No substantive review of the award under the cloak of a violation of due process

Case information
October 26, 2015
Interest to foreign readers: 
Violation of due process (right to be heard)
Original language: 
35 ASA Bull 382 (2017)




Introductory note: 

The case involved an exclusive distribution agreement for jewelry and watches between an Austrian company and a distributor in Singapore. The contract was governed by Swiss law and provided for ICC arbitration in Geneva with proceedings in English.


When a dispute arose the contract was terminated without notice and a new distributor appointed.


The distributor then sued and the ICC appointed Marc Veit as sole arbitrator. In an award of December 19, 2014, the arbitrator essentially upheld the claim, ordered the payment of compensation, albeit reduced in regard to one part of the claim, and also awarded costs.


The Austrian company appealed to the Federal Tribunal and argued a violation of the right to be heard.


As will be clear from paragraphs 3.2.2 and 3.3.2 of the opinion, the Federal Tribunal reviewed the argument and emphasized – yet again – that the invocation of an alleged violation of due process was an attempt at obtaining substantive review of the award through the back door. The Court also reiterated that whilst international arbitral awards do not have to be reasoned, the arbitral tribunal nonetheless has a duty to review and address the main arguments of the parties but not each of them in every detail. It is only if an important argument is overlooked and not even addressed implicitly that a violation of the right to be heard may be argued with some chances of success.


In other words, nihil novi sub sole and this judgment, like many others, is fully consistent with the view of the Federal Tribunal that the nature of the right to be heard is very formal and that it cannot be invoked to criticize the ways in which an arbitral tribunal handles the merits of the case.





Judgment of October 26, 2015



First Civil Law Court



Federal Judge Kiss (Mrs.), Presiding

Federal Judge Klett (Mrs.)

Federal Judge Kolly (Mrs.)

Clerk of the Court: Mr. Carruzzo


A.________ mbH,

Represented by Mr. Mohamed Mardam Bey,





B.________ Ltd,

Represented by Mr. Dragan Zeljic,






By way of a September 17, 2008, contract, the Austrian company, A.________ mbH (hereafter: A.________) appointed the Singapore company B.________ Ltd (hereafter: B.________) as exclusive representative for the distribution of watch making products and jewelry under the trademark, X.________ in Singapore and other Asian countries. A clause of the aforesaid contract states that it is governed by Swiss law and that disputes that may arise from the contract will be disposed of by a sole arbitrator appointed according to the rules of the International Chamber of Commerce (ICC), the seat of the arbitration being in Geneva and the arbitral proceedings to be conducted in English.


During the summer of 2012, A.________ directly sold a batch of 100 watches of a special edition of X.________ to C.________ Ltd (hereafter: C.________) in Singapore. The owner and general manager of this company is a Mr. D.________, the distributor of the Z.________ cars in Singapore. These watches (hereafter: the Z.________ Watches) were shipped to C.________ in September 2012 and should have been sold mainly to owners of cars of the trademark in question during a promotional car race.


In November 2012, A.________ terminated the exclusive distribution contract without notice. On the 30th of the same month, it entered into a contract at the same time with X.________ Ltd, a company represented by D.________.



On June 11, 2013, B.________ invoked the arbitration clause contained in the exclusive distribution agreement and filed a request for arbitration against A.________ with a view to obtaining payment of damages for various breaches of the exclusive distribution agreement. A sole arbitrator (hereafter: the Arbitrator), a Zürich attorney, was appointed by the ICC.


A.________ submitted that the request should be rejected and counterclaimed for the payment of various amounts corresponding to several unpaid cheques that B.________ had given it to settle a number of invoices.


In an award of December 19, 2014, the Arbitrator ordered A.________ to pay to B.________ Singapore Dollars (SGD) 925’580.05, with interest at 5% per annum from June 20, 2013 on the amount of SGD 860’905.10. As to the sale of the 100 Z.________ Watches to C.________, he considered it a breach of the exclusivity clause. If he did not award B.________ the damages it sought in this respect on the basis of Art. 97 CO2 for lack of sufficient evidence of the loss claimed, he nonetheless ordered A.________ to pay CHF 191’490 to the Claimant, pursuant to Art. 423 CO (restitution to the principal [B.________] of the profits made by the manager [A.________] in his own interest). Moreover, the Arbitrator held that A.________ had no cause to terminate the exclusive distribution contract without notice in November 2012. He assessed the damage borne by B.________ as a consequence of the unjustified termination of this contract at SGD 1’366’941.45. The Arbitrator also ordered A.________ to pay to B.________ SGD 64’674.95 for the damages the former caused to the latter by commencing legal action in a Singapore court in violation of the arbitration clause. As to the counterclaim submitted by A.________ in connection with the unpaid invoices, covered by the aforesaid cheques, he upheld it up to CHF 570’333.45. Setting off this amount with the aforesaid CHF 191’490, he set the Defendant’s recovery at CHF 378’843.45, namely the equivalent of SGD 506’036.35 on the date of set-off (December 21, 2012; conversion rate CHF/SGD 1.33574). After setting off this amount against the compensation of SGD 1’366’941.45 for unjustified termination of the exclusive distribution contract, there remained an amount of SGD 860’905.10 to which the Arbitrator added the aforesaid SGD 64’674.95 to reach a total of SGD 925’580.05 due by A.________ to B.________. Interest for late payment at 5% per annum from the notification of the arbitration request to A.________ were also taken into account by the Arbitrator to reach the amount of SGD 860’905.10.





On February 2, 2015, A.________ (hereafter: the Appellant) filed a civil law appeal to the Federal Tribunal with a view to obtaining the annulment of the December 19, 2014, award.


The Arbitrator submitted the file of the case by way of a USB key and did not file an answer to the appeal.


In its answer of April 10, 2015, B.________ (hereafter: the Respondent) submitted that the appeal should be rejected. On April 28 and May 15, 2015, the Appellant and the Respondent filed respectively a reply and a rejoinder in which they maintained their previous submissions.






According to Art. 54(1) LTF,3 the Federal Tribunal issues its judgment in an official language,4 as a rule in the language of the decision under appeal. When it is in another language (here English) the Federal Tribunal resorts to the official language chosen by the parties. Before this Court, they both used French. Therefore, this judgment shall be issued in that language.



In the field of international arbitration, a civil law appeal is admissible against the decisions of arbitral tribunals pursuant to the requirements at Art. 190 to 192 PILA5 (Art. 77(1) LTF). Whether as to the subject of the appeal, the standing to appeal, the time limit to appeal, the Appellant’s submissions, or the ground for appeal invoked, none of these admissibility requirements raises any problem in the case at hand. The merits of the appeal may therefore be entertained.



In a sole argument divided in two parts, the Appellant argues a violation of its right to be heard. In its view, the Arbitrator did not take into consideration a number of arguments important to decide the dispute, which it had properly submitted.


3.1. The right to be heard in contradictory proceedings within the meaning of Art. 190(2)(d) PILA does not indeed require an international arbitral award to be reasoned (ATF 134 III 1866 at 6.1 and references). However, 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 cases quoted). This duty is breached when, inadvertently or due to oversight, the arbitral tribunal does not take into consideration some statements, arguments, evidence, or 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 the resolution of the dispute, it behooves the arbitrators or the responding party to justify this omission in their observations as to the appeal. It behooves them to demonstrate that, contrary to the Appellant’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 are not obliged to discuss all arguments invoked by the parties. They cannot be held in violation of the right to be heard in contradictory proceedings for failing to refute, albeit implicitly, arguments objectively devoid of any pertinence (ATF 133 235 at 5.2 and the cases quoted).


Moreover, the Federal Tribunal has held in the past that it does not behoove this Court to decide whether or not the arbitrators should have upheld the argument they overlooked had they handled it. This would indeed disregard the formal nature of the right to be heard and the necessity to annul the decision under appeal when it is violated, irrespective of the appellant’s chances of obtaining a different result (judgment 4A_150/20127 of July 12, 2012, at 3.1 and the precedent quoted).



3.2.1. In the first part of its argument, the Appellant submits that a violation of its right to be heard led the Arbitrator to find it in breach of the exclusivity clause as to the sale of the 100 Z.________ watches (appeal brief p. 6 to 11, n. 3). According to the Appellant, the Arbitrator inadvertently disregarded the duly-raised argument of abuse of rights, which the Respondent was committing by complaining of a breach of the exclusivity clause in connection with this sale. To illustrate the Respondent’s abuse of right, the Appellant raises a number of points, allegedly established by the evidence in the file, which escaped the Arbitrator’s notice (appeal brief p. 7 to 10, n. 3.4, b to f). First, the Respondent remained silent after receipt of the electronic mail that the Appellant sent it on August 1, 2012, explaining the details of the transaction being negotiated with C.________ (litt. a). Second, the electronic mails exchanged by the parties on August 6, 2012, would establish that the Respondent tried in vain to order one set of the limited series of the Z.________ watches and that it did not protest when the Appellant refused to accept (litt. b). Third, the Respondent would have raised no objection as to the transaction in dispute in a commercial email sent to the Appellant on August 22, 2012, which strengthened its belief that it could carry out this transaction (litt. c). Fourth, the parties were flexible with regard to the letter of the contract in their commercial relations, particularly with regard to terms of payment, an attitude contradicted by the Respondent’s thesis according to which the exclusivity clause would have been binding (litt. d). Fifth, one should hold on the basis of the statements made by its bodies that, not only did the Respondent fail to show the slightest interest in the contemplated sale of the Z.________ watches but moreover it did not have the necessary financial capacity to participate in it (litt. e). Sixth and lastly, the Respondent was deeply in debt to the Appellant and would not have had any clients who could acquire Z.________ watches, so that it could not in good faith raise a monetary claim in this respect (litt. f).


3.2.2. The Appellant concedes expressly in its appeal brief that most of the facts it states were considered in the award under appeal (p. 10, n. 3.5, §1). Indeed, this appears from the passage of the award dealing with the issue in dispute, where the Arbitrator refers in particular to the electronic mails exchanged by the parties, which the Respondent submitted as enclosures C-7 and C-74 (award, n. 76 to 97, in particular, n. 90, 91 and 94).


On the basis of these factual findings, the Arbitrator then wondered if one could infer consent by the Respondent as to the sale of the Z.________ watches to C.________ or if that party waived its right to oppose the sale by ordering a similar watch (award n. 89). In this context, he mentioned the Appellant’s statement that the Respondent never came back to ask for further details, to question the regularity of the transaction, to raise an objection to file a complaint in this respect (award n. 95). Granting that the arbitration file did not contain any evidence which would enable a finding as to whether or not the Respondent again complained of the delivery of the watches after August 1, 2012, he nonetheless held that the evidence in his possession demonstrated that it had denounced the Appellant’s cooperation with D.________ / C.________ as to the sale of the Z.________ watches. The Arbitrator added that the fact that the Respondent only filed its request for arbitration in June 2013 could not be considered as a waiver by the party to avail itself of the breach of contract committed by the Appellant because Art. 127 CO gave the aggrieved party ten years to claim its rights in this respect (award n. 96). Moreover, whilst reviewing the conditions to apply Art. 423 CO, he held that the Appellant obviously knew that it was interfering with the exclusive right contractually granted to the Respondent when it sold the 100 Z.________ watches to D.________ / C.________, so that the requirement of bad faith under the aforesaid provision was met (award n. 108).


This summary of his reasons shows that the Arbitrator did indeed take into consideration the Appellant’s explanations seeking to demonstrate that the Respondent was abusing its rights by raising a claim as to the sale in dispute but that he did not uphold them, thereby setting aside – at least implicitly – the abuse of rights defense raised by the Appellant. Considering the circumstances of the case at hand indeed, one hardly sees how he could have found that both the Respondent and the Appellant were acting in bad faith as to this transaction. Reading the pertinent passage of the award, in particular its paragraph n. 96, demonstrates to the contrary that on the one hand the Arbitrator was not convinced by the argument that the Respondent allegedly consented to the aforesaid transaction by its silence or by conclusive acts and, on the other hand, he saw no obstacle other than the as-yet unrealized statute of limitations to the claim for payment introduced by the Respondent. That he did not explicitly reject all the arguments raised by the Appellant in support of its abuse of rights defense is not decisive because their implicit rejection is contained in the reasons stated in the award to reject the defense. It must be recalled in this respect that, according to the aforesaid case law, the Arbitrators are not obliged to discuss all arguments invoked by the parties.


The criticism submitted by the Appellant, in a manner befitting an ordinary appeal, shows that under the guise of an argument that its right to be heard was violated, it actually seeks to challenge the legal assessment made by the Arbitrator on the basis of his factual findings in the award under appeal. Yet, it is not admissible to do so in an appeal concerning international arbitration. Therefore, the argument based on Art. 190(2)(d) PILA is unfounded in its first part insofar as it is admissible at all.



3.3.1. The second part of the argument relates to the financial consequences of the unjustified immediate termination of the exclusive distribution agreement as of mid-November 2012, which would have terminated normally on September 17, 2013, namely some 10.5 months later, except if extended for a new period of five years. Pursuant to Art. 17.4 of the aforesaid contract, the damage to be compensated in this respect would have been the average profit that the victim of the unjustified immediate termination would have made should the contract have been carried out to term, such average profit being calculated on the basis of the turnover of the year before termination. However, the aggrieved party could seek to establish that its real loss was higher than this average profit, whilst the other party could attempt to prove that it was lower.


The Appellant first criticizes the way in which the Respondent’s loss was computed (appeal brief, p. 11 to 15, n. 4). According to the Appellant, in this respect the Arbitrator exclusively relied on the turnover the Respondent claimed to have made between November 2011 and October 2012. In doing so, it failed to take into account, even implicitly, the three factors of reduction of the damages that it argued in the arbitration (appeal brief, p. 12 to 14, n. 4.3, litt. a to c). The first was the negative evolution of the Respondent’s operational results in the determining year, i.e. from November 15, 2012, to September 17, 2013 (litt. a). The second was that the Appellant claimed and proved to have delivered eight additional watches to the Respondent in December 2012, despite the termination of the exclusive distribution agreement, so that the profit resulting from the sale of these watches should have been deducted from the loss of income to be compensated (litt. b). Similarly, the Respondent’s profit from the sale of six further X.________ watches that it acquired through the distributor of the brand in Dubai should have been deducted as a third factor of deduction from the compensation sought by this party (litt. c).


Finally, as to the scope of compensation, according to the Appellant the Arbitrator would have reduced the compensation awarded to the Respondent, or even denied it in accordance with Art. 44 CO, if he had taken into consideration, as he should have, the circumstances stated hereunder, which it duly stated and proved (appeal p. 16 to 19, n. 4.3 litt. at to c). First, the documents in the file showed that it was possible for the Respondent to obtain the goods from the Appellant directly or from the distributor of the brand in Dubai, despite the termination of the exclusive distribution agreement (litt. a). Second, the closure of the Respondent’s sales outlet in Singapore for some months in 2013 would have justified a proportional reduction of damages. Indeed, contrary to the Arbitrator’s view, who overlooked the pertinent evidence in this respect, the temporary closure was not caused by the termination of the exclusive distribution contract in November 2012, but was planned by the Respondent as early as March 2011 (litt. b). Third, the Respondent’s own bodies conceded that it also suspended sales in Malaysia in 2013, which significantly reduced its turnover during that year (litt. c). 


3.3.2. In the legal submissions of its Post-Hearing Brief (PHB) of June 20, 2014, the Appellant – besides the argument based on the absence of evidence of any loss (n. 144) which is no longer before the Federal Tribunal – set forth as follows the reasons for which the Respondent, in its view, was not entitled to seek the payment of any compensation for loss of income for the period between November 2012 and September 2013:


145. In any event, B.________ is not entitled to any damages for the period starting November 2012 through September 2013 for the following reasons:


i) B.________ ordered and collected several pieces of watches in December 2012 and April 2013.

ii) B.________ closed most of year 2013 its main point of sale at [...] Street, Singapore, which was the main source of its proceeds of X.________ brand. Claimant acknowledged that revenues dropped significantly in 2013 (...).

iii) By refusing for no valid reasons to place new orders with the new distributor, B.________ was in breach of art. 44 SCO which provides8: [the English translation of part of the first paragraph of this provision follows].


If one compares this passage of the PHB with the arguments submitted by the Appellant at n. 4 and 5 of its appeal brief, as summarized in the last two paragraphs of 3.3.1 of this judgment, it appears quite clearly that the Appellant’s assertion in the Federal Tribunal has hardly anything to do with these arguments, whether as to the reduction factors invoked or the scope of the developments devoted to them. Furthermore, the Appellant supplemented its assertions in its reply and computed the reduction it advocated, which it was no longer entitled to do at this stage in the proceedings (judgment 4A_709/2014 of May 21, 2015, at 2.1). Additionally, as to the issue of damages, the Appellant raises a submission essentially similar to an ordinary appeal, which does not rely exclusively on the facts found in the award under appeal, with a view to establishing that the Arbitrator breached the provisions of the Swiss Code of Obligations governing the computation of damages and the setting of compensation. Such a submission is out of place in an appeal against an international arbitral award. Therefore, to uncover a possible violation of the Appellant’s right to be heard, this Court will exclusively determine whether or not the Arbitrator failed to handle, albeit implicitly, one of the arguments submitted by that party at n. 145 of its PHB.


In chapter 7.4.2 of the award (p. 39 ff., n. 154 to 161), entitled Damages, the Arbitrator starts with a summary of the arguments of the parties. As to the arguments submitted by the Appellant, he spells them out as they are at N. 144 and 145 of the PHB, following the sequence of their presentation but without quoting them verbatim (n. 155). Then the Arbitrator quotes the text of Art. 17.4 of the exclusive distribution contract (n. 156) and seeks to determine the amount of the Respondent’s loss by applying the general rule contained in this clause. He reaches the conclusion that the party would have sold 105 watches between November 2012 and September 2013 (10.5 months), whilst it sold 120 pieces from November 1, 2011, to October 31, 2012, and that its total profit would have been SGD 1’366’941.45, namely SGD 13’018.49 per watch (n. 157 ff.). Finally, examining the applicability to the case at hand of the corrective factor upwards or downwards reserved by the same clause, he rejects it for both parties (n. 159 ff.). As to the reduction factors invoked by the Appellant, he states as follows the reasons which, in his view, justify disregarding them (n. 160):

Likewise, the Respondent's arguments that B.________ suffered a lower loss or did not mitigate its damages are unconvincing. In particular, there was no obligation for B.________ to purchase watches through Mr D.________/C.________ after the unjustified termination of the Agreement until the end of the agreed term. Understandably, it would have been unbearable for Mr E.________ to work with Mr D.________ after the unjustified termination (...). Further, the evidence on record shows that B.________ had to close its ... store in 2013 because of the termination of the Agreement in November 2012 to avoid termination of the lease agreement (...).9


Finding no mitigating factor or reason to increase the damages connected to the unjustified immediate termination of the exclusive distribution contract, the Arbitrator confirmed that compensation in this respect must be set at SGD 1’366’941.45, pursuant to the general rule at Art. 17.4 of the contract.


No matter what the Appellant says, it is undeniable that the Arbitrator took into account the arguments it submitted but rejected them, whether explicitly for two of them or implicitly for the third as is shown by the words “in particular” he used.


As to the rest, this is once again an attempt to challenge the Arbitrator’s subsumption under the cloak of an argument based on the violation of the right to be heard. Moreover, it does not matter that the reasons of the award may appear somewhat scant as to the issue of damages, as reasons are not a condition of validity of the award in the field of international arbitration. What is decisive in the case at hand is to find that the Arbitrator did not fail – inadvertently or due to a misunderstanding – to take into consideration the arguments raised by each party. In this respect, the case at hand is trivial compared to those in which the Federal Tribunal reached the opposite conclusion (see for instance judgments 4A_246/2014 of July 15, 2015, at 6.3.2, 4A_460/201310 of February 4, 2014, at 3.2 and 3.3, 4A_360/201111 of January 31, 2012, at 5.2.1 and 5.2.3 and 4A_46/201112 of May 16, 2011, at 4.3).




At the end of this review, the appeal must be rejected insofar as the matter is capable of appeal. The Appellant loses and shall pay the costs of the federal proceedings (Art. 66(1) LTF) and pay the costs of the Respondent (Art. 68(1) and (2) 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 8’000 shall be borne by the Appellant.



The Appellant shall pay the Respondent an amount of CHF 9’000 for the federal proceedings.



This judgment shall be notified to the representatives of the parties and to the Sole Arbitrator.




Lausanne, October 26, 2015



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



Presiding Judge:                                              Clerk: