No violation of due process when the arbitral tribunal properly addresses the issues at hand.

Case information
October 11, 2012
4A_76/2012
Interest to foreign readers: 
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Of some interest
Topics: 
Violation of due process (right to be heard)
Violation of public policy
Original language: 
German
Published: 
31 ASA Bull 128 (2013)
Chairman: 

Parties

Appellant: 
Respondent: 
Introductory note: 

At issue was a dispute between a company in Singapore and a German company that had entered into a contract in 2004 for the delivery of a plant to manufacture dialyzes. A dispute arose between the parties and the German company subsequently resold the plant to a third party.

 

Arbitration proceedings in Basel ensued on the basis of an ICC arbitration clause. The Arbitral tribunal was composed of arbitrators Michele Bernasconi and Balz Gross with Ernst Schmied as chairman and after a two days hearing in Zurich in September 2, 2010, the arbitrators issued an award upholding part of the claim and rejecting the counterclaim.

 

An appeal was made to the Federal Tribunal based on arguments that the right to be heard – Swiss parlance for due process as you know - had been violated and the following are of some interest in the opinion:

 

  1. As most of you are already aware, the right to be heard does not extend to a guarantee that an international arbitral award issued in Switzerland will necessarily be reasoned. This is an important difference when compared to normal legal requirements in Switzerland (see section 3.1 of the opinion in this respect).

 

  1. A violation of the right to be heard cannot be shown by simply substituting one’s assessment of the evidence to that of the arbitral tribunal. The appellant must show in what way it was impossible to prove which points of a timely submitted offer of evidence (see sections 3.2 and 3.3 of the opinion in this respect).

 

<>(iii)Although the principle of pacta sunt servanda belongs to the realm of substantive public policy, it is violated only when an arbitral tribunal acknowledges the existence of a contractual commitment but refuses to enforce it or, conversely, when the arbitrators deny the existence of a contract but uphold a contractual obligation anyway. In other words, it is most unlikely that there will ever be a violation of the rule of pacta sunt servanda in a “Swiss” arbitration as long as this definition stands. (See section 4.2 of the opinion in this respect).

Translation: 

4A_76/20121

 

Judgment of October 11, 2012

 

First Civil Law Court

 

Federal Judge Klett (Mrs.), Presiding

Federal Judge Rottenberg Liatowitsch (Mrs.),

Federal Judge Kolly,

Clerk of the Court: Leemann.

 

X.________ Ltd.,

Represented by Dr. Roberto Dallafior and Dr. Martin Rauber,

Appellant,

 

v.

 

Y.________ GmbH,

Represented by Mr. Damiano Brusa and Dr. Simon Gabriel,

Respondent,

 

 

Facts:

 

A.

A.a

Y.________ GmbH, headquartered in Germany (the Claimant, the Respondent) is a German engineering company specializing in medical devices.

 

X.________ Ltd, headquartered in Singapore (the Defendant, the Appellant) was founded in 1997. In 2003 it undertook the production of so called dialyzers. Later on it gave up this activity and except for some real estate transactions it has no longer any significant business activity.

 

A.b

On May 5, 2004, the parties entered into an agreement described as “Contract nr rrr.________” as to the sale and delivery to the Defendant of a plant to manufacture dialyzers for a price of EUR 7 Million. As to the conditions of payments the agreement anticipated that the Defendant (in addition to two installments of EUR 500’000 in 2004) would open a letter of credit of EUR 2.5 Million by December 7, 2004. Upon receipt of the letter of credits the plant would have to be delivered by the Claimant. The balance of EUR 3.5 Million would be paid by the Defendant in seven installments of EUR 500’000.

 

The Defendant made the two payments on June 29 and September 15, 2004. However, despite a request from the Claimant, it did not open the letter of credit. Then the Claimant did not deliver the contractual plant to the Defendant. Various attempts of the parties to enter into an agreement failed. On June 18, 2007, the parties and Z.________ Ltd – a sister company of the Defendant – signed a document described as “Novation and Supplemental Deed.”2 It then remained disputed between the parties whether this was a legally binding agreement or merely a non-binding draft.

 

A.c

On August 25, 2009, the Claimant gave the Defendant a last time limit for payment with the notice that should payment fail to be made the plant would be resold. On September 7, 2009, the Claimant entered into a corresponding sales contract with Q.________ GmbH in Germany. In a letter of October 12, 2009, the Claimant terminated the agreement of May 5, 2004, for breach of contract. The plant in dispute was delivered to Q.________ GmbH on November 9, 2009.

 

B.

B.a

On June 27, 2008, the Claimant started arbitration proceedings according to the rules of the International Chamber of Commerce (ICC) against the Defendant. It submitted a claim (amended during the arbitral proceedings) according to which the Defendant was to be ordered to pay EUR 4’946’556.94 with interest at 8% above the basis rate of the European Central Bank (ECB) from January 1, 2006.

 

The Defendant submitted that the claim should be rejected and should its standing to defend be admitted, it counterclaimed for an amount of EUR 1 Million with interest at 5% from June 29, 2004, as to EUR 500’000 and from September 15, 2004, as to EUR 500’000, in addition to damages amounting to EUR 122’000 with interest at 5% from August 1, 2005.

 

The hearing took place in Zurich on September 14 and 15, 2010.

 

B.b

In an award of December 22, 2011, the ICC Arbitral Tribunal sitting in Basel ordered the Defendant to pay EUR 978’681.71 with interest at 5% as to EUR 679’294 from November 10, 2009, as to EUR 543’907 from November 10, 2009, and as to EUR 28’394 from June 27, 2008. The claim was otherwise rejected. The Arbitral Tribunal also rejected the Defendant’s counterclaim.

 

In a civil law appeal, the Defendant submits that the Federal Tribunal should annul the arbitral award of December 22, 2011, and send the matter back to the Arbitral Tribunal for a new decision.

 

The Respondent submits that the appeal should be rejected to the extent that the matter is capable of appeal. The Arbitral Tribunal stated its position on May 29, 2009,3 in which it submitted that the appeal should be rejected.

 

The Appellant submitted a reply to the Federal Tribunal on June 15, 2012, and the Respondent submitted a rejoinder on July 26, 2012.

 

C.

On February 22, 2012, the Federal Tribunal rejected the Appellant’s application for a stay of enforcement.

 

In a decision of March 15, 2012, the Federal Tribunal upheld the Respondent’s request for security for costs and ordered the Appellant to deposit an amount of CHF 14’000 as security for the Respondent’s costs. The amount was subsequently paid to the Court Office of the Federal Tribunal.

 

In a decision of July 8, 2012, the Federal Tribunal rejected the Respondent’s procedural requests that it should be authorized to access the “annex” to the Appellant’s communication of April 24, 2012, namely that it should be given the name, address and banking reference of the individual or company that had paid the security for costs to the Court Office.

 

 

Reasons:

 

1.

According to Art. 54 (1) BGG4 the Federal Tribunal issues its decision in an official language,5 as a rule in the language of the decision under appeal. Should the decision be in another language, the Federal Tribunal uses the official language chosen by the parties. The decision under appeal is in English. As this is not an official language and the Parties used German before the Federal Tribunal, the decision of the Federal Tribunal shall be issued in German.

 

2.

In the field of international arbitration a civil law appeal is allowed pursuant to the requirements of Art. 190-192 PILA6 (SR 291) (Art. 77 (1) (a) BGG).

 

2.1

The seat of the Arbitral tribunal is in Basel in this case. Neither the Appellant nor the Respondent had their seats in Switzerland at the determining time. As the Parties did not opt out of the provisions of Chapter 12 PILA in writing they are applicable (Art. 176 (1) and (2) PILA).

 

2.2

The grievances allowed are the ones limitatively listed in Art. 190 (2) PILA (BGE 134 III 1867 at 5 p. 187; 128 III 50 at 1a p. 53; 127 III 279 at 1a p. 282). According to Art. 77 (3) BGG the Federal Tribunal reviews only the grievances which are brought forward and reasoned in the brief; this corresponds to the duty to submit reasons contained in Art. 106 (2) BGG as to the violation of constitutional rights and of cantonal and intercantonal law (BGE 134 III 1868 at 5 p. 187 with references). Criticism of an appellate nature is not permitted (BGE 134 III 565 at 3.1 p. 567; 119 II 380 at 3b p. 382).

 

 

2.3

The Federal Tribunal bases its judgment on the factual findings of the arbitral tribunal (Art. 105 (1) BGG). The Court may not rectify or supplement the factual findings of the arbitral tribunal, even when they are blatantly inaccurate or based on a violation of the law within the meaning of Art. 95 BGG (see Art. 77 (2) BGG ruling out the applicability of Art. 97 BGG and that of Art. 105 (2) BGG). However the Federal Tribunal may review the factual findings of the award under appeal when some admissible grievances within the meaning of Art. 190 (2) PILA are brought forward against such factual findings or when new evidence is exceptionally taken into account (BGE 138 III 299 at 2.2.1 p. 34; 134 III 565 at 3.1 p. 567; 133 III 139 at 5 p. 141; with references). He who claims an exception to the rule that the Federal Tribunal is bound by the factual findings of the lower Court and wishes to rectify or supplement the facts in this manner, must show with reference to the record that the corresponding factual allegations were already made in the previous proceedings in accordance with the procedural rules (see BGE 115 II 484 at 2a p. 486; 111 II 471 at 1c p. 473; with references).

 

3.

The Appellant argues a violation of the right to be heard (Art. 190 (2) (d) PILA) in several respects.

 

3.1

Art. 190 (2) (d) PILA allows an appeal only with regard to mandatory procedural rules according to Art. 182 (3) PILA. According to this the arbitral tribunal must ensure in particular that the parties are effectively heard. With the exception of the right to a reasoned decision this corresponds to the constitutionally protected right in Art. 29 (2) BV10 (BGE 130 III 35 at 5 p. 37 ff; 128 III 234 at 4b p. 243; 127 III 576 at 2c p. 578 ff). Case law infers from this the right of the parties to state their views as to all facts important for the decision, to present their legal arguments, to prove their factual allegations with suitable evidence presented in a timely manner and in accordance with formal requirements, to participate in the hearings, and to access the record (BGE 130 III 35 at 5 p. 38; 127 III 576 at 2c p. 578 ff; with references).

 

3.2

The Appellant argues that the Arbitral Tribunal disregarded various substantiated submissions important for the decision it made in connection with: the construction of the plant in accordance with the contract, as to the meeting of the Parties in September 2005, as to the failure to open the letter of credit, and as to the occurrence of the loss or the computation of damages. In doing so, it merely submits criticism of an appellate nature of the award under appeal, to the extent that it repeats its legal argument as to several issues in the case before the Federal Tribunal, with reference to its submissions in the arbitral proceedings and to many exhibits, drawing conclusions differing from those in the award under appeal. Thus, the Appellant claims that the plant did not meet the contractual requirements, that the Respondent was obliged to build the plant so that three types of dialyzers could be produced by using three different housings. The Arbitral Tribunal considered the Appellant’s various arguments as to the allegedly contractually agreed upon size of the housings; yet it did not follow the Appellant’s argument but instead held, after assessing the evidence at hand, that no rule could be derived from the May 5, 2004, agreement as to a specific size of the crank case of the dialyzer. The Appellant shows no violation of the right to be heard (Art. 190 (2) (d) PILA) by alleging the opposite. In doing so it merely submits some inadmissible criticism of the award under appeal. The same applies to its arguments as to the goods allegedly to be produced principally according to the contract, in which it merely lists its submissions in the arbitral proceedings as to the adequacy of the plant to the production of dialyzers 1.6 m2 in size and concludes from this that, had the Arbitral Tribunal taken its arguments into consideration, it would have “come to the right conclusion” that the plant had not been built in accordance with the contract.

 

Its submissions as to the meeting of the Parties in September 2005 and the failure to open the letter of credit are tantamount to unauthorized criticism of the award under appeal. The Appellant generally disregards the fact that there is no right to obtain reasons of an arbitral award to be derived from the principle of the right to be heard within the meaning of Art. 190 (2) (d) PILA (BGE 134 III 186 at 6 p. 187 ff with references). By claiming the allegedly insufficient reasons in the arbitral award it does not show any of the grievances contained in Art. 190 (2) PILA (see BGE 134 III 186 at 6.1 p. 187; 127 III 576 at 2b p. 577 ff; with references).

 

Moreover, it is not accurate that the Arbitral Tribunal disregarded the Appellant’s argument that the Respondent suffered no loss as a consequence of the difference in price between the original agreement between the Parties of May 5, 2004, and the contract concluded by the Respondent and Q.________ GmbH on September 7, 2009. The Arbitral Tribunal examined the issue of the decisive price difference thoroughly. It did not follow the Appellant’s point of view that the parties reduced the purchase price of the plant from EUR 7 Million to EUR 5’095’000 in the agreement of November 28, 2006, but rather considered that a condition agreed upon to the price reduction was not fulfilled, which led it to compute the price difference on the basis of the original price of EUR 7 Million and not based on the reduced price of EUR 5’095’000 considered decisive by the Appellant. Whether or not the Arbitral Tribunal rightly relied on the difference between the originally agreed upon purchase price of EUR 7 Million and the resale price actually obtained of EUR 5’880’000 cannot be reviewed by the Federal Tribunal in these appeal proceedings. Also with regard to interest, the cost of repair and the cost for insuring and storing the plant, the Arbitral Tribunal examined the factual and legal requirements of the claim for damages and rejected the submissions mentioned in the appeal expressly or at least implicitly. The Appellant again criticizes the award under appeal unduly, without showing the existence of a grievance contained in Art. 190 (2) PILA. A violation of the right to be heard is not demonstrated.

 

3.3

The Appellant argues another violation of the right to be heard because in a decision of January 10, 2011 – therefore after the hearing and the closing of the evidentiary proceedings – the Arbitral Tribunal authorized the Respondent to substantiate the alleged damages and to submit a corresponding calculation, which the Respondent did in a submission of February 2, 2011, giving the Arbitral Tribunal a number of new allegations and documents. The Appellant expressed its position in this respect on March 14, 2011, requiring among other things a new hearing of witnesses. To the extent that the Arbitral Tribunal did not allow the witness evidence proposed, the Appellant’s right to be heard would have been violated. The Arbitral Tribunal held that the interrogation of new witnesses was not necessary as the Respondent had relied on the price difference of EUR 1’120’000 before the hearing and after on the possible deductions from this amount had been discussed in the witness statements of A.________ and B.________; at the hearing of September 14 and 15, 2010, the Appellant had the opportunity to interrogate the witnesses as to these issues. The Appellant’s right to be heard was complied with when it was given the opportunity to express its view as to the Respondent’s submission of February 2, 2011, which it did thoroughly in its written submission of March, 14, 2011. The Appellant does not show to the Federal Tribunal which specific exhibits submitted by the Respondent would have required a new interrogation of witnesses. It merely argues sweepingly that the Respondent introduced many new arguments as to the computation of damages and new exhibits in its submission of February 2, 2011, which had not been made during the hearing on September 14 and 15, 2010. However, it does not show which specific submissions or exhibits would have been new and therefore could not have been addressed at the hearing. Neither does it show with reference to the record which of its arguments in the arbitral proceedings could have been proved by introducing witnesses and satisfies itself with the general allegation that hearing new witnesses would have made it possible for the Appellant to show that the loss claimed by the Respondent was inaccurate. This does not demonstrate a violation of the right to be heard (Art. 190 (2) (d) PILA).

 

3.4

Furthermore, the Appellant lists various fact findings of the award under appeal and claims that they are contrary to the record. In doing so, it disregards well established case law of the Federal Tribunal according to which a fact finding blatantly inaccurate or contrary to the record is not sufficient by itself to annul an international arbitral award. The right to be heard contains no guarantee of an award that is accurate as to the substance (BGE 127 III 576 at 2b p. 577 f.; 121 III 331 at 3a p. 333). Yet the Appellant does not argue that a blatant mistake of the Arbitral Tribunal made it impossible for the Appellant to submit its point of view and its evidence in the arbitration (see BGE 133 III 235 at 5.2 p. 248 ff; 127 III 576 at 2b-f p. 577 ff).

 

4.

The Appellant argues that the Arbitral Tribunal violated public policy (Art. 190 (2) (e) PILA).

 

4.1

The substantive review of an international arbitral award by the Federal Tribunal is limited to the issue as to whether the arbitral award is consistent with public policy or not (BGE 121 III 331 at 3a p. 333). The substantive adjudication of a claim in dispute is contrary to public policy only when it disregards some fundamental legal principles and therefore becomes absolutely incompatible with the widely recognized value order which according to the dominating view in Switzerland, should be the basis of any legal order. Among such principles are the sanctity of contracts (pacta sunt servanda), the prohibition of abuse of rights, the general principle of good faith, the prohibition to expropriate without compensation, the prohibition to discriminate, the protection of incapables, and the prohibition of beyond measure commitments (see Art. 27 (2) ZGB), when it constitutes blatant and grave infringement of privacy (BGE 138 III 32211 at 4.1 and at 4.3.1/4.3.2; 132 III 389 at 2.2 p. 392 ff; with references).

 

4.2

The Appellant argues that the Arbitral Tribunal breached the principle of sanctity of contracts (pacta sunt servanda) by disregarding the price reduction from EUR 7 Million to EUR 5’095’000 agreed upon on November 28, 2006.

 

The argument disregards the scope of the principle of sanctity of contracts in the framework of the ground for appeal at Art. 190 (2) (e) PILA. The aforesaid principle is violated only when the arbitral tribunal acknowledges the existence of a contract but declines to enforce it or, conversely, when it denies the existence of a contract but nevertheless upholds a contractual obligation (judgment 4A_14/201212 of May 2, 2012, at 5.2.1, not published in BGE 138 III 270; 4A_46/201113 of May 16, 2011, at 4.2.1; 4A_43/201014 of July 29, 2010, at 5.2; also see BGE 120 II 155 at 6c/cc p. 171; 116 II 634 at 4b p. 638). There can be no such claim here. The Arbitral Tribunal held that a contractual requirement for the price reduction according to the agreement of November 28, 2006, was not met and therefore correctly did not proceed to reduce the price. To the extent that the Appellant puts this in question and submits its divergent view to the Federal Tribunal, it merely criticizes unduly the interpretation of the contract by the Arbitral Tribunal. In doing so it shows no violation of public policy (Art. 190 (2) (e) PILA).

 

4.3

The Appellant argues furthermore that in its decision of January 10, 2011, the Arbitral Tribunal made it possible for the Respondent to improve its unsubstantiated claim after the hearing and the evidentiary proceedings were closed, thus violating the principle that the subject matter of a case is defined by the parties; acting rightly, the Arbitral Tribunal should have rejected the claim. In doing so, the Appellant shows no violation of public policy but rather once again submits undue criticism of the award under appeal. The same applies to its submission that with regard to transportation costs, the Arbitral Tribunal “in fact” reversed the burden of proof, which is not justified.

 

5.

The appeal is unfounded and must be rejected to the extent that the matter is capable of appeal. In view of the outcome of the proceedings, the Appellant must pay the costs and compensate the other party (Art. 66 (1) and Art. 68 (2) BGG).

 

 

Therefore the Federal Tribunal pronounces:

 

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

 

2. The judicial costs, set at CHF 12’000 shall be borne by the Appellant.

 

3. The Appellant shall pay to the Respondent an amount of CHF 14’000 for the federal judicial proceedings. This amount shall be paid from the security for costs deposited with the Court Office of the Federal Tribunal.

 

4. This judgment shall be notified in writing to the Parties and to the ICC Arbitral tribunal sitting in Basel.

 

Lausanne October 11, 2012.

 

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

 

The Presiding Judge:                                     The Clerk:

 

Klett (Mrs.)                                                    Leemann