Dismissal of an appeal to set aside an ICC award; violation of the right to be heard cannot be claimed merely to disguise what is effectively an attempt at reassessing the evidence

Case information
October 18, 2011
4A_214/2011
Interest to foreign readers: 
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Interesting
Topics: 
Violation of due process (right to be heard)
Violation of public policy
Original language: 
Italian
Published: 
30 ASA Bull 677 (2012)
Arbitrator (s): 

Parties

Respondent: 

Counsel

Appellant: 
Respondent: 
Introductory note: 

The case involves a 2006 contract between an English company and a Canadian resident, acting as trustee for a trust that owned the shares of a company, sold the shares to the buyer. Simultaneously, an employment contract was entered into between the company owned by the trust, which was based in the United Arab Emirates and an Italian resident with a view to his future employment as a managing director. Both contracts contained arbitration clauses in favour of the “Arbitration Court of the International Chamber of Commerce of Zurich in Lugano”. There is of course no such thing and when a dispute arose and arbitration proceedings were initiated, the ICC Court of Arbitration in Paris admitted jurisdiction and refused to extend the arbitration proceedings initiated by the UAE Company to the trustee and the other companies mentioned above.

 

Swiss arbitrator Michele Patocchi was appointed by the ICC and he issued a first award on June 6, 2008, which the Federal Tribunal annulled in part on December 5, 2008. That translation was previously sent to you and a copy is enclosed herein for the sake of simplicity. That first opinion of December 5, 2008 (case 4A_376/2008) was quite interesting because it dealt with the issue of jurisdiction on three parties which had not formally signed the arbitration clause but signed another, closely related contract,  on the same day.

 

The Arbitrator took the view that there was no jurisdiction and the Federal Tribunal reversed, reiterating its liberal view – rightly in my opinion – as to the possibility of extending an arbitration clause to a non-signatory.

 

In the December 5, 2008, decision, the Arbitrator found that “International Chamber of Commerce of Zurich in Lugano” really meant ICC arbitration in Zurich and this was rightly upheld.

 

The proceedings then continued and the Arbitrator issued his award on February 22nd, 2011. The companies involved appealed and while the opinion is not required reading, the following points may be of interest:

 

  1. The Federal Tribunal emphasized once again that while the “right to be heard” – Swiss parlance for due process – is of formal nature, its alleged breach cannot be claimed to disguise what is effectively an attempt at reassessing the evidence (see section 4.1 of the opinion in this respect).

 

  1. An argument was made that the Arbitrator would have rejected some claims although they were unchallenged. If accurate, this would have been a violation of due process. The Federal Tribunal rejected the argument as unfounded, showing in the process that the Court’s review of the record of the arbitration was far from perfunctory (see sections 6.1, 6.2 and 6.3 of the opinion in this respect).
Translation: 

4A_214/20111

 

Judgment of October 18, 2011

 

First Civil Law Court

 

Federal Judge Klett (Mrs), Presiding

Federal Judge Corboz,

Deputy Judge Ramelli,

Clerk of the Court: Piatti.

 

Appellants,

  1. B.________ Ltd.,
  2. D.________ Trust,
  3. C.________ Ltd.,
  4. B.________,

Represented by Mr Damiano Brusa,

 

v.

 

Respondent,

A.________,

Represented by Mr Filippo Solari,

 

Facts:

 

A.

On April 27, 2007 B.________ Ltd. Dubai (United Arab Emirates), Claimant, initiated civil proceedings against A.________, Trieste, the Respondent, before the arbitration Court of the International Chamber of Commerce. The case was extended to Claimants C.________ Ltd. And D.________ Trust Guernsey (Chanel Islands) and to B.________, Mali Losinj (Croatia) further to the judgment of the Federal Tribunal of December 5, 2008 issued pursuant to an appeal by the Respondent against the “interlocutory award” issued by the arbitrator on June 16, 2008.

 

The submissions by the Claimants changed in many ways throughout the proceedings. In the “brief in conclusion” Claimant B.________ Ltd. submitted that A.________ should be ordered to cease certain competitive behavior and to provide a long list of information on his own operations and that he should be ordered to pay EUR 1,000,000 with interest. Claimant C.________ Ltd. and D.________ Trust submitted that A.________ should be ordered to pay EUR 1,328,514.25 with interest. The Respondent submitted that the main claim should be entirely rejected and as a counterclaim that all Claimants should be ordered severally to pay him EUR 577,426.51 with interest.

 

B.

Two contracts containing an arbitration clause are at the origin of the dispute: the Sales Contracts2 of March 12, 2006 by which C.________ Ltd., the trustee in charge of administering D.________ Trust, which held 100% of the shares of B.________ Ltd. and B.________, the Executive Director of the company, undertook to transfer the shares to A.________; and the “Employment Contract”3 of the same date (or of June 25, 2006) pursuant to which A.________ became “Managing Director”4 of B.________ Ltd.

 

The Claimants argue that the Respondent is still bound by the contracts and that he breached them in various ways, such as breaching the prohibition to compete, misappropriating clients, theft and embezzlement. The Respondent argues that he was forced to terminate the contracts by the behavior of the Claimants from which he seeks damages and the payment of commissions.

 

C.

In an award of February 22, 2011 the Arbitrator found that the Respondent had validly terminated the two contracts and he ordered him to pay EUR 173,000 to B.________ with interest at 5% from November 20, 2008; the other claims were rejected or found inadmissible. Partially granting the counterclaim, the arbitrator ordered B.________ Ltd., C.________ Ltd. as trustee of D.________ Trust and B.________, severally among each other, to pay EUR 499,338.23 to A.________ with interest at 5% from August 27, 2007, as well as CHF 116,792 and USD 48,000 as fees and expenses.

 

D.

The Claimants filed a Civil law appeal with the Federal Tribunal on March 31st, 2011, in which they submit that a stay of enforcement should be granted and the arbitral award annulled with the matter sent back to the arbitrator with instructions to issue a decision accordingly.

 

The Respondent and the Arbitrator answered on May 20, 2011, that the appeal should be rejected to the extent that the matter is capable of appeal. On June 27, 2011, the Appellants filed an unsolicited reply to which the Respondent expressed its position on July 28, 2011.

 

E.

The stay of enforcement applied for with the appeal was rejected by decision of the Presiding judge of May 17, 2011. A second request, made on May 27, 2011, was rejected on June 27, 2011.

 

 

 

 

 

Reasons:

 

1.

The Federal Tribunal exercises full judicial review on its own jurisdiction and on the admissibility of the grievance raised (DTF 135 III 1 at 1.1).

 

1.1

Art. 77 (1) LTF5 allows a Civil law appeal against arbitral awards pursuant to the requirements of Art. 190 to 192 of the Federal Law of December 18, 1987 on International Private Law (PILA6). This law applies because the seat of the arbitration is Lugano and the Parties had neither their seat, nor a domicile in Switzerland, nor a habitual residence there at the time they entered into the arbitration clause (Art. 176 (1) PILA).

 

1.2

The appeal is timely (Art. 100 (1) LTF) and aimed at the arbitrator’s final decision (Art. 90 LTF) in a civil case (Art. 72 (1) LTF). There is no need to determine whether Art. 74 (1) (b) LTF is applicable in this case as the amount in dispute is beyond CHF 30,000. Appellants B.________ Ltd., C.________ Ltd. and B.________ lost their case before the arbitrator and have the right to appeal (Art. 76 (1) LTF).

 

As the Respondent argues, it may be discussed whether D.________ Trust has standing to appeal because whilst it participated as claimant in the proceedings, it is involved in the award only through its trustee C.________ Ltd. As the appeal is based on one single grievance, which does not distinguish among each of the Claimants and as its outcome will be seen hereunder, the right to appeal may be conceded to D.________ Trust as well (Art. 76 (1) (b) LTF) even without researching its procedural position in depth.

 

1.3

The grounds for appeal in the field of international arbitration are exhaustively listed at Art. 192 (2) PILA. The Federal Tribunal reviews only the grievances which the appellant puts forward and reasons (Art. 77 (3) LTF). The requirement of reasons for Art. 106 (2) LTF is analogous to those which applied to the public law appeal; from that point of view the entry into force of the LTF did not change anything (DTF 134 III 186 at 5). The Appellant must consequently indicate clearly the rules of law which he argues were violated and state precisely the nature of the violation (DTF 128 III 50 at 1c).

 

1.4

An appeal as to an international arbitration may only seek the annulment of the award (Art. 77 (2) LTF ruling out the applicability of Art. 107 (2) LTF to the extent that the latter provision empowers the Federal Tribunal to decide the merits of the matter itself). The submission that the matter should be sent back to the Arbitrator for a new decision consistent with the reasons of this Court is accordingly inadmissible.

 

1.5

The answers to the appeal filed by the Respondent and by the Arbitrator do not contain any new elements which could be decisive, thus requiring a second exchange of briefs. The spontaneous reply filed by the Appellants will nonetheless be taken into account to the extent necessary, in conformity with case law of the European Court of Human Rights as to Art. 6 (1) ECHR (on the issue see judgment 5A_119/2011 of March 29, 2011 at 2.2). However the grievances which the Appellant could have raised within the time limit to appeal are inadmissible (DTF 135 I 19 at 2.2).

 

1.6

The Federal Tribunal is bound by the facts contained in the award. It may not rectify it even if it were manifestly inaccurate as Art. 77 (2) rules out the applicability of Art. 105 (2) LTF (DTF 133 III 139 at 5; judgment 4A_376/2008 of December 5, 2008, at 3.3). Consequently the new documents produced by the Appellants before the Federal Tribunal are not admissible.

 

2.

The Appellants primarily rely on the ground of appeal in Art. 190 (2) (d) PILA: they argue that the Arbitrator violated their right to be heard and the principle of equal treatment of the parties. In the alternative,  they also invoke Art. 190 (2) (c) PILA.

 

However the appeal brief is hard to read, structured in a complex manner, confusing and repetitive. The Appellants put under the heading of ‘the right to be heard’ many arguments that have nothing to do with such a right; instead the arguments concern the merits or the assessment of the evidence and they are expressed as though this Court were a court of appeal. The Federal Tribunal will review only the grievances which emerge with sufficient clarity and that are argued in conformity with the requirements of Art. 77 (3) and 106 (2) LTF.

 

3.

According to the Appellants the first violation of the right to be heard is the Arbitrator’s refusal of exhibits A-1 to A-44 after previously implying that they were admissible.

 

These documents were filed by the Claimants electronically on July 12, 2010, with their post- hearing memorandum and they were rejected pursuant to an interlocutory decision of July 13, 2010. The Arbitrator held that their production had not been authorized and breached the directions previously given to the Parties. The Appellants mention the interlocutory decision, but they do not challenge it and do not deal with the Arbitrator’s reasons. They do not do so even in their reply, in which they practically repeat the arguments already contained in the appeal, merely adding that the Arbitrator should have conducted a “differentiation between the various documents filed”.

 

The grievance is therefore inadmissible and consequently all of the arguments that the Appellants repeatedly develop around the documents rejected by the Arbitrator are equally inadmissible: for instance as to the comments of positions F.________, I.________, J.________, K.________ and n. 4.996.00. The production of such documents before the Federal Tribunal is equally inadmissible (above at 1.6).

 

4.

The award contains some general considerations as to the greater utility of documentary evidence as opposed to testimony. The Arbitrator relates those considerations to the fact that international trade transactions take place in writing above all and also to the personal interest the witnesses introduced by the Claimants have in the dispute. The Appellants claim that this would violate the right to be heard. The continuation of the argument is then scattered with innumerable grievances referring to each position in dispute as to the alleged failure to consider documents and testimony.

 

4.1

Although the Appellants are careful to repeatedly mention the right to be heard, as was already said, their arguments do not concern the formal nature of the right to evidence. Instead, they concern the assessment of the evidence, namely the weight that the Arbitrator gave to documents and testimony in order to ascertain the facts that he considered decisive for his decision. The Federal Tribunal may not engage in such examination as it is bound by the facts established in the award (above at 1.6). All the grievances relating to these issues are accordingly inadmissible, be they expressed in general terms or with reference to specific findings. This applies in particular to the arguments – of an appellate nature anyway – against the assessment of the evidence which led the Arbitrator to refuse to recognize positions F.________, G.________, H.________, I.________, J.________ and K.________ as well as n.1024.10/13 and 9.971.01, as well as those concerning the Respondent’s appointment as Managing Director of B.________ Ltd. or the activity he carried out on behalf of L.________ GmbH.

 

4.2

The criticism raised against the granting of the Respondent’s counterclaim relating to sale commissions is inadmissible for the same reason. In this respect the Appellants argue a violation of the principle of equal treatment. In itself, the grievance could be a ground for appeal according to Art. 190 (2) (d) PILA, if it were connected to unequal treatment from the point of view of the procedural rights of the Parties. In reality, the Appellants again simply criticize the assessment of the evidence by the Arbitrator; they persist in doing so even in their reply.

 

5.

According to the Appellants the right to be heard would have been violated because the Arbitrator failed to comply with his duty to inform the Parties of his intent to base the award on unforeseeable legal reasons and on his failure to ask for explanations on some unclear issues by giving them the possibility to express their views, to supplement their arguments, and to offer evidence. The argument is raised generally at first and then again in the context of the detailed review regarding positions K.________ 1024.10/13 and 9.971.01, as well as several liability.

 

5.1

Swiss law contains the principle jura novit curia pursuant to which an arbitrator, as a court, is not bound by the legal arguments of the parties: as a rule – with the exception of circumstances not argued here – he may accordingly apply rules of law differing from those proposed by the parties without being under a duty to warn them in advance; neither does he have to inform them as to the decisive nature of the facts on which he intends to base his decision, provided they were claimed and proved regularly (DTF 130 III 35 at 5 and references).

 

5.2

The Appellants’ thesis is consequently erroneous. Moreover, the clarifications they allege that the Arbitrator should have engaged in ultimately concerned the adequacy of the elements in the record to prove the facts or the assessment of the evidence. Obviously, a party cannot believe that the arbitrator or the court would warn it that a document it filed does not prove a specified fact before issuing a decision not in its favour (judgment 4A_450/2007 of January 9, 2008 at 4.2.2).

 

6.

The Appellants variously argue that the Arbitrator should not have rejected some claims which were not challenged, or based on undisputed facts.

 

Under specified circumstances the failure to assess the arguments of the Parties may indeed be a formal denial of justice; one may refer in this respect to DTF 121 III 331 at 3b (quoted in the appeal brief). However it is not necessary to verify whether such circumstances would be met in the cases mentioned by the Appellants.

 

6.1

They explain that position F.________ of EUR 110,000 originated from the acquisition of machines by the Respondent using the funds of B.________ Ltd.; he would have resold the machines on his own account subsequently, without returning the money. The Arbitrator would have rejected the claim although the Respondent never denied paying for the machines with the money of B.________ Ltd.

 

In an attempt to justify such arguments, the Appellants isolate some parts of the Respondent’s statements and give them a meaning they do not have. In reality, the Respondent did object at page 8 of his answer and counterclaim of August 27, 2007, and at page 13 of his answer and counterclaim of August 26, 2009, that the allegations by B.________ Ltd. were confused and he had disputed the amount of the payments made and also added that if the amount in dispute were EUR 110,000 it would have been returned anyway.

 

Accordingly it is not true that the Respondent would not have disputed the facts in issue. This means that the argument in this respect is unfounded.  It also means that the arguments that the lack of dispute would have led the Appellants to submit the pertinent documents in a second phase only, hence making the refusal to include them in the record a violation of the right to be heard, are equally unfounded. The Arbitrator rejected the claim, holding that the evidence available – the mere statements of B.________ and of its counsel – were not adequate to prove the facts, which he otherwise defined as “hard to comprehend”. Such reasons are not subject to appeal (above 1.6).

 

6.2

The Appellants repeat the argument as to position 9.971.01, claiming that the Arbitrator would not have recognized it although the Respondent would not have disputed it. However they disregard the meaning of the statement “assumptions and not facts and even less new facts” at page 17 of the brief of March 1st, 2010 in which the Respondent undoubtedly disputed the claim.

 

6.3

As to the Respondent’s counterclaim with regard to sale commissions, the Appellants argue that the Arbitrator considered that exhibit C-30 was unchallenged; they claim that challenge was “implied” in their argument that exhibit C-20 was false, the latter being identical according to them. The argument is manifestly unfounded.

 

The two documents are not at all identical; let alone that one consists of a spreadsheet of one page (C-20) whilst the other consists of a different spreadsheet to which a good thirty pages are added (C-30). The Appellants argue in their reply that they placed the statements of accounts into the record as exhibit C-19. The argument is again inadmissible because the Appellants could have submitted it in the appeal brief; instead they merely argued the comparison between exhibits C-20 and C-30 (above at 1.5).

 

7.

The last argument is based on Art. 190 (2) (c) PILA: the Appellants claim that the Arbitrator would have “disregarded” the requests for rendering of accounts that they submitted several times in the proceedings.

 

That argument as well is manifestly unfounded. The Arbitrator did not at all forget the submissions involved: he registered them with n. 3, 6 and 8 in connection with the Claimant’s post-hearing brief of July 12, 2010 and rejected them at nr 3 of the award. The reasons do not matter: the Appellants confuse a formal violation, which they argue erroneously, with a rejection on the merits.

 

8.

For all these reasons, the civil law appeal is unfounded to the extent that the matter is capable of appeal. The costs follow the determination on the merits (Art. 66 (1) and 68 (1) LTF).

 

 

Therefore the Federal Tribunal pronounces:

 

  1. The appeal is rejected to the extent that the matter is capable of appeal.

 

  1. The judicial costs set at CHF 10,000 shall be borne by the Appellants severally and they shall severally pay to the Respondent CHF 12,000 for the federal judicial proceedings.

 

  1. Notification to the representatives of the Parties and to the ICC Arbitrator.

 

 

 

 

 

 

Lausanne, October 12 2011.

 

In the name of the First Civil Law Court of the Swiss Federal Tribunal.

 

 

The Presiding Judge:                                     The Clerk:

 

KLETT (Mrs)                                                            PIATTI

 

 

  • 1. Translator’s note: Quote as B._____ Ltd. et al v. A._____, 4A_214/2011. The original of the decision is in Italian. The text is available on the website of the Federal Tribunal www.bger.ch
  • 2. Translator’s note: In English in the original text.
  • 3. Translator’s note: In English in the original text.
  • 4. Translator’s note: In English in the original text.
  • 5. Translator’s note: LTF is the Italian abbreviation for the Federal Statute of June 17, 2005 organizing the Federal Tribunal, RS 173.110.
  • 6. 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.