Exclusion of appeal to the Swiss Supreme Court and Violation of public policy (rejected)

Case information
August 21, 2008
4A_194/2008
Interest to foreign readers: 
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Of some interest
Topics: 
Violation of public policy
Waiver of appeal to the Federal Tribunal
Original language: 
German
Published: 
26 ASA Bull 793 (2008)
also see 2 SwissIntArbRep 283 (2008)
Arbitrator (s): 

Parties

Appellant: 
Respondent: 

Counsel

Appellant: 
Respondent: 
Introductory note: 

The case is nothing to write home about but it still diserves a quick perusal. It involved an ICC arbitration in Bern with Prof. Wolfgang Wiegandt as chairman, dealing with a 1986 Joint Venture Agreement ("JVA") between two companies in Italy and Bosnia-Herzegovina. The case was stayed due to the political situation for quite a while, then a partial award was issued determining, among other things, that Swiss law applied to the JVA. The final award, issued in February 2008, was appealed on public policy grounds. The Respondent claimed that the parties had opted out of any appeal and the developments related to that issue ( § 2, 2.1 and 2.2) are quite interesting. The "public policy" section of the opinion (§ 3 to § 5) is more predictable for, as you all know, the Swiss Supreme Court seems to systematically reject all appeals against international awards when the Appellant claims that the award would be inconsistent with the Swiss understanding of (transnational) public policy.

Translation: 

4A_194/20081

Judgement of August 21, 2008

 

First Civil Law Court

 

Federal Judge KLETT (Mrs), Presiding

Federal Judge ROTTENBERG LIATOWITSCH (Mrs)

Federal Judge KOLLY

Clerk of the Court: FELDMANN

 

X.________,

Appellant,

Represented by Dr. Lorenzo MOOR

 

v.

 

Y._______ Srl and Z._______ SpA,

Respondents,

Represented by Mr Marco ARMATI

 

 

Facts:

 

A.

On January 15, 1986 the Appellant X.________ in Bosnia Herzegovina and the Respondent 1 Y.________ Srl in Italy entered into a joint venture agreement2, the object of which was the construction of a metal plate factory. Respondent 2, Z._______ SpA in Italy, was described in the preamble of the Joint Venture Agreement as “garante per la realizzazione del Contratto”3 and it too signed the contract. Art. 12 of the Joint Venture Agreement contained the following arbitration clause:

 

“12.1 Le Parti contraenti cercheranno di risolvere amichevolmente tutte le controversie del presente Contratto, in base agli contatti reciproci e tramite l’esame dell’argomento controverso nelle sedute di Comitato di affari.

12.2 Le controversie che non si riescono risolvere in modo amichevole, verranno risolte con la scelta di tre arbitri ad hoc, secondo il Regolamento dell’Arbitrato della Camera di Commercio internazionale di Parigi dove la X.______ nomina un arbitro, e la Y._______ nomina un suo arbitro.

Il giudice verrà nominato dalla Camera di Commercio internazionale. La corte arbitrale terrà le sue sedute a Berna, e la lingua dell’arbitrato sarà tedesco. Il verdetto dell’arbitrato è definitivo per tutte la Parti contraenti che sono nella controversia.” 4

 

B.

On the basis of the arbitration clause, the Appellant introduced proceedings against the Respondents with the International Chamber of Commerce on September 10, 1991 and essentially submitted (I) that they should be declared responsible for the non fulfilment of the contract of January 16, 1986 and accordingly (II) ordered to pay DEM 410’000.- with interest. Whilst Respondent 1 submitted that the claim should be rejected and filed a counterclaim, Respondent 2 stated in a letter of May 4, 1992 that there was no binding arbitration clause and did not participate in the subsequent proceedings. Due to the situation in Bosnia Herzegovina, the proceedings were stayed between December 1992 and June 1998. On May 19, 2003, the ICC Arbitral Tribunal issued a partial award finding that the Appellant had standing to sue, that the Arbitral Tribunal had jurisdiction on the claim against Respondent 2 and that Swiss law applied to the Joint Venture Agreement as lex causae; a decision on the standing of Respondent 2 to defend was postponed. In an award of February 14, 2008, the Arbitral Tribunal found that Respondent 2 could be sued. It had stated itself “that Z._______ is a partner to the contract with all effects”. Even if Respondent 2 were only a guarantor, its liability could be at issue as the fulfilment of the joint venture had not been achieved by Respondent 1 and it no longer could as a consequence of its insolvency. The submission for a finding by the Appellant in par. I of its submissions was rejected by the Arbitral Tribunal for lack of a legally protected interest; the reset of the claim and the counterclaim was rejected. The Arbitral Tribunal reached the conclusion that the facts constituted late performance and not an impossibility to perform. However, it found that the requirements for damages for lack of timely performance were not met due to the lack of notice and in view of a specific renunciation to the performance of the contract. Based on a detailed review of the facts, the Arbitral Tribunal finally reached the conclusion that there was no other basis for the Appellant’s claim for damages.

 

C.

In a Civil Law Appeal of April 25, 2008, the Appellant submitted that the award should be annulled. It claimed a violation of public policy (Art. 190 (2)(e) PILA5). The Respondents submitted that the appeal should be rejected to the extent that it could be allowed. The Arbitral Tribunal took no position.

 

 

Reasons:

 

1.

The award under appeal was issued by an Arbitral Tribunal sitting in Switzerland in proceedings between parties incorporated abroad. This is accordingly an international arbitration within the meaning of Art. 176 ff PILA. The arbitration clause is in the Joint Venture Agreement of January 15, 1986 and was accordingly entered into before PILA came into force. On February 4, 2000, the Terms of Reference were executed. They stated that the provisions of the ICC Rules of arbitration (in force since January 1, 1998) were applicable. The Parties did not enter into any agreement after the entry into force of PILA as to whether the previous law or the new provisions of PILA would be applicable to the subsequent proceedings. In particular, they did not rule out the application of Art. 176 ff PILA (see Art. 176 (2) PILA). In view of the foregoing and of the fact that the arbitral award was issued after the entry into force of PILA, an appeal to the Federal Tribunal as the only court exercising judicial review is possible (BGE 115 II 288 at 1, p. 290 and 97 at 2c, p. 100 ff; see also BGE 119 II 177 at 3b, p. 179 f).

 

 

2.

The Respondents take the view that the arbitration clause contained at par. 12.2 of the Joint Venture Agreement is clear and unquestionably reflects the clear intent of the Parties to rule out any appeal against the award.

 

2.1 According to Art. 192 (1) PILA, parties to a contract which are domiciled abroad may agree to exclude any appeal against the award in the arbitration clause or in a subsequent agreement. The renunciation must be explicit. According to case law, an explicit reference to Art. 190 and/or 192 PILA is not necessary. This would indeed cause all renunciation prior to January 1, 1989 – when PILA came into force – to be inadmissible. It is sufficient but necessary in all cases that the renunciation should express the common and irrefutable intent of the parties to renounce all appeals to a state court. Deciding whether or not this is the case is a question of interpretation (BGE 131 III 173 at 4.2.3.1, p. 177 f). In view of the importance of a renunciation to any appeals, the intent to renounce must be clearly expressed as the parties thereby deprive themselves of any possibility to have the award reviewed by a state court, except for the Respondent’s possible defences at the enforcement stage, even though the award may be most seriously flawed and violate the fundamental rights of the parties (see BGE 116 II 639 at 2c, p. 640 f).

 

2.2 The wording at hand, according to which the award will be final for all parties involved in the dispute (“Il verdetto dell’arbitro è definitivo per tutte le Parti contraenti che sono nella controversia”)6 does not meet the requirement of a specific renunciation within the meaning of Art. 192 (1) PILA (see the presentation of previous case law in this respect in BGE 131 III 173 at 4.2.1, p. 175 f). As used in common civil procedure parlance, describing a decision as “final” does not exclude extraordinary appeals but merely the (free) review of the decision in an ordinary appeal (see Vogel/Spühler, Grundriss des Zivilprozessrechts, 8th Edition, Bern 2006, p. 362; Habscheid, Schweizerisches Zivilprozess- und Gerichtsorganisationsrecht, 2nd Edition, Basel 1990, p. 473 f; Walder-Richli, Zivilprozessrecht, 4th Edition, Zurich 1996, p. 250). Thus Art. 190 (1) PILA provides that an award issued according to Art. 175 ff PILA is final, whilst providing a possibility to appeal in the following two paragraphs. The mere fact that the parties agreed in the Terms of Reference that the ICC Rules would govern the proceedings, which provide at Art. 28 that the award is binding on the Parties and require each party to disregard any legal recourse which it can renounce, is also insufficient to meet the requirements of a specific renunciation. Constant case law of the Federal Tribunal has held that such an indirect reference is insufficient (BGE 134 III 260 at 3.1, p. 263; 133 III 235 at 4.3.1. p. 241; for presentation of the case law see BGE 131 III 173 at 4.2.1, p. 175 with references). To interpret the disputed clause at hand as a renunciation to any appeal against the award, an additional sentence should have been included, making the renunciation clear, indicating for instance that the parties renounced any legal recourse against the award (see BGE 134 III 260 at 3.2.2, p. 264 with references). Contrary to the Respondents’ allegation, the fact that Respondent 2 accepted the award as a consequence of the arbitration clause and did not appeal cannot lead to the conclusion that the parties would have jointly intended to renounce any legal recourse. Since Art. 12.2 of the Joint Venture Agreement of January 15, 1986 does not meet the requirements of a valid renunciation to appeal, the issue may remain open as to whether or not a renunciation to appeal entered into before PILA should be disregarded because at the time, as opposed to PILA, it was not possible to renounce the right to appeal an arbitral award (see BGE 131 III 173 at 4.2.3.1, p. 177 with references; Briner, Die Anfechtung und Vollstreckung des Schiedsentscheides, in: Die internationale Schiedgerichtsbarkeit in der Schweiz, Band 1/II, Köln/Berlin/Bonn/München 1989, p. 102). Accordingly, the Respondents cannot rely on the fact that the arbitration clause was concluded in 1986. The matter is therefore capable of appeal in principle.

 

3.

According to Art. 190 PILA the award may be appealed only on specific grounds. Only the grounds for appeal limitatively spelled out in Art. 190 (2) PILA are admissible (BGE 134 III 186 at 5, p. 187; 128 III 50 at 1a, p. 53 f). According to Art. 77 (3) BGG7, the Federal Tribunal reviews only the arguments raised and developed in the appeal; this corresponds to the duty to invoke specific violations contained in Art. 106 (2) BGG for the violation of fundamental rights and of cantonal or inter-cantonal law (see in this respect BGE 133 II 249 at 1.4.2, p. 254). The strict requirement to spell out the reasons, which the Federal Tribunal set forth under the aegis of Art. 90 (1)(b) OG8 apply as they did previously (see BGE 128 III 50 at 1c, p. 53) as the BGG did not introduce any changes in this respect. When the ground for appeal of Art. 190 (2)(e) PILA is relied upon, the incompatibility of the award with public policy must be specifically explained (BGE 117 II 604 at 3, p. 606). Criticism of an appellate nature is inadmissible (BGE 119 II 380 at 3b, p. 382)

 

4.

The Appellant claims a violation of public policy according to Art. 190 (2)(e) PILA because the Arbitral Tribunal would have disregarded the prohibition of abuse of rights of Art. 2 (2) of the Civil Code. Respondent 2 would have met the requirement of venire contra factum proprium, because after executing the protocols and declarations entered into between 1986 and 1990, exactly like Respondent 1, on May 4, 1992, it claimed in the arbitral proceedings never to have been a party to the contract. The Appellant would thus have made its investment on the basis of false expectations and grounds; it could trust in good faith that Respondent 2 was bound by the contract and that it would carry out its contractual obligations. That argument is not sufficiently reasoned. The Appellant merely set forth its own view of the matter and briefly stated that it would be self-evident “that indeed the absolute trust in the Respondent’s capacity to abide by its duties caused the Appellant to invest in such a ‘lifework’ ”, from which the Appellant sees a contradictory attitude of Respondent 2 in its procedural arguments in the arbitral proceedings. However, the Appellant does not explain to what extent the legal principle it relies upon would have been disregarded by the Arbitral Tribunal.

 

5.

The Appellant further claims a violation of the principle pacta sunt servanda, which would be part of public policy according to Art. 190 (2)(e) PILA as a generally recognized principle. The Arbitral Tribunal would have upheld the existence of the contract between the Appellant and Respondent 2, yet without drawing the appropriate consequences for Respondent 2, which it freed from any liability although by failing to participate in the arbitral proceedings, Respondent 2 would not have disputed and even recognized its liability.

 

5.1 The judicial review of an international award by the Federal Tribunal is limited to the issue as to whether the arbitral award is consistent with public policy or not (BGE 121 III 331 at 3a, p. 333). The material adjudication of a disputed claim violates public policy only when it breaches fundamental legal principles and thus becomes incompatible with the system of values and laws. Pacta sunt servanda belongs to such principles, as well as the prohibition of abuse of rights, the duty to act in good faith, the prohibition of expropriation without compensation, the prohibition to discriminate and the protection of incapables. An annulment of the award is possible only when its result contradicts public policy and not merely its reasons (BGE 132 III 389 at 2.2, p. 392 ff; 128 III 191 at 6b, p. 198; 120 II 155 at 6a, p. 166 with references).

 

5.2 The principle pacta sunt servanda, which the Appellant relied upon is violated only when the Arbitral Tribunal recognises the existence of a contract, yet disregards the consequences arising from it or, conversely, denies the existence of a contract but upholds a contractual obligation (BGE 120 II 155 at 6c/cc, p. 171; 116 II 634 at 4b, p. 638). As opposed to the foregoing, the process of interpretation and the legal consequences resulting therefrom are not subject to the principle of pacta sunt servanda and to claim a violation of public policy is not admissible in this respect.

 

5.3 Contrary to the Appellant’s view, the award under review does not violate that principle. Through interpretation of the Joint Venture Agreement, the Arbitral Tribunal reached the conclusion that Respondent 2 was a party to the contract and that it could be sued. It denied the Appellant’s claim for damages based on failure to perform under the Joint Venture Agrement with regard to Respondent 1 and stated that the legal situation with regard to the contract (specifically the payability) was not different for Respondent 2, as the (joint) obligations of both Respondents had common cause and content, all business discussions and negotiations had been conducted on behalf of Respondent 2 as well as Respondent 1 and correspondingly all Appellant’s letters after the execution of the contract had been addressed to Respondent 2. Thus the Arbitral Tribunal denied the Appellant’s claim for damages against Respondent 2 as well. It cannot be understood to what extent the Arbitral Tribunal would thus have violated the principle of pacta sunt servanda when it found that Respondent 2 was bound by the contract but did not have to compensate for damages because the requirement of Art. 107 ff OR9 were not met. Whether the legal assessment which the Appellant criticizes was accurate or not may not be reviewed by the Federal Tribunal in the case at hand. A violation of the principle of pacta sunt servanda is thus not established. To the extent that the Appellant further claims that the Arbitral Tribunal failed to examine the application of Art. 108 (1) OR on the Respondent, although a notice to perform would have been pointless with regard to Respondent 2, a violation of public policy could not possibly be seen there; the Appellant would like to interpret and apply that provision exclusively in the meaning given to it by the Appellant.

 

6.

The appeal is to be rejected to the extent that the matter is capable of appeal. The outcome of the proceedings being such, the Appellant shall pay the judicial costs and compensate the Respondent (Art. 66 (1) and Art. 68 (2) BGG).

 

Therefore, the Federal Tribunal pronounces:

 

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

2.  The judicial costs set at CHF 6’500.- shall be borne by the Appellant.

3. The Appellant shall pay to the Respondent compensation of CHF 7’500 for the Federal judicial proceedings.

4. This decision shall be notified in writing to the Parties and to the ICC Arbitral Tribunal in Bern.

 

 

Lausanne, August 21, 2008

 

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

 

 

The presiding member:                                                                       The Clerk:

 

 

KLETT                                                                                              FELDMANN

 

 
  • 1. Translator’s note: Quote as X. ________ v. Y. ________ Srl and Z. ________ SpA, 4A_194/2008. The original of the decision is in German. The text is available on the web-site of the Federal Tribunal www.bger.ch.
  • 2. Translator’s note: The German word used is Zusammenarbeitsvertrag, which literarily means “a contract to work together”.
  • 3. Translator’s note: The expression is in Italian in the German text of the decision. Italian is one of Switzerland’s official languages. The expression means “guarantor for the fulfilment of the contract”.
  • 4. [4] Translator’s note:    The text is in Italian in the original decision. It means:
  • 5. Translator’s note: PILA is the most commonly used English abbreviation for the Federal Statute on international private law of December 18, 1997, RS 291.
  • 6. Translator’s note: In Italian in the original decision. The sentence literarily means: “the verdict of the arbitration shall be final for all the contracting parties in the controversy”.
  • 7. Translator’s note: This is the German abbreviation for the Federal Statute of June 17, 2005 organising the federal courts, RS 173 110.
  • 8. Translator’s note: This is the German abbreviation for the previous Federal Statute organizing Federal courts, which was substituted by the BGG.
  • 9. Translator’s note: OR is the German abbreviation for the Swiss Code of Obligations.