Right to be heard, equal treatment of the parties - Legal fees awarded by arbitrator
The case involved an arbitration in Geneva based on a 2007 contract between a Swiss and a Canadian company. The contract was governed by Swiss law. The arbitration clause provided for arbitration under the aegis of the Geneva Chamber of Commerce and Industry. A sole arbitrator was appointed (Mr. Bernd Ehle, a partner of the Geneva arbitration firm Lalive, see www.lalive.ch) and on May 13, 2008 the arbitrator issued a final award granting monetary damages. An appeal was made to the Federal Tribunal, essentially claiming a violation of due process ("right to be heard" in Swiss parlance) and also alleging that the parties had been treated unequally.
The Federal Tribunal rejected the appeal and the opinion contains some interesting developments in two areas:
(i) The Federal Tribunal is confirming what it already said several times, namely that whilst the “right to be heard” gives a party the right to state its case, legally and factually, evidence included, it does not impose more on arbitrators than a minimal duty to examine the pertinent problems and to deal with them. Per se, the “right to be heard” would not even require an international arbitral award to be reasoned at all. In other words, the Federal Tribunal will not step in unless due process is really disregarded in a blatant manner. This may or may not be a good thing, but it certainly facilitates the work of international arbitrators sitting in Switzerland. This being said, you will notice that the Appellant’s grievances were reviewed quite thoroughly by the federal Tribunal and caution is therefore advisable as the same court may well reach a different conclusion in an other case if the facts were different (See at § 3).
(ii) The Federal Tribunals is also reminding the readers that the duty to treat the parties equally applies at all stages of the proceedings. Whilst the grievance in this respect was rejected at § 4 of the opinion, caution is advisable whenever time limits are set: they should be the same for everyone.
This being said, the decision is not of fundamental importance. It is not particularly original or innovative and it essentially confirms what the court already said in previous decisions.
Judgement of October 28, 2008
First Civil Law Court
Federal Judge CORBOZ, Presiding,
Federal Judge ROTTENBERG LIATOWITSCH (Mrs),
Federal Judge KOLLY,
Clerk of the Court: CARRUZZO.
Represented by Mr Laurent PANCHAUD
Represented by Mr Herbert WINTER
X.________, a company organised under the law of [omitted] and Y.________ are both specialised in trading petrochemical products.
Pursuant to a contract of May 8, 2007, X.________ undertook to sell to Y.________ 1’000 metric tonnes of styrene monomer, a petrochemical product originating in Russia, at a price of USD 1’255.- per unit. The merchandise was to be delivered in a Russian harbour, to be loaded between May 28 and 30, 2007, on a ship chartered by Y.________. The contract, govern by Swiss law, provided that all disputes would be submitted to arbitration under the aegis of the Geneva Chamber of Commerce and Industry (“CCIG”). The seat of the arbitration was in that city.
The ship chartered by Y.________ could not comply with the loading period stipulated in the contract. Y.________ immediately notified X.________ seeking an extension of the time limit until June 2, 2007. On May 31, 2007, X.________ indicated that it considered the sales contract as terminated and that it had sold the merchandise to a third party. Whereupon, Y.________ turned to another supplier, which sold styrene monomer at the price of USD 1’487.- per metric ton.
On June 29, 2007, Y.________ obtained the attachment of assets belonging to X.________ from the courts in Geneva and Amsterdam (Netherlands). The Dutch attachment was withdrawn after V.________ gave a bank guarantee.
On July 24, 2007, Y.________ submitted a request for arbitration to the CCIG, seeking, according to its latest submissions, that X.________ should be ordered to pay the amounts of USD 349’207.50, CHF 101’840.65 and EUR 603.19 with interest, as well as expenses and legal fees in relation with the arbitral proceedings.
X.________ submitted that the claim should be rejected and counterclaimed for the payment by Y.________ of a minimum amount of USD 367’438.53 with interest and for various other amounts of lesser importance. The CCIG advised the parties that the arbitration would be conducted under the expedited procedure of Art. 42 of the Swiss Rules of International Arbitration (hereafter: “the Rules”). It appointed Dr A.________ as sole arbitrator on November 9, 2007.
In a final award of May 13, 2008, the sole arbitrator granted the monetary submissions made by Y.________, rejected the counterclaim and ordered X.________ to reimburse to its opponent the cost of the arbitration, set at CHF 122’840.14, including CHF 104’190.70 for legal fees. Substantially, he held that X.________ could not terminate the contract simply because the ship chartered by Y.________ to load the merchandise sold had not been able to do so within the time limit anticipated for that purpose. Thus Y.________ was entitled to compensation for the losses directly resulting from the termination of the sales contract, which did not fall within the scope of the provision of the contract limiting liability. However, X.________, which had violated its contractual commitments, could not seek damages from Y.________, let alone that the existence of the damages claimed was not established.
On June 12, 2008, X.________ filed a Civil law appeal. It invites the Federal Tribunal to annul the award under appeal and to send the case back to the sole arbitrator for a new decision consistent with the reasons of the Federal judgment.
The Respondent principally submits that the matter is not capable of appeal and, subsidiarily, that it should be rejected. The sole arbitrator submitted some observations in which he rejected the criticism addressed to him by the Appellant. The application for a stay submitted by the Appellant was rejected by a decision of the Presiding judge of July 7, 2008.
Upon request from the Respondent, the Appellant was invited to provide security for costs in an amount of CHF 12’000.- as a guarantee for the costs of its opponent. It did so timely.
According to Art. 54 (1) LTF2, the Federal Tribunal issues its decision in an official language, generally in the language of the decision under appeal. When the decision was drafted in another language (here English), the Federal Tribunal uses the official language chosen by the parties. In front of the sole arbitrator, they opted for English, whilst in the briefs submitted to the Federal Tribunal they used French. According to its practice, the Federal Tribunal will consequently issue its decision in that language.
2.1 In the field of international arbitration, a Civil law appeal is allowed against the decisions of arbitral tribunals under the conditions set forth at Art. 190 to 192 PILA3 (Art. 77 (1) LTF).
2.2 The seat of the arbitration was in Geneva. At least one of the parties (in this case the Appellant) did not have its domicile in Switzerland at the pertinent time. The provisions of chapter 12 PILA are accordingly applicable (Art. 176 (1) PILA).
2.3 The Appellant is directly affected by the final award under appeal, since it was ordered to pay various amounts to the Respondent and its monetary counterclaims were rejected. Thus it has a personal, present and legally protected interest to ensure that the award was not issued in violation of the guarantees arising from Art. 190 (2) PILA, which gives it standing to appeal (Art. 76 (1) LTF).
Filed within 30 days after the notification of the award under appeal (Art. 100 (1) LTF), the appeal satisfies the formal requirements at Art. 42 (1) LTF and is to be allowed.
2.4 The appeal may be made only for one of the grounds exhaustively set forth at Art. 190 (2) PILA. The Federal Tribunal only reviews the grievances for appeal specifically invoked and reasoned by the Appellant (Art. 77 (3) LTF). The latter must accordingly state its arguments in accordance with the strict requirements set by case law relating to Art. 90 (1) (b) OJ4 (see ATF 128 III 50 at 1c), which remain in force under the aegis of the new federal law of procedure.
In a first grievance, the Appellant argues that the Arbitrator violated its right to be heard in many ways, during the arbitral proceedings as well as in the award.
3.1 The right to be heard, as guaranteed by Art. 182 (3) and 190 (2) (d) PILA, provides each party with the right to state all its factual and legal arguments on the object of the dispute and to provide necessary evidence, as well as the right to participate in hearings and to be represented or assisted in front of the arbitrators (ATF 133 III 139 at 6.1 and cases quoted). According to constant case law, the right to be heard in contradictory proceedings, within the meaning of the aforesaid provisions, does not require an international arbitral award to be reasoned (ATF 134 III 186 at 6.1 and cases quoted). However, it imposes upon the arbitrators a minimal duty to examine and deal with the pertinent problems (ATF 133 III 235 at 5.2 page 248 and cases quoted).
3.2.1 As to the evidentiary proceedings, the Appellant claims a violation of its right to be heard firstly in relation to a submission made on March 19, 2008 by the Respondent. Examining that grievance requires a short reminder of the circumstances surrounding the filing of that submission.
220.127.116.11 On February 15, 2008, the Appellant filed its Statement of answer and counterclaim, as well as 41 exhibits. Upon receipt of that filing, counsel for the Respondent called the Arbitrator to enquire as to the possibility of filing an additional brief. He was told that such a request had to be made in writing.
Whereupon, in a letter of March 19, 2008, the Respondent asked the Arbitrator to authorise the filing of a new brief and the presentation of some additional exhibits concerning 15 allegations “unknown, surprising and unpredictable” contained in the aforesaid Appellant’s brief.
The same day, the Arbitrator invited the Appellant to state its view on the Respondent’s request until March 26, 2008.
Still on March 19, 2008, the Appellant, opposing the Respondent’s submission, asked the Arbitrator to reject the submission and to invite the Respondent to file its answer to the counterclaim within a time limit expiring on the 31st of the same month.
In a Procedural order nr. 2 of March 20, 2008, the Arbitrator, taking into account the expedited nature of the proceedings, gave the Respondent until April 3, 2008 to file a “limited reply” containing only that party’s determinations on the new allegations made by the Appellant in its answer of February 15, 2008, such possibility being given without prejudice to its right to file a full answer to the counterclaim contained in the same brief by March 31st, 2008. He also gave the Appellant two weeks from the receipt of the limited answer to file a limited rejoinder as to the points made in that brief, pointing out that there would be no further exchanges of briefs later on. A revised procedural calendar was attached to the Procedural order.
On March 26, 2008, the Appellant contacted the CCIG to bring to its attention some alleged derelictions of duties by the Arbitrator in the conduct of the proceedings, particularly as to the additional exchange of briefs granted upon the Respondent’s request and asking that it (the CCIG) invite the Arbitrator to correct them, by way of a warning as provided at Art. 12 of the Rules. In view of that request, it also sought a stay of the arbitral proceedings. In a Procedural order nr. 3 of April 10, 2008, the Arbitrator refused to stay the proceedings and confirmed his previous order. Holding that it had no power to intervene in the management of the arbitral proceedings, the CCIG rejected the Appellant’s request in a letter of April 14, 2008.
On April 17, 2008, the Appellant filed its Limited rejoinder, with 7 exhibits.
In a letter of April 29, 2008, the Arbitrator declared the proceedings closed.
18.104.22.168 The Appellant argues firstly that the course of the procedural phase summarised above violated its right to be heard. According to the Appellant, the Arbitrator would have decided on the admissibility of the Respondent’s request of March 19, 2008 without waiting for the time limit set at March 26, 2008 to expire, which he had granted (to the Appellant5) to state its view with regard to that submission, thus depriving (the Appellant6) from the possibility it had granted it to submit comments on that brief. The grievance is unfounded.
It appears from its own explanations that the Appellant, in a fax of March 19, 2008 at 5.03 pm, received a copy of the submission made to the Arbitrator by the Respondent on the same day; that in the fax of the same day, received at 5.29 pm, it was advised of the invitation made by the Arbitrator to express its view on the aforesaid submission until March 26, 2008; that still on March 19, 2008, at 6.03 pm it sent a two pages fax to the Arbitrator in which it made a number of precise submissions and asked, among other things, that the submission should be rejected because its Answer of February 15, 2008 contained no new facts; that, however, (the Appellant7) did not in that fax express the intent to supplement its observations before March 26, 2008 as to the submission challenged (appeal brief, p.18, factual allegations 105 to 107 and p.24, ch. 1.1). From this chronological statement of the procedural steps taken on March 19, 2008, it appears that the Appellant addressed the Arbitrator after receiving the Respondent’s submission and the Arbitrator’s fax. As mentioned at page 3 of his observations to the CCIG of April 9, 2008, the Arbitrator could reasonably deduct from the Appellant’s facts that it did not wish to state any further observations as to the submission.
Be this as it may, one does not see how the Arbitrator would have violated the Appellant’s right to be heard, as he indeed allowed that party to present its observations on the items raised in the Respondent’s Limited reply, a faculty of which the Appellant made use by filing its Limited rejoinder on April 17, 2008.
22.214.171.124 Still from the point of view of the right to be heard, the Appellant also deplores the absence of any “real reasoning” of the Arbitrator’s decision to grant the Respondent’s submission of March 19, 2008.
The grievance is groundless. Indeed, the Arbitrator, to the extent that he would have been obliged to reason his procedural decision at all, did so at paragraph 6 of his Procedural order of March 2008, by briefly stating why he thought he should grant the Respondent’s submission.
3.2.2 The Appellant further claims a violation of its right to be heard because the Arbitrator had a phone contact with the Respondent’s counsel, thus ignoring a Procedural order of November 2007 in which he decided that all communications between the Parties and the Arbitrator would be in writing.
From the explanations given by the Arbitrator at § 39 of the award and by the Respondent at paragraph 60 and 61 of the answer to the appeal, it appears that the litigious phone conversation had as its sole object the request, presented to the Arbitrator by the Respondent’s counsel, to be able to express a view on the new facts put forward by the Appellant in its Answer of February 15, 2008, a request which counsel was invited to make in writing. In view of its object, such a phone conversation between the Arbitrator and one of the parties was not capable of violating the right to be heard of the other party. The same conclusion would have to be reached even if it were held that such verbal communication would be in violation of a procedural modality decided by the Arbitrator (ATF 117 II 346 at 1b/aa and cases quoted).
3.2.3 It is further claimed that the Arbitrator violated the Appellant’s right to be heard in the final award by failing to comply with his duty to examine and deal with all pertinent problems and by manifest oversight. Similar to the grievances reviewed above, the criticisms purporting to substantiate such grievances are manifestly inaccurate.
126.96.36.199 The Appellant argues firstly that the Arbitrator did not interpret the contract correctly, specially the concept of laycan8, when he held that the Appellant had no right to terminate the contract although the Respondent had not been capable of complying with the time limit within which the merchandise the Respondent bought should have been loaded on a ship it chartered. Such an argument is merely appellate criticism of the legal solution chosen by the Arbitrator and it is accordingly not to be allowed. Moreover, the Arbitrator devoted three pages of the award (p.17 to 20, ch. 6.3.1) to explain why, according to him, the Appellant was not authorised to terminate the sales contract. To claim that he would not have dealt with this problem is therefore not serious.
The same remark is called for as to the clause limitating liability. It appears from the award under appeal that the Arbitrator, far from ignoring the existence of such a clause, took the view that it was not to be considered in this case, as the damage invoked by the Respondent was, according to him, direct damage whilst the exclusion clause concerned only indirect damage.
188.8.131.52 The right to be heard is violated when some manifest oversight leads the arbitral tribunal to fail to take into consideration some elements which one of the parties submitted to the tribunal. Indeed, that party is thus harmed in its right to ensure that its arguments will be examined by the arbitrators. It is placed in the same situation as though it would not have had the opportunity to present its arguments (ATF 121 III 331 at 3b; se also ATF 127 III 576). In substantiating its appeal against the award, the party allegedly harmed must demonstrate in what way the manifest oversight prevented it from being heard on an important point (ATF 127 III 576 at 2f p.580).
In this case, there is no such demonstration in the appeal brief. Indeed, the Appellant merely states that as a consequence of manifest oversight as to the existence or lack thereof of an answer by the Appellant to a formal notice by the Respondent to repair the damages caused, the Arbitrator found that the attachments obtained against the Appellant’s assets were necessary (see award under appeal, p.21, ch. 84 iv). In saying so, the Appellant states that the alleged manifest oversight led the Arbitrator to an unsustainable finding of the necessity to carry out the litigious attachments. However, it does not establish, neither does it even claim, that the alleged oversight would have prevented it from stating its point of view as to the justification of the disputed attachments.
Therefore, the grievance cannot succeed.
The Appellant further claims to have been treated unequally.
4.1 Art. 182 (3) PILA imposes upon the arbitral tribunal a duty to guarantee the equality of the parties, whatever the procedure chosen may be. Pursuant to the principle of equality, the arbitral tribunal must treat the parties equally at all stages of the proceedings (ATF 133 III 139 at 6.1 p.143 and the legal writers quoted).
4.2.1 In connection with the facts related above at 184.108.40.206, the Appellant claims an alleged inequality in the time limits given to the parties. According to the Appellant, the Respondent would have had six weeks to prepare its Limited reply whilst the Appellant would have had two weeks only to file its Limited rejoinder. Indeed, the Appellant submits that the Respondent would have been able to start drafting its Limited reply upon receipt of the Answer of February 15, 2008, whilst the Appellant would have had merely the time from April 3 to April 17, 2008 to prepare its Limited rejoinder pursuant to Procedural order nr. 2 of March 20, 2008.
The grievance is groundless. As the Respondent rightly points out at paragraph 87 of its answer to the appeal, whilst the Respondent had identified the 15 new factual allegations contained in the Appellant’s Answer, the Respondent was obviously waiting for the Arbitrator to allow its submission for a new exchange of briefs before initiating the drafting process of the Limited reply. To draft that brief, the Respondent accordingly had two weeks (from March 20, 2008 [when Procedural order nr. 2 was notified], to April 3, 2008 [expiry of the time limit to file the brief set in the aforesaid Procedural order], just like the Appellant had to file its Limited reply.
Moreover, the Appellant, whilst claiming to have raised the alleged unequal treatment to the CCIG, does not claim that it would have vainly invited the Arbitrator to extend the time limit it had been given to file its Limited reply, nor, above all, that it would have filed that brief without having had enough time to state all its arguments.
4.2.2 The Appellant also claims unequal treatment due to the fact that the Arbitrator rejected the three affidavits attached to its Answer and Counterclaim, but only one of the two affidavits filed by the Respondent in support of its Claim. The Appellant is wrong here as well. Indeed, as the Respondent accurately points out at paragraph 93 of its answer to the appeal, if one of the two affidavits submitted by the Respondent was not set aside, it was because it was an exhibit prior to the initiation of the arbitral proceedings, such an exhibit being therefore not an affidavit, i.e. a written witness statement made for the purposes of the case. As to the real affidavits filed by both parties, the Arbitrator treated them in the same way so that the Appellant may not blame him at all in this respect.
In a last grievance, based on the violation of public policy, the Appellant claims that the Arbitrator would have ordered it to pay to the Respondent legal fees of such magnitude that “the grotesque would dispute with the indecency”.
Such claim, besides being offensive, could not substitute for an appropriate reasoning in support of the grievance made. The Appellant does not explain how the award under appeal would, in this respect, violate procedural public policy or material public policy. Moreover, in its computations, it mixes legal fees connected with the attachment proceedings, which are part of the damages awarded to the Respondent, with the legal fees relating to the arbitral proceedings, which constitute the costs relating thereto. The rest of its criticism merely consists in some gratuitous accusations against the Arbitrator.
The last grievance is therefore not to be allowed.
The Appellant does not succeed and shall pay the costs of the Federal proceedings (Art. 66 (1) LTF) and pay costs to the Respondent (Art. 68 (1) and (2) LTF), which will be taken from the security for costs furnished to the Federal Tribunal by the Appellant.
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 10’000.-, shall be borne by the Appellant.
3. The Appellant shall pay to the Respondent an amount of CHF 12’000.- as costs; that amount shall be taken from the security for costs given by the Appellant to the Federal Tribunal.
4. This decision shall be notified to the representatives of the parties and to the sole arbitrator.
Lausanne, October 28, 2008
In the name of the First Civil Law Division of the Swiss Federal Tribunal
The presiding Judge: The Clerk:
- 1. Translator’s note: Quote as X.________, v. Y.________, 4A_294/2008. 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: French abbreviation for the Federal Statute of June 17, 2005 organising the Federal Tribunal, RS 173.110.
- 3. Translator’s note: PILA is the most commonly used abbreviation for the Federal Statute on International Private Law of December 18, 1987, RS 291.
- 4. Translator’s note: This is the French abbreviation for the previous federal law organising federal courts, which was substituted by the LTF of June 17, 2005.
- 5. Translator’s note: Word added to clarify the meaning.
- 6. Translator’s note: Word added to clarify the meaning.
- 7. Translator’s note: Word added to clarify the meaning.
- 8. Translator’s note: In English in the original text. Laycan is a ship chartering term.