Challenge of expert forfeited if not filed immediately
The case involved a lengthy dispute concerning a brewery in Algeria. The original contract was signed in 1999 and it contained an arbitration clause in favour of a three-member tribunal of the International Commercial and Industrial Arbitration Court (CARICI), a little-known arbitral institution in Geneva, dissolved as of December 31, 2011.
In May 2004, a dispute arose and an arbitration was initiated. The arbitral tribunal was composed of Werner Melis as Chairman, with Juan Ramón Iturriagagoitia and this writer as co-arbitrators. As I was one of the arbitrators, it would not be appropriate for me to comment, but the following is of interest in the opinion:
- The Federal Tribunal devotes some interesting language to the notion of res judicata. (See Sections 3 and 6.3 of the opinion in this respect.)
- The Federal Tribunal applies the same criteria to the challenge of an expert as it does to the challenge of an arbitrator. The challenge must be brought immediately under penalty of forfeiture. (See Section 6.2 of the opinion in this respect.)
- The Federal Tribunal confirms that the test to reach the conclusion that an arbitrator or a tribunal may be biased is quite a narrow one. In particular, it would take some very serious and repeated procedural violations throughout the proceedings to justify a finding that the arbitral tribunal is biased. (See Section 5 of the opinion, in particular Section 5.3, in this respect.)
Judgment of September 2, 2014
First Civil Law Court
Federal Judge Klett (Mrs.), Presiding
Federal Judge Kolly
Federal Judge Hohl (Mrs.)
Federal Judge Kiss (Mrs.)
Federal Judge Niquille (Mrs.)
Clerk of the Court: Mr. Carruzzo
Represented by Mr. Jacques Hochstaetter,
Represented by Mr. Eugène Ibig,
A.a. X.________ Sàrl (hereafter: X.________, the Claimant or the Appellant) is a limited liability company under Algerian law running a brewery in Algeria.
Y.________AG (hereafter: Y.________, the Defendant or the Respondent) is a common stock company under German law, specialized in the development and the production of packaging or wrapping machines, particularly for beverages. One of its subsidiaries, A.________ GmbH (hereafter: A.________), which it absorbed in 2005, produced breweries.
In a contract of July 29, 1999, (hereafter: the 1999 Contract) Y.________ and A.________ companies undertook to deliver to X.________ a turnkey beer production facility comprising, among other things, a brewery capable of producing a minimum of 500’000 hectoliters per year. They also undertook to provide technical assistance to the Algerian company. The total price of the production unit was set to DM 65’759’000. The construction works on the building intended to host the production unit were to be borne by X.________. The parties agreed on a warranty period of twelve months from the final acceptance of the brewery. The contract was governed by Swiss law and contained an arbitration clause with the seat of the arbitration in Geneva, and a three-arbitrator panel who would decide, according to the rules of the International Commercial and Industrial Arbitration Court (CARICI), any dispute to which performance could lead. The proceedings were to be conducted in French. On August 16, 1999, Y.________ issued a performance bond amounting to DM 9’563’865 in X.________’s favor.
A.b. The brewery commenced operation in April 2001. However, some difficulties appeared fairly quickly after the 1999 Contract was signed and they did not stop once the plant entered into the production phase. The parties tried to settle them, in particular by signing several agreement protocols, in particular the protocol of April 16, 2002 (hereafter: the 2002 Protocol), without being able to reach an agreement.
B.a. On May 19, 2004, X.________, who had called in the aforesaid guarantee some days earlier, seized the CARICI with a request for arbitration against Y.________ and A.________. It submitted that the two German companies should be ordered to severally to pay an amount of EUR 18’350’222 for partial breach of the 1999 Contract on several counts. The Respondents submitted that the request should be rejected and counterclaimed for payment by the Claimant of an amount corresponding to that which it had received pursuant to the performance bond as well as some compensation for the costs and expenses related to the proceedings they had introduced in Germany with a view to oppose payment of the guarantee, in which they had not prevailed. In support of their submission to reject the claim they raised a defense that the claim was time barred and expressed the desire that this be dealt with as a preliminary issue.
A three-member Arbitral Tribunal was constituted under the aegis of the CARICI.
On February 1, 2005, the parties and the Arbitral Tribunal established the terms of reference. The possibility of a preliminary ruling on the issue of limitation was reserved.
B.b. After ordering an exchange of briefs on this issue and hearing the arguments of the parties in a hearing on May 2, 2005, the Arbitral Tribunal issued a partial award on September 1, 2005, (hereafter: the 2005 Award) in which it found that the Claimant’s action based on Art. 367 to 370 CO2 was not time barred the day it was filed and that the warranty period anticipated by the 1999 Contract expired on March 31, 2005, twelve months after the final acceptance of the work (which had become impossible) should have taken place.
B.c. Once the 2005 Award was issued, the Arbitral Tribunal issued various procedural orders to organize subsequent exchanges of briefs. In particular, it invited the parties to clarify their intentions as to the possible hearing of witnesses and then invited them to submit oral arguments in a hearing held on May 4, 2006, which they did by submitting abundant skeleton arguments and in answering the Arbitrators’ questions on certain issues.
The internal discussions and deliberations subsequent to the oral arguments led the Arbitrators to hold that it would be appropriate at this stage in the proceedings to define the substantive bearing of the warranty obligation with a view to restricting the adducement of evidence to only the truly pertinent facts and to spare the parties from considerable effort and expenditures – in particular to call upon an expert – which may have turned out to be unnecessary, depending on the answers given to on pending legal issues.
This was the reason leading the Arbitral Tribunal to issue a second partial award on November 17, 2006, (hereafter: the 2006 Award). There, it interpreted the 2002 Protocol as an agreement reflecting the common will of the parties to globally and finally settle their differences. The Arbitral Tribunal thus limited Respondent Y.________’s liability – it had succeeded A.________ in the pending arbitral proceedings as a consequence of their merger – to this agreement and to the subsequent minutes and accordingly held that it could already reject the Claimant’s submissions concerning the payment of EUR 715’809, EUR 6’830’120 and EUR 2’175’000 with interest, as upholding them would not have been compatible with its own interpretation of the 2002 Protocol. It therefore rejected the claim to that extent and with regard to another issue, whilst reserving its decision on the still-undecided points and on the counterclaim. The Arbitrators also rejected the Respondent’s submission for a finding that its contractual warranty was limited to 10% of the agreed-upon price.
On the same day, the Arbitral Tribunal issued Procedural Order No. 12 in which it defined a number of factual items deemed to create the framework in which evidence should be submitted, as to which the parties were invited to state their views.
B.d. On January 8, 2007, the Claimant filed a public law appeal within the meaning of Art. 85(c) OJ.3 It submitted that the Federal Tribunal should annul the 2006 Award and remove the three Arbitrators.
In its judgment of September 26, 2007, the First Civil Law Court rejected the appeal (case 4P.4/2007). Addressing at first the argument based on the alleged irregular composition of the Arbitral Tribunal, it stated the following in particular (aforesaid judgment at 3.3.2, p. 12 f.):
“Ultimately, the only thing which may perhaps raise a problem in the case at hand as to the impartiality of the Arbitral Tribunal is the wording of the challenged paragraph of the award. It is true that certain metaphorical expressions used in the text at issue to qualify the behavior of one of the Appellant’s executives are not far from including some irony and that they may have caused a feeling of incomprehension to this party. It would indeed have been preferable to forego this picturesque and somewhat over-personalized language in order to avoid that the addressee of this criticism, worded in such unnecessarily incisive style, may take offence. However, if considered in its procedural context – namely an arbitral award issued by a multi-lingual panel with a majority of non-French speakers – the lack of restraint of the Arbitral Tribunal in its written opinions is not of such gravity as to warrant upholding the argument based on the irregular composition of the Arbitral Tribunal. Indeed the way in which the proceedings were conducted so far is beyond criticism; both parties acknowledged as much to the Arbitrators. They upheld the Appellant’s point of view as to the time bar in their first partial award and in the award under appeal, the same party also prevailed on the far from negligible issue of a limitation of the Respondent’s contractual liability to 10% of the contractual price (…). Moreover, the steps taken in the subsequent proceedings as they appear in particular from Procedural Order No. 12 demonstrate that the Arbitrators intend to carefully carry out the mission they have been entrusted with and to ensure that both parties have the right to be heard and are treated equally.
“Considered in the light of all these circumstances and placed in its context, the Appellant’s criticism of the Arbitral Tribunal on the mere basis of the text of the award under appeal does not justify its annulment, also because such a decision would require reopening ab ovo a case started more than three years ago and because nothing suggests that the Arbitrators would not continue to treat the case at hand objectively and treat the parties equally.”
In a second argument, the Appellant submitted that the Arbitral Tribunal had based its award on legal grounds unforeseeable by the parties in violation of its right to be heard (Art. 190(2)(d) PILA4). Claiming to be surprised, it criticized the Arbitrators for limiting the responsibility of the parties to the facts after the 2002 Protocol, even though none of them had submitted that argument. The argument was rejected for the following reasons (case quoted, at 4.2, p. 13):
“First, as the Arbitral Tribunal emphasizes in its observations, the parties were able to state their views several times as to the object of the dispute, both verbally and in writing. Then, the very text of the preamble of the 2002 Protocol, reproduced hereafter, could not but lead them to ask, with the assistance of counsel, whether the Arbitrators may see there a sort of extrajudicial transaction (‘the situation of the reservations and disputes was debated during the meetings of 15/04/2002 and of 16/04/2002. Consequently, the parties wishing to find a global and final settlement to bring the brewery to the level of contractual performance […], it was agreed and decided between the parties to settle the aforesaid reservations and the aforesaid disputes as follows:’). In this respect, at paragraph 116 of its answer, the Respondent points to a passage in the request of arbitration in which the Appellant wrote the following with reference to the 2002 Protocol: ‘The parties thus reached an agreement to settle all reservations and disputes.’ The Respondent also states in this brief that it even invoked the aforesaid Protocol, a copy of which was placed in the arbitration file by both parties (§ 117 ff.). Moreover, according to the aforesaid case law, the Arbitral Tribunal did not have to advise the parties specifically as to the interpretation it could give of the document in dispute. Finally, as the Respondent demonstrates at paragraphs 124 to 131 of its answer, it is far from established that the Arbitral Tribunal interpreted the 2002 Protocol in a contradictory manner in its two successive partial awards. Moreover, insofar as the Respondent had specifically asked the Arbitral Tribunal to decide by way of such awards, the claims which did not require involving a technical expert, the Appellant cannot claim that the award submitted to the review of this Court would have been unforeseeable.”
The First Civil Law Court rejected a third argument by which the Appellant argued a violation of procedural public policy because in the second partial award the Arbitral Tribunal allegedly departed from the opinion it had expressed on the same issue in the first partial award. The Court found in this respect that there was no contradiction between the two awards (aforesaid judgment at 5.1).
C.a. After the federal judgment was notified, the Arbitral Tribunal resumed the arbitral proceedings on November 5, 2007.
A new fact took place then, namely the sale by X.________ of the brewery in dispute to the [name omitted] Group. According to a statement by Y.________, which the Arbitral Tribunal did not consider established, the sale price was EUR 135’000’000. On January 13, 2008, the Arbitral Tribunal declined jurisdiction as to the interim measures of protection requested by Y._________ in connection with this sale.
Once in possession of the written submissions of the parties as to the questions asked in Procedural Order No. 12, and even though it felt that the case could be decided on the basis of the documents produced, the Arbitral Tribunal nonetheless invited the parties to state their views as to a possible hearing of witnesses in its Procedural Order No. 20 of June 28, 2008. Pursuant to X.________’s request, witnesses were heard at a hearing held in Geneva from February 9 to 11, 2009. After the hearing, the Arbitral Tribunal accepted a new exchange of briefs. Then it decided, pursuant to repeated requests by X.________, in its Procedural Order No. 26 of June 29, 2010, that an expert report was needed as to the issues undecided in the 2006 Award and, failing an agreement of the parties on this issue, it appointed an expert itself in Procedural Order No. 27 of December 11, 2010, namely Mr. B.________. The expert report was submitted on July 1, 2011. The expert was heard at a hearing at the end of February 2012. Upon request from X.________, B.________ was invited by the Arbitral Tribunal to submit an additional report, which he did on April 30, 2012. In its observations as to this additional report, X.________, after requesting and obtaining several extensions to do so, specified and clarified its intent to challenge the expert. In Procedural Order No. 35 of January 25, 2013, the Arbitral Tribunal rejected the challenge and stated that the grounds of its decision would be explained in the final award.
X.________ submitted its final brief on May 24, 2013, after Y.________ had done so on June 27, 2012.
The last deliberation took place on June 21, 2013.
C.b. On October 25, 2013, the Arbitral Tribunal issued its majority final award (hereafter: the Award). In a 14-point operative part, which it is not necessary to reproduce here, it upheld 10% of X.________’s submissions and 90% of Y.________’s submissions. The reasons of the award will be set forth hereafter only to the extent necessary.
D. On December 9, 2013, X.________ filed a civil law appeal. It requested that the Federal Tribunal annul the October 25, 2013, Award and remove the three Arbitrators who decided the case.
Pursuant to Y.________’s request and by order of the President of the First Civil Law Court, the Appellant paid an amount of CHF 60’000 to the Court Office of the Federal Tribunal as a guarantee for the costs of its opponent.
In its answer of April 9, 2014, the Respondent submitted that the appeal should be rejected if the matter is capable of appeal at all. It also submits that the matter is not capable of appeal insofar as the appeal is implicitly against the partial awards issued on September 1, 2005, and November 17, 2006. The majority of the Arbitral Tribunal submits that the appeal should be rejected in its observations filed on February 13, 2014.
The Appellant reiterated its submissions in its reply of May 26, 2014. The Respondent did the same in its rejoinder of June 11, 2014.
1.1. A civil law appeal is admissible against international arbitral awards pursuant to the requirements of Art. 190 to 192 PILA (Art. 77(1)(a) LTF5). Whether as to the subject of the appeal, the standing to appeal, the time limit to appeal or the Appellant’s submissions or the grievances raised in the appeal brief, none of these admissibility requirements raises any problem in the case at hand. The matter is therefore capable of appeal. The examination of the admissibility of the various grievances formulated in the appeal brief is reserved.
However, two introductory clarifications are necessary as to the reasons in support of the appeal: First, to recall that the reasons must be contained in the appeal brief itself under penalty of inadmissibility of the argument, so that merely asking the Federal Tribunal to refer to the statements, evidence, and offers of evidence contained in the briefs in the file of the arbitral tribunal is not acceptable (judgment 4A_414/20126 of December 11, 2012, at 3.2 and the precedents quoted); and Second, it must be emphasized again that an appellant cannot use its reply to invoke factual or legal arguments not submitted in a timely manner, namely before the non-extendible time limit to appeal expired (Art. 100(1) LTF in connection with Art. 47(1) LTF), or to supplement beyond the time limit some insufficient arguments (judgment 4A_146/20127 of January 10, 2013, at 2.7 and the case quoted).
1.2. The Respondent submits that the matter is not capable of appeal insofar as the 2005 and 2006 Awards are implicitly appealed.
The submission is superfluous in the case at hand. The Federal Tribunal is bound by the formal submission made by the Appellant. It does not have to decide implicit submissions. Yet, the Appellant merely seeks the annulment of the final Award of October 25, 2013, and the removal of the three Arbitrators. Therefore, there is no question that the two awards previously issued by the Arbitral Tribunal should be revisited, namely, the 2005 Award (an interlocutory award, according to present terminology) and the 2006 Award. The latter was indeed appealed to the Federal Tribunal by the Appellant without success (aforesaid judgment 4P.4/2007).
The Federal Tribunal issues its decision on the basis of the facts found in the award under appeal (see Art. 105(1) LTF). This Court may not rectify or supplement ex officio the findings of the arbitrators, even when the facts were established in a blatantly inaccurate manner or in violation of the law (see Art. 77(2) LTF ruling out the applicability of Art. 105(2) LTF). Indeed, the court’s mission, when seized of a civil law appeal against an international arbitral award, is not to exercise a full judicial review as an appeal court would do, but only to examine whether the admissible grievances formulated against the award are justified or not. Allowing the parties to state other facts than those found by the arbitral tribunal, except for the exceptional cases reserved by case law, would not be compatible with such a mission even if the facts were established by the evidence contained in the arbitration file (judgment 4A_386/20108 of January 3, 2011, at 3.2). However, as was already the case under the aegis of the federal law organizing federal courts (see AFT 129 III 727 at 5.2.2; 128 III 50 at 2a and the cases quoted), the Federal Tribunal retains the capacity to review the factual findings on which the arbitral award under appeal is based if one of the grievances listed in Art. 190(2) PILA is raised against such factual findings or when some new facts or evidence are exceptionally taken into account in the framework of the civil law appeal (ATF 138 III 299 at 2.2.1 and the cases quoted). Whomever wishes to avail himself of an exception to the inviolability of the factual findings in the award under appeal must demonstrate by precise reference to the specific passage of its briefs that the facts disregarded by the arbitral tribunal were in fact submitted during the arbitral proceedings (judgment 4A_450/201310 of April 7, 2014, at 2.3).
At Chapter III of its appeal brief (n. 1 to 23) entitled “Statement of Facts”, the Appellant argues that the facts found by the Arbitral Tribunal in the 2005 and 2006 Awards were deficient and sets forth its own version of the pertinent facts by referring the Federal Tribunal to the exhibits in the file “as an extra precaution” (footnote 3) and it quotes a number of exhibits there. This is not admissible in view of the aforesaid case law. Be this as it may, the explanations submitted by the Respondent in its answer to the appeal (n. 18 to 41) show that the requirements for the Federal Tribunal to be entitled to review or supplement the facts on which the award under appeal relies were not established by the Appellant.
Before reviewing the Appellant’s arguments, an issue must be addressed on which the parties disagree and which is of paramount importance to the determination of most of them. It is the issue as to whether or not the 2006 Award was res judicata insofar as it limited the Respondent’s liability to the items listed in the 2002 Protocol and the subsequent minutes (see lit. B.d. in fine, above).
The Appellant answers the question in the negative. It recalls in this respect that, according to case law, only the operative part of the award is res judicata and not the reasons, even though their analysis may be necessary to understand the former (ATF 128 III 191 at 4a, p. 195 and references). Therefore, in its view, only the rejection of the three monetary submissions of the Appellant and the Respondent’s submission that its liability be limited as addressed at n. 2, 3, 4 and 6 of the operative part of the 2006 Award (see above B.c., § before last) would be res judicata. This would not be the case of the limitation of responsibility in dispute for lack of any ad hoc reference in the operative part, which is mentioned only in the reasons of the aforesaid Award (reply n. 10 to 14).
The Appellant’s remark as to res judicata is certainly correct. However, it does not dispose of the issue. Indeed, according to well-established case law, an arbitral tribunal violates procedural public policy not only if it decides without taking into account res judicata in a previous decision but also when, in the final award, it departs from the opinion expressed in an interlocutory award deciding a substantive preliminary issue (ATF 136 III 34511 at 2.1, p. 348; 128 III 191 at 4a, p. 194 and the writers quoted). The latter case applies here. The 2006 Award is not merely a partial award finally adjudicating part of the submissions in dispute. It is also an interlocutory award to the extent that it addresses the substantive preliminary issue of the scope of the 2002 Protocol. In accordance with this case law, the Arbitral Tribunal therefore could not revisit (in its final award) the answer it had given as to this issue in the 2006 Award without violating procedural public policy. It is unseemly for the Appellant to argue the opposite moreover, for it previously raised similar criticism of the Arbitral Tribunal that it allegedly departed in its 2006 Award from the opinion expressed on a preliminary substantive issue (the Claimant’s claims being time-barred) in its 2005 Award (aforesaid judgment 4P.4/2007, at 5.1).
As to the Appellant’s explanations based on Art. 91 LTF (reply n. 15), they fail simply because this provision is not applicable to domestic or international arbitration pursuant to Art. 77(2) LTF.
Therefore, this Court will not address the Appellant’s argument aimed at or purporting to challenge, directly or indirectly, the decision of the Arbitral Tribunal in the 2006 Award to limit the Respondent’s liability to the items listed in the 2002 Protocol and the subsequent minutes. Thus, the Appellant’s attempt to revisit the performance of the mutual obligations of the parties between the conclusion of the 1999 Contract and the execution of the 2002 Protocol, as appears repeatedly in its submissions, is doomed from the start.
In a first set of arguments, the Appellant claims a violation of its right to be heard and submits that the Arbitral Tribunal neglected its minimal duty to examine and handle the pertinent issues (appeal brief n. 31 to 91).
4.1. The right to be heard, as guaranteed by Art. 182(3) and 190(2)(d) PILA, does not differ in substance from that which is enshrined in constitutional law (ATF 127 III 576 at 2c; 119 II 386 at 1b; 117 II 346 at 1a, p. 347). Thus, it was held in the field of arbitration that each party has the right to state its views on the essential facts to the award to be issued, to present its legal arguments, to propose evidence on pertinent facts, and to participate in the hearings of the arbitral tribunal (ATF 127 III 576 at 2c; 116 II 639 at 4c, p. 643).
Without doubt, the right to be heard in contradictory proceedings within the meaning of Art. 190(2)(d) PILA does not require that an international arbitral award is reasoned (ATF 134 III 18612 at 6.1 and references). Yet, it imposes upon the arbitrators a minimal duty to examine and handle the pertinent issues (ATF 133 III 235 at 5.2, p. 248 and the case quoted). This duty is breached when, inadvertently or due to a misunderstanding, the arbitral tribunal does not take into consideration some submissions, arguments, evidence, and offers of evidence presented by one of the parties and important to the decision to be issued. If the award totally overlooks some elements apparently important to resolve the dispute, it behooves the arbitrators or the respondent to justify the omission in their observations as to the appeal. It falls upon them to demonstrate that, contrary to the claimant’s allegations, the items omitted were not pertinent to resolve the case at hand, or if they were, that they were implicitly refuted by the arbitral tribunal. However, the arbitrators do not have the obligation to discuss all arguments raised by the parties so that they cannot be held in violation of the right to be heard in contradictory proceedings for failing to refute, albeit implicitly, an argument objectively devoid of any pertinence (ATF 133 III 235 at 5.2 and the cases quoted).
4.2. The Appellant divides its argument in three parts entitled respectively, “In general”, “The points in connection with the questions in Procedural Order No. 12” and “The second partial award”, with said parts themselves containing various subdivisions. For the sake of clarity, this Court will review the argument in question in the order submitted by the Appellant and adopt the titles and subtitles it used.
4.2.1. “In general” (appeal n. 33 to 48)
18.104.22.168. “Outright ignorance of the fraudulent concealment of defects” (appeal n. 33 to 40; answer, n. 52/53; reply n. 30/31; rejoinder n. 16 to 18).
Relying on the conclusions illustrated by a comparison table of a party-appointed expert it retained, the Appellant states that the brewery in dispute was, by its very design, incapable of reaching the production capacity contractually guaranteed and to produce beer of marketable quality, which the Respondent could not but have known at the time that the 1999 Contract was signed; as opposed to the Claimant, who could not have realized it due to its lack of experience. According to the Appellant, the Arbitral Tribunal did not devote even a single word to this issue.
It is not so. The Arbitral Tribunal refuted the Appellant’s assertion – if not expressly, at least indirectly – and very clearly, by stating that the brewery delivered underwent many changes during performance, by agreement of the parties, so that it could no longer be considered as identical to that which had been ordered in July 1999 and therefore it must be determined whether or not the brewery finally delivered corresponded to the technical description in the 1999 Contract, supplemented during performance by various protocols of agreement, minutes, and other addenda (award n. 175, 197 and 198). Moreover, assuming it is telling the truth, the Appellant should nonetheless live with the 2002 Protocol, which reflected the common intent of the parties to settle comprehensively and definitively the still-unresolved differences such as the production capacity of the brewery delivered.
The Appellant also argues that the Arbitral Tribunal ignored its argument by which the Respondent deliberately attempted to deceive it. Yet, the Arbitral Tribunal addressed the argument at n. 164 of the award, indeed in the very paragraph reproduced in quotes by the Appellant (appeal n. 38). Whether the answer satisfies the Appellant or not is another issue, unconnected with its right to be heard. Be this as it may, a claim for fraud would also be barred by the effect of the settlement reflected in the 2002 Protocol.
22.214.171.124. “Ascertainment of defects” (appeal n. 41 to 43; answer n. 54 to 56)
It is argued here that the Arbitral Tribunal did not at all take into account the results of an audit carried out in March/April 2000, which brought to light a number of defects impacting the brewery, which the Respondent essentially admitted to during a meeting held on April 19, 2000. Moreover, the commissioning of the brewery in April/May 2001 immediately showed a series of serious flaws, a circumstance also overlooked in the award under appeal.
Since the argument in its two parts refers to a time before the 2002 Protocol was signed, it is not pertinent for the reasons already given.
126.96.36.199. “The right to performance by substitution of Art. 366(2) CO” (appeal n. 44 to 46; answer n. 57/58)
Under this heading, the Appellant argues that the Arbitral Tribunal rejected, “in two sentences” its claims based on Art. 366(2) CO. In its view, such reasoning would be “stunning” because it would be sufficient for the Federal Tribunal to merely peruse the briefs it quotes to find that the requirements for this provision to apply were set forth in detail there.
The argument is inadmissible because it merely consists in a reference to the briefs in the file of the arbitration (see 1.1, above). Irrespective of the foregoing, it would be doomed. Indeed, at n. 178 of the award, the Arbitral Tribunal stated that in its view, the Appellant’s briefs did not prove that the legal requirements of the right to performance by substitution were met. The Appellant’s argument was therefore not overlooked. As to how it was disposed of, this is an issue relating to the finding of pertinent facts and/or the application of the pertinent rule of law but not the Appellant’s right to be heard. It hardly needs to be recalled that compliance with this procedural guarantee does not depend up on the length of the developments devoted by the Arbitral Tribunal to the issue in dispute, particularly not since there is no requirement for a reasoned award at Art. 190(2)(d) PILA. Moreover, upholding the claim based on Art. 366(2) CO would also have been hampered by the existence of the 2002 Protocol and its impact on the claims still in dispute at the time.
188.8.131.52. “As to the bank guarantee” (appeal n. 47/48; answer n. 59/60)
In upholding the counterclaim submitted by the Respondent, the Arbitral Tribunal ordered the Appellant to reimburse the performance bond called in and the legal and other expenses borne by the Respondent in the legal proceedings it conducted in Germany to contest payment of the guarantee (award n. 380 to 391). Agreeing with the Respondent in this respect, it held that calling in the guarantee was unfair pendente lite because from March 31, 2004, the Appellant could not in good faith invoke the lack of final acceptance of the brewery and the Respondent had performed its obligations pursuant not only to the 1999 Contract but also under the additions that had supplemented it. Relying on Art. 41 CO, the Arbitral Tribunal thus ordered the Appellant to compensate the Respondent for the entire damage caused by the unfair calling in of the aforesaid guarantee. Pursuant to Art. 125(1) CO moreover, it denied the Appellant the right to set this off against its damage claims. The Appellant rightly points to a factual mistake of the Arbitral Tribunal insofar as the calling in of the performance bond did not take place during the arbitration but some days before the filing of the arbitration requests on May 19, 2004, which the Respondent concedes (answer footnote 116). However, this clerical mistake is without consequence because it does not change anything as to the fact that the performance bond was called in after the decisive date upheld by the Arbitral Tribunal (March 31, 2004). Furthermore, the Appellant’s claim that the Arbitral Tribunal would not explain in what way its behavior was unfair is somewhat surprising. Indeed, it appears clearly from the reasons of the award summarized above that the Arbitral Tribunal criticized the Appellant for calling in the guarantee in dispute after the Respondent had performed its obligations. Also, the reasons developed in the relevant passage of the award under appeal necessarily imply rejecting the Appellant’s assertion that the Arbitral Tribunal was bound by the decisions issued in Germany as to the same guarantee. Hence, the Appellant is not entitled to argue that the assertion was not explicitly rejected by the Arbitral Tribunal. Moreover, its demonstration is merely an attempt to challenge the manner in which the legal principles concerning the performance bond were applied in the case at hand.
4.2.2. “The points in connection with the questions in Procedural Order n. 12” (appeal n. 49 to 75; answer n. 61 to 116; reply n. 16 to 47; rejoinder n. 19 to 38)
Under this heading, the Appellant quotes a number of examples allegedly demonstrating that the Arbitral Tribunal did not abide by its right to be heard in handling the various issues that were the subject of the aforesaid Procedural Order issued on November 17, 2006.
184.108.40.206. “The centrifugal separation system” (appeal n. 52 to 54; answer n. 61 to 69; answer of the Arbitral Tribunal (hereafter: AT), p. 2 f.; reply n. 32 to 34 and 82 to 84; rejoinder n. 19 to 22)
Under n. 52 to 54, the Appellant sets forth its own version of the facts concerning the claim for EUR 291’279 raised in connection with the delivery of a full centrifugal separation system of type [name of model omitted]. It embellishes its narrative with references to exhibits directly drawn from the arbitration file to deplore in fine that the Arbitral Tribunal “[did not say] a word on all this.”
By formulating its argument in this manner, the Appellant mistakes the Federal Tribunal for a court of appeal. It appears aware of this because, after reading the answer in which the Respondent pointed to the insufficient reasons given, it sought to supplement them in the reply by reference to several passages of its previous briefs. However, supplementing an appeal in this manner is not permitted by case law (see 1.1, above). The argument is therefore inadmissible. Had it not been, it would have been rejected for the convincing reasons explained by the Respondent n. 64 to 69 of its answer.
220.127.116.11. “The spare parts” (appeal n. 55 to 59; answer n. 70 to 82; answer of the AT, p. 3; reply n. 35 to 37 and 85 f.; rejoinder n. 23 to 29)
The Appellant raised a claim for EUR 1’784’495.53 for spare parts. The Arbitral Tribunal reviews the validity of the claim at n. 303 to 313 of the award. It recalls first of all that in a meeting held on October 8, 2002, the parties agreed to work out a list of the spare parts used since the commissioning of the plant and the Respondent undertook to replace free of charge the spare parts not yet delivered and covered by the builder’s guarantee under Art. 12 of the 1999 Contract. It then refers to two subsequent meetings on January 30, and July 31, 2003, during which the parties attempted to solve the problem. Moreover, the Arbitral Tribunal recalls that in Procedural Order n. 12 of November 17, 2006, issued pursuant to the partial award of the same day, it invited the Appellant to state among other things, which spare parts were not delivered by the Respondent by March 31, 2005, and, should it have acquired such spare parts itself elsewhere, in particular among some of the Respondent’s subcontractors, to provide the Arbitral Tribunal with the list of the payments made in this respect. On this basis, the Arbitral Tribunal finds that the Appellant did not clearly answer the questions and that in its final brief, it raised yet another claim with a view to obtaining the payment of EUR 500’000 “corresponding to the counter value of the risk premium for the guarantee contractually given but not delivered.” It also emphasizes with regard to an assertion by the Claimant that the Respondent never acknowledged owing it at least EUR 1’200’000 in connection with the guarantee concerning spare parts, which leads it to rule out the existence of any agreement between the parties as to any compensation or reimbursement in connection with spare parts. Finally, the Arbitral Tribunal finds that the Appellant was not capable of providing a list of spare parts used, as anticipated by the minutes of the October 8, 2002, meeting, which leads it to reject this part of the claim for lack of sufficient evidence.
Before the Federal Tribunal, the Appellant argues first that the factual findings in the award under appeal do not at all correspond to its own. This preemptory assertion cannot constitute an ‘argument’ worthy of the name.
In a second part, the Appellant seeks to demonstrate that the parties would indeed have agreed upon compensation, consisting of a lump sum of EUR 1’200’000 that the Respondent would pay. In doing so, it puts forward a criticism which does not belong to the guarantee of the right to be heard but to the assessment of evidence which is beyond the review of the Federal Tribunal when addressing an appeal against an award issued in an international arbitration.
Moreover, the Appellant challenges, with references, the finding of the Arbitral Tribunal that the issue in dispute was not the subject of a clear and tangible claim in the request for arbitration of May 19, 2004, and the finding that it did not answer Procedural Order No. 12 clearly, insofar as it was invited to draw up a precise list of the spare parts to be delivered by the Respondent. This too is criticism concerning the assessment of the evidence, as the inferences drawn from the submissions of the parties during the arbitral proceedings (briefs, submissions, witness statements, etc.) are also in the realm of facts. Be this as it may, the Appellant’s mere reference to various passages of its briefs without any further explanation would not be sufficient to disprove the findings challenged and neither would the argument that the Arbitral Tribunal had not explained, “what it did with the six binders dutifully added to the file and containing hundreds of invoices justifying each spare part for which reimbursement is sought…”.
Also related to the assessment of the evidence is the finding of the Arbitral Tribunal, drawn from the minutes of the January 30, 2003, meeting, as to the fact that the Respondent proved that it delivered some free spare parts to the Appellant during the warranty period. The Appellant challenges this and the finding that it does not appear to have challenged it in vain.
Finally, the argument at. 35 f. of the reply concerning the additional claim for payment of EUR 500’000 corresponding to the risk premium was late (see 1.1, above). Therefore, it is inadmissible.
18.104.22.168. “The refrigeration system” (appeal n. 60 to 64; answer n. 83 to 98; answer of the AT p. 4; reply n. 38 to 42; rejoinder n. 30 to 33)
The Arbitral Tribunal rejected the Claimant’s submission for the reimbursement of a total amount of EUR 214’953.76 in connection with the [name of system omitted] refrigeration system. Holding that the opinions of the ‘party-employed experts’ opinions were inconclusive as to the cold-generation capacity required to cover the needs of the brewery foreseen in the 1999 Contract, it reached the conclusion that the Appellant had failed to establish that the under sizing related to the brewery described in the 1999 Contract, which it had approved, rather than to the growing refrigeration requirements resulting from the changes to the initial brewery concept (award n. 314 to 323).
By way of argument, the Appellant claims that, “these words are simply stunning”; then it tries to demonstrate that the conclusions drawn by the Arbitral Tribunal as to the party-appointed expert reports put into the file by the two parties were untenable on the basis of the converging views, which it claims the writers of the reports expressed. Once again, the Appellant’s arguments challenge the assessment of the evidence under the guise of an alleged violation of its right to be heard. The argument appears therefore clearly inadmissible. The same applies to the Appellant’s attempt to supplement it in its reply (see above, 1.1).
22.214.171.124. “As to the inverters” (appeal n. 65 to 73; answer n. 99 to 110; answer of the AT, p. 4 f.; reply n. 43 to 46 and 87 f.; rejoinder n. 34 f.)
The Appellant also raised a claim for a total of EUR 1’835’860 concerning a 50% share of the costs of a current stabilization system (EUR 566’790) and the price of a new standalone generator (EUR 1’269’070). The claim related to the lack of a stable supply of electrical power to the brewery and it was rejected (award n. 334 to 343).
First of all, the Arbitral Tribunal finds that the issue of the invertors was mentioned in the minutes of the June 16, 2003, meeting. With reference to the exhibits in the record, it then sets forth the positions of the two parties in this respect since that time and finds that both continued to shift the burden to the other as to the origin of the problem. This being said, the Arbitral Tribunal recalls that, in its Procedural Order No. 12 of November 17, 2006, it asked the parties to provide additional information. It then sets forth the answers received. On this basis, it finds that the Respondent had met its commitments in accordance with the minutes of July 31, 2003, particularly that it paid the Appellant half the amount necessary to replace the batteries and then states that, in any event, the Respondent was not bound to improve the electricity supply given by the public grid in Algeria by making a new standalone generator available. Moreover, the Arbitral Tribunal states that the Appellant, being an Algerian company, knows much better than the Respondent the issues connected with electrical power supply in its country and regrets that it did not take them into account at the time bids were sought for constructing the brewery.
In an argument essentially of an appellate nature, the Appellant states its own version of the facts as to the issue in dispute by going back to the execution of the 1999 Contract. “For a detailed presentation” it refers the Federal Tribunal to the 25 pages it devoted to this issue in its final brief of May 24, 2013, (footnote 70) which is not admissible. Moreover, as the Respondent rightly points out in its answer, not only does the Appellant ignore once again that the 2006 Award is binding when it tries to base its claim on facts before the minutes of the meeting of July 31, 2003, but once again, it challenges the assessment of the evidence and the application of the law on which the Arbitral Tribunal relied to reject the claim in dispute. In other words, its demonstration has nothing to do with an alleged violation of the right to be heard, irrespective of the merits of the reasons on which the rejection of the claim was based.
126.96.36.199. “The penalty clause” (appeal n. 74 f.; answer n. 111 to 116; reply n. 47; rejoinder n. 36 to 38)
The Appellant argues finally that, in addition to its other claims, it sought the payment of the penalty for non-performance contained at Art. 11(5) of the 1999 Contract, namely 15% of the purchase price. It adds that it analyzed in detail the mechanism of the penalty clause in its briefs, to which it refers the Federal Tribunal. It hardly needs to be repeated that such reference is not admissible (see 1.1, above). The Appellant regrets that the Arbitral Tribunal, “does not devote one word, not one, to its legal arguments submitted.” Whilst from reading the appeal brief one does not see what these legal arguments were, they appear clearly from n. 370-374 of the award, which dealt with the issue in dispute that the Arbitral Tribunal told the parties why this heading of the claim could not be upheld, namely the fact that the Respondent had fulfilled all its obligations to the Appellant as per the 1999 Contract and its subsequent addenda. Therefore, the Appellant wrongly argues a violation of its right to be heard.
4.2.3. “The second partial award” and “Conclusions” (appeal n. 76 to 91; answer n. 117 to 128; reply n. 19f.)
188.8.131.52. In connection with the 2006 Award, the Appellant submits that the Arbitral Tribunal forgot that the reasons of the aforesaid Award were not res judicata. Hence, the Appellant submits that the Tribunal simply ignored five arguments submitted in its briefs of July 25, 2008, and May 24, 2013, concerning the 2002 Protocol and its impact on the 1999 Contract (appeal brief n. 82 to 86).
The Appellant’s attempt to challenge the reasoning of the Arbitral Tribunal in the 2006 Award as to the 2002 Protocol is doomed from the start. Indeed, as was pointed out above (at 3), the Arbitral Tribunal could not revisit the answer it had given to this question in the 2006 Award in its final award. Therefore, it cannot be criticized for not doing so, even though the Appellant subsequently invited it to change its views on this issue. The Appellant was doubtlessly aware of that, as at the time it had already challenged the conclusions that the Arbitral Tribunal had drawn from the 2002 Protocol as an alleged violation of its right to be heard and from the point of view of the incompatibility of the award with public policy (see aforesaid judgment 4P.4/2007 at 4 and 5).
184.108.40.206. In the arbitral proceedings, the Appellant invoked the minutes of the meeting of July 31, 2003, to seek an additional amount of EUR 127’500 (150 days x EUR 850), for the Respondent’s failure to provide the technical assistance anticipated under the 1999 Contract.
The Arbitral Tribunal upheld this claim at n. 8 of the operative part of the award. However, the Appellant submits that it wrongly held that its claim amounted to EUR 501’500 (award n. 221), this amount being the aforesaid figure added to another amount of EUR 374’000. According to the Appellant, the Arbitral Tribunal would not have seen that the two amounts related to the same claim, which had been reduced pendente lite from EUR 374’000 to EUR 127’500 to comply with the procedural framework imposed by Procedural Order n. 12.
The Appellant suffers no harm in this respect, as its claim was entirely upheld. Its standing to appeal is therefore questionable. Be this as it may, the alleged oversight of the Arbitral Tribunal, even if established, would have no consequence on the case at hand, as the award indisputably awards neither more nor less to the Appellant than what it had sought for technical assistance. This would be a mistake without any impact on the right to be heard of that party and it would therefore in no way justify the annulment, albeit partial, of the award under appeal (see ATF 121 III 331 at 3a).
4.3. In these circumstances, the Appellant’s argument based on the violation of its right to be heard (Art. 190(2)(d) PILA) is groundless in all its parts, so it can only be rejected.
The Appellant argues furthermore that the Arbitral Tribunal was irregularly composed (Art. 190(2)(a) PILA).
5.1. The provision quoted provides two means of recourse: the violation of the rules – contractual (Art. 179(1) PILA) or statutory (Art. 179(2) PILA) – as to the appointment of Arbitrators (number, qualifications, method of appointment), on the one hand; the violation of rules concerning the impartiality and the independence of arbitrators (Art. 180(1)(b) and (c) PILA) on the other hand (ATF 139 III 511 at 4, p. 513 i.f.).
According to case law concerning this second means of recourse (ATF 136 III 60513 at 3.2.1 and the precedents quoted), which is by far the most frequently invoked of the two, an arbitral tribunal, like a state court, must present sufficient guarantees of independence and impartiality. Non-compliance with this rule, which applies to the party-appointed arbitrators as well as to the chairman of the arbitral tribunal (case quoted at 3.3.1) leads to irregular composition pursuant to the provision quoted. To determine whether an arbitral tribunal presents such guarantees, reference must be made to the constitutional principles developed by state courts. However, the specificities of arbitration and in particular those of international arbitration must be taken into account when reviewing the circumstances of the case at hand.
Art. 30(1) CST14 gives anyone whose case must be decided in judicial proceedings the right to a tribunal established by law, having jurisdiction over the dispute, which is independent and impartial. This guarantee makes it possible to challenge a judge whose situation or behavior is such as to give rise to doubt as to his impartiality; in particular it seeks to prevent that some circumstances, extraneous to the case at hand, may influence the judgment in favor or to the detriment of a party. It does not require recusal only when it is established that a judge is effectively biased because his inner disposition can hardly be proved; it is sufficient for the circumstances to give the apprehension of bias and to generate the concern of a biased attitude of the judge. Only the circumstances objectively established must be taken into consideration; the mere individual impressions of one of the parties to the case are not decisive. Subjective impartiality – which is presumed until proved to the contrary – ensures that every person’s case will be judged impartially.
Objective impartiality seeks in particular to prevent the same magistrate participating in the same case on various accounts and to guarantee the independence of the judge towards each litigant.
5.2. In a first part of its argument (appeal brief n. 100 to 102 and 148 to 153), the Appellant submits that it was the object of “systematic smearing” by the Arbitral Tribunal, which engaged in a “parody of justice” by pronouncing an actual “indictment” against it whilst displaying “invariable and extraordinary benevolence” to the Respondent. In its view, one would be seized by “a feeling of dizziness”, “dismayed” and “taken aback” when observing that the Arbitral Tribunal, or at least its majority, systematically ignored the facts stated by the Appellant without explanation, upheld some facts that were manifestly wrong, “even invented”, made severe and unfounded criticism of the Appellant by charging it with criminally punishable behavior, presented the facts “in a perfectly tendentious manner” to its detriment and “carefully” ignored the substantive issues.
The criticism is so excessive in its formulation that it loses any credibility. The Appellant makes the stroke too bold for its demonstration, which verges on a judgment of intentions, to remain somewhat persuasive. Moreover, the reasons reproduced above may be repeated here mutatis mutandis (see B.d, above), by which the Federal Tribunal in its aforesaid judgment 4P.4/2007, rejected a similar argument raised by the Appellant against the 2006 Award. Moreover, it must be emphasized that the Appellant’s persistent refusal to concede that the interpretation of the 2002 Protocol in the aforesaid award bound the Arbitral Tribunal, did not contribute to measured debate, in particular because this arbitration, which started more than ten years ago, took place in a somewhat harsh climate on the basis of the explanations of both parties as to the implementation of this procedure. Moreover, it does not appear that the Arbitral Tribunal did not pay attention to the right to be heard of both parties or that it treated them unequally after it issued Procedural Order No. 12; indeed, it upheld the Appellant’s submissions to hear witnesses and appoint an expert. Moreover, the Respondent points out – without being contradicted by the Appellant – that at the end of the hearing devoted to the expert on February 29, 2012, the Chairman of the Arbitral Tribunal asked the following question to the parties: “Do you have any problem with the conduct of the Arbitral Tribunal?” (Answer, n. 138).
5.3. The two other parts of the same argument concerning “systematic violation of the burden of proof” (appeal n. 103 to 126) and “numerous mistakes” (appeal n. 127 to 147) for which the Appellant criticizes the Arbitral Tribunal and by which it seeks to demonstrate – over some 15 pages – that the majority of the Arbitral Tribunal was biased.
The Federal Tribunal is demanding as to the assessment of a possible bias. Thus, case law states that procedural steps, whether right or wrong, cannot as such justify an objective suspicion of bias of the arbitrator taking them. This remark also applies to the arbitrator who was actively involved in a partial award, albeit an erroneous one (judgment 4A_458/200915 of June 10, 2010, at 220.127.116.11 and the cases quoted). More generally, some procedural mistakes or an erroneous substantive decision are not sufficient to justify the appearance of a bias of the arbitral tribunal except for some particularly serious and repeated mistakes which would constitute a manifest breach of its obligations (judgments 4A_54/201216 of June 27, 2012 at 2.2.3, 4A_348/200917 of January 6, 2010, at 3.3.3, 4A_539/200818 of February 19, 2009, at 3.3.2, 4A_196/2003 of January 7, 2004, at 3.1 and the case quoted). The latter exception must not be broadened, as this would upset the economy of the system of the means of recourse based on which an award issued in an international arbitration may be challenged. It cannot form the basis of a criticism of the factual findings and the legal considerations on which the final award rests, or to enable a party that cannot successfully rely upon any of the grounds for appeal found in Art. 190(2)(b)-(e) PILA to obtain the annulment of the award by way of an appeal based on the ground stated at Art. 190(2)(a) PILA. This would be a roundabout way to turn the Federal Tribunal into a court of appeal.
It must be recalled that, when seized of a civil law appeal against an international arbitral award, the Federal Tribunal does not review the assessment of the evidence or the application of the law on which the award is based even if they are arbitrary. Similarly, the implementation of the rules concerning the burden of proof is outside the scope of its review because such rules do not belong to substantive public policy within the meaning of Art. 190(2)(e) PILA (judgment 4A_304/201319 of March 3, 2014, at 5.2.3 and the precedent quoted).
In the case at hand, the Appellant invoked in vain both a violation of its right to be heard (see 4, above) and the incompatibility of the award with procedural public policy (see 6, hereunder) and essentially engages in long criticism of an appellate nature to try to demonstrate the allegedly systematic violation of the burden of proof by the Arbitral Tribunal and numerous alleged errors impacting it. In this way, it seeks to indirectly obtain what it could not do so directly, namely the annulment of the award under appeal. This is not admissible. In the extreme, it would indeed enable any party unhappy with the solution adopted by an arbitral tribunal in an international arbitration to demonstrate that it was factually and/or legally in error and consequently to obtain the annulment of the award, rejecting its claim under the cloak of a grievance based on Art. 190(2)(a) PILA. That being so, this Court will not address the various criticisms formulated by the Appellant in this framework.
In a final group of arguments, the Appellant argues a violation of procedural public policy, which the Arbitral Tribunal committed by failing to remove the expert, Mr. B.________ (appeal n. 155 to 184) and by ignoring the res judicata effect of the German judgments concerning the performance bond it had called in (appeal n. 185 to 189).
6.1. Public policy within the meaning of Art. 190(2)(e) PILA contains two elements: substantive public policy and procedural public policy. The latter, the only one involved here, guarantees to the parties the right to an independent judgment on the submissions and the facts submitted to the arbitral tribunal in conformity to applicable procedural law. Procedural public policy is violated when some fundamental and generally acknowledged principles are violated, leading to an insupportable contradiction with the notion of justice, such that the decision appears incompatible with the values recognized in a state of laws (ATF 132 III 389 at 2.2.1).
6.2.1. The right to an independent and impartial expert cannot be inferred from Art. 190(2)(a) PILA because the expert is not an arbitrator. Accordingly, the Federal Tribunal reviews the argument according to which an expert should have been removed from the point of view of a violation of procedural public policy, understood as a rule providing a subsidiary guarantee (ATF 126 III 249 at 4; Bernard Corboz, Commentaire de la LTF, 2nd ed. 2014, n. 170 ad Art. 77 LTF).
The party intending to challenge an arbitrator must raise the ground for challenge as soon as it becomes aware of it. This rule of case law applies to the grounds for a challenge that the party concerned effectively knew and also to those that it could have known, had they paid due attention (ATF 129 III 445 at 18.104.22.168, p. 465 and references); choosing to remain unaware may be considered in certain cases as an improper maneuver comparable to postponing the announcement of a challenge (judgment 4A_506/2007 of March 20, 2008, at 3.1.2). The aforesaid rule applies the principle of good faith to arbitral proceedings. Pursuant to this principle, the right to invoke the argument drawn from the irregular composition of the arbitral tribunal is forfeited if the party does not raise it immediately because it cannot keep it in reserve only to invoke it if the outcome of the arbitration is unfavorable (ATF 129 III 445 at 3.1, p. 449 and the cases quoted). In view of its general nature, the jurisprudential rule recalled here must also apply to the challenge of an expert.
6.2.2. The circumstances of B.________’s appointment as an expert, the mission he completed, and its interrogation by the Appellant were explained above (see C.a). The Respondent also sets this out chronologically in its answer (n. 221). As to the Arbitral Tribunal, it devotes an entire chapter of the award to the challenge made by the Appellant against the expert (n. 85 to 121), as it reserved the right to do in its Procedural Order No. 35 of January 25, 2013. There, it seeks to refute – in a fully intelligible manner – the grounds advanced by the Appellant in support of its challenge. One hardly understands, therefore, how it could be argued, even in the alternative, that the right to be heard in contradictory proceedings within the meaning of Art. 190(2)(d) PILA was violated for failing to state the reasons of its decision on this issue (appeal n. 184). Moreover, the Appellant’s argument as to the issue in dispute, which extends to more than seven pages (appeal n. 155 to 184), is thinned down to such an extent that its substance is logically impacted and – moreover – is markedly appellate in nature. It goes without saying that considering the narrow framework within which it steps, it does not behoove the Federal Tribunal to discuss it in any detail. Considered from a legal point of view, moreover, the situation is far less complicated than it appears at first and certainly less than that which the Appellant seeks to make believe.
Indeed, it must first be emphasized that, under n. 3 of its Procedural Order No. 27 of December 11, 2010, the Arbitral Tribunal introduced expert B.________’s curriculum vitae, the expert being chosen by the Arbitral Tribunal failing an agreement of the parties in this respect. One sees there, among other things, that he has German as his mother tongue, obtained an engineering degree from the brewery faculty of the Technical College of Münich-Weihenstephan, worked in various breweries in Switzerland and the United States and worked from 1981 to 2003 for Brewery [name omitted], of which he was the director, and that he retired in March 2003. Paragraphs 3 and 4 of the same Procedural Order show that after investigating the matter, the Arbitral Tribunal reached the conclusion that “Mr. B.________ had the necessary independence and that he had no business or other connection with any of the parties.” The Appellant claims, in a brief of September 6, 2010, that before the aforesaid Procedural Order, it had stated that the expert should have French as his mother tongue; moreover, it points out that the aforesaid German college “notoriously benefits from financing from the [Respondent]” (appeal n. 162). Thus, upon receiving Procedural Order No. 27, the Appellant knew that the expert retained by the Arbitral Tribunal did not fulfill one essential condition – his mother tongue – to which one of the parties subjected the validity of this appointment; similarly, it could no longer be unaware that the expert in question had studied in a college financially supported by the Respondent. Therefore, if it had indeed considered these flaws fatal, it should have immediately undertaken the necessary steps to challenge B.________’s appointment as an expert. Invoking such circumstances today in support of an argument against the appointment of the expert is therefore not consistent with the rules of good faith.
Secondly, it must be pointed out in respect of the expert report issued on July 4, 2011, which according to the Appellant “turned out to be appalling and more or less useless,” that the Appellant claims to have demonstrated all its deficiencies in its brief of September 20, 2011, and even its author’s bias towards the Respondent’s assertions, adding that it had immediately pointed out, “the unpleasant suspicion arising from the expert report” (appeal n. 163 f.). Why then did the Appellant fail to file a challenge against expert B.________ at the time as it suspected him to be biased? Yet, far from doing so, it sought an order for a new expert report and did not oppose Mr. B.________ being entrusted with an additional report after his testimony at the hearing of February 28-29, 2012, which, according to the Appellant, would have confirmed its “worst fears” (appeal n. 165 to 169).
It is actually only when the additional report was submitted on April 30, 2012, that the Appellant decided to question the expert’s independence formally by filing a challenge. It would not be hard to believe that it waited in order to see the content of the report, keeping the challenge of the expert in reserve should the conclusions of the aforesaid report be unfavorable to its position. Be this as it may the challenge, once placed in its context as described above, was filed late. Therefore, by rejecting it, albeit on other grounds in part, the Arbitral Tribunal did not violate Art. 190(2)(e) PILA.
6.3.1. An arbitral tribunal violates public policy when it renders an award without taking into account the res judicata effect of a previous decision or departs in its final award from the opinion expressed in an interlocutory award deciding a preliminary issue concerning the merits (ATF 136 III 34520 at 2.1, p. 348; 128 III 191 at 4a, p. 194 and the writers quoted). Res judicata also applies internationally and governs, in particular, the relationship between a Swiss arbitral tribunal and a foreign state court. Therefore, if a party seizes an arbitral tribunal sitting in Switzerland of a claim identical to a claim adjudicated in a judgment between the same parties elsewhere than in Switzerland which is res judicata, the arbitral tribunal must hold the request inadmissible under penalty of violating procedural public policy, provided the foreign judgment may be recognized in Switzerland pursuant to Art. 25 PILA, the specific provisions of international treaties referred to at Art. 1(2) PILA being reserved (judgment 4A_508/201321 of May 27, 2014, to be published at 3.1).
6.3.2. In a final argument (appeal n. 185 to 189), in which it tries – in vain – to supplement in its reply (n. 75 to 79; see 1.1, above), the Appellant revisits the issue of the bank guarantee, already raised in a different manner (see 22.214.171.124, above). In its view, when the Arbitral Tribunal ordered it to reimburse to the Respondent not only the amount of the banking guarantee called but all costs and expenses that the Respondent, as the ordering party, had to pay in the proceedings it initiated in Germany against the Appellant, as beneficiary of the guarantee, and the guaranteeing bank to try to stop the payment of the guarantee, it disregarded the res judicata effect of the final German decisions issued in this framework, thus violating procedural public policy. It is not so.
The German courts had to decide whether, as a consequence of the calling in of the guarantee, in a matter that the Respondent considered improper, a provisional injunction blocking payment of the guarantee or an attachment was justified. The decisions issued in such proceedings do not become res judicata. More specifically, they do not bind the tribunal, whether state or arbitral, which is or will eventually be seized of the merits. This is what is clearly stated, for instance at Art. 488(1) of the New French Code of Civil Procedure, worded as follows: “The interim order does not become res judicata on the merits.” In other words, the abstract nature of the banking guarantee does not apply to the underlying legal relationship between the issuer and the beneficiary (value report) so that the former may act against the latter not only to seek reimbursement of the guarantee unduly paid but also to be compensated for any amount paid in excess (judgment 4A_464/200922 of February 15, 2010, at 3.3.3; Tuto Raimondo Rossi, La garantie bancaire à première demande, 1989, n. 415 to 417; François Logoz, La protection de l’exportateur face à l’appel abusif à une garantie bancaire, 1991, p. 78). He may accordingly seek compensation from the beneficiary of the guarantee, for the damages sustained as a consequence of the unjustified call (Carlo Lombardini, Droit bancaire Suisse, 2nd ed. 2008, p. 579, footnote 10). Yet, the costs and expenses that were borne by Respondent in Germany to try to stop the payment of the guarantee in dispute were unquestionably part of its damages, whether the costs were paid to the Appellant or to the guaranteeing bank.
Therefore, the Arbitral Tribunal issued an award perfectly compatible with procedural public policy by addressing the Respondent’s claim for compensation based on Art. 41 CO.
This review shows that the appeal must be rejected insofar as the matter is capable of appeal. The Appellant fails and shall pay the costs of the federal proceedings (Art. 66(1) LTF) and compensate the Respondent (Art. 68(1) and (2) LTF). The amount due will be taken from the security for costs given by the Appellant.
Therefore the Federal Tribunal pronounces:
The appeal is rejected insofar as the matter is capable of appeal.
The judicial costs, set at CHF 50’000, shall be borne by the Appellant.
The Appellant shall pay to the Respondent an amount of CHF 60’000 for the federal proceedings; this amount will be taken from the security deposited with the office of the Federal Tribunal.
This judgment shall be notified to the representatives of the parties and to the Arbitral Tribunal of the International Commercial and Industrial Arbitration Court (CARICI).
Lausanne, September 2, 2014
In the name of the First Civil Law Court of the Swiss Federal Tribunal
Presiding Judge: Clerk:
Klett (Mrs.) Carruzzo
- 1. Translator’s Note: Quote as X.________ Sàrl v. Y.________ AG, 4A_606/2013. The original of the decision is in French. The full text is available on the website of the Federal Tribunal, www.bger.ch.
- 2. Translator’s Note: CO is the French abbreviation for Swiss Code of Obligations.
- 3. Translator’s Note: OJ is the French abbreviation for the Federal Statute organizing Federal Courts at the time.
- 4. 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.
- 5. Translator’s Note: LTF is the French abbreviation of the Federal Statute of June 17, 2005, organizing the Federal Tribunal, RS 173. 110.
- 6. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/alleged-inexistence-other-party-justifies-plea-lack-jurisdiction
- 7. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/federal-tribunal-will-not-review-decision-foreign-court-appointing-arbitrator-when-party-failed-do
- 8. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/award-allegedly-issued-by-a-truncated-tribunal-claim-that-cas-de
- 9. Translator’s Note: The English translation of this decision is available here:
- 10. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/extension-arbitral-clause-good-faith-grounds
- 11. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/setting-aside-of-award-for-violation-of-public-policy-principle-
- 12. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/right-to-be-heard-equality-between-the-parties
- 13. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/independence-and-impartiality-of-a-party-appointed-arbitrator-in
- 14. Translator’s Note: CST is the French abbreviation of the Swiss Federal Constitution.
- 15. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/challenge-of-arbitrators-sitting-on-cas-panel-rejected-claim-of-
- 16. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/federal-tribunal-recalls-that-procedural-mistakes-or-a-decision-
- 17. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/no-bias-of-arbitral-tribunal-based-on-premature-notification-of-
- 18. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/criticism-against-the-conduct-of-the-procedure-by-the-arbitrator
- 19. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/definition-public-policy-reaffirmed
- 20. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/setting-aside-of-award-for-violation-of-public-policy-principle-
- 21. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/res-judicata-effect-foreign-judgment
- 22. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/no-waiver-of-the-right-to-appeal-to-the-federal-tribunal-in-the-