Receptum arbitrii does expire if a time has been set beyond which the arbitrator loses jurisdiction
In his arbitration newsletter of April (www.thouvenin.com) Hans Jörg Stutzer called it, “an incredible story.” This may have been somewhat overstated but the case is indeed exceptional.
A Swiss and a French company entered into two contracts in 2002 and 2003 for the lease of aircraft. There was an arbitration clause and Swiss law was applicable. Ad hoc arbitration proceedings began in Geneva in 2010, with claims and counterclaims. After establishing the facts of the case, the sole arbitrator (a Geneva lawyer whose identity I will not disclose here to protect his privacy as he is about to retire) procrastinated for months without actually issuing his award, which caused some exasperation with the parties.
Counsel for both parties and the arbitrator then set a date beyond which the arbitrator would automatically resign if he had not been able to issue the award the parties had been expecting for quite a while.
The deadline was September 2. The award was issued on September 3…..
An appeal was made to the Federal Tribunal.
The following points are quite interesting in the opinion:
(i) When the parties agree that an award shall be issued by a certain date and the arbitrator agrees to abide by this time limit, the arbitration agreement between the parties is modified and so is the receptum arbitrii. The receptum arbitrii, of course, binds the arbitrator to both parties. (See Section 3.2.1 of the opinion in this respect.)
(ii) By insisting on compliance with a specific time limit, a party does not abuse its rights. (See Section 4 of the opinion in this respect.)
The case is indeed exceptional and unlikely to happen ever again, but the developments it contains are quite significant: an arbitrator agreeing to a time limit with the parties must definitely issue his award in a timely manner.
Judgment of January 28, 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: M. Carruzzo
Represented by Mr. Christobal Orjales and Mr. Etienne Soltermann,
Represented by Mr. Guy Stanislas,
Pursuant to two leases signed on January 14, 2002, and May 8, 2003, X.________ AG (hereafter: the Appellant), a common stock company under Swiss law, leased to Z.________ (hereafter: the Respondent), a common stock company under French law, two propeller-driven aircraft for transporting passengers and freight, namely MSN 277 and MSN 281. Both contracts were governed by Swiss law on the merits. An identical arbitration clause was included in both, which set the seat of the arbitration in Geneva and entrusted a sole arbitrator appointed by “the Geneva Court” with deciding without delay any dispute that the parties were unable to settle within 10 days.
A dispute arose between the parties as to the performance of their respective obligations and triggered recourse to the arbitral procedure contained in both lease contracts. In April 2010, a Geneva lawyer was jointly appointed by the parties as sole arbitrator (hereafter: the Arbitrator) and agreed to arbitrate the dispute. The Court of First Instance of the Canton of Geneva approved the appointment in a judgment of May 27, 2010. The proceedings themselves, in which the Appellant was claimant and counter-defendant, the Respondent being for its part defendant and counter-claimant, began on June 7, 2010, when the arbitration request was filed and ended on May 4, 2011, after oral argument, when the Arbitrator kept the file for his decision. Between these two dates, a number of procedural orders were notified to the parties. In the first one, dated October 18, 2010, French was declared the language of arbitration in derogation from the arbitration clause, which provided for English. According to the same procedural order, the arbitral proceedings would be governed by the Federal Private International Law (PILA,2 RS 291), the Law of Civil Procedure of the Canton of Geneva (LCP), and the rules contained in the aforesaid procedural order. The latter pointed out that the LCP would remain the lex arbitri during the arbitration, despite the new Swiss Code of Civil Procedure (CCP; RS 272) coming into force on January 1, 2011. A provisional timetable was added to procedural order nº 1 including, among other things, the following: “15-20 April, 2011 – Arbitrator – approximate dates for the communication of the arbitral award.”
Present counsel for the Appellant appeared on January 13, 2012, and they intervened for the first time in mid-June 2012 to know the status of his work on the award. They were told that the award would be issued at the end of the month, in principle. The representatives of the Appellant requested information from the Arbitrator about 10 times as to the status of his work and the approximate date the award would be issued. Obtaining nothing specific despite various promises, they became more insistent over time. Thus, in a letter of October 24, 2012, they threatened the Arbitrator with a request to the competent court pursuant to Art. 185 PILA to ask for a finding on this unjustified delay pursuant to Art. 459(1)(b) LCP applied by analogy. The threat was renewed “for the last time” without further success in a letter of January 18, 2013. It was not carried out. An exchange of emails followed between the Appellant’s director and the Arbitrator on June 3, 2013. The former complained to the latter about not having received the award promised for May 31, 2013. Invited to show patience for one or two more weeks, he answered as follows (sic): “Oh – dear me – one more week is not critical – but based on the fact that we are into the second year waiting – I would appreciate your firm commitment to deliver within one weeks – or simply resign.”3 And the Arbitrator reacted as follows (sic): “Tough proposal! Subject to the approval of both parties’ counsel, I shall resign if the award is not rendered by June 30, 2013.”4
In a letter of August 8, 2013, countersigned by counsel for the Respondent, one of the two counsel for the Appellant referred to this exchange of emails and, taking notice that no award had since been issued, indicated to the Arbitrator that his proposal to resign was “accepted for August 30, 2013, should no award be issued and received by then.” The letter in question, accompanied by a fax, was in fact only sent to its addressee on August 27, 2013. The Arbitrator acknowledged receipt in an email of the same day. Stating that he had “hardly any choice but to comply,” he asked counsel for both parties if, in view of the necessity to devote the coming weekend to proof-reading and finalizing the award, they would see an inconvenience to having it delivered to their respective law firms on Monday, September 2, 2013. In a fax of the same day, countersigned by counsel for the Respondent, counsel for the Appellant, in agreement with his colleague, extended the deadline set in the letter of August 8, 2013, to this date at 5:00 p.m. He added the following (sic): “Moreover, the aforesaid letter entirely retains its validity, namely, your resignation will be accepted and effective as of 2.9.2013 at 5:00 p.m. should no award have been issued and received in the meantime.” In an email of August 28, 2013, the Arbitrator acknowledged receipt of the August 27, 2013, fax and declared his acceptance of its terms.
Counsel for the Respondent received the award on September 3, 2013, in the late afternoon. Also on September 3, 2013, at 6:29 p.m. counsel for the Appellant sent the Arbitrator a fax, which was not countersigned by counsel for the Respondent, in which, taking notice of the lack of notification of the award before the expiry of the time limit, he took notice of his resignation as arbitrator and asked him to confirm the termination of his functions at the date and time indicated in the aforesaid letter. The same day, at 6:42 p.m., the Arbitrator informed counsel for the Appellant that the award would be delivered to his office within the next half hour. At 7:24 p.m., he sent him an email in which he stated that the attempt to deliver the two boxes containing the award and its enclosures to his office had failed because it was closed; that he had attempted without success to inform him by telephone; that therefore they would be delivered the following morning. The delivery of the two boxes finally took place in the afternoon of September 4, 2013. Counsel for the Appellant wrote, in particular, the following upon the receipt given to the delivery person: “Receipt of this package does not imply acceptance of a possible arbitral award which may be contained therein, neither the acknowledgement of any validity of such documents. Geneva, September 4, 2013, 2:42 p.m.” In the meantime, and more specifically at 2:37 p.m., he had sent an email to the Arbitrator to indicate that he would accept delivery of the two boxes just arriving, that receipt of the boxes would however not acknowledge acceptance of their contents and that he had not had the time to consult with his client but that he reserved specifically its right to refuse the acceptance of an award that would be there and to recognize any validity of it since it had been notified after the final time limit he had been given in agreement with the parties. On the same day but later, counsel for the Appellant wrote to the Arbitrator to inform him that their client refused to accept the award and advised him that, in their views, the award was null for having been issued after the resignation of its author from his functions as sole arbitrator.
On September 4, 2013, a lawyer claiming to be acting on the Arbitrator’s behalf sent a fax to counsel for the Appellant in which she claimed that the receipt of the boxes containing the award implied acceptance of its validity and of its regular notification. The addressees rejected the argument in a letter of September 9, 2013.
As an enclosure to a letter of September 6, 2013, the Arbitrator sent an amended operative part of the award to counsel for the parties. In a letter of September 9, 2013, counsel for the Appellant challenged his right to do so because the September 3, 2013, award was null.
In the operative part of the September 3, 2013, award, as rectified on September 6, 2013, the Arbitrator found that he had jurisdiction ratione materiae (nr. 1), ordered in particular the Respondent to return to the Appellant all the documents he listed concerning MSN 277 (nr. 3) and MSN 281 (nr. 4), ordered the Respondent to pay to the Appellant the amount of USD 314’118 with interest for the main claim (nr. 5), rejected the counterclaim entirely (nr. 6), ordered the Appellant to pay to the Respondent an amount of CHF 35’000 as a share of the costs and legal fees (nr. 7), imposed two thirds of the arbitration costs upon the Appellant and one third upon the Respondent (nr. 8) and rejected all other submissions (nr. 9).
On October 4, 2013, the Appellant seized the Federal Tribunal of a civil law appeal with a request for a stay of enforcement with a view to the annulment of the award and its addendum, asking for a finding “that no award was validly issued by the Arbitral Tribunal during its existence as it ceased to exist on September 2, 2013, at 5:00 p.m.” and consequently, that the case should be sent back to the Court of First Instance of the Canton of Geneva with a view to appointing a new arbitrator. It principally argues that the Arbitrator was not properly appointed (Art. 190(2)(a) PILA) and in the alternative, that the failed to decide at least two items of the claim (Art. 190(2)(c) PILA).
In a letter of October 29, 2013, the Arbitrator produced the file of the arbitration and stated that he would defer to the wisdom of this Court as to both the stay of enforcement and the appeal. At the outset of its answer of October 30, 2013, the Respondent submitted that the appeal should be rejected. A stay of enforcement was granted by decision of the presiding judge on November 4, 2013. The Appellant and the Respondent maintained their previous submissions in a reply of November 15, 2013, and a rebuttal of December 3, 2013.
In the field of international arbitration, a civil law appeal is admissible against the decisions of arbitral tribunals pursuant to the requirements of Art. 190-192 PILA (Art. 77(1) LTF5). Whether as to the object of the appeal, the standing to appeal, the time limit to appeal or the ground for appeal invoked, none of these admissibility requirements raises any problem in this case. The matter is therefore capable of appeal. The admissibility of the Appellant’s submissions with regard to its argument based on Art. 190(2)(a) PILA is reserved.
The Federal Tribunal issues its decision on the basis of the facts established by the arbitral tribunal (Art. 105(1) LTF). It may not rectify or supplement ex officio the factual findings of the arbitrators, even if 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). However, as was already the case under the aegis of the federal statue organizing federal courts (see ATF 129 III 717 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 award under appeal is based if one of the grievances mentioned at Art. 190(2) PILA is raised against such factual findings or when some new facts or evidence are exceptionally taken into consideration, within the framework of the civil law appeal (see Art. 99(1) LTF; judgment 4A_538/20126 of January 17, 2013, at 3.2).
At nr. 1 to 60 of its brief of October 4, 2013 (p. 7 to 23), the Appellant states various facts summarized at B.b. above, essentially concerning the arbitral proceedings between the time when the Arbitrator kept the file to prepare his award (May 4, 2011) and the receipt of the award by counsel for the parties (September 3 and 4, 2013). According to the Appellant, these procedural facts – not described in the award under appeal – must be taken into account by the Federal Tribunal because they constitute the very basis of its main argument, according to which the Arbitrator resigned before issuing the award in dispute. Therefore, the two exceptions reserved by the aforesaid case law to the intangibility of the factual findings on which the award under appeal is based would be met in this case.
It is indeed so. Moreover, the Respondent raises no objection in this respect. However, it is not the first of the two aforesaid exceptions that applies there but the second, contrary to the Appellant’s opinion considering that both are applicable. Yet, one does not see how the Appellant can raise the grievance mentioned at Art 190(2)(a) PILA against the factual findings of the award under appeal (see appeal nr. 81) and the precedent it invokes in this respect (judgment 4A_386/20107 of January 3, 2011, at 3 and 4) is not relevant. The argument is tantamount to claiming that the missing items in the factual findings originate in the Arbitrator’s improper appointment, which is not reasonable. However, it is true that on the basis of Art. 99(1) LTF, the Appellant must be authorized to state and prove the facts concerning a procedural deficiency it could not invoke before the award was issued (Bernard Corboz, Commentaire de la LTF, 2009, nr. 23 ad Art. 99 LTF). This is the meaning of its argument in which it seeks to demonstrate that the Arbitrator resigned before issuing the award under appeal and, on that basis, argues Art. 190(2)(a) PILA.
Consequently, the facts in question have to be addressed. The documents produced in support prove their existence. Moreover, the Respondent does not deny that they correspond to the presentation by its opponent.
3.1.1. In its brief, the Appellant argues that the award of September 3, 2013, must be annulled on the basis of Art. 190(2)(a) PILA because it was issued by an arbitrator who had already resigned. Based on the aforesaid facts of August 27, 2013 (see B.b., 5th §, above), it states that the resignation became effective on September 2, 2013, at 5:01 p.m. at the latest. It adds that counsel clearly stated on September 4, 2013, when the two boxes containing the award and its enclosures were delivered, that their receipt did not imply acceptance of the documents they contained.
The Respondent raises a number of objections to the argument in its answer. Reviewing the only reasons for which the Arbitrator’s mission could have terminated in this case before the award in dispute was issued, it rejects them all: first, a removal was within the jurisdiction of the competent court, namely the Court of First Instance of the Canton of Geneva, which had not been seized; then a formal resignation because there was no unilateral decision by the Arbitrator to put an end to his mission and he had written his award before the deadline; a joint removal by the parties within the meaning of Art. 179(1) PILA; or finally, because one of them (the Respondent) “healed” the acceptance of a resignation resulting from the facts of August 27, 2013, by accepting to review the award through counsel and in any event, the latter could not be considered as a joint removal pursuant to the provision quoted. Moreover, the Respondent argues that the Appellant abuses its right, and as a litigant displeased by the result obtained, merely seeks to open a road to challenge the award which disregards the intense work performed by the Arbitrator to write a voluminous award, the notification of which took place only one day after the time limit set by the parties had expired.
In its reply, the Appellant seeks to refute all these objections. In its view, removal by the court or by the parties is not an issue here because it is pursuant to a resignation proposed by the Arbitrator and accepted by both parties that came into effect as of September 2, 2013, at 5:00 p.m.. Hence, according to the Appellant, the Arbitrator was no longer entitled to issue an award from that moment in the pending arbitration. Moreover, the Appellant denies that the Respondent itself could set aside the consequences of the Arbitrator’s resignation by way of the unilateral acceptance without reservation of the notification of the award because the extinction of the Arbitrator’s powers resulted from a tripartite agreement concluded by the latter with the two litigants. Finally, the Appellant firmly rejects the charge that it was abusing its rights. It recalls in this respect that the parties waited for the notification of the award for some two years and four months despite the Arbitrator’s repeated promises to act diligently.
In its rebuttal the Respondent counters that the Appellant’s argument disregards the principles governing the arbitration agreement and an arbitrator’s resignation. In its view, these principles would mean that the relationship entered into by the parties and the Arbitrator do not fall within a mere mandate that the agent could terminate at any time, but they are a sui generis contract, binding the Arbitrator to conduct his duty to its term, unless he can prematurely terminate it by invoking just cause. Yet, according to the Respondent, such cause would not exist in the case because, despite the delay with which the Arbitrator issued his decision, the award could be issued within the time limit, which had been announced to the parties after all. In other words, the fact that the Arbitrator offered his resignation, which was accepted under certain conditions, could not, in the Respondent’s view, constitute a resignation for just cause within the meaning of the restrictive case law in this area.
3.1.2. Considering the contradictory opinions on each side, the first issue is whether or not the award in dispute was issued after the Arbitrator’s appointment terminated. In the affirmative, the legal consequences of this fact will have to be determined.
3.2.1. The arbitration contract – receptum arbitrii or arbitri (ATF 136 III 5978 at 5 p. 600; on the terminology, see Thomas Clay, L’arbitre, 2001, p. 487 to 489) – embodies the contractual relationship between the arbitrator and the parties. It is part of the mixed nature of arbitration, which is contractual in its source and jurisdictional in its object (Fouchard, Gaillard, Goldman, Traité de l'arbitrage commercial international, 1996, nr. 1122). Like a state court, the arbitrator is vested with the power to decide a dispute in an award equivalent to a judgment but he derives this power from the will of the parties (Kaufmann-Kohler and Rigozzi, Arbitrage international: Droit et practique à la lumière de la LDIP, 2nd ed. 2010, nr. 24). The arbitration contract is often seen as a sui generis mandate but the rules of mandate (Art. 394 ff CO9) are mainly excluded by the status of the arbitrator, in particular with regard to the conditions under which the contract terminates (Pierre-Yves Tschanz, in Commentaire romand, Loi sur le droit international privé – Convention de Lugano, 2011, nr. 55 ad. Art. 179 PILA).
The arbitration contract normally terminates with the case, i.e., in the vast majority of cases, when the final award is issued (provided it is not null or annulled) or, more rarely, because the matter terminates as a consequence of a withdrawal or a settlement. It may however terminate pendente lite before it is due to expire, in particular if the arbitrator dies, if he is challenged, removed by the parties or by the Court or if he resigns (Tschanz, op. cit., nr. 60 ad. Art. 179 PILA; Poudret and Besson, Comparative Law of International Arbitration, 2nd ed. 2007, nr. 430).
According to Art. 179(1) PILA, arbitrators are removed in accordance with the agreement of the parties. The revocation (Abberufung, revocation) emanates from them. Not subject in principle to any particular formal requirement, contrary to what prevails in domestic arbitration (see Art. 370(1) CCP, which requires a written agreement) it may take place at any time and without reasons but it must come from all parties to the arbitration. Hence the expression of “joint removal” often used to qualify this expression of will. The removal is possible even with regard to an arbitrator appointed by a third party or by the Court. The arbitrator cannot oppose it (Berger and Kellerhals, International and Domestic Arbitration in Switzerland, 2nd ed. 2010, nrs. 843 to 848; Lalive, Poudret and Reymond, Le droit de l’arbitrage interne et international en Suisse, 1989, nr. 9 ad. Art. 179 PILA).
The concept of revocation to which Art. 179(1) PILA refers also includes that of removal (Absetzung, removal; Berger and Kellerhals, op. cit., nr. 851; Kaufmann-Kohler and Rigozzi, op. cit., nr. 413b; Lalive, Poudret and Reymond, op. cit., nr. 10 ad. Art. 179 PILA and references). Removal means the end of an arbitrator’s mission pronounced by a court or an arbitral institution upon request from one party for just cause relating to the arbitrator (Berger and Kellerhals, op. cit., nrs. 849 to 856, specifically nr. 852; Poudret and Besson, op. cit., nr. 431; Lalive, Poudret and Reymond, ibid.) but which does not constitute grounds for a challenge (Kaufmann-Kohler and Rigozzi, ibid.). As recalled by Art. 370(2) CCP, in domestic arbitrations it is justified in particular when an arbitrator is not in a position to perform his duty timely or does not do so with the requested diligence. Failing an agreement between the parties establishing directly or indirectly (by reference to arbitration rules) some rules in this respect, it is the court at the seat of the arbitral tribunal which shall be seized of the ad hoc request and it will apply by analogy the aforesaid provision in conformity with Art. 179(2) PILA. It must be recalled here that the parties agreed to apply the (Geneva) LCP until the end of the arbitration despite the entry in force of the CCP (see B.a, 3rd §, above). Therefore, pursuant to Art. 461(1)(a) LCP, the Court of First Instance of the Canton of Geneva had jurisdiction to remove the arbitrator. It would also have jurisdiction under the new law of civil procedure (see Art. 86(2)(d) of the Geneva Law Organizing Courts of September 26, 2010, [LOJ; RS E 3 05] in connection with Art. 370(2) and 356(2)(a) CCP). An arbitrator’s resignation during the proceedings is not the object of any specific provision in the Swiss law of domestic and international arbitration (Berger and Kellerhals, op. cit., nr. 857). As the arbitration contract is not a simple mandate, the rule of Art. 404(1) CO does not apply, according to which the mandate can be terminated at any time (Lalive, Poudret and Reymond, op. cit., nr. 8 ad. Art. 179 PILA). It is therefore generally admitted that the arbitrator is entitled to resign only for just cause (ATF 117 la 166 at 6c, p. 169 and the others quoted; Kaufmann-Kohler and Rigozzi, op. cit., nr. 413c; some examples of just cause; see Berger and Kellerhals, op. cit., nr 861). If all parties to the proceeding accept the resignation of an arbitrator, this is tantamount to a removal. Conversely, failing any topical rules contained in the agreement of the parties or the rules of arbitration chosen by them, the court at the seat of the arbitration shall decide the validity of the resignation in dispute (Berger and Kellerhals, op. cit., nr. 863). Moreover, the legal nature of the termination is similar to the termination of a mandate, as the latter is the exercise of a right of unilateral termination extinguishing the legal relationship entered into by the parties with the arbitrator pursuant to the arbitration contract (see Pierre Engel, Traité des obligations en droit suisse, 2nd ed. 1997, p. 30). Similar to the termination of a mandate, a resignation takes effect ex nunc either immediately or when the time limit expires if it is given for a determined term (see Josef Hofstetter, Der Auftrag und die Geschäftsführung ohne Auftrag, in Schweizerisches Privatrecht, vol. 7, Obligationenrecht – Besondere Vertragsverhältnisse, 2nd ed. 2000, p. 58). Subjecting the termination of a mandate or the resignation to a condition is generally incompatible with the principle of certainty as to the law. However, a conditional removal or resignation cannot be ruled out altogether, so is a conditional termination of the mandate, to the extent that this does not create an uncertain situation for the addressee of the expression of will. It is thus generally considered that the revocation or the termination of a mandate subject to a potestative condition is admissible when its realization depends only from the will of the principal or the agent, such as revocation already notified to the agent should he fail to perform his contractual obligations within a certain time limit (Hofstetter, ibid.; Walter Fellmann, Commentaire bernois, 1992, nr. 38 ad. Art. 404 CO; Rolf H. Weber, in Commentaire bâlois, Obligationenrecht I, 5th ed. 2011, nr. 6 ad. Art. 404 CO).
There is a last hypothesis in which the arbitration contract may terminate before the award is issued. Indeed, the parties have the right to limit in the arbitration agreement or in a subsequent agreement the duration of the mission of the arbitral tribunal. This facility is reserved by Art. 366(1) CCP for domestic arbitration and it must be recognized in international arbitration as well (Poudret and Besson, op. cit., nr. 452, last §; Berger and Kellerhals, op. cit., nr. 916; Philipp Habegger, in Commentaire bâlois, Schweizerische Zivilprozessordnung, 2nd ed. 2013, nr. 1a ad. Art. 366 CCP). In both situations, it is anticipated – specifically Art. 366(2) CCP or indirectly by resorting to Art. 179(1) and 185 PILA – that the time limit can be extended by agreement between the parties or pursuant to a request by one of them (or from the arbitral tribunal in a domestic arbitration, certainly; see Art. 366(2)(b) CCP), by a decision of the court (Berger and Kellerhals, ibid.; Habegger, ibid.). Yet, if such an extension is not applied for or not granted, the final award may be issued after the deadline given to the arbitrator to carry out his mission (as to the risks entailed by such a limitation in time, see Philippe Schweizer, in Code de procedure civile commenté, 2011, nrs. 1 to 6 ad. Art. 366 CCP).
3.2.2. It must now be determined whether the expressions of will of the parties and of the Arbitrator as described in the factual findings above show the distinctive features of one or the other of the theoretical patterns conceivable. This requires establishing their meaning in accordance with the general rules of interpretation of such expressions, whether unilateral or bilateral (see judgment 4A_219/2013 of September 4, 2013, at 3.2 and the precedents quoted). Thus, according to the principle of reliance, emphasis must be given to the way in which the addressee of the expression of will could understand it in good faith under all the circumstances. The author of the expression of will must live with its objective meaning, even though it may not correspond to his innermost will (ATF 135 III 410 at 3.2).
The hypothesis of a court removal of the arbitrator may be set aside immediately in this case. It is indeed established that the Court of First Instance was not seized of any ad hoc request by any of the parties. It could have been and indeed counsel for the Appellant had threatened the Arbitrator with recourse to the state court twice (see B.b, 2nd §, above). However, they eventually chose another solution in agreement with the Respondent and they had the right to do so as the law gives priority to the agreement of the parties in this respect (see Art. 179(1) and (2) PILA).
The issue is however much more delicate as to which of the other possibilities describe above fits with the expressions of will in dispute. To decide the issue, the writings exchanged between the parties between June 3 and September 4, 2013, must be interpreted in their contexts (see B.b above).
The show first that if the Arbitrator offered his resignation in his email of June 3, 2013, subject to the agreement of the parties, should the award not be issued as of June 30, 2013, he did not do so on his own initiative but in answer to a suggestion contained in an email of the same day from the director of the Appellant. Indeed, he stated that the suggestion was hard (“tough proposal”) and his subsequent behavior – requesting a grace period and notification of the award to counsel for the parties in spite of its expiry – demonstrates if necessary that he did not intend to avail himself of just cause relating to himself or to other factors which would have prevented him from continuing his mission to its term. Furthermore, it must be emphasized that counsel for the parties did not remain without reaction when they received the Arbitrator’s conditional offer to resign. In fact, in the letter he wrote on his office letterhead on August 8, 2013, that was finally sent to the Arbitrator on August 27, 2013, one of the two counsel for the Appellant took notice that the time limit proposed by the Arbitrator himself had expired without any award being issued and stated that he accepted the offer to resign under the same condition but with a new time limit set as of August 30, 2013. As to counsel for the Respondent, he countersigned the letter for agreement. Still on August 27, 2013, the Arbitrator answered counsel for both parties telling them that he could not but accept their conditions while asking for a last extension of the new time limit until September 2, 2013, which they accepted in a fax of the same day with their two signatures, also stating that the resignation would be effective at 5:00 p.m. on the latter date, should they not have received the award by then. Whereupon, the Arbitrator stated in an email of August 28, 2013, that he accepted the terms of this last writing.
The will thus expressed at the end of the arbitral proceedings by the parties of the case at hand is not clear enough to display the characteristics of only one of the three aforesaid causes for premature termination of the arbitration contract (in addition to removal by the court) to the exclusion of the two others. As to resignation, if the Arbitrator indeed wrote “I shall resign” in his email of June 3, 2013, it has just been emphasized that he did not do so on his own agreement because he in fact intended to continue his mission, despite the delay in carrying it out. Therefore, it appears difficult to accept in this case that there was a resignation stricto sensu; in other words, the exercise of a unilateral termination right by the Arbitrator (repudiation of the mandate sui generis) subject to the condition precedent of a lack of notification of the award within the time limit given. Should such a conditional termination be upheld here, one would still have to point out that the formal act was accomplished against the wish of its author under the pressure of events. A joint and conditional removal of the Arbitrator by the parties could also be considered, as counsel for both specifically accepted the conditional proposition to resign received from the Arbitrator. This legal form would doubtlessly fit the situation better than a resignation, considering the common will expressed by counsel to sanction the inaction or at least the extreme lack of diligence of the Arbitrator by a removal. While this is not decisive, it is however true that such wording does not appear in the aforesaid writings. Finally, the behavior of the parties could be considered as an agreement during the arbitration with a view to limiting the duration of the Arbitrator’s mission. However, such a legal construction would not explain why the Arbitrator actively took part in the discussions that took place as to the continuation and the termination of this mission.
Be this as it may, the circumstances of the case clearly show the joint will of both parties in the arbitral proceedings to see the arbitration contract terminate ipso facto on September 2, 2013, at 5:00 p.m. should either of them fail to receive the final award before this deadline. It is equally clear that the Arbitrator could not, in good faith, understand the expression of will of the two parties differently. Thus, it appears that the reason for the premature termination of the powers of the Arbitrator must be sought more in a tripartite agreement entered into to this effect by each party with the other, on the one hand, and by both parties jointly with the Arbitrator, on the other hand, as opposed to a mere resignation by the Arbitrator or his removal by a joint decision of the two parties. Therefore, the objections raised by the Respondent to exclude a valid termination of the arbitration contract as of the date and time in the August 27, 2013, fax cannot be upheld. This applies to the argument based on case law preventing an arbitrator from resigning other than by invoking just cause. The argument does not take into account that the termination of the arbitration contract was not due to the Arbitrator’s unilateral decision to put an end to his mission because he had some reasons to do so, but arose from an agreement that the two parties had entered into with the Arbitrator for this purpose. The argument of a healing effect (sanatio) due to the Respondent’s acceptance of the award notified beyond the last time limit given to the Arbitrator to notify the decision, is not better founded. Indeed, it would be contrary to the rule of pacta sunt servanda and to the principle of parallelism to enable a party of a bilateral or multilateral agreement to set aside its effect by a unilateral act such as the receipt of the award. This would only have been conclusive in this case if the Appellant had acted in the same manner and itself accepted the late notification of the award without reservation. Yet, it was not so, as is clear from the facts recalled at B.b of this judgment.
As an intermediate conclusion, it must therefore be held that the award in dispute, dated September 3, 2013, was issued after the Arbitrator’s mission terminated on September 2, 2013, at 5:00 p.m..
An award issued after the mission of the arbitrator or the arbitral tribunal expired is not null but it can be annulled on appeal. Art. 36(g) of the March 27, 1969, Concordat on Arbitration (CA) made a ground for appeal of this procedural deficiency by stating that an award could be annulled “when the arbitral tribunal decided after the expiry of the time limit given to fulfill its mission.” The present Swiss law of domestic and international arbitration does not contain a specific provision comparable to the rule in the abrogated Concordat. In its vast majority, legal writing considers such a procedural deficiency as an issue of jurisdiction ratione temporis falling within Art. 190(2)(b) PILA (international arbitration) or Art. 393(b) CCP (domestic arbitration), because the arbitral tribunal or the arbitrator would implicitly arrogate to himself a jurisdiction he no longer has by issuing a decision after the time limit (see among others: Berger Kellerhals, op. cit., nr. 917; Rüede and Hadenfeldt, Schweizerisches Schiedensgerichtsrecht, 2nd ed. 1993, p. 371, 1st §; Lalive, Poudret and Reymond, op. cit., nr. 4g ad. Art. 36 CA; Pierre Jolidon, Commentaire du Concordat suisse sur l’arbitrage, 1984, nr. 10b ad. Art. 36 CA; Schweizer, op. cit., nr. 14 ad. Art. 370 CPC; Habegger, op. cit., nr. 11 ad. Art. 366 CPC; Stefan Grundmann, in Kommentar zur Schweizerischen Zivilprozessordnung, Sutter-Somm, Hasenböhler and Leuenberger [ed.], 2nd ed. 2013, nr. 10 ad. Art. 366 CPC; Richard Gassmann, in Schweizerische Zivilprozessordnung (ZPO), Baker & McKenzie [ed.], 2010, nr. 3 ad. Art. 366 CPC; Felix Dasser, in ZPO Kurzkommentar, Oberhammer [ed.], 2010, nr. 6 ad. Art 366 CPC; Planinic and Kubat Erk, in ZPO Schweizerische Zivilprozessordnung, Gehri and Ramer [ed.], 2010, nr. 8 ad. Art. 366 CPC). Some writers, however, reserve the option to consider that the arbitral tribunal or the sole arbitrator deciding after the time limit for his mission has expired must be assimilated to an improperly constituted arbitral tribunal or an improperly appointed arbitrator within the meaning of Art. 190(2)(a) PILA or Art. 393(a) CPC (Schweizer, ibid. [as a remote possibility]; Schwander and Stacher, in Schweizerische Zivilprozessordnung (ZPO), Brunner, Gasser, Schwander [ed.], 2011, nr. 3 ad. Art. 366 CCP). In theory, both legal constructions could apply to the procedural deficiency at hand. Indeed, the sole arbitrator (or the Arbitral Tribunal) deciding after the expiry of the mission may be considered both as usurping the powers of an arbitrator (or an arbitral tribunal) and as an arbitrator (or an arbitral tribunal) exceeding the time limits to its jurisdiction. With reference to the limits set by case law to Art. 190(2)(a) PILA, preference must however be given to the latter legal construction. Indeed, as the Federal Tribunal recently recalled (judgment 4A_282/2013 of November 13, 2013, at 4), proper constitution of the arbitral tribunal or proper appointment of the arbitrator within this provision must be understood as the manner in which the arbitrator(s) was (were) appointed or replaced (Art. 179 PILA) and the issues concerning their independence (Art. 180 PILA). Yet from the restrictive point of view thus defined by case law, the position of an arbitrator or an arbitral tribunal deciding beyond the time limit is not similar to that of an arbitrator or an arbitral tribunal which was not properly appointed or replaced; it is more similar to that of an arbitrator or an arbitral tribunal, the appointment of which is beyond discussion, but which simply disregarded the time limit set to its jurisdiction. However, this Court is aware that the distinctive criterion setting aside one legal construction to the benefit of the other remains somewhat nebulous. Yet, the issue must be decided in the interest of certainty as to the law. This will be done by treating the procedural deficiency at hand as a ground for appeal within the meaning of Art. 190(2)(b) PILA or Art. 393(b) CCP.
In the case at hand, the Appellant relied exclusively on Art. 190(2)(a) PILA to criticize the Arbitrator’s behavior. From a strict legal point of view, and considering in particular case law concerning Art. 77(3) LTF, it could be criticized for failing to invoke the pertinent legal argument in its brief (see judgment 4A_538/2012 of January 2013, at 4.3.1). However, declaring the appeal inadmissible on this ground only would be excessively formalistic considering that, up to now, it was uncertain which provision – Art. 190(2)(a) PILA or Art. 190(2)(b) PILA – would apply. The objection will therefore be waived. Moreover, the Respondent raised no objection as to the choice of the argument advanced by the Appellant.
Therefore, the award must be annulled in principle for the grounds stated at Art. 190(2)(b) PILA, namely because the Arbitrator wrongly accepted jurisdiction to issue the award after his powers had expired.
The Respondent’s rejection must be addressed, according to which, when challenging the validity of the final award merely to obtain the annulment of an unsatisfactory decision, the Appellant would manifestly abuse its rights.
4.2.1. Pursuant to Art. 2(2) CC,10 manifest abuse of one’s right is not protected by the law. The prohibition of abuse of rights allows the court to correct the impact the impact of the law in certain cases where the exercise of a right would create obvious injustice. The existence of an abuse of rights is determined according to the circumstances of the case at hand, with reference to the various categories established by case law and legal writing. The use in the law of the qualifier “manifest” demonstrates that an abuse of right must be admitted restrictively. The typical cases are the absence of any interest to exercising a right, the use of a legal institution contrary to its purpose, the manifest disproportion between the interests at hand, the blunt exercise of a right or contradictory attitude (ATF 135 III 162 at 3.3.1 p. 169 and the cases quoted).
4.2.2. No matter what the Respondent claims, the conditions are not realized pursuant to which the argument should be declared abusive and therefore inadmissible. First, it is clear and unchallenged in this case that the Appellant or the Respondent cannot be criticized for any act or omission which would be in connection with the delay the Appellant blames on the Arbitrator. Furthermore, according to the well-known proverb, patience has its limits. In the case at hand, once the proceedings were closed, the parties had to wait about two years and four months before they received the final award. Yet, the Appellant took several steps asking the Arbitrator to resolve the stalemate. However, he dithered throughout, despite his repeated promises to act diligently and he acted as a last resort only when the Respondent and the Appellant gave him an ultimatum. One does not see how, by drawing the consequences of this ultimatum as clearly stated to its addressee, the Appellant could be considered to be acting abusively. Admittedly a prescriptive date carries major inconvenience if one does not comply with the comminatory time limit he was given and perhaps for third parties. However, these are inherent to legal institutions such as the forfeiture of the right to bring action, legal time limits or a statute of limitations: there necessarily comes a time when the fact that one acts on one day rather than the previous one has damaging and often irreparable consequences. Everyone knows that and one’s conduct must be adapted in order to rule out such consequences. These considerations give relative value to the Respondent’s argument based on the fact that the Arbitrator worked intensely to issue a voluminous award just one day after the deadline expired. If it were not so, setting such a time limit would no longer make any sense and the parties would be in the hands of the sole arbitrator or the arbitral tribunal. Finally, the Appellant reacted without delay when the deadline of September 2, 2013, at 5:00 p.m. expired and even before receiving the boxes containing the award and its enclosures and on September 3, 2013, at 6:25 p.m., one of its counsel sent a fax to the Arbitrator in which, taking notice of the absence of notification of the award within the given time limit, he took notice of his resignation and asked him to confirm that his functions had terminated as of the date and time indicated in the August 27, 2013, ultimatum. Moreover, its subsequent behavior was not at all in contradiction with this first reaction, as it was careful to state again its refusal to accept the validity of the notification of the award when it received it on September 4, 2013. The Respondent is therefore wrong to criticize the Appellant for allegedly acting out of mere procedural opportunism by waiting to know the contents of the award without taking it to the Federal Tribunal after discovering that its results were unfavorable. The argument could moreover be sent back to the Respondent for arguing the healing effect of the receipt of the award only after realizing that it was largely in its favor.
Under such conditions, the grievance raised by the Appellant must be admitted and consequently the September 3, 2013, award rectified on September 6, 2013, must be annulled. The Appellant’s submission is however not admissible that a finding should be issued (see C., 1st §, above) as this doubles the submission for annulment, upheld by this Court while being based on no specific reasons and appearing anyway incompatible with Art. 77(2) in fine LTF.
Furthermore, contrary to what the Appellant asks, it does not behoove the Federal Tribunal to send the file to the Court of First Instance of the Canton of Geneva with a view to appointing a new arbitrator. It behooves the parties to take the necessary procedural steps as a consequence of the annulment of the award under appeal.
The annulment of the award for a violation of Art. 190(2)(b) PILA renders moot the Appellant’s second argument based on Art. 190(2)(c) PILA, according to which the Arbitrator failed to decide at least two items of the claim.
The Respondent shall pay the costs of the federal proceedings (Art. 66(1) LTF) and compensate its opponent (Art. 68(1) and (2) LTF).
The Federal Tribunal therefore pronounces:
The appeal is upheld and the award of September 3, 2013, as rectified on September 6, 2013, is annulled.
The judicial costs set at CHF 12’000 shall be borne by the Respondent.
The Respondent shall pay to the Appellant an amount of CHF 14’000 for the federal judicial proceedings.
This judgment shall be communicated to the representatives of the parties and to the sole arbitrator.
Lausanne, January 28, 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.________ AG. v. Z.________, 4A_490/2013. The original decision is in French. The full text is available on the website of the Federal Tribunal, www.bger.ch
- 2. 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.
- 3. Translator’s note: In English in the original text.
- 4. Translator’s note: In English in the original text.
- 5. Translator’s note: LTF is the French abbreviation for 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:
- 7. 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
- 8. Translator’s note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/procedural-order-of-the-arbitral-tribunal-directing-payment-of-t
- 9. Translator’s note: CO is the French abbreviation for the Swiss Code of Obligation.
- 10. Translator’s Note: CC is the French abbreviation for the Swiss Civil Code.