Issues of lack of independence raised against enforcement of award (enforcement granted)
The case does not relate to an appeal against an arbitral award stricto sensu. It is actually a New York Convention case, and as there are not many in Swiss practice, we thought it was worth making it available to our readers.
As you will see, a Swiss company and an American company entered into an agreement in 2002. The American company was to perform maintenance on an aircraft belonging to the Swiss company. The general conditions applicable to the contract included an arbitration clause with venue in the US, and the contract was not governed by Swiss law.
A dispute arose and on February 13, 2008, arbitrator Richard E. Coulson ordered the Swiss company to pay certain amounts which it had refused to pay. On April 1, 2008, the United States District Court for the Central District of Illinois recognized the award. Enforcement and collection proceedings then started in Switzerland, ultimately leading to a decision of the Geneva Court of Appeals (“Court of Justice”) rejecting the defenses raised by the Swiss company.
A civil law appeal was made to the Federal Tribunal and the following are interesting in the opinion:
- While the arbitral award had been confirmed by an American court, the Federal Tribunal still considered – rightly – that the case related to the New York Convention and not to the enforcement of the American judgment (See section 3.1 of the opinion in this respect).
- The independence of an arbitrator is a matter of public policy, whether in an appeal against an international award or pursuant to Art. V (1) (d) or V (2) (b) of the New York Convention. If it were proved that an arbitrator was not independent, the enforcement of the award in Switzerland would not be available under both aforesaid provisions of the New York Convention (See sections 3.2.1 and 3.2.2 of the opinion in this respect).
- Simply because an arbitrator’s daughter met with counsel for one of the parties when both were working in the same law firm or because the arbitrator and counsel for one of the parties may have practiced in front of the same American court of appeals, there is no grounds to disqualify the arbitrator for lack of independence. (See section 3.3 of the opinion in this respect). It is actually quite surprising that the argument was raised at all.
Judgment of July 28, 2010
First Civil Law Court
Federal Judge KLETT (Mrs), Presiding,
Federal Judge KOLLY,
Federal Judge KISS (Mrs),
Clerk of the Court: Mr. CARRUZZO.
Represented by Mr. Daniel RICHARD
Represented by Mr. Urs SAAL
A.a In a contract of November 22, 2002, amended on February 5, 2003, X.________ SA (hereafter: X.________), a company under Swiss law, entrusted Y.________ (hereafter: Y.________), a company under American law, with maintaining and servicing three aircraft for a fee. The general conditions applicable to the contract included an arbitration clause.
A dispute arose in the performance of the contract and Y.________ initiated arbitral proceedings, which provided for the appointment of three neutral arbitrators. However, X.________ accepted to submit the dispute to a sole arbitrator.
In an award of February 13, 2008, arbitrator A.________ ordered X.________ to pay to Y.________ an amount of USD 1,102,486.97 plus USD 785,088.36 in interest on that amount as of February 14, 2008, as well as additional interest of 0.049315% per day from that date until payment.
A.b On April 1, 2008, the United States District Court for the Central District of Illinois recognized the award and ordered X.________ to pay Y.________ the aforesaid amounts and the additional interest.
B.a The Debtor did not pay, and on December 8, 2008, Y.________ had an order to pay notified (to X.________) which opposed it2.
On October 16, 2009, Y.________ sued in the Geneva Court of First Instance with a view to having the opposition definitively set aside. Preliminarily, it sought the recognition and the enforcement of both the arbitral award and the judgment of the American District Court. X.________ submitted that the request should be rejected because the award should have been issued by three arbitrators according to the arbitration clause and not by a sole arbitrator. On November 30, 2009, the Geneva Court of First Instance recognized and enforced the February 13, 2008, award and the April 16, 2008, judgment in Switzerland. Consequently, it definitively set aside the Debtor’s opposition to the order of pay. In its decision, the Court held in substance that X.________ could not rely on the allegedly irregular composition of the arbitral tribunal as it had participated in the proceedings without reservations and even filed a counter-claim. The Court also found that the Debtor could not submit arguments relating to the merits of the dispute.
B.b On December 14, 2009, X.________ appealed the judgment of the lower Court. It filed an e-mail sent on December 2, 2009, by B.________, from which it appears that the arbitrator and C.________, Y.________’s counsel, had practiced in front of the US Court of Appeals for the tenth Circuit3 (Exhibit 6). In a letter of January 27, 2010, the Appellant also submitted an affidavit established the previous day by its counsel D.________, according to whom C.________ had stated in a phone conference held between the arbitrator and counsel for the parties on October 19, 2006, that he had accompanied the arbitrator’s daughter to a social event once and that on that occasion he had briefly met that person’s father at her domicile. Lawyer D.________ added that he saw no reference to that meeting in the arbitrator’s letter of October 24, 2006 (Exhibit 8).
For his part, Y.________ filed the minutes of a preliminary meeting held on October 24, 2006. It appears from that that C.________ had stated that he met the arbitrator only once at a time when he and the aforesaid arbitrator’s daughter, a trainee at the time, were working in the same law firm. Counsel for X.________ had answered that he had no objection to continuing the arbitral proceedings (Exhibit 10).
On March 25, 2010, the Court of Justice of the Canton of Geneva4 rejected the appeal with costs.
As to the e-mail filed by the Appellant, the cantonal judges held that the new evidence was “a priori” inadmissible under the Geneva law of civil procedure, and that in any event it would not cast doubt on the arbitrator’s impartiality as it merely recorded that the latter and counsel for the Respondent had practiced in front of the same American Court of Appeal. As to the January 26, 2010, affidavit, the cantonal Court held that it was inadmissible due to late filing. Still, it considered that this was of no consequence to the extent that Respondent’s Exhibit 10, which was to be admitted because it answered an unexpected argument by the Appellant, established that the meeting between the Respondent’s counsel and the arbitrator had been brought to the Appellant’s attention with no objection from the latter in this respect.
After rejecting the grievance based on the arbitrator’s alleged bias, the cantonal judges also rejected the arguments based on the arbitrator’s lack of jurisdiction ratione loci as well as that relating to the merits, as to which the Appellant argued that the rules on a debtor’s default had been violated.
On April 27, 2010, X.________ filed a civil law appeal and an Ancillary Constitutional appeal. It submits that the Federal Tribunal should annul the decision under appeal and reject all submissions by Y.________. Alternately, the Appellant submits that the matter should be sent back to the cantonal Court.
The Respondent submits that the appeal should be rejected and doubts that the matter is capable of appeal. The cantonal Court refers to the reasons in its judgment.
On May 31, 2010, the Presiding Judge of the First Civil Law Court, seized of a request for a stay, found that the appeal related to a constituent judgment5 in a civil matter, so that it was stayed ex lege pursuant to Art. 103 (2) (a) LTF6 within the limits of the submissions made.
1.1 The civil law appeal in front of the Federal Tribunal was made by a party which took part in the proceedings before the lower court and whose submissions were rejected (Art. 76 (19 LTF). It is aimed at a final decision (Art. 90 LTF), the objects of which were the recognition and the enforcement of a foreign arbitral award and a foreign judgment (Art. 72 (2) (b) (1) LTF), as well as the definitive setting-aside of the opposition to an order of payment (ATF 134 III 115 at 1.1). The decision was made by a cantonal authority of last instance (Art. 75 (1) LTF) in a monetary matter in which the amount in dispute is above the CHF 30,000 threshold set at Art. 74 (1) (b) LTF for a matter to be appropriate for a civil law appeal. The appeal, which was filed within the time limit (Art. 100 (1) LTF) and in the legally-prescribed format (Art. 42 LTF) is accordingly admissible as a matter of principle. Hence the Ancillary Constitutional appeal made by the Appellant simultaneously is inadmissible due to its subsidiary nature (Art. 113 LTF).
1.2 To argue that the matter is not capable of a civil law appeal, the Respondent claims that the Appellant should have appealed the judgment issued by the Court of first instance because the judgment of the Court of Justice in the framework of an extraordinary appeal merely rejected that appeal against the first judgment. The Respondent is wrong. Indeed, as the cantonal Court itself states in the opinion at paragraph 2 of the reasons, its judicial review was not more restricted than that of the Federal Tribunal in a Civil law appeal. Thus the Appellant could merely appeal the decision second. Also, by submitting that the Respondent’s submissions should be entirely rejected, it implicitly submitted that the requests for enforcement and setting-aside of the opposition made by that party should be rejected, so that the matter is also capable of appeal in light of Art. 107 (2) LTF.
Still, as to whether the matter is capable of appeal or not, the Respondent wrongly argues that the Appellant should have appealed the cantonal judgment, which based the decision of definitively setting aside the opposition on the American judgment of April 16, 2008, and not merely on the arbitral award of February 13, 2008. In fact it is not at all established that the American court, which, incidentally, issued its decision very shortly after the aforesaid award was issued and in a decision apparently without reasons, would have had the power to modify the arbitral award, so that its judgment would have replaced the latter, thus being capable of recognition and enforcement only under the conditions of Art. 25 ff PILA7 (see decision 4A_137/2007 of July 20, 2007, at 5 and the legal writers quoted). To the contrary, it appears from the judgment under appeal that at the cantonal level the dispute involved only the enforcement of the arbitral award, to the exclusion of that of the American judgment.
1.3.1 A civil law appeal may be made for violation of the law as defined by Art. 95 and 96 LTF. Seized of an appeal for the violation of an international treaty (see Art. 95 (b) LTF), the Federal Tribunal freely reviews the merits of the arguments based on a violation of the treaty. Due to the exception embodied at Art. 106 (2) LTF, the Federal Tribunal reviews the alleged violation of a constitutional right or of an issue of cantonal or inter-cantonal law only if the grievance is raised and reasoned in detail by the Appellant. Otherwise, it applies the law ex officio (Art. 106 (1) LTF) without being bound by the arguments raised in the appeal or by the reasons in the decision under appeal. It may accordingly accept an appeal for reasons other than those raised or conversely reject an appeal based on reasons other than those of the lower court (ATF 134 III 102 at 1.1 and case quoted). However, in view of the requirement for reasons contained at Art. 42 (1) and (2) LTF, which is a condition to the appeal being admissible (Art. 108 (1) (b) LTF), the Federal Tribunal reviews in principle only the grievances raised; unlike a court of first instance, it does not have to review all the legal issues arising when they are no longer in front of this Court (ATF 134 III 102 at 1.1).
In a civil law appeal the Federal Tribunal conducts its legal reasoning on the basis of the facts established by the lower court (Art. 105 (1) LTF). It may depart from them only if the factual findings of the lower court were made either in a manifestly inaccurate manner – a concept corresponding to that of arbitrariness within the meaning of Art. 9 Cst8 (ATF 134 V 53 at 4.3) – or in violation of the law within the meaning of Art. 95 LTF (Art. 105 (2) LTF) and provided that correcting the irregularity could have an impact on the outcome of the case (Art. 97 (1) LTF). It behooves the Appellant to raise a specific grievance in this respect and to submit a clear and circumstantial demonstration (Art. 106 (2) LTF; ATF 133 II 249 at 1.4.2 p. 254).
No new fact or new evidence may be introduced unless it arises as a consequence of the decision of the lower court (Art. 99 (1) LTF).
1.3.2 As a preliminary, the Appellant sets forth a certain number of facts, claiming in particular that it would never have received Respondent’s Exhibit 10. Believing that it could disregard the rule that the Federal Tribunal decides on the basis of the facts established by the lower court, it invokes in this respect a passage of the decision published at ATF 101 Ia 521, where it is written that if the enforcement of the foreign arbitral award relies on an international treaty, the Federal Tribunal freely reviews the facts and the parties may even submit new facts (at 1.b). However, the Appellant disregards that the Federal Tribunal, modifying its case law in this respect, subsequently limited its review to arbitrariness in the finding of facts for the appeals against a judicial decision (ATF 129 I 110 at 1.3), and also extended the prohibition to claim new facts to the appeals based on the violation of a treaty (ATF 128 I 354 at 6c). Therefore it is not possible to take into consideration the new facts alleged by the Appellant or the criticism of an appellatory nature that it raises against the factual findings of the cantonal decision (see appeal p. 4 at 6 and 8 at 10). The Appellant’s arguments as to the “right to produce evidence” with regard to the January 26, 2010, affidavit (see appeal p. 10 ff) are not admissible either. In a jumble they contain some grievances drawn from an alleged violation of private federal law, such as Art 8 CC9 and of various provisions of the Geneva law of civil procedure, all of which are again presented as though the Appellant were in front of a Court of appeal.
Under the heading “Constitutional grievances”, the Appellant then argues that the cantonal Court violated Art. 9 and 29 (2) Cst (appeal p. 12-14).
To substantiate its argument as to arbitrariness, the Appellant again resorts to explanations of an appellatory nature based in part on new allegations, allegedly with a view to clearing the misunderstanding as to the appointment of a sole arbitrator instead of three, which may have led the cantonal Court to imagine that the Appellant was in bad faith and in order to explain the circumstances under which B.________ sent the December 2, 2009 e-mail (Exhibit 6). Such explanations are not at all appropriate to substantiate the argument and they are in large part inadmissible.
As to the violation of its right to be heard, the Appellant deduces it from the fact that the cantonal Court refused to accept the January 26, 2010, affidavit. The grievance is unfounded. Such refusal relied on a specific provision of Geneva civil procedure law – Art. 306A (1) LPC/GE10 - the alleged arbitrariness of which the Appellant did not establish; also, the cantonal judges held without incurring any grievance based on Art. 9 Cst that even had it been accepted, the affidavit would not have had the meaning given by the Appellant due to the contents of Respondent’s Exhibit 10.
3.1 As to the violation of Federal law, the Appellant argues that the Court of Justice violated “Art. 194, 190 (2) (b) 6 ch. 1 ECHR, 25 and 27 PILA and V (1) New-York Convention of June 10, 1958” (sic; appeal p. 15-20).
The decision under appeal is not the foreign arbitral award, the enforcement of which was ordered. Consequently, the Appellant relied in vain on Art. 190 (2) (b) PILA relating to civil law appeals against the decisions of arbitral tribunals within the meaning of Art. 77 (1) LTF. The reference to that provision is even less pertinent because it does not relate to the grievances in connection with the composition of the arbitral tribunal, which fall under Art. 190 (2) (a) PILA, but to those relating to the jurisdiction of the arbitral tribunal. Similarly, for the reasons indicated above (see at 1.2, second paragraph), the conditions of Art. 25 ff PILA are not to be applied in this case.
As to Art. 6 (1) ECHR, it is not directly applicable as such to set the conditions of the recognition and the enforcement of foreign arbitral awards.
Pursuant to Art. 194 PILA, it is actually in light of the pertinent provisions of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 (RS 0.277.12; hereafter the New York Convention), that on the basis of the arguments submitted by the Appellant, it must be examined whether the cantonal Court violated Federal law or not by enforcing the award in dispute as well as the judgment confirming it and by setting aside definitively on that basis the debtor’s opposition to the order of payment.
3.2.1 Art. V of the New York Convention exhaustively sets forth the grounds on which recognition and enforcement of a foreign arbitral award can be refused (ATF 135 III 136 at 2.1 p. 139). Such grounds must be interpreted restrictively in order to facilitate the enforcement of the arbitral award (ATF 135 III 136 at 3.3). It behooves the party opposing enforcement to establish that one of the grounds for refusal of Art. V (1) of the New York Convention is met (ATF 135 III 136 at 2.1 p. 139), while the Court may retain ex officio the two grounds for refusing enforcement at Art. V (2) of the aforesaid Convention (Kaufmann- Kohler/Rigozzi, Arbitrage International, Droit et pratique à la lumière de la LDIP, 2nd ed. 2010, n° 897).
Pursuant to Art. V (1) (d) of the New York Convention, invoked by the Appellant, enforcement of the award may be opposed by establishing in particular that the composition of the arbitral tribunal was not in accordance with the agreement of the parties. Still, the irregularity in the composition of the arbitral tribunal must also be connected to the outcome of the dispute (Kaufmann- Kohler/Rigozzi, op.cit., n°893 in fine).
Pursuant to Art. V (2) (b) of the New York Convention, on which the Appellant also relies, the recognition and the enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement are sought finds that the recognition or the enforcement of the award would be contrary to the public policy of that country. As an exceptional clause, the public policy reservation is to be interpreted restrictively, especially as to the recognition and enforcement of foreign judgments, as to which its scope is narrower than as to the direct application of foreign law (attenuated effect of public policy). There is a violation of public policy when the recognition or the enforcement of a foreign award offends the Swiss concepts of justice in an intolerable manner. A foreign award may be incompatible with the Swiss legal order not only due to its substantive contents, but also in relation to the procedure under which it was issued. In this respect, Swiss public policy demands that the fundamental procedural rules deduced from the Constitution be obeyed, such as the right to a fair trial and the right to be heard (judgment 4P.173/2003 of December 8, 2003, at 4.1 and cases quoted). The arbitrator’s independence and impartiality are certainly among such rules (ATF 93 I 265 at 4a; Kaufmann- Kohler/Rigozzi, op.cit., n°360 in fine).
3.2.2 Akin to a state judge an arbitrator must present sufficient guarantees of independence and impartiality (ATF 125 I 389 at 4a; 119 II 271 at 3b and cases quoted). To decide whether or not he presents such guarantees, the constitutional principles developed as to state courts must be referenced (ATF 125 I 389 at 4a; 118 II 359 at 3c p. 361). However, the specificities of arbitration, specifically those of international arbitration, must be taken into account when reviewing the circumstances of the case (ATF 129 III 445 at 3.3.3 p. 454).
According to Art. 30 (1) Cst, anyone whose case must be decided in judicial proceedings has a right to his case being brought in front of a court established by law, having jurisdiction, independent, and impartial. That guarantee makes it possible to challenge a judge whose situation or behavior is such as to cast doubt on his impartiality (ATF 126 I 68 at 3a p. 73); it seeks in particular to avoid that some circumstances external to the case may influence the judgment in favor of or against a party. It does not impose removal only when a bias of the judge is established, because an internal disposition on his part may hardly be proved; it is sufficient for the circumstances to create the appearance of bias and to cast doubt that the magistrate’s activity may be deemed biased. Only circumstances objectively established must be taken into consideration; mere individual impressions of a party to the trial are not decisive (ATF 128 V 82 at 2a p. 84 and the cases quoted).
The party intending to challenge an arbitrator must raise the grounds for challenge as soon as it becomes aware of it. That rule, established by case law, addresses the grounds for challenge of which the interested party was effectively aware, as well as those of which it may have become aware by using the required attention, and, as the case may be, choosing to remain in ignorance may be regarded as an improper maneuver similar to the postponement of the announcement of a challenge. The rule in question applies the principle of good faith to the arbitral proceedings. Pursuant to that principle, the right to invoke the irregular composition of the arbitral tribunal is forfeited unless the party raises it immediately because it cannot keep it in store only to raise it if the outcome of the arbitral proceedings is unfavorable (decision 4A_234/2008 of August 14, 2008 at 2.2 and the cases quoted).
3.3 The Appellant argues against enforcement by referencing both Art. V (1) (d) and Art. V (2) (b) of the New York Convention; both arguments are based on the same circumstances. Consequently, the arguments will be examined together in light of these two provisions. It will be necessary to determine whether, as the Appellant claims, the award the enforcement of which was granted to the Respondent was issued by an arbitrator whom did not present sufficient guarantees of impartiality and independence in conformity with the requirements of the aforesaid case law. Should this be the case, it would lead to the conclusion that both aforesaid provisions were violated (irregular constitution of the arbitral tribunal and incompatibility of the award with the public policy of the country in which enforcement is sought). As the Respondent rightly points out, it is striking to notice that the Appellant developed some perceptibly different arguments in the three courts called upon in this case. That was doubtlessly its right. Still, such changes in the arguments in support of the validity of its own thesis are an important sign of the fragility of the position adopted by the party submitting the argument.
Be this as it may, the argument merely relies on allegations departing from the factual findings to which the Federal Tribunal is bound, namely those made by the lower court. From such findings it appears only that C.________, counsel for the Respondent, and the arbitrator practiced in front of the same American appeal Court without any further details as to when they did so or as to the nature of the work each of them performed in that jurisdiction, and on the other hand that the two met on one occasion when C.________ and the arbitrator’s daughter, then a trainee, were practicing in the same law firm, a circumstance brought to the attention of the Appellant’s counsel during the preliminary arbitration hearing of October 24, 2006, when the latter stated that he had no objection to continuing the arbitral proceedings. Accordingly, neither the Appellant’s allegations that Respondent’s counsel and the arbitrator’s daughter worked “for years” in the same law firm nor the claim that the Appellant’s counsel D.________ would never have taken cognizance of the minutes of the October 24, 2006, hearing shall be taken into account.
Thus, the Appellant is trying to paralyze the enforcement of a foreign arbitral award and of the judgment confirming that award by resorting to one argument – the meeting between the arbitrator and Respondent’s counsel at a time when the latter was working in the same law firm as the former’s daughter – that its own lawyer did not consider at the time as likely to cast doubt on the sole arbitrator’s impartiality, and by putting forward a second argument – the fact that the arbitrator and Respondent’s counsel practiced in front of the same American Court – which, objectively, was obviously not such as to disqualify the arbitrator. There is nothing there which would justify the refusal to enforce the award and the judgment at issue.
Moreover, the Appellant argues in vain that C.________ would himself have violated the rules relating to the arbitral proceedings. One does not see in this respect why Art. 8 of the Code of Conduct for Arbitral Proceedings conducted in Switzerland, which is invoked, would be applicable in this case, as the arbitral proceedings were conducted in the USA. One sees even less how the Appellant could argue a provision contained in the Code of Professional Conduct applicable to counsel appearing in front of the International Tribunal for the Prosecution of Persons Responsible for Serious Violations of International Humanitarian Law Committed in the Territory of the Former Yugoslavia.
This being so, the civil law appeal may only be rejected to the limited extent that the matter is capable of appeal at all.
The Appellant shall pay the costs of the federal proceedings (Art. 66 (1) LTF) and compensate the Respondent for the costs (Art. 68 (1) and (2) LTF).
Therefore the Federal Tribunal pronounces:
- The matter is not capable of a constitutional appeal.
- The civil law appeal is rejected to the extent that the matter is capable of appeal.
- The judicial costs, set at CHF 17,000 shall be borne by the Appellant.
- The Appellant shall pay to the Respondent an amount of CHF 19,000 for the federal judicial proceedings.
- This judgment shall be notified to the representatives of the Parties and to the first Section of the Geneva Court of Justice.
Lausanne, July 28, 2010
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.________ 4A_233/2010. 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 : An order to pay is an administrative form required under Swiss debt collection law. A debtor “opposing” the “order to pay” states refusal to comply and the creditor then has to go to court to obtain a judgment.
- 3. Translator’s note : In English in the original text.
- 4. Translator’s note : The Court of Justice is the Geneva Court of Appeal.
- 5. Translator’s note : A “constituent” judgment (jugement constitutif, Gestaltungsurteil) is Swiss parlance for a judgment producing enforceable rights.
- 6. Translator’s note : LTF is the Italian and French abbreviation for the Federal Statute of June 17, 2005, organizing the Federal Tribunal, RS 173.110.
- 7. 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.
- 8. Translator’s note: Cst is the French abbreviation for the Swiss Constitution.
- 9. Translator’s note: CC is the French abbreviation for the Swiss Civil Code.
- 10. Translator’s note: LPC/GE is the French abbreviation for the Geneva Rules of Civil Procedure.