No bias of Arbitral Tribunal based on premature notification of a procedural order; renunciation to the claim of unequal treatment of the parties by way of a declaration during the proceedings
The case involved an ICC arbitration in Zurich between the successors of a Romanian company, which had entered into a contract with a consortium composed of a Finnish and a German company for the rehabilitation and the modernization of a power plant in Romania. The Consortium initiated arbitral proceedings and a three-arbitrator panel was constituted (Mark Blessing as Chairman, with Andreas Reiner and Victor Tanarescu as arbitrators). A final award was issued on June 2009, ordering the Romanian companies to pay certain amounts. A civil law appeal was filed and the following features of the opinion are quite interesting.
- It was alleged that the arbitral tribunal was irregularly composed, to the extent that the proceedings were conducted in a way showing that the Chairman of the arbitral tribunal was biased. A Procedural Order was notified somewhat prematurely but subsequently reconsidered. (See section 3.3.1 of the opinion). The Federal Tribunal emphasized once again that procedural mistakes made in an arbitration, or even a materially erroneous decision, are not sufficient to establish the appearance of bias. (See section 3.3.3 of the opinion)
- The Appellants also claimed that the parties had not been treated equally. This was rejected because at the end of a week-long hearing, the Appellants stated on the record that they had no complaints about the way the arbitral proceedings had been conducted. (See section 4 of the opinion)
Judgment of January 6, 2010
First Civil Law Court
Federal Judge Klett (mrs), Presiding,
Federal Judge CORBOZ,
Federal Judge KOLLY,
Clerk of the Court: Carruzzo.
1. X.________ SA,
2. Y.________ SA,
Both represented by Mr Christophe IMHOOS
1. V.________ Ltd (previously A.________ Ltd),
2. W.________ GmbH (successor to B.________ GmbH),
Both represented by Mr Philipp J. DICKENMANN and Niklaus ZAUGG
At the end of the year 1990, X.________ SA (hereafter X.________) and Y.________ SA (hereafter Y.________), both Romanian state companies having taken over from Compania T.________ the rights and obligations arising from the contract concluded for that purpose, entrusted to the consortium composed of the Finnish company V.________ Ltd (hereafter V.________; then named A.________ Ltd), of the German company B.________ GmbH (hereafter B.________; company absorbed by W. ________ GmbH in 2006) and a third party the performance of certain works with a view to rehabilitating and modernizing a unit of an electrical power plant located in Romania.
Pursuant to an ad hoc clause inserted in the contract, disputes relating to its performance were to be submitted first to an adjudicator, Professor R.________, who would issue a decision in this respect. If either party were dissatisfied with the decision taken by that specialist, they could seize a three member arbitral tribunal under the aegis of the International Chamber of Commerce (ICC). The venue of the arbitration was set in Zurich.
Based on a provision of the general conditions of the contract, V.________ and B.________, taking the view that the two Romanian companies had not made the agreed upon payments in a timely manner, suspended the performance of the contract between May 17, 2000, and January 13, 2003.
On October 26, 2005, V.________ and B.________, after bringing their claims to the adjudicator, seized the ICC of a request for arbitration to obtain the reimbursement of the additional expenses that the suspension of the performance of the contract had caused them.
A three member arbitral tribunal was constituted. Dr S.________ was appointed by the ICC as chair.
X.________ and Y.________ submitted that the request should be rejected and filed a counterclaim in several respects, particularly as to the damage in connection with the explosion of a flash tank.
By way of “cross-counterclaims”1 V.________ and B.________ raised other claims, in particular as to the latter item.
The arbitral proceedings gave rise to the filing by X.________ and Y.________ of a challenge against the Chairman of the Arbitral Tribunal. The ICC Court of Arbitration rejected the challenge in its session of May 30, 2008.
On June 2, 2009, the Arbitral Tribunal issued its final award. It ordered X.________ and Y.________ severally to pay EUR 6,870,640, with interest, to V.________ and EUR 2’137’230.- to B.________. All other and further submissions by the Parties were rejected.
In a civil law appeal, X.________ and Y.________ submit that the award should be annulled. They claim that the Arbitral Tribunal was irregularly composed and that it respected neither the quality between the parties nor their right to be heard in contradictory proceedings.
The Respondents submit that this challenge should be rejected to the extent that the matter is capable of appeal. The Arbitral Tribunal implicitly does the same.
The request for a stay of enforcement submitted by the Appellants was rejected by a decision of the Presiding Judge of November 18, 2009.
According to Art. 54 (1) LTF2 the Federal Tribunal issues its decision in an official language,3 as a rule in the language of the decision under appeal. When the decision is in another language (here English), the Federal Tribunal uses the official language chosen by the parties. Before the Arbitral Tribunal, they chose English, whilst in the federal proceedings they used French (the Appellants) and German (the Respondents). According to its practice, the Federal Tribunal will resort to the language of the appeal and issue its decision in French.
In the field of international arbitration, a Civil law appeal is possible against the awards of arbitral tribunals pursuant to the requirements set forth at Art. 190 to 192 PILA4 (Art. 77 (1) LTF). Whether with regard to the object of the appeal, the standing to appeal, the time limit to do so and the submissions made by the Appellants or the reasons relied upon in their brief, none of the formal requirements raises any problem in this case. The matter is thus capable of appeal.
In a first argument, based on Art. 190 (2) (a) PILA, the Appellants claim that the Chairman of the Arbitral Tribunal which issued the award under appeal was improperly appointed.
3.1 The Appellants also filed a challenge which the ICC Court of International Arbitration rejected. Issued by a private body, that decision, which could not be appealed to the Federal Tribunal directly (ATF 118 II 359 at 3b) does not bind the Court, which accordingly may freely review whether the circumstances relied upon in the challenge are apt to justify the grievance under review (ATF 128 III 330 at 2.2 p. 332).
3.2 In the manner of a judge, an arbitrator must display sufficient guarantees of independence and impartiality. The violation of that rule leads to the arbitral tribunal of which he is a member being irregularly composed. In order to determine whether an arbitrator displays such guarantees or not, reference must be made to the constitutional principles developed with regard to state courts. However, the specificities of arbitration, and particularly those of international arbitration, must be taken into account when reviewing the circumstances of the case (ATF 129 III 445 at 3.3.3 p. 454 and references, particularly to case law concerning Art. 30 (1) Cst5). Accordingly, it is necessary to examine whether the circumstances alleged by the Appellants show that the award under review was issued by an irregularly composed arbitral tribunal.
3.3.1 In a phone conference held on February 27, 2008, by the Arbitral Tribunal with the Parties, the Appellants were given until March 10, 2008, to state their observations on the explanations which the Respondents had to furnish by March 3, 2008, with regard to the cross-counterclaims6 they had raised in connection with the explosion of a flash tank. They did so on the last day shortly after 7.30 pm. However, in the afternoon of the same day, the Arbitral Tribunal had already notified its Procedural Order 25 to the Parties, in which it accepted that it would take into consideration the aforesaid claims.
Still on March 10, 2008, the Appellants sent a fax to the Arbitral Tribunal, in which they sharply criticized such methodology, going as far as calling the behavior of the Arbitral Tribunal “absolutely abusive.”7
In an e-mail of March 11, 2008, to counsel for the Appellants, the Chairman of the Arbitral Tribunal took offense from such inopportune reaction. Then, in another e-mail sent to all other interested Parties on March 25, 2008, he admitted that Procedural Order 25 had been notified to the Parties prematurely and apologized, while informing them that the Arbitral Tribunal was going to take the necessary steps to make up for the error.
Thus, at paragraph 3 of its Procedural Order 26 of April 29, 2008, the Arbitral Tribunal stated that it was reconsidering its Procedural Order 25 on the basis of the objections made by the Appellants. Then, at paragraph 3 of its Procedural Order 27 of May 22, 2008, it confirmed the disputed Procedural Order, notwithstanding the aforesaid objections.
3.3.2 To substantiate the grievance made, the Appellants argue that the Chairman of the Arbitral Tribunal adopted an attitude “as surprising as [it is] incomprehensible” by allowing the cross-counterclaims made by the Respondents without waiting for the Appellants’ observations, when he had clearly stated his doubts as to whether such counterclaims should be allowed or not in Procedural Order 23 of February 21, 2008. According to the Appellants, the bias of the Chairman of the Arbitral Tribunal would also result from the e-mail he had sent to them on March 11, 2008; it would moreover be confirmed by the total lack of response to their request for reconsideration of Procedural Order 25.
3.3.3 In view of the detailed explanations given by the arbitrator under challenge and by the Respondents in their brief in answer to the appeal, the grievance under review appears to lack substance. One must recall that procedural mistakes or a materially erroneous decision are not sufficient to base the appearance of bias by an arbitral tribunal, except for particularly serious or repeated mistakes which would constitute a blatant violation of its obligations (judgment 4A_539/2008 of February 19, 2009, at 3.3.2 and the case quoted). In this case, whilst the mistake which the Appellants criticize was committed by the Arbitral Tribunal in corpore and not only by its Chairman, they were obviously the consequence of an oversight related in all likelihood to the fact that it had been forgotten to mention the time limit given to the Appellants during the conference call of February 27, 2008, in the subsequent Procedural Order 24 of February 29, 2008. Neither can it be seriously claimed that such isolated mistake, made in proceedings which lasted close to four years, would have reached such a level of gravity that the impartiality of the Arbitral Tribunal should be questioned. It is difficult to shed the feeling that the Appellants made a pretext of the aforesaid mistake to seek the annulment of an award which went against them. Be this as it may, the Arbitral Tribunal made up for the procedural error involved in its Procedural Orders 26 and 27, contrary to what the Appellants claim (whilst strangely failing to mention their existence).
Moreover the Appellants do not explain why the contents of the e-mail that the Chairman of the Arbitral Tribunal sent them on March 11, 2008, would objectively justify a fear that the arbitrator may be biased against them. When considering the text of the e-mail in dispute moreover, one could not see anything else in it than an understandable and measured reaction to a severe and unjustified challenge to the impartiality of the Arbitral Tribunal.
Furthermore the Appellants claim that the Arbitral Tribunal disregarded the equality between the parties and their right to be heard in contradictory proceedings (Art. 190 (2) (d) PILA).
A party considering that it is the victim of a violation of its right to be heard or of another procedural irregularity must claim it immediately in the arbitral proceedings under penalty of foreclosure. It is indeed contrary to good faith to claim a procedural irregularity only within the framework of an appeal against the arbitral award when the irregularity could have been mentioned during the proceedings (judgment 4A_69/2009 of April 8, 2009, at 4.1 and the cases quoted). This principle is also found at Art. 33 of the ICC Rules of Arbitration.
In this case, at the end of the week of hearings of June 30, 2008, the Chairman of the Arbitral Tribunal expressly invited the Parties to tell him if they had any grievances to make as to the manner in which the arbitral proceedings had been conducted, particularly with regard to the right to be heard. Counsel for the Appellants answered as follows: “Everything is OK. I do not have any complaint…”8 It is not consistent with the rules of good faith to argue that the guarantee of the right to be heard and the principle of equal treatment were disregarded by the Arbitral Tribunal only when the unfavorable outcome of the proceedings is known, as the Appellants do here. Hence, the Appellants are no longer permitted to claim a violation that Art. 190 (2) (d) PILA.
The appeal, which verges on reckless, cannot but be rejected to the extent that the matter is capable of appeal. The Appellants shall be ordered severally to pay the costs of the federal proceedings (Art. 66 (1) and (5) LTF) and to compensate the Respondents (Art. 68 (2) and (4) LTF).
Therefore, the Federal Tribunal pronounces:
- The appeal is rejected to the extent that the matter is capable of appeal.
- The judicial costs, set at CHF 43,000, shall be borne by the Appellants severally.
- The Appellants shall severally pay to the Respondents severally an amount of CHF 53,000 for the federal judicial proceedings.
- This judgment shall be notified in writing to the Parties and to the ICC Arbitral Tribunal.
Lausanne, January 6, 2010.
In the name of the First Civil Law Court of the Swiss Federal Tribunal
The Presiding Judge (Mrs): The Clerk:
- 1. Translator’s note: In English in the original text.
- 2. Translator’s note: LTF is the French abbreviation for the Federal Statute of June 17, 2005, organizing the Federal Tribunal, RS 173.110.
- 3. Translator’s note: The official languages of Switzerland are German, French and Italian.
- 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: Cst is the French abbreviation for the Swiss Constitution.
- 6. Translator’s note: In English in the original text.
- 7. Translator’s note: In English in the original text.
- 8. Translator’s note: In English in the original text.