in particular that X.________ should pay the balance of the 2008 royalty and the 2009 royalty to be specified later, but at a minimum EUR 1,397,783.62. It also sought an order that the Claimant should pay EUR 2,966,400 as damages due to the extension of the operation of the trademark after the contract terminated on August 1, 2009, and fair compensation for the damages caused among its clients by the loss of reputation of the trademark.
On June 17, 2010, the Arbitrator issued his final award, correcting an arithmetical error upon request by Y.________ in an amending memorandum of July 9, 2010, whilst rejecting a similar request by X.________. In the rectified final award, deemed to be integrally reproduced herein, the Arbitrator essentially ordered Y.________ to return to X.________ the amount of EUR 210,000, unduly received for the international harmonization of the trademark (A.1) and the amount of EUR 230,000 as damages for breach of the license agreement of January 31, 2008, (A.2). With regard to the counterclaim he issued various injunctions to X.________ with an amount of EUR 2,500 to be paid for each day of non-compliance (B.1, B.2 and B.3) and set the modalities of the computation of the turnover made by X.________ in 2009 (B.3, B.4 and B.5). He also ordered X.________ to pay to Y.________ an amount of EUR 227,175 as balance due on the trademark royalties in 2008 (B.6) and an amount of EUR 636,540 for the minimal royalty due for the use of the trademark in 2009 (B.7), interest at the contractual rate of 4% yearly being added to both amounts as from different dates and until full payment (B.6 and B.7). The Arbitrator also provided for the case in which the 5% contractual fee computed according to B.3 and B.4 of the award would go beyond EUR 636,540 (B.8). He also ordered setoff of the amounts awarded to the Parties (A.3 and B.9). Finally, he set the costs of the arbitration, (C.1) and held that they should be borne by both Parties in equal shares (C.2) and left legal fees to be borne by each Party (C.3).
On July 15, 2010, X.________ relied on Art. 59 (c) of the Rules and asked the Arbitrator to issue an additional award on the damage it incurred as a consequence of the unlawful termination of the license agreement by Y.________ because the arbitral proceedings were limited in a first phase to the issue of the validity or not of that termination. In its answer of July 16, 2010, Y.________ submitted that the matter was not capable of arbitration.
In a letter of August 4, 2010, the Arbitrator informed the Parties that in his view there was no reason to proceed to an additional award.
On August 23, 2010, X.________ filed a civil law appeal. Arguing that the Arbitrator decided ultra or extra petita (Art. 190 (2) (c) PILA),3 that its right to be heard in contentious proceedings or the rule that the Parties be treated equally was violated (Art. 190 (2) (d) PILA) and that the award is inconsistent with public policy (Art. 190 (2) (e) PILA) the Appellant sought an annulment by the Federal Tribunal of items A.1, A.2, B.1, B.2, B.3, B.4, B.6, B.7, B.8, B.9, C.2 and C.3 of the rectified final award as well as that of the “additional award rejecting the request for an additional award.”
On September 6, 2010, the Arbitrator submitted some observations without any formal submission as to the disposition of the appeal.
A stay of enforcement was issued by presidential decision of October 1, 2010.
In its answer of October 27, 2010, the Respondent submitted that the appeal should be rejected. In a letter of November 2, 2010, the Appellant asked that the Federal Tribunal should reject the answer from the record due to late filing. The Respondent submitted that the request should be rejected in its observations of November 11, 2010.
1.1 In the field of international arbitration, a civil law appeal is allowed against the decisions of arbitral tribunals under the conditions set forth at Art. 190 to 192 PILA (Art. 77 (1) LTF).4
The seat of the CAS is in Lausanne. At least one of the parties (in this case, the Respondent) did not have its domicile in Switzerland at the decisive time. The provisions of chapter 12 PILA are accordingly applicable (Art. 176 (1) PILA).
The Appellant is directly affected by the final award under appeal, which imposes various obligations on it, in particular monetary ones. It therefore has a personal and legally protected interest to ensure that the award was not issued in violation of the rights arising from Art. 190 (2) PILA, which gives it standing to appeal (Art. 76 (1) PILA).
There is no need to decide here the disputed issue as to whether or not a civil law appeal is subject to the requirement of a minimal amount in dispute when it is made against an international arbitral award. Should this be the case, that requirement would be easily met in this case in view of the amounts involved, which are far beyond the threshold at Art. 74 (1) (b) LTF for a civil law appeal to be possible.
Filed in the legally prescribed format (Art. 42 (1) LTF) the matter is accordingly capable of appeal from these various standpoints.
1.2 The appeal has three distinct objects: the final award of June 17, 2010, the amending memorandum of July 9, 2010, and the decision of August 4, 2010, on the request for an additional award.
The matter is certainly capable of appeal to the extent that the appeal is against the final award (ATF 136 III 200 at 2.3.1 p. 203) and against the rectified award (ATF 131 III 164 at 1.2). Although this is not obvious, the matter is also capable of appeal as to the decision by which the Arbitrator refused to issue an additional award as requested by the Appellant on the basis of Art. 59 (c) of the Rules. The principles set by case law with regard to the rectification of awards must be applied mutatis mutandis to additional awards (BERGER/KELLERHALS, International and Domestic Arbitration in Switzerland, 2nd ed. 2010, n° 1418). Yet the Federal Tribunal understands a rectifying award broadly, which it defines as an award issued pursuant to a request for rectification or ex officio “whatever the decision in that award may be” (ATF 131 III 164 at 1.2.3 p. 169). Legal writers who have dealt with the issue rightly inferred from that definition that a decision from an arbitral tribunal refusing rectification must also be issued as an appealable award (LAURENT HIRSCH, Recours contre une sentence rectificative en matière d'arbitrage international, in Jusletter du 22 août 2005, nos 57 à 62; BERGER/KELLERHALS, op. cit., n° 1411). The same must apply to the rejection of a request seeking an additional award. Moreover, and in line with what was held as to the rectification of awards, it must also be held here that proceedings seeking an additional award and appeal proceedings against a final award should not interfere with each other. Thus the filing of a request for an additional award shall not stay the time limit to appeal the initial award. Similarly, the right to appeal should not be subject to the prior submission of such a request (ATF 131 III 164 at 1.2.4). Conversely, the possibility to appeal an award because the arbitral tribunal failed to decide one of the claims (Art. 190 (2) (c) PILA second hypothesis) must not prevent that party from approaching the arbitral tribunal with a view to an additional award which could render the appeal moot. However in such a case, the appeal proceedings should be stayed until a decision as to the request that the arbitral tribunal issue an additional award is issued (POUDRET/BESSON, Comparative law of international arbitration, 2nd ed. 2007, n° 765 p. 696; BERGER/KELLERHALS, op. cit., n° 1419).
1.3 Taking into account the suspension of the time limits from July 15 until August 15, 2010, (Art. 46 (1) (b) LTF) the appeal was filed within 30 days after the June 17, 2010, final award was notified. The time limit at Art. 100 (1) LTF has accordingly been complied with. The same applies even more to the two subsequent decisions which are the object of the same appeal.
There is accordingly no reason not to address the merits of the appeal.
2.1 On August 25, 2010, the Presiding Judge of the First Civil Law Court in charge of the proceedings pursuant to Art. 32 (1) LTF invited the Respondent, namely on its behalf the individual mentioned on the first page on the appeal brief as its representative (R.________) to file its answer by September 27, 2010. On September 25, 2010, R.________ sent a registered letter seeking an extension of the time limit to answer. He stated in support that he had received the presidential decision belatedly at the hospital where he was undergoing chemotherapy as a consequence of three surgical interventions he had undergone since January of that year. The request was granted by presidential decision of October 1, 2010, and the time limit to answer extended until October 27, 2010. At that point, the Respondent filed its answer through counsel. Yet in the meantime the Appellant had stated in its letter of October 22, 2010, that it categorically opposed the extension requested and cast doubt on R.________’s allegations as to his being in hospital. It maintained its request that the answer should be struck from the record in a letter of November 2, 2010, which the Respondent answered on November 11, 2010.
2.2 Pursuant to Art. 47 (2) LTF, a time limit set by the Court, such as that to answer an appeal (Art. 102 (1) LTF), may be extended if there are sufficient reasons and if the request is made before it expires. The latter requirement was manifestly met in this case as the request for an extension had been made two days before the time limit expired. The judge in charge held that the other cumulative requirement was met as well and she accordingly extended the time limit until October 27, 2010. The Respondent then filed its answer before the extended time limit expired. According to Art. 32 (3) LTF the decisions of the judge in charge of the case are not subject to appeal. Procedural orders such as those setting the time limit to answer may not be the object of a request for revision as a matter of principle (Pierre FERRARI, in Commentaire de la LTF, 2009, n° 5 ad art. 121). Thus in this case, the Appellant’s challenge to the presidential decision of October 1, 2010, is unsuccessful. Accordingly, the matter is not capable of appeal with regard to its request that the answer should be struck from the record.
In a first line of arguments the Appellant argues that the Arbitrator decided ultra or extra petita.
3.1 Art. 190 (2) (c) PILA allows an appeal against an award in particular when the arbitral tribunal decided beyond the claims it was seized of. Awards granting more or something else than that which was claimed (ultra or extra petita) fall within that provision. According to case law however, the arbitral tribunal does not go beyond the claims if ultimately it does not award more than the total amount sought by the claimant, yet assesses some of the elements of the claim differently from that party or when it finds that a legal relationship that was in dispute actually exists and does so in the award rather than rejecting the action seeking a finding that the right in dispute does not exist. The arbitral tribunal does not violate the rule ne eat iudex ultra petita partium when it qualifies the claim in different legal terms than the claimant’s. The principle jura novit curia, which applies to arbitral proceedings, does require the arbitrators to apply the law ex officio without being limited to the arguments advanced by the parties. They are accordingly entitled to resort to arguments which were not invoked because that is not a new claim or a different claim but merely a new qualification of the facts of the case. The arbitral tribunal is, however, bound by the object and the amount of the submissions in front of it, in particular when a party qualifies or limits its claims in the submissions themselves (judgment 4A_464/2009 of February 15, 2010, at 41).
3.2 Applied to this case these principles lead to the rejection of the Appellant’s argument based on Art. 190 (2) (c) PILA.
3.2.1 The Appellant argues that the Arbitrator increased the amounts it was ordered to pay to the Respondent (items B.6 and B.7 of the award) by adding contractual interest at the rate of 4% despite the fact that the creditor had not made a formal submission in this respect. It claims to have been treated unequally because the Arbitrator refused to grant interest on the amounts it was awarded (items A.1 and A.2 of the award) failing ad hoc submissions. The argument is unfounded.
In its memorandum of February 26, 2010, the Respondent had worded its counterclaim submission as follows:
“To pay the royalties remaining for 2008 and the minimum 2009 royalty to be assessed after transmission of the 2009 turnover yet at a minimum EUR 1,397,883.62” (emphasis by this Court).
The Respondent had specifically pointed out at page 22 of the aforesaid memorandum (ch. 3) that the royalties were subject to interest at 4% for late payment from the due date according to the contract. It had also included interest under the denomination of “financial costs” in the computation of the amounts it had claimed for the two years in question and did so without any discernable intent at all to pause the accrual of interest for late payment as of the date of filing of the memorandum or as of the date of the award to be issued. Accordingly, in the aforesaid submission duly interpreted in light of its reasons, the Respondent had manifested, albeit not expressly but at least in an easily recognizable implicit manner that it intended to claim late payment interest at the contractual rate of 4% from the Appellant as to the amounts it would be awarded if and as long as they were not paid. By awarding such interest, the Arbitrator did not decide beyond or outside the scope of the claims before him, as the specific submission made did not include a ceiling as indicated by the words “at a minimum” relating to the amount sought.
Contrary to those of the Respondent, the Claimant’s last submissions were indeed capped and sought the payment of two fixed amounts, namely EUR 4,679,588.30 and EUR 210,000. Yet the Appellant sought no interest on these two amounts, neither did it raise that issue in the arguments in support of its claim. Therefore the Arbitrator could not order the Respondent to pay interest ex officio, as that would have been ultra petita. The situation of the two parties was accordingly different from that point of view and therefore did not call for the same solution. Consequently the Appellant cannot claim to have been treated unequally in this respect.
3.2.2 The Appellant further argues that the Arbitrator ordered it to pay the balance of the 2007 royalties amounting to EUR 39,175 when no submission had been made in this respect by the Respondent. The balance due for the 2008 royalties as set at item B.6 of the rectified final award (EUR 227,175). The Appellant argues this is in violation of the rule ne ultra petita, and should instead have EUR 39,175 subtracted, and reducing the total to EUR 188,000.
The argument is unfounded. It does appear from the explanations in the answer to the appeal and the documents in support that the Respondent sought payment of the royalties due in 2008 and not only the royalties for 2008 based on the license agreement. Thus in its submission of February 26, 2010, it pointed out that the balance due for 2008 “was EUR 358,742 (statement of account of X.________ SA) as of the end of December 2008” (ibid.). Yet the statement of account to which it referred was established by the Appellant in the beginning of the year 2009 and refers to an open-balance of EUR 358,742 at the end of 2008, including a balance of EUR 39,175 to be paid pursuant to the January 31, 2008 settlement (for the period 2006-2007), together with the license agreement. There is accordingly no doubt that the wording “royalties remaining for 2008” used in the specific submission at the end of the aforesaid memorandum also included the EUR 39,175. Accordingly the Arbitrator did not violate the rule of ne ultra petita by awarding that amount to the Respondent.
In a second line of argument the Appellant claims that the Arbitrator violated its right to be heard in contradictory proceedings or the rule of equal treatment of the parties.
4.1 As guaranteed by Art. 182 (3) and 190 (2) (d) PILA the right to be heard does not have different contents in principle from those protected by constitutional law (ATF 127 III 576 at 2c; 119 II 386 at 1b; 117 II 346 at 1a p. 347). Thus it was held that, in the field of arbitration, each party had the right to express its views on the essential facts for judgment, to present its legal arguments, to propose evidence on pertinent facts, and to attend the hearings of the arbitral tribunal (ATF 127 III 576 at 2c; 116 II 639 at 4c p. 643).
As to the right to introduce evidence it must have been exercised in a timely manner and according to the formal rules applicable (ATF 119 II 386 at 1b p. 389). The arbitral tribunal may refuse to hear evidence without violating the right to be heard if it would be improper to base its decision on the evidence at issue, if the fact to be proved is already established, if it is without pertinence, or when the tribunal, by assessing the evidence in advance, reaches the conclusion that its mind is already made up and that the result of the evidentiary procedure requested could not alter it.
Equal treatment of the parties is also guaranteed by Art. 182 (3) and 190 (2) (d) PILA and requires the proceedings to be organized and conducted in such a way that each party has the same opportunity to present its arguments. Finally the principle of rebuttal, guaranteed by the same provisions, requires each party to have the opportunity to express its views on the arguments of its opponent, to review and to discuss the evidence the latter brings in and to refute them by its own evidence (ATF 117 II 346 at 1a).
The party claiming a violation of its right to be heard or another procedural violation must raise it immediately in the arbitral proceedings under penalty of forfeiture. It is contrary to the rule of good faith to invoke a procedural violation only in an appeal against the final award when that violation could have been raised during the proceedings (judgments 4A_348/2009 of 6 January 2010, at 4 and 4A_69/2009 of 8 April 2009, at 4.1).
4.2.1 The Appellant first argues that the Arbitrator decided the damages in its favor without any evidentiary proceedings to determine the damages it had undergone, thus violating its right to evidence. It points out in this respect that at the January 15, 2010, hearing it had been agreed that in a first phase the object of the dispute would be limited to the issue as to whether or not the termination challenged was abusive. It is for that reason that it pointed out in the preamble of its post-hearing memorandum of February 26, 2010, that “the determination of damages for non-performance and abusive termination of the contract and how they should be paid will follow”. The Appellant seeks to demonstrate that for those damage claims to be taken into account the Arbitrator could not decide the amount without prior evidence and attempts to set forth what it would have done to prove quantum. The grievance is essentially of an appellate nature and unfounded. As the Arbitrator and the Respondent rightly point out, the Arbitrator was not bound by the foreword in the preamble of the Appellant’s post-hearing memorandum because neither Procedural order nr. 2 of September 21, 2009, setting forth the schedule of the proceedings nor the minutes of the January 15, 2010, arbitration hearing confirming the rescheduling done at that time could have anticipated that the proceedings on the merits would be bifurcated. The Appellant also did not raise any objections when it received them. Thus the factual basis on which the entire argument rests – namely that the assessment of damages was postponed to a subsequent phase of the proceedings – is not established. Hence the entirety of the reasoning based on that premise fails. Moreover, it must be pointed out that in its last submissions at the March 19, 2010, hearing, the Appellant very precisely defined the quantum of its damage claims other than those which it left to the Arbitrator’s discretion. It further made no reservations as to subsequent evidentiary proceedings which would assess the final amount of its damage claim. It is accordingly not acceptable that it would claim a posteriori a violation of its right to adduce evidence.
For the same reason, the Appellant’s argument against the Arbitrator’s refusal to issue an additional award on damages fails.
4.2.2 The Appellant further argues that the Arbitrator should have applied the provisions of Dutch law allowing an assessment of the scope of damages. As submitted, the argument is not capable of appeal for lack of sufficient reasons. From that point of view, this case is manifestly different from that which gave rise to the judgment published at ATF 133 III 235 at 5.3, in which the Appellant had clearly raised some arguments drawn from the application of American and European law which the arbitral tribunal had not reviewed. In this case it would have behooved the Appellant to point out which pertinent provisions of Dutch law as to the compensation of damages it had invoked in the arbitral proceedings that the Arbitrator failed to take note of, but it did not do so (see ATF 133 III 235 at 5.2 p. 248).
4.2.3 The reasons pointed out at 4.2.1 above also lead to the rejection of the argument by which the Appellant claims that the Arbitrator wrongly set at EUR 230,000 the damages for the removal, the manufacturing and the installation of signs. As to that item of the damage claim the Arbitrator found that the Appellant had not justified at all the lump sum of CHF 30,000 it had put forward so that he used the one admitted by the Respondent, i.e. CHF 10,000. This is a modality of assessing damages which is outside the scope of judicial review by the Federal Tribunal in a Civil law appeal against an international arbitral award.
4.3 Still in regard to the right to be heard, the Appellant further argues that it should not have been ordered to pay the contract royalties for the year 2009, as the license agreement was terminated on January 26, 2009. Reading the verbose explanations given in this respect by the Appellant it is not possible to see any criticism which could relate to the grievance under consideration. The entire argument presented is in fact an unacceptable challenge to the way in which the Arbitrator interpreted and applied the pertinent provisions of the license agreement as to the liquidation of the relationship between the parties after termination.
Moreover the Appellant itself points out at page 36 of its brief (litt. f) that it had continued to “effectively use the trademark until July 31, 2009” (see award n°288 to 290), which was the reason that, according to the Arbitrator, the royalties had to be paid beyond the January 26, 2009. Thus, even if the right to be heard within the meaning of Art. 190 (2) (d) PILA required an international arbitral award to be reasoned, which it does not (ATF 133 III 235 at 5.2 p. 248), the Appellant could not argue that the award was without reasons in this respect.
The foregoing remark also applies to the Appellant’s argument that the Arbitrator did not state in the award which provision of Dutch law which made it possible for him to justify the Respondent’s right to the payment of royalties on the effective use of the trademark after the termination of the license agreement.
Lastly, the Appellant argues that the Arbitrator violated procedural and substantive public policy within the meaning of Art. 190 (2) (e) PILA.
5.1.1 Procedural public policy guarantees the parties the right to an independent judgment on the legal submissions and the facts submitted to the arbitral tribunal in accordance with applicable procedural law; procedural public policy is violated when some fundamental and generally acknowledged principles were violated, thus leading to an insupportable contradiction with the concept of justice, so that the decision appears incompatible with the rule of law (ATF 132 III 389 at 2.2.1). However it must be pointed out that any violation of a procedural rule, even an arbitrary one, does not constitute a violation of procedural public policy. Only the violation of a rule essential to ensure the fairness of the proceedings can be taken into account (ATF 129 III 445 at 4.2.1 and the references).
5.1.2 An award is contrary to substantive public policy when it violates some fundamental principles of law to such an extent that it is no longer consistent with the prevailing legal order and system of values; among such principles are in particular the observance of contracts, compliance with the rules of good faith, the prohibition of abusing one’s rights, the prohibition of discriminatory or confiscatory measures, or the protection of incapables (case quoted ibid.).
The rule of pacta sunt servanda, within the restrictive meaning it is given by case law relating to Art. 190 (2) (e) PILA, is violated only if the arbitral tribunal refuses to apply a contract clause whilst admitting that it binds the parties or, conversely, if it imposes on them the observance of a clause that it considers does not bind them. In other words, the arbitral tribunal must have applied or refused to apply a contractual provision in contradiction with the results of its interpretation as to the existence or the contents of the legal matter in dispute. However the process of interpretation itself and the legal consequences logically drawn therefrom are not governed by the rule of observance of contract so that they cannot base an argument for violation of public policy. The Federal Tribunal has pointed out repeatedly that almost the entire realm of disputes concerning breach of contracts is outside the scope of protection of the rule of pacta sunt servanda (judgment 4A_43/2010, of July 29, 2010, at 5.2 and cases quoted).
5.2.1 The Appellant claims first that the rule of pacta sunt servanda was violated because the final award orders it to pay the royalties for the year 2009 although the license agreement was terminated on January 26, 2009.
Reading the arguments in support shows that the Appellant’s arguments is really a copy/paste of what it developed previously with regard to the violation of the right to be heard (see above 4.3). Accordingly it deserves the same fate.
Moreover, the Appellant’s arguments in this context have nothing to do with the rule of contractual observance as defined by the aforesaid federal case law. Once again they are merely unacceptable criticism of the way in which the Arbitrator found on the pertinent facts and applied the legal rules.
5.2.2 The Appellant then returns to the argument as to the award of interest to the Respondent but this time as a violation of procedural public policy. It does acknowledge that it developed the same argument with regard to the prohibition of deciding ultra petita.
There is nothing in its argument which would justify a different solution from that which was reached with regard to the similar argument reviewed above (see above 3.2.1). The Appellant particularly disregards the concept of procedural public policy when it argues that the award under appeal is not consistent with applicable procedural law and particularly with Art. 54 (1) (b) of the Rules.
5.2.3 Still with regard to an alleged violation of procedural public policy the Appellant further argues that it should not have been ordered to pay an amount of EUR 2,500 for each day of non-compliance even though the final award was not yet final and enforceable because it could still be appealed to the Federal Tribunal.
The foregoing statement is inaccurate and contradicted by the fact that its author considered it necessary to apply for a stay of enforcement. Moreover its lack of foundation appears from the very Rules, as Art. 57 (b) provides that the award takes effect and becomes binding for the parties as of the date of its communication by the Center. Hence the argument is deprived of any merit.
5.2.4 In the argument before last, in this regard, the Appellant argues that the amount it was awarded as damages for abusive termination of the license agreement by the Respondent is insufficient. It sees there an insurmountable contradiction, inconsistent with the values recognized in a legal order, in the fact that it was acknowledged as a victim of the termination whilst being refused compensation worthy of the name in this respect.
The argument that the reasons of an award would be intrinsically incoherent does not fall within the definition of public policy (aforesaid judgment 4A_464/2009 at 5.1). Moreover, the Appellant merely claims the alleged incoherence of the award under appeal without giving any decisive reasons which would justify its claim.
The appeal shall accordingly be rejected in this regard as well.
5.2.5 Finally, the Appellant attacks the manner in which the Arbitrator apportioned the costs of the arbitral proceedings. In this respect, it proceeds to a demonstration of a purely appellatory nature with a view to establishing why, in its opinion, the apportionment under challenge would be unfair. However, it cannot be seen in what way the apportionment of costs of the arbitration would involve procedural public policy within the narrow meaning that federal case law gives to this concept.
In conclusion, the appeal can only be rejected to the extent that the matter is capable of appeal whether with regard to the final award of June 17, 2010, to the amending memorandum of July 9, 2010, or also to the August 4, 2010, decision as to the request for an additional award.
Consequently the Appellant shall pay the costs of the federal proceedings (Art. 66 (1) LTF) and compensate the Respondent (Art. 68 (1) and (2) LTF).
Therefore the Federal Tribunal pronounces:
- The Appellant’s request that the Respondent’s answer should be struck off the record is not admissible.
- The appeal is rejected to the extent that the matter is capable of appeal.
- The judicial costs, set at CHF 35,000 shall be borne by the Appellant.
- The Appellant shall pay to the Respondent an amount of CHF 40,000 for the federal judicial proceedings.
- This judgment shall be notified to the Representatives of the Parties and to the sole arbitrator of the World Intellectual Property Organization Arbitration and Mediation Center (WIPO).
Lausanne, January 7, 2011
In the name of the First Civil Law Court of the Swiss Federal Tribunal
The Presiding Judge: The Clerk:
KLETT (Mrs) CARRUZZO
- 1. Translator’s note : Quote as X._____ SA v. Y._____ BV, 4A_440/2010. The original decision is in French. The text is available on the website of the Federal Tribunal www.bger.ch.
- 2. Translator’s note : An English translation of that decision is available on www.praetor.ch under the date of reference (April 13, 2010).
- 3. 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.
- 4. Translator’s note : LTF is the French abbreviation for the Federal Statute of June 17, 2005, organizing the Federal Tribunal, RS 173.110.