Decision of the arbitral tribunal not capable of appeal (procedural order)
The case involved a contract signed in 2006 (“the Protocol”) by which certain shares were assigned by a Luxemburg company to a French company. Litigation in French Courts ensued and in November 2009, the Luxemburg company initiated arbitration proceedings in Switzerland pursuant to an ICC clause contained in the Protocol.
Two months later, litigation commenced in Luxemburg with a view to obtaining a finding that, if granted, would have voided the Protocol and likely, the very company the shares of which had been transferred.
An ICC Arbitral tribunal was constituted with Pierre-Yves Gunter as Chairman, and Pierre Mayer and Lai Kamara as Arbitrators.
The French company had asked the Arbitrators to stay the proceedings but on October 5, 2010, they issued “Procedural Order nr 1”, refusing to stay the arbitration proceedings.
The French company appealed to the Federal Tribunal and the following is interesting in the opinion:
- As you know, final awards and jurisdictional awards can be appealed to the Federal Tribunal. Other “awards” may or may not be “awards” for the purposes of Swiss appeals and if the decision appealed is not an “award”, the appeal is not admissible.
- The distinction between “easy” awards – an award on the merits, a jurisdictional award, or an award disposing of some issues at hand in a way that cannot be rescinded – is not of the utmost clarity and the Court restates the basic principles in the opinion (see section 2.1 of the opinion in this respect).
- The issue here was whether the procedural order refusing to stay the proceedings constituted an “award”. Whilst it was probably inevitable, case law has not made things much clearer by holding that a procedural order is normally not an “award” but that if it “implicitly” decides a jurisdictional or a substantive issue then it may well become an “award.” This is what was argued in this case but the Court rejected the argument (see section 2.3.2 of the opinion in this respect).
Considering that a litigant, faced with a decision which may or may not be an “award,” forfeits his right to appeal at a later stage if he disregards the thirty day deadline, some clarification will be needed here. This will probably have to be done by the legislature. One cannot blame the Federal Tribunal for creating subtle distinctions where they were necessary but the result is a somewhat confusing case law, which causes litigants to unnecessary expense.
Indeed, as you will see in the opinion, the Appellant ended up spending about USD 100,000 – legal fees not included – just to be told by the Federal Tribunal that the decision it was appealing was not an award.
Judgment of April 6, 2011
First Civil Law Court
Federal Judge KLETT (Mrs), Presiding
Federal Judge CORBOZ,
Federal Judge ROTTENBERG LIATOWITSCH (Mrs),
Clerk of the Court: M.CARRUZZO.
Represented by Mr. Bernard Lachenal
Represented by Mrs. Anne-Véronique Schlaepfer, Mr. Philippe Bärtsch and Mrs Anne-Carole Cremades
On January 31, 2006, Y.________ SA (hereafter: Y.________), a company based in Luxemburg and X.________, a company under French law, entered into a Protocol by which the former assigned 123,981,707 shares of A.________ company (hereafter: the A.________ shares) to the latter, created for the purposes of that acquisition, for a total price of EUR 70 million.
The shares had been contributed to Y.________ by a Mr. V.________, pursuant to a December 27, 2005, contract registered on January 30, 2006. V.________ himself had acquired them at the price of one Euro from W.________, the majority shareholder of A.________ on April 30, 2002.
Immediately after the January 31, 2006, assignment, judicial disputes arose as to the ownership of the shares.
A.________ refused to register the assignment. It was ordered to do so pursuant to court proceedings concluded by a judgment of the Paris Court of Appeals of October 8, 2008.
On February 3, 2006, W.________ and A.________ sued X.________ and V.________ before the Paris Commercial Court. They sought a finding that the assignment of the A.________ shares on April 30, 2002, was void “for lack of cause and vile price” and accordingly, that they could not be opposed to the subsequent assignment of the shares between Y.________ and X.________ on January 31, 2006. The Petitioners’ submissions were rejected and a judgment of the French Supreme Court put an end to the proceedings on November 15, 2009.
While the proceedings were pending, Y.________ and X.________ concluded two transitory agreements: an Addendum n.1 of February 14, 2006, to the January 31, 2006, Protocol and a Summarizing Protocol of March 5, 2008. The latter points out that as a consequence of the payment of EUR 7.5 million, X.________ owed some EUR 66 million to Y.________ as of December 31, 2006, the said amount bearing interest at 5.5% yearly as from January 1, 2008.
On November 23, 2009, Y.________ filed a request for arbitration against X.________, based on the arbitration clause included in the Summarizing Protocol before the Court of Arbitration of the International Chamber of Commerce (ICC). The Petitioner sought to invalidate the sale of the A.________ shares for breach of contract by the Respondent, to recover all the shares sold, and to obtain damages.
On January 19, 2010, W.________ initiated court proceedings in a Luxemburg against V.________, Y.________, and X.________, with a view to obtaining a finding that the contribution of the A.________ shares to Y.________ by V.________ was void because that contribution was made in breach of a clause forbidding the assignment of these shares contained in a Shareholders’ Agreement entered into by V.________ and himself on June 1, 1999 under the name “U.________ Consortium” (hereafter: U.________). According to the Claimant, the nullity would also cause that of Y.________ for lack of an actual share capital and consequently that of the subsequent assignment of the A.________ shares by Y.________ to X.________.
In a request of February 10, 2010, X.________ asked the arbitral tribunal to stay the proceedings until the adjudication of the Luxemburg proceedings.
Y.________ submitted that the request should be rejected.
The three-member arbitral tribunal, constituted under the aegis of the ICC, gave the parties an opportunity to submit their arguments in writing and held a hearing on the stay of the proceedings in Geneva, the seat of the arbitration, on September 15, 2010. The arbitral tribunal rejected the request for a stay in a decision entitled Procedural Order n.1, issued in French by a majority of the arbitrators on October 5, 2010.
The majority justified its refusal to stay the proceedings as follows.
The arbitral tribunal is seized of a request to invalidate a contract between companies Y.________ and X.________. The proceedings, initiated in Luxemburg by W.________, which is not a party to the arbitration, do not have the same object. They were initiated less than two months after the filing of the arbitration request and after about four years of judicial proceedings conducted in France without success by the aforesaid W.________. Should he prevail fully in Luxemburg, the A.________ shares would be returned to V.________ so his standing to act is unclear. Moreover, it cannot be excluded that the Luxemburg Court could hold that res judicata exists on certain aspects of the dispute. The Claimant also does not explain why the hypothetical breach of a clause of U.________ by V.________ could be opposed to Y.________ and invalidate the contribution of the shares in dispute to the capital of that company. It would also remain to be established that the nullity of Y.________ could be attributed to a third party in this arbitration - X.________ - which claims to be in good faith. Moreover, in this case the arbitral tribunal is not faced with a situation in which one of the parties to the arbitration would have lost or would be about to lose its legal personality. Furthermore, certain disturbing elements suggest that the proceedings introduced by W.________ could have other purposes than the protection of legitimate interests. Under such conditions and considering that the legal proceedings in Luxemburg have not yet started on the merits, the need to conduct the arbitration promptly prevails over the interest of the parties in a stay of the arbitral proceedings. Be this as it may, the present decision is without prejudice to a re-examination of the issue at a later date.
On November 4, 2010, X.________ filed a civil law appeal with the Federal Tribunal. It submits that Procedural Order n.1 should be annulled and seeks a finding by the Federal Tribunal that the arbitral tribunal has no jurisdiction to address the merits of the dispute before the Luxemburg proceedings have been adjudicated and seeks a stay of the arbitral proceedings until then.
On November 10, 2010, the Appellant filed an undated dissenting opinion which the minority arbitrator had faxed to its French representative the day before.
A stay of the arbitral proceedings was ordered by the Presiding judge on December 10, 2010, until a decision on the appeal.
In its answer of January 31, 2011, the Respondent submitted that the matter was not capable of appeal and alternatively that the appeal should be rejected.
The arbitral tribunal did not submit a brief.
In the field of international arbitration, a civil law appeal is possible against the decisions of arbitral tribunals under the conditions set forth at Art. 190 to 192 PILA2 (Art. 77 (1) LTF).3 The seat of the arbitration was in Geneva. At least one of the parties (in this case both) 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 decision under appeal, in which its request for a stay was rejected. Consequently, it has a personal and legally protected interest to ensure that the decision was not issued in violation of the rights arising from Art. 190 (2) PILA; which gives it standing to appeal (Art. 76 (1) LTF).
Insofar as it was filed in the legally prescribed format (Art. 42 (1) LTF) and in a timely manner (Art. 100 (1) LTF) the appeal is admissible.
However, the Respondent denies that the matter is capable of appeal as a consequence of its objective. According to the Respondent, the Federal Tribunal is seized of an appeal against an arbitral award.
2.1 A civil law appeal within the meaning of Art. 77 LTF, in connection with Art. 190 to 192 PILA, is possible only against an award. The appealable decision may be a final award putting an end to the arbitral proceedings on the merits or on procedural grounds, a partial award addressing part of the claim in dispute or one of the claims in dispute, or an interlocutory award disposing of one or several preliminary issues, whether procedural or on the merits (on these concepts see ATF 130 III 755 at 1.2.1 p. 757). In contrast, a mere procedural order which can be modified or withdrawn during the proceedings cannot be appealed (judgment 4A_600/2008 of February 20, 2009, at 2.3). The same applies to a decision as to provisional measures pursuant to Art. 183 PILA (ATF 136 III 200 at 2.3 and references).
The decisions of the arbitral tribunal as to the temporary stay of the arbitral proceedings are procedural orders not subject to appeal; they may nonetheless be submitted to the Federal Tribunal when the arbitral tribunal, in adopting them, is considered to have also implicitly issues a decision on its jurisdiction (ATF 136 III 597 at 4.2), in other words when, in doing so, it issued ipso facto a decision on its jurisdiction (or on the regularity of its composition if it was disputed) within the meaning of Art. 190 (3) PILA (judgment 4A_210/2008 of October 29, 2008, at 2.1).
2.2 On the basis of its title (Procedural Order n.1) the decision under appeal, by which a majority of the arbitral tribunal rejected the Appellant’s request for a stay, appears to be a mere procedural order which could be modified or rescinded during the proceedings; as such it cannot be appealed to the Federal Tribunal (ATF 122 III 492 at 1b/bb). However, the title of the decision under appeal is not decisive as to whether the matter is capable of appeal or not, but its contents (ATF 136 III 200 at 2.3.3 p. 205, 597 at 4). Therefore the object and the scope of the decision in dispute must be examined further.
2.3.1 According to the Appellant, the arbitral tribunal, by refusing to stay the proceedings, found that it had jurisdiction to immediately decide the Respondent’s submissions as to the invalidation of the sale of the A.________ shares and their restitution. Yet according to the Appellant, the preliminary issues which it raised during the proceedings concerning the stay – the nullity of the contribution of the A.________ shares to the capital of Y.________ by V.________ and consequently the nullity of that company itself – challenged the Respondent’s standing to act as Claimant in the arbitral proceedings (standing to be a party)4 and its capacity to act (standing to act),5, namely two issues concerning the existence of the arbitral proceedings and not their conduct. By issuing the decision in dispute, the majority arbitrators thus found that they had jurisdiction on the merits without regard to the outcome of the Luxemburg proceedings, on which the Respondent’s capacity to continue the arbitration proceedings it initiated depends. Thus, the Appellant argues that a decision on jurisdiction had been issued in this case as provided at Art. 186 (3) and 190 (3) PILA, which could thus be appealed to the Federal Tribunal and which must be appealed immediately under penalty of forfeiture.
2.3.2 The argument does not appear convincing for the following reasons.
First, the very text of the decision under challenge shows that in the mind of its authors the decision was a mere procedural order, which could be modified or withdrawn during the proceedings. The arbitral tribunal particularly emphasizes the fact that it does not intend to “prejudge the merits” (Procedural Order n. 83); that it wishes to privilege “the requirement to conduct the arbitration promptly” as opposed to “the interest of the parties to a stay of the arbitration” (ibid.), in view of “almost four years of proceedings in France” (Procedural Order n. 84) and because the Luxemburg proceedings were initiated after the arbitration by a third party whose standing to act “is difficult to establish at this stage” (ibid.); be this as it may, the arbitral tribunal reserved the possibility of “revisiting the issue at a later stage” (Procedural Order n. 85). It is accordingly a decision issued on opportunity grounds, in which the arbitral tribunal holds the view that, at least for the time being, the Luxemburg proceedings do not justify a stay of the arbitration. This case is fundamentally different from that which produced the aforesaid judgment of the Federal Tribunal of October 29, 2008, in case 4A_210/2008. In that case, the arbitral tribunal had refused to stay the arbitral proceedings, despite the fact that the Respondent had initiated other arbitration proceedings to obtain a finding that it had invalidated a contract, the performance of which was at issue in the first arbitral proceedings. However, the arbitral tribunal had refused to stay the proceedings because it found that it had jurisdiction to decide the issue of the invalidation of the contract as well, which that party had wanted to submit to another arbitral tribunal. Consequently the Federal Tribunal concluded that that arbitral tribunal had issued a decision as to its jurisdiction, at least implicitly (case quoted at 2.1).
Furthermore, as the Respondent rightly points out in its answer to the appeal, the Claimant did not challenge the jurisdiction of the arbitral tribunal to substantiate its request that the arbitral proceedings be stayed, contrary to what it does before the Federal Tribunal today. The Appellant made no formal submission to that effect and went as far as submitting a counterclaim with a view to obtaining the payment of damages. The Appellant justified its request for a stay by arguing, among other things, that the outcome of the Luxemburg proceedings could have an impact on its counterclaim. This shows that the arbitral tribunal was in no way invited by the Appellant to decide its jurisdiction.
Finally, one does not see in the reasons of Procedural Order n. 1 any indication from which it could be inferred that the arbitral tribunal issued a decision on that issue, even implicitly. It certainly does not show that the arbitral tribunal decided once and for all the issues as to the Respondent’s standing to be a party and its capacity to act in the proceedings. In reality, it merely shows the intent to continue the arbitral proceedings to comply with the requirement that the arbitration be conducted promptly, notwithstanding the proceedings subsequently opened in Luxemburg by a third party against V.________ and the parties to the arbitration.
2.4 As it involves a procedural order stricto sensu, the matter is consequently not capable of appeal.
The Appellant shall pay the judicial costs (Art. 66 (1) LTF) and compensate the Respondent for the federal judicial proceedings (Art. 68 (1) and (2) LTF). The amounts to be paid in this respect shall be calculated on the basis of the amount in dispute as provisionally set at nr. 10.4 of the Terms of Reference (EUR 7,500,000.- as of June 2010) and with a view to the nature of the decision under appeal.
Therefore the Federal Tribunal pronounces:
- The matter is not capable of appeal.
- The judicial costs, set at CHF 40,000.- shall be borne by the Appellant.
- The Appellant shall pay to the Respondent an amount of CHF 50,000.- for the federal judicial proceedings.
- This judgment shall be notified to the representatives of the Parties and to the Chairman of the ICC arbitral tribunal.
Lausanne, April 6, 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._____ v. Y._____ SA, 4A_614/2010. The original decision is in French. The text is available on the website of the Federal Tribunal www.bger.ch.
- 2. Translator’s note: 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 organizing the Federal Tribunal, RS 173.110.
- 4. Translator’s note: In German in the original text.
- 5. Translator’s note: In German in the original text.