Federal Tribunal reaffirms its liberal approach towards the interpretation of the scope and modalities of arbitration clauses

Case information
September 20, 2011
4A_103/2011
Interest to foreign readers: 
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Interesting
Topics: 
Violation of public policy
Arbitration clause
Jurisdiction of the Arbitral Tribunal
Decisions of Lausanne Court of Arbitration for Sport
Original language: 
French

Parties

Appellant: 
Respondent: 

Counsel

Appellant: 
Respondent: 
Introductory note: 

The case issued on September 20, 2011 by the Swiss Supreme Court involved the International Boxing Association (“AIBA”), a non-profit association (association, Verein) organized under Swiss law and based in Lausanne. In 2005, the AIBA and a company manufacturing and supplying sport equipment entered into a license agreement (“the Licensing Agreement”) for one year renewable, pursuant to which the company could manufacture boxing equipment approved by the AIBA against payment of a royalty. The AIBA had the right to control the quality of the equipment and could terminate the Licensing Agreement if necessary or simply not renew it. The Licensing Agreement had an arbitration clause providing for jurisdiction of the Court of Arbitration for Sport (CAS).

 

A dispute arose and the private company involved started arbitration proceedings to challenge the non-renewal of the license agreement in 2007 and to collect payment for certain boxing equipment it had delivered to the AIBA.

 

A three arbitrators Panel was constituted by the CAS with Jehangir Beglari, Michele Bernasconi and Rui Botica Santos as Chairman. The AIBA took the view that the Panel had no jurisdiction on the dispute because it did not concern the interpretation of the terms of the license agreement.

 

The CAS Panel issued a final award on January 5, 2011, addressing both jurisdiction and the merits. It found that it had no jurisdiction as to two individuals named as respondents in the request. As to the AIBA, jurisdiction was accepted and the claim for payment of the equipment was essentially upheld.

 

A Civil law appeal was made to the Federal Tribunal and the following are interesting in the opinion:

 

  1. The Federal Tribunal pointed out (again) that the existence of an arbitration clause should not be admitted easily. In other words, there has to be some serious evidence that the parties did indeed agree to submit the dispute to arbitration. However, once that is found, the scope and modalities of the arbitration clause are to be interpreted liberally (see section 3.2.1 of the opinion in this respect).

 

  1. An arbitration clause which relates to “any dispute relating to the Licensing Agreement” would appear to be limited to claims directly based on the Licensing Agreement. However, to the extent that the AIBA contains statutes seeking to submit all possible disputes to the CAS, the broad interpretation of the CAS was correct: the clause also extended to claims based on equipment supplied because the Licensing Agreement was not purely a license agreement but reflected a broader contractual relationship (see section 3.2.2 of the opinion in this respect).

 

The opinion did not come as a surprise as it has been the consistent attitude of Swiss case law to broadly interpret the scope of the jurisdiction of an arbitral tribunal once the basic hurdle of the existence (or not) of an arbitration clause has been overcome.

Translation: 

120039-188/PON/fba

 

4A_103/20111

 

Judgement of September 20, 2011

 

First Civil Law Court

 

Federal Judge Klett (Mrs), Presiding

Federal Judge Corboz,

Federal Judge Kiss

Clerk of the Court: M. Carruzzo.

 

X.________ Association,

Represented by Mr. Olivier Rodondi,

Appellant

 

v.

 

Y.________ Ltd.,

Represented by Mr. Gion Jegher,

Respondent

 

Facts:

 

A.

A.a

X.________ Association governs the sport of boxing under all its forms worldwide. A.________ and B.________ are respectively the president and the executive director of X.________.

 

Y.________ Ltd. is a private company manufacturing and supplying sporting equipment, in particular boxing equipment.

 

A.b

On December 20, 2005, X.________ Association and Y.________ Ltd. entered into a licensing agreement entitled “Association X.________ Licensing Agreement 2006” effective as of January 1st, 2006. Initially lasting one year the contract could be renewed from year to year and it gave Y.________ Ltd. the right to manufacture boxing equipment approved by X.________ Association against payment of a yearly fee of USD 25,000. Y.________ Ltd. had to affix on each item it would sell an approval label issued by X.________ Association against payment. The aforesaid contract reserved the licensor’s right to control the quality of equipment produced by the licensee and set the terms thereof. It spelled out a number of cases in which the licensor could terminate the license unilaterally such as failure to pay the yearly fee timely.

 

At Art. 16 the Licensing Agreement contained an arbitration clause worded as follows:

“Should a disagreement over the interpretation of any terms of this Agreement arise, the Parties agree to submit the dispute to the Court of Arbitration for Sport, Lausanne, Switzerland, whose decision shall be final and binding on both Parties. While the pending question is being arbitrated, the remainder of this Agreement shall remain in effect2.”

 

A.c

In November 2006 the Congress of X.________ Association elected a new president, Mr. A.________. The new team expressed a desire to review the program of licenses and to re-examine the contractual relationships between the association and its suppliers.

 

For that reason, X.________ Association took the view that the Licensing Agreement had expired on December 31st, 2006. It also claimed in addition that Y.________ Ltd. did not pay the royalty to renew the license within the time limit. On its part, Y.________ Ltd. denied ever agreeing to put an end to the Licensing Agreement. Moreover it pointed out that it had asked X.________ Association to offset the royalty against the higher amount that the Association allegedly owed it for boxing equipment it had been sold.

 

In April 2007 B.________ informed Y.________ Ltd. that the conclusions of a report by the external auditor of X.________ Association disclosed the existence of questionable practices on its part, so the Executive Committee had decided to refer the matter to the Ethics Commission. Y.________ Ltd. denied the charges.

 

Finally, by letters of July 23 and August 2, 2011, X.________ Association advised Y.________. Ltd. that it had decided to put an end to their commercial relationship.

 

B.

B.a

On January 19, 2009, Y.________ Ltd. filed a request for arbitration against X.________ Association, A.________ and B.________ with the Court of Arbitration for Sport (CAS).

 

Between that time and October of the same year, the Parties submitted to a mediation which proved to be unsuccessful.

 

The arbitration proceedings resumed in November 2009. A three arbitrators Panel was constituted.

 

The Respondents immediately challenged the jurisdiction of the CAS to decide the dispute and sought an award on this issue. However the Panel decided to address jurisdiction and the merits together.

 

In its Statement of Claim of December 22, 2009, Y.________ Ltd. made a number of submissions, principally in connection with the non-renewal of the Licensing Agreement in 2007. It also sought, among other things, the payment by X.________ Association of a total amount of USD 168’732 for unpaid invoices relating to orders of boxing equipment delivered in 2005 and 2006.

 

In their answer of January 25, 2010 the Respondents again challenged the jurisdiction of the CAS as they had done on November 20, 2009.

 

B.b

On January 5, 2011 the CAS issued its final award in the framework of an Ordinary Arbitration Procedure (Art. R38 ff of the Code of arbitration for sport, hereafter: the Code). It declined jurisdiction as to Respondents A.________ and B.________ but accepted it towards X.________ Association. On the merits it granted Y.________ Ltd.’s submissions in part and ordered X.________ Association to pay USD 168,732 to the Claimant (paragraph 3 of the award).

 

The CAS proceeded to a two-step examination of its jurisdiction. First, it analyzed the Respondents’ argument that X.________ Association had concluded no licensing agreement with Y.________ Ltd. but with a subsidiary of that company, so that the Claimant could not avail itself of the arbitration clause contained in the Licensing Agreement. After rejecting that argument, the CAS reviewed whether the wording “disagreement over the interpretation of any terms of this Agreement”3 at Art. 16 of the Licensing Agreement should be taken literally, hence applying only to a stricto sensu interpretation of the terms of the aforesaid contract, or if it extended to “any dispute related to the Licensing Agreement4”. It opted for the latter. The Panel then explained why it did not think it had jurisdiction towards the two individuals sought by Y.________ Ltd. Secondly the CAS examined its jurisdiction as to each of the claims submitted by the Claimant. In part it admitted jurisdiction and denied it in part. As to the submission relating to the aforesaid USD 168,732, it found that it had jurisdiction because that submission fell within the scope of clause 16 of the Licensing Agreement, to the extent that “this request falls under the terms of clause 16 of the Licensing Agreement, as it relates to goods allegedly manufactured and supplied under the said agreement5.” On the merits, the CAS applied Swiss law pursuant to Art. R45 of the Code and held that Y.________ Ltd. had tacitly accepted by its behaviour that the Licensing Agreement had terminated on December 31st, 2006. Consequently it rejected the submissions relating to an alleged unilateral breach of the aforesaid contract made against X.________ Association. However the Arbitrators granted the request for payment of USD 168’732 made by Y.________ Ltd. in connection with eight unpaid invoices. They held that all invoices corresponded to orders made by X.________ Association for the supply of boxing equipment in various countries and to various amateur boxing federations.

 

C.

On February 4, 2011, X.________ Association (hereafter: the Appellant) filed a Civil law appeal against the aforesaid award. Arguing the lack of jurisdiction of the Arbitral tribunal (Art. 190 (2) (b) PILA6) and the incompatibility of the award with public policy (Art. 190 (2) (e) PILA) it submits that the Federal Tribunal should find that the CAS had no jurisdiction to decide the claim for a payment of USD 168,732 made by Y.________ Ltd. and consequently that paragraph 3 of the award under appeal should be annulled.

 

The CAS and Y.________ Ltd. (hereafter: the Respondent) both submit that the appeal should be rejected in their answers of April 20 and July 22, 2011.

 

On August 19, 2011, the Appellant filed a reply expressing its views on the arguments submitted by the CAS and by the Respondent.

 

 

Reasons:

 

1.

According to Art. 54 (1) LTF7, the Federal Tribunal issues its decision in an official language8, as a rule in the language of the decision under appeal. When that decision is in another language (in this case English), the Federal Tribunal uses the official language chosen by the parties. Before the CAS they used English. In the briefs submitted to the Federal Tribunal, they used French (the Appellant) or German (the Respondent). In accordance with its practice the Federal Tribunal shall resort to the language of the appeal and consequently issue its decision in French.

 

2.

In the field of international arbitration, a Civil law appeal is allowed against the decisions of arbitral tribunals pursuant to the requirements set at Art. 190 to 192 PILA (Art. 77 (1) LTF). Whether as to the object of the appeal, the standing to appeal, the time-limit to do so, the Appellant’s submissions or the grounds for appeal relied upon in the appeal brief, none of these admissibility requirements raises any problem in this case. There is accordingly no reason not to address the appeal.

 

3.

First, the Appellant argues that the CAS was wrong to accept jurisdiction as to the Respondent’s claim for payment of USD 168,732.

 

3.1

3.1.1

Seized of a jurisdictional grievance, the Federal Tribunal freely reviews the issues of law, including the preliminary issues determining jurisdiction of the Arbitral tribunal or lack thereof (ATF 133 III 139 at 5 p. 141 and cases quoted). However this Court reviews the factual findings on which the award under appeal relies only if one of the grievances mentioned at Art. 190 (2) PILA is raised against them or when some new facts or evidence are exceptionally taken into account in the framework of the Civil law appeal.

 

An appeal based on Art. 190 (2) (b) PILA is available when the arbitral tribunal decided claims on which it had no jurisdiction, whether because there was no arbitration agreement or because it was limited to certain issues not including the claims in dispute (extra potestatem) (ATF 116 II 639 at 3 in fine p. 642). Indeed an arbitral tribunal has jurisdiction only when, among other conditions, the dispute falls within the anticipations of the arbitration clause and when it does not exceed the limits given by the request for arbitration and, as the case may be, by the terms of reference (judgement 4A_210/2008 of October 29, 2008 at 3.1 and the precedent quoted).

 

3.1.2 As explained in this Court’s summary of the award under appeal (see (B.(b)) above), the Appellant raised several arguments to challenge the jurisdiction of the CAS: first, it argued that it was not a party to the Licensing Agreement of December 20, 2005. Second, in the alternative, should CAS would accept jurisdiction ratione personae towards the Appellant, it argued that it had no other power than to interpret the terms of the agreement. Third, it disputed whether the CAS had the power to decide the Respondent’s various submissions and particularly its monetary claim.

 

As the argument was divided in three clearly distinct parts, the Federal Tribunal will review only the issues that remain in dispute according to Art. 77 (3) LTF, even though the issue involved – the jurisdiction of the Arbitral tribunal – is subject to free judicial review in principle. Hence this Court will not address the issue of jurisdiction ratione personae for lack of appropriate grievances in this respect, neither the issue of the interpretation per se of the arbitration clause at Art. 16 of the Licensing Agreement. The meaning of that clause was finally decided by the Arbitrators as they carried out subjective interpretation by finding the true intent of the Parties beyond the wording they may have used. This is an issue relating to facts and consequently escapes review by the Federal Tribunal, even in the framework of a jurisdictional grievance (judgment 4P.330 and 332/1994 of January 29, 1996 at 5b; Kaufmann-Kohler/Rigozzi, Arbitrage international, 2nd ed. 2010, nr 815).

 

All said and done the only issue to be examined at this stage in the proceedings is whether or not the Respondent’s claim against the Appellant for payment of USD 168,732 fell within the scope of the arbitration clause in view of the meaning it was given by both parties.

 

3.2

3.2.1 Case law recommends avoiding accepting too easily that an arbitration agreement was concluded if the issue is in dispute. However, once the intent to arbitrate is established, case law is flexible as to the modalities of arbitration proceedings and as to the scope of the dispute covered by the arbitration clause. This broad interpretation is consistent with procedural efficiency and ensures an economy of procedure but it could not imply a presumption in favour of arbitral jurisdiction (judgment 4A_562/2009 of January 27, 2010 at 2.1 and references).

 

3.2.2 In this case the CAS interpreted Art. 16 of the Licensing Agreement as meaning “any dispute related to the Licensing Agreement9.”

 

Such wording is not restrictive as such and it includes in particular, the disputes relating to the existence, the validity or the termination of contractual relationships resulting from the contract in which the arbitration clause is found (judgement 4A_210/2008, mentioned above, at 3.2 and case quoted), and even some issues merely connected indirectly to the dispute submitted to arbitration (judgment 4A_220/2007 of September 21st, 2007 at 6.2). More generally, the scope of such an arbitration clause in a contract could extend to the additional or accessory contracts (Kaufmann-Kohler/Rigozzi, op. cit., nr 257 p. 138 in medio), unless they contain a different, specific dispute resolution clause (judgment 4A_452/2007 of February 29, 2008 at 2.5 and the writers quoted).

 

On the face of its text the arbitration clause in dispute appears to limit its scope to claims directly based on the Licensing Agreement of December 20, 2005, as the Appellant argues. Seen from that perspective, it would cover only the obligations arising from that contract, such as providing the Respondent with official approval certificates for its boxing equipment against payment to the Appellant of a specific fee above the yearly royalty, as well as those relating to the validity and the termination of that contractual relationship. In that perspective the claim in dispute, which is based on the sale of such equipment to the Appellant by the Respondent, would doubtlessly be outside the scope of the arbitration clause. However, this approach is too restrictive when it comes to determining the scope of the clause in the light of case law in this field and with regard to the circumstances of the case at hand.

 

First and from a general point of view, from reading the Appellant’s Statutes, one notices its intent to set aside as much as possible the recourse to ordinary courts with a view to submitting to CAS jurisdiction and to ensuring that all individuals and legal entities involved in boxing should do so as well (see in particular Art. 59 and 60 of the Statutes adopted by the X.________ Association congress on October 22, 2007, in force as from February 19, 2008; see also Art. 63 and 64 of the present Statutes). The Respondent is admittedly not a member of X.________ Association and therefore does not fall directly within the scope of the Statutes of this sport organization. It is nonetheless paradoxical that a party would challenge the jurisdiction of the CAS on the merits whilst adopting statutory provisions seeking to rule out as much as possible the jurisdiction of ordinary courts in favour of this specialised arbitral jurisdiction. Moreover one sees no objective reasons which would justify resorting to the state civil courts to handle a commercial dispute between X.________ Association and one of its approved boxing equipment suppliers, since the Code contains at Art. R38 to R46 some provisions specific to ordinary arbitration proceedings enabling such a dispute to be decided by the CAS. The Appellant proposes no such reason, understandably: it is doubtlessly not in the interest of that Swiss law association to have to act abroad, as the case may be, before the ordinary courts of the seller’s domicile in order to formulate its claims when it has its headquarters in the same city as the CAS. Similarly, from the point of view of the predictability of the law, it has no interest in permitting a dispute to be decided on the basis of some foreign legal provisions in force at the seller’s domicile, which it may know poorly, especially when Art. R45 of the Code provides for Swiss law to be applicable failing a choice of law.

 

Moreover one should not lose sight of the peculiarity of the contractual relationship between the Parties and the context in which it arose. Legal writing defines a license agreement as the agreement by which a person authorizes another to use wholly or in part an immaterial right of which it has exclusivity against payment of compensation, called a royalty (see among others: Tercier/Favre, Les contrats spéciaux, 4th ed. 2009, nr 7950). The December 20, 2005, contract had only a vague resemblance to this definition of a pure license agreement if one considers the obligations it imposed on the Parties (see at (A.(b)) above the list of the principal duties they had). Moreover, the CAS, within its authority, found that the Licensing Agreement was within the framework of some broader contractual relationships, one of the essential elements of which was the sale to the Appellant (directly or through it to its member federations) of the boxing equipment produced by the Respondent (see award nr 18 (c), 272 and 302). The scope and the peculiarity of these contractual relationships are doubtlessly to be explained by the fact that the Appellant adopted rules prescribing that, at all events and competitions organized under its aegis, the only boxing equipment (gloves, headgear, etc.) to be used were those produced by one of the official licensees it reserves the right to select (see Technical & Competition Rules in force since September 1st, 2008 at (3), (4) and (5); also see rule nr 1 presently in force which generalizes that requirement). There was, accordingly, an obvious link between the License Agreement by which the Appellant granted to the Respondent the right to market the boxing equipment with its label and the subsequent sales contracts between the same parties, pursuant to which its contractual counterpart was supplying it with this equipment. Proof of that is incidentally the fact that the Parties apparently did not consider it necessary to formalize those relationships (which is not required by Swiss substantive law) and, above all, that they did not enter into a specific dispute resolution clause for these successive sale contracts.

 

In conclusion it must be admitted that the CAS correctly interpreted the intent of the Parties expressed in the Licensing Agreement of December 20, 2005, and that it did not breach Art. 18 (1) CO10 by interpreting them as meaning that notwithstanding its wording, restrictive at first sight, the arbitration clause in the aforesaid contract purported to govern also the disputes which could arise between the Respondent and the Appellant as to the performance of the sales agreements that they would enter into eventually, the object of which would be the boxing equipment referred to in the Licensing Agreement. Therefore the claim in dispute, arising from those sales agreements, actually fell within the arbitration clause contained in the Licensing Agreement.

 

Consequently the Appellant is wrong to argue that the CAS breached Art. 190 (2) (b) PILA.

 

4.

4.1

In a second line of argument, the Appellant claims that the award under appeal would be inconsistent with public policy within the meaning of Art. 190 (2) (e) PILA. To substantiate the argument, it submits that invoice nr 8 of USD 75,000 included in the USD 168,732 awarded to the Respondent by the CAS corresponds to an order made on October 5, 2006, by its former president, shortly before he was removed from the presidency of X.________ Association. It claims to have been surprised by the scope of the order and its lack of justification, while pointing out that a report from its external auditor gave rise to strong suspicions of favoritism, fraud, and corruption between that former president and the Respondent.

 

The Appellant takes the view that the CAS not only violated its right to be heard by refusing to review the validity of the invoice in dispute but that it also issued an award in breach of substantive public policy by ordering it to pay a large sum to the Respondent, on the basis of an invoice which does not appear to originate from a regular order.

 

4.2

The argument is obviously unfounded, to the extent that the matter is capable of appeal in this respect. Indeed, no matter what the Appellant says, the CAS did not ignore the problem raised by the invoice at issue. Quite to the contrary, it dealt with it and held that the Appellant, which had the burden of proof in this respect, had failed to establish anything specific with regard to these suspicions as to the validity of invoice nr 8 (award at 374) and that it was unchallenged that the boxing equipment corresponding to the aforesaid invoice had been delivered to their final addressees pursuant to the request of X.________ Association (award nr 376). This double finding by the CAS, which escapes judicial review by the Federal Tribunal, deprives the Appellant’s second argument of any foundation.

 

5.

As its submissions can only be rejected, 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:

 

1. The appeal is rejected.

 

2. The judicial costs, set at CHF 5,500, shall be borne by the Appellant.

 

3. The Appellant shall pay to the Respondent an amount of CHF 6,500 for the federal proceedings.

 

4. This judgment shall be notified to the representatives of the Parties and to the Court of Arbitration for Sport (CAS).

 

Lausanne September 20, 2011.

 

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

 

 

The Presiding Judge:                                     The Clerk:

 

 

Klett (Mrs)                                                     Caruzzo

 
  • 1. Translator’s note: Quote as X.________ Association v. Y.________ Ltd., 4A_103/2011. The original of the decision is in French. 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: In English in the original text.
  • 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.
  • 7. Translator’s note: LTF is the French abbreviation for the Federal Statute of June 17, 2005 organizing the Federal Tribunal, RS 173.110.
  • 8. Translator’s note: The official languages of Switzerland are German, French and Italian.
  • 9. Translator’s note: In English in the original text.
  • 10. Translator’s note: CO is the French abbreviation for the Swiss Code of Obligations.