Res judicata effect of a foreign judgment
The case involved the construction of a bridge across a European river. In 2004, a contract, governed by the law of the country in which the bridge was to be built, was entered into for a number of pillars and the relative superstructures. The contract contained an ICC arbitration clause. Unbeknownst to the contractor, another contract was also signed in 2004, awarding the works to a different company. In 2007 an additional agreement was entered into and the works (which had been sub-contracted in the meantime) were accepted in 2007. The sub-contractor took the state railway company to Court and various State Court proceedings ensued until the State Attorney for Transportation of the country involved initiated proceedings to invalidate the 2007 ‘additional’ agreement. These proceedings were ultimately successful and the highest commercial court of the land declared the additional agreement void in April 2012 because it had been signed by a representative not empowered to sign. In 2010, arbitration proceedings were initiated. The seat of the arbitration was in Zürich and the Arbitral Tribunal (Chairman Christian Dorda, with arbitrators Pierre Tercier and Irina Nazarova) issued its final award on September 6, 2013. The Arbitral Tribunal upheld the additional agreement and declared it enforceable and ordered the state railway company to pay.
The issue before the Federal Tribunal was whether or not the April 2012 judgment declaring the additional agreement null and void constituted res judicata for the arbitrators sitting in Switzerland.
Whilst I do not feel at liberty to comment on the judgment of the Federal Tribunal because I was involved in one of the aspects of the case, I may point out that the following are very interesting in the opinion:
- The Federal Tribunal confirmed that res judicata is part of procedural public policy. Procedural public policy is violated when some fundamental and broadly acknowledged principles are disregarded, thus creating an insufferable contradiction with the notion of justice so that the decision appears inconsistent with the values recognized in a state governed by the rule of law. (See Section 3.1 of the opinion in this respect.)
- Res judicata applies to the relationship between a Court decision issued abroad and the award of an international arbitral tribunal sitting in Switzerland. If the object of the dispute and the parties in the arbitration are the same as in the foreign state proceedings, an arbitral tribunal sitting in Switzerland must declare the arbitration request inadmissible if a defence of res judicata is raised. (See Section 3.1 and 3.3 of the opinion in this respect.)
- Res judicata applies to the facts existing between the same parties at the time of the first judgment, whether or not they were known to them but it does not stand in the way of a request based on modified circumstances after the judgment of the State Court. (See Section 3.3 of the opinion in this respect.)
- Res judicata extends only to the dispositive part of the judgment of the foreign Court and not to its reasons. (See Section 3.2 of the opinion in this respect.)
- If the judicial review of the foreign Court was limited as to the issue it had to decide, there will be no identity of the subject matter if the same issue is subsequently raised in an arbitration. (See Section 22.214.171.124 of the opinion in this respect.)
Judgment of May 27, 2014
First Civil Law Court
Federal Judge Klett (Mrs.), Presiding
Federal Judge Kolly
Federal Judge Hohl (Mrs.)
Federal Judge Kiss (Mrs.)
Federal Judge Niquille (Mrs.)
Clerk of the Court: Mr. Carruzzo
Represented by Mr. Bernd Ehle,
Represented by Wolfgang Peter and Christoph Brunner,
A.a. A.________ (hereafter: the Appellant) is a state railway company which has its seat in [name of city omitted], [name of country omitted].
B.________ (hereafter: the Respondent) has its seat in [name of city omitted], [name of country omitted] and is a common stock company under the law of [name of country omitted] operating on the European construction market. C.________ is its subsidiary in [name of country omitted].
A.b. On November 14, 2004, A.________ as principal and B.________ as general contractor entered into a work contract governed by the law of V.________, the purpose of which was to build part of a highway and railway bridge between the two banks of the river [name omitted] in [name of city omitted] (hereafter: the Contract and the Bridge, respectively). The work consisted of the construction of a range of pillars underpinning some superstructures. The works entrusted to B.________ consisted of the construction of pillars 13 to 17 and the superstructures above pillars 12 to 17. Their price was set at 100 million American dollars (USD). An arbitration clause was contained in the Contract. As provided by the latter, B.________ subcontracted the works to C.________. Unbeknownst to B.________, A.________ entered into another enterprise contract on November 16, 2004 (hereafter: the D.________ Contract). In so doing, it entrusted the limited liability company under the law of V.________, D.________, to carry out all the construction works on the Bridge. On May 15, 2007, A.________ and B.________ signed the Additional Agreement n. 1 (hereafter: the AA1) pursuant to which the contract price was increased from USD 100 million to USD 110, the formula to calculate it was modified and the date of completion of the works postponed.
On May 19, 2007, C.________ and D.________ entered into a subcontract (hereafter: the Subcontract), the former entrusting the latter with the construction of the superstructures of the Bridge. A.________ was immediately informed.
On May 30 and 31, 2007, A.________ accepted the construction work of pillars 13 to 17 carried out by B.________, according to the Contract and assessed their price at USD 60 million.
A.c. At the beginning of the year 2008, D.________ filed a claim against A.________ in the Commercial Court of U.________ (case n. 11/44) for the payment of its compensation as foreseen in the D.________ Contract for the superstructure works carried out above pillars 12 to 17. A.________ disputed the claim and stated that it had no contractual relationship with D.________ concerning these works, which fell within the Subcontract. C.________ intervened in the proceedings as an interested third party to safeguard its rights in connection with the latter Contract to which it was a party.
In a judgment of May 16, 2008, the Commercial Court of U.________ upheld D.________’s claim.
A.________ appealed the judgment on the basis of its lack of standing to defend as to the disputed works. Pursuant to a settlement with D.________, it withdrew the appeal on June 10, 2009. However, the proceedings continued. On April 8, 2010, the court of appeal of U.________ confirmed the judgment of first instance. C.________ tried without success to prevail in the Commercial High Court of [name of country omitted], (hereafter: the HCC), which rejected the appeal in a final judgment of February 15, 2011.
A.d. On May 31, 2008, the State Attorney for Transportation of U.________ (hereafter: the State Attorney), acting on behalf of the state of V.________, starting litigation against A.________ and B.________ with a view to invalidate the AA1 because the powers of representation of E.________, the head of the department of A.________ in charge of the construction of the Bridge who had signed the AA1 on May 15, 2007, had expired on December 31, 2006, (case n. 32/409).
On November 15, 2011, the Commercial Court of U.________ rejected the claim. It then issued a new decision on December 6, 2011, in which it confirmed the validity of the AA1 after rejecting the arbitration defense raised by B.________.
Seized by A.________, the court of appeal of U.________ upheld the judgment of first instance on March 13, 2012.
A.________ filed an appeal on points of law against the decision of the court of appeal. In a judgment of April 11, 2012, the HCC annulled the decision and found that the AA1 was void.
A.e. On October 11, 2012, B.________ submitted a request to the European Court of Human Rights seeking a finding by that court that the state of V.________ breached Art. 6(1) ECHR in particular due to disproportionate interference by the State Attorney in a private law relationship. The proceedings appear to still be pending.
On June 15, 2010, B.________ invoked the arbitration clause in the Contract and filed a request for arbitration against A.________. Its last submissions sought a finding that the AA1 is valid and enforceable and an order that A.________ pay some USD 33.5 million.
A three-member Arbitral Tribunal was constituted under the aegis of the Court of Arbitration of the International Chamber of Commerce (ICC). The seat of the arbitration was set in Zürich.
In its last submissions, A.________ asked the Arbitral Tribunal to find that it did not have jurisdiction and, in the alternative, to reject the claim entirely. In the operative part of the final award of September 6, 2013, the Arbitral Tribunal accepted jurisdiction (§1), declared the AA1 dated May 15, 2007, and performed by the two parties valid and enforceable (§2), ordered A.________ to pay an amount of USD 23’437’743.97 (§3), with interest (§4) and adjudicated the costs of the arbitration (§5).
On October 10, 2013, A.________ filed a civil law appeal with a view to obtaining the annulment of §2-5 of the operative part of the award. It submits that the Arbitral Tribunal issued a decision inconsistent with procedural public policy (Art. 190(2)(e) PILA2 and more specifically that it disregarded the res judicata effect of the judgment of the HCC of April 11, 2012, as to the validity of the AA1. As a preliminary matter, the Appellant asks the Federal Tribunal to dispense with a translation of the exhibits in English in the arbitral proceedings. In its answer of December 11, 2013, B.________ submits that the matter is not capable of appeal and in the alternative that the appeal should be rejected.
The Arbitral Tribunal did not submit an answer to the appeal.
The Appellant did not file a reply within the time limit it had to do so.
According to Art. 54(1) LTF,3 the Federal Tribunal issues its decision in an official language,4 as a rule in the language of the decision under appeal. When the decision was issued in another language (here, English), the Federal Tribunal resorts to the official language chosen by the parties. Before the Arbitral Tribunal, they used English. In the briefs submitted to the Federal Tribunal both used French. In accordance with its past practice, the Federal Tribunal will consequently issue its judgment in French.
As a matter of practice, moreover, this Court does not require a translation of the awards and decisions issued in English (Judgment 4A_450/2013 of April 7, 2014, at 1 and the legal writers quoted). Consequently, the Appellant’s preliminary submission that this should be dispensed with is moot, as the practice in this respect has been followed in this case. Therefore, it needs not be addressed formally or mentioned in the operative part of this judgment.
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 to 192 PILA (Art. 77(1)(a) LTF). Whether as to the object 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 problems in this case. The matter is therefore capable of appeal.
3.1. Public policy within the meaning of Art. 190(2)(e) PILA contains two elements: material public policy and procedural public policy. The latter, which is the only one involved here, guarantees the parties the right to an independent judgment on the legal and factual submissions before the arbitral tribunal in accordance with applicable procedural law. Public policy is violated when some fundamental and generally recognized principles are violated, leading to an insufferable contradiction with the sense of justice, such that the decisions appear incompatible with the values upheld in a state of law (ATF 132 III 389 at 2.2.1).
An arbitral tribunal violates procedural public policy if it disregards the res judicata effect of a previous decision or if the final award departs from the opinion expressed in an interlocutory award disposing of a material preliminary issue (ATF 136 III 3455 at 2.1, p. 348; 128 III 191 at 4a, p. 194 and the writers quoted).
Res judicata also applies internationally and in particular to the relationship between a Swiss arbitral tribunal and a foreign state court. Hence, if a party seizes an arbitral tribunal sitting in Switzerland of a request identical to that which was the object of an enforceable judgment issued between the same parties on a territory other than Switzerland, the arbitral tribunal must hold the request inadmissible. Failing that, it would violate procedural public policy, provided the foreign judgment is capable of recognition in Switzerland pursuant to Art. 25 PILA, the specific provisions of international treaties mentioned at Art. 1(2) PILA being reserved (ATF 124 III 83 at 5a, p. 86). A foreign decision is recognized in Switzerland if, among other conditions, the judicial or administrative bodies of the state in which it was issued had jurisdiction (Art. 25(a) PILA. This requirement is not met as to a decision which a state court issues without taking into account an arbitration defense validly raised by the respondent (ATF 124 III 83 at 5b, p. 87). In the case quoted (ibid.), the Federal Tribunal states that the indirect jurisdiction of the foreign state court must be examined in the light of Art. 25(a) PILA with reference to Art. II(3) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, (RS 0.277.12). Berger and Kellerhals (International and Domestic Arbitration in Switzerland, 2nd ed., 2010, p. 435, n. 1512b and footnote 35) state their view that it would be more appropriate to address the issue in the light of Art. 7 and Chapter 12 PILA concerning international arbitration. In so doing, they approve a writer who considers that the New York Convention would be inapplicable here as it does not address the recognition of foreign state judgments. The decisive issue is not whether the foreign court had jurisdiction according to its lex fori or not, which might facilitate dilatory maneuvers, but whether – from the point of view of Swiss law – there was a valid arbitration agreement (Art. 178 PILA), as to an arbitrable dispute (Art. 177 PILA), which could form the foundation of the jurisdiction of an arbitral tribunal sitting in Switzerland (Manuel LIatowitsch, Schweizer Schiedsgerichte und Parallelverfahren vor Staatsgerichten in In- und Ausland, 2002, p. 75 to 84). However, this criticism of published federal case law needs not be examined any further because, for the reasons explained hereunder, the res judicata defense must nonetheless be rejected in this case, so there is no need to research whether the HCC judgment of April 11, 2012, could be recognized in Switzerland.
3.2. Unless an international treaty states otherwise, the lex fori determines whether the claim raised before a foreign state court and the claim submitted to a Swiss court are identical (Walter and Domej, Internationales Zivilprozessrecht der Schweiz, 5th ed., 2012, p. 417; Max Guldener, Das internationale und interkantonale Zivilprozessrecht der Schweiz, 1951, p. 175, footnote 2c). Hence, the principles established by the case law of the Federal Tribunal in this respect are applicable (Oscar Vogel, Rechtshängigkeit und materielle Rechtskraft im internationalen Verhältnis, RSJ 86/1990, p. 77 ff, p. 81, n. 3.2.1 and p. 84, n. 4.1.1, 1st hyphen). Res judicata depends on the law of the state of origin, so it behooves this law to specify the conditions and limits of its effect (Bucher and Bonomi, Droit international privé, 3rd ed., 2013, n. 254). Therefore, the subjective, objective, and temporal scope of res judicata may vary from one legal order to the other. Harmonization in this field must be sought to the extent possible, however, and it is achieved as follows: in Switzerland, a recognized foreign judgment has only the authority it would have if issued by a Swiss court. Thus, a declaratory foreign judgment which could be opposed to third parties according to the law of a state of origin will only enjoy such authority in Switzerland with regard to the parties to the proceedings (ATF 139 III 126 at 3.1, p. 128). Similarly, the res judicata effect of a foreign judgment, which could extend to its reasons according to the law of the state of origin, will be admitted in Switzerland only as to the operative part of the judgment (ATF 136 III 3456 at 2.1, p. 348). Conversely, a foreign judgment may not produce more effects in Switzerland than it has pursuant to the legal order from which it originates (Knoepfler, Schweizer and Othenin-Girard, Droit international privé suisse, 3rd ed., 2005, n. 717a and the references).
3.3 According to the case law of the Federal Tribunal, there is res judicata when the claim in dispute is identical to that which was already the subject of an enforceable judgment (identity of the subject matter of the dispute). This is the case when in both litigations the same parties submitted the same claim to the court on the basis of the same facts. Clarifying its case law in this field, the Federal Tribunal recently stated that as a matter of principle it is not necessary to include the legal basis in the definition of the object of the dispute and that the identity of the claims submitted is determined by the submissions of the claim and the facts invoked in support, in other words, by the facts on which the submissions rely (ATF 139 III 126 at 3.3.2 and 3.2.3). Moreover, this Court reaffirms that the identity must be understood from a substantive and not grammatical point of view, so that a new claim, no matter how it is formulated, will have the same object as the claim already adjudicated even if it appears to be its opposite or if it was already contained in the preceding action (ATF 139 III 126 3.2.3 i.f.), such as a claim decided on the merits in the first litigation and presented as a preliminary issue in the second (ATF 123 III 16 at 2a, p. 19).
The res judicata effect extends to all the facts existing at the time of the first judgment, whether or not they were known to the parties, stated by them, or considered as proof by the first court (ATF 139 III 126 at 3.1, p. 129). However, it does not stand in the way of a claim based on a change in circumstance since the first judgment (ATF 139 III 126 at 3.2.1, p. 130 and the cases quoted) or more precisely, since the time at which, according to the governing law, the facts on which the judgment was based were finally determined (ATF 116 II 738 at 2a, p. 743). Therefore, the res judicata effect does not extend to the facts after the time until which the object of the dispute could be modified (François Bohnet, CPC Code de procedure civile commenté, 2011, n. 127, ad Art. 59 CPC), namely to those which took place beyond the last time when the parties could supplement their statements of facts and evidentiary submissions (Philippe Schweizer, Revue Suisse de procedure civile [RSPC], 2013, p. 210). Such circumstances are new facts (real nova) as opposed to the facts already in existence at the decisive time, which could not have been invoked in the previous proceedings (false nova), which opened the way to revision (judgment 4A_603/2011 of November 22, 2011, at 3.1 and the references).
3.4. It is in the light of these principles that the argument will be examined hereafter that the Arbitral Tribunal disregarded the res judicata effect of the April 11, 2012, HCC judgment as to the validity of the AA1.
The Respondent submits that the Federal Tribunal should not review fully the facts and the law concerning the res judicata effect of the [name of country omitted] judgment because the issue was already reviewed in detail by an arbitral tribunal sitting in Switzerland. In its view, indeed, when the Federal Legislature adopted Art. 186(1bis) PILA, it intentionally gave discretionary power to arbitral tribunals in the context of parallel proceedings (answer n. 142 and n. 143). However, as the Respondent itself acknowledges (answer n. 143), the provision quoted concerns lis pendens and does not address the issue of res judicata (Berger and Kellerhals, op. cit., n. 951d: “Art. 186 (1bis) only lifts the “barrier effect” of lis alibi pendens, but leaves the ‘barrier effect’ of res judicata untouched”7). Thus it is not sufficient to determine the scope of review of the Federal Tribunal. The following considerations solve the problem. The absence of res judicata is an admissibility requirement of the claim (ATF 121 III 474 at 2, p. 477; see also Art. 59(2)(e) CPC, RS 272). If this requirement is not met, the claimant is barred from acting pursuant to the rule ne bis in idem. Case law recognizes the importance of this rule, sanctioning its violation under a violation of procedural public policy (Art. 190(2)(e) PILA). Therefore, there is no reason to limit the scope of review of the Federal Tribunal when it is called upon to verify compliance with this essential rule or to discharge the Arbitral Tribunal sitting in Switzerland simply because it engaged in a thorough analysis of the res judicata effect of the foreign judgment. Instead, the ordinary rules set by case law in this area should apply and particularly those concerning the jurisdictional defense (Art. 190(2)(b) PILA), considering the similarity between the issue of jurisdiction and that of res judicata. Thus, the arbitral tribunal addressing a claim which was already the subject of a judgment having the force of res judicata and issuing an award as to this claim at the end of the day arrogates for itself a substantive jurisdiction it does not have, even if it does so on the basis of a valid arbitration agreement preventing a finding that it has no jurisdiction pursuant to the aforesaid provision.
Consequently, the Federal Tribunal will exercise free judicial review as to the legal issues, including preliminary issues, which may arise as to whether or not the Arbitrators disregarded the res judicata effect of the [name of country omitted] judgment invoked by the Appellant. If necessary, this Court will also review how the pertinent law of V.________ was applied. Yet, it will not become a court of appeal. Hence, it will not research itself in the award under appeal which legal arguments could justify upholding the grievance based on Art. 190(2)(e) PILA, which the Appellant did not submit and which would be contrary to the requirements of Art. 77(3) LTF. However, the Federal Tribunal will decide on the basis of the facts established by the Arbitral Tribunal (Art. 105(1) LTF) but for the exceptions foreseen by ad hoc case law (judgment 4A_538/20128 of January 17, 2013, at 3.2 and 4.2).
4.1. After stating the arguments of both parties as to the impact of the HCC judgment of April 11, 2012, as to the arbitral proceedings (award n. 356 to 375), the Arbitral Tribunal submitted the reasons summarized hereunder in this respect (award n. 376 to 388).
The Respondent’s alternative is accurate: either one accepts that the HCC judgment was not issued between the same parties as in the subsequent arbitral proceedings so that it would not be res judicata for them; or one accepts the opposite, which implies that the judgment at issue was issued in violation of the arbitration agreement. In case 32/409 (see A.d, above), the state courts of V.________ decided that the participation of the State Attorney changed the dynamic of the dispute insofar as they had to decide it because the magistrate acting in the interest of V.________ was not bound by the arbitration agreement contained in the Contract. The Arbitral Tribunal approved this rationale. The active participation of the V.________ government through the State Attorney in a civil dispute between two commercial companies impacted their rights in such a way that the case did not fall within the boundaries of the arbitration agreement. Therefore, the HCC judgment does not bind the Arbitral Tribunal for lack of identity between the parties in the two proceedings concerned.
As to the identity of the object in dispute, the Arbitral Tribunal must take into account the very limited scope of the review the HCC could exercise over the case according to the procedural law of V.________. As a court of cassation it had to rely upon the facts and circumstances found by the lower courts. Thus, the only issue before it in case 32/409 concerned the alleged nullity of the AA1 because E.________ signed the deed in the Appellant’s name after his powers of representation expired. There was no other claim or counterclaim by which one of the parties asked the Court to recognize its rights pursuant to the AA1 or to compel its opponent to perform the obligations it had under this additional agreement. Admittedly, the HCC incidentally referred to the judgments issued by the courts of V.________ in case n. 11/44 (see A.c., above) to conclude that the facts they had established did not show the existence of any conclusive acts by which the Respondent demonstrated its will to see the AA1 produce any legal effects. However, it did so in an obiter dictum and its power of review was limited to the issue as to whether or not the AA1 was void ab ovo because it had been signed by a unauthorized person. However, the HCC did not and could not examine whether or not pursuant to Art. 241 of the Civil Code of V.________, the principal (the Appellant) behaved after the AA1 was signed in a manner that could be interpreted as a ratification of the deed that the unauthorized representative (E.________) had entered into with the third party (the Respondent) in the name of the principal. The issue may therefore be addressed by the Arbitral Tribunal without regard to the res judicata effect of the HCC judgment because the object of the dispute is not identical.
Under such conditions, the Arbitral Tribunal does not need to examine whether the judgment could be recognized in Switzerland.
4.2. The Appellant’s arguments to challenge the reasons of the Arbitral Tribunal to reject the res judicata defense call for the following remarks.
4.2.1. According to the principle of subjective relativity of res judicata, the res judicata effect of a judgment may be invoked in a new litigation only if it involves the same parties or their legal successors (judgment 4A_545/2013 of November 28, 2013, at 3.2.1 and the references). Judgments conferring rights (Gestaltungsurteile) are reserved as they may be opposed to parties (ATF 136 III 3459 at 2.2.2, p. 350; Berger and Kellerhals, op. cit., n. 1507). The res judicata effect inter partes does not depend on the respective positions the parties had in the two litigations (ATF 105 II 229 at 1b, p 232; Berger and Kellerhals, ibid.). Thus, it can be raised against the claimant in a positive affirmative action for a right, which as a Respondent in the first litigation, submitted without success that a negative affirmative action concerning the same legal relationship should be rejected. Whether or not there were any other parties in the previous litigation does not, in principle, prevent a finding that the parties are identical in the second litigation so long as these parties also participated in the previous litigation (ATF 127 III 279 at 2c/dd, p. 285; 105 II 229 at 1b, p. 232).
Relying on these principles of case law, the Appellant argues that the Arbitral Tribunal failed to find a valid reason that the HCC judgment issued in Case n. 32/409 on April 11, 2012, was not binding because the parties were not the same in that case and in the arbitration.
It is hard to disagree if one refers strictly to the aforementioned principles and approaches the legal situation in a formalistic manner. That the Appellant and the Respondent were parties in the state court of V.________ is not in question: they were both Respondents designated as “Respondent 1” and “Respondent 2”, facing the State Attorney acting as Claimant. That both commercial companies, which had been on the same side in the V.________ proceedings, then switched their position in the subsequent arbitral proceedings – the Respondent becoming the Claimant and the Appellant remaining a Defendant – is not more decisive in the light of the same principles. Neither is the absence of the State Attorney before the Arbitral Tribunal, although he had initiated the state proceedings registered under n. 32/409. Still in the same formalistic approach, it would be debatable whether to subject the requirement of identity of the parties to the impact of the participation of a state attorney on the procedural rights of two commercial companies, which he took to the state courts of V.________ or to the very issue of the applicability of the arbitration agreement to this magistrate, as the Arbitral Tribunal did. Thus, the parties implicated in the two litigations successively are not different simply because they did not have the same procedural guarantees in both cases or because a third party participated in the first litigation with them while not falling within the ratione personae scope of the arbitration agreement they had concluded.
This being so, one may seriously consider whether in situations so specific as the one at hand, a less formalistic approach to the concept of identity of the parties would not be called for. It would make it possible to take into account the singular role played in the state proceedings initiated abroad, at first by the party that is absent in the subsequent arbitral proceedings in an arbitral tribunal sitting in Switzerland and to obstruct any possible maneuvers seeking to torpedo the arbitration. In such exceptional cases, it would then be appropriate to engage in a more in-depth review of the situation without giving too much importance to the formalistic criteria of the participation of the signatories of the arbitration agreement in both litigations, even though this may somewhat affect certainty as to the law. Thus, the role effectively played by the parties involving the state court proceedings and in the subsequent arbitration would have to be taken into account, having regard to the participation of a third party in the former proceedings (i.e., the State Attorney), to his legal status (i.e., a magistrate acting in the name of the State), to the reasons for his intervention (i.e., the defense of the interests of the State), and to the possible connection between the intervening party and one of the litigants (i.e., the Appellant as a commercial company depending on the State in the name of which the State Attorney had seized a court of the same state). On this basis, the manner in which the situation was assessed by the Arbitral Tribunal in this case – in particular the emphasis given to the role of a representative of the state in a court case concerning two commercial companies, one of which was controlled by the same state – would not be open to criticism. However, it is not necessary to analyze this delicate issue more in depth. Indeed, the argument that the Arbitral Tribunal violated procedural public policy by rejecting the Appellant’s res judicata defense must be rejected in any event.
126.96.36.199. As to the object of the dispute, one may agree with the Appellant that the submissions in the arbitration which lead to the arbitral award presently under appeal and those made in the state court which lead to the HCC judgment of April 11, 2012, were similar in part. The scope of the former, by which the Respondent sought payment of a certain amount on the basis of the Contract and the AA1 was doubtlessly significantly broader than the purpose of the latter, by which the State Attorney merely sought to invalidate the AA1. Yet, in one of its submissions, the Respondent had invited the Arbitral Tribunal to find that the AA1 was valid and enforceable, a submission which was the opposite of the HCC decision taken upon the State Attorney’s request in the aforesaid judgment. Moreover, the validity of the AA1 was unquestionably a preliminary issue in the second litigation.
188.8.131.52. Pursuant to a lengthy analysis of the Appellant’s behavior (award n. 399 to 431), the Arbitral Tribunal found that over four and a half years – namely from May 15, 2007, to November 2011 – the Appellant had conclusively shown that it had endorsed the AA1 signed by its unauthorized representative (E.________) and that even after the HCC judgment was issued, it had made further statements that the Respondent and the Arbitral Tribunal could not but interpret as its acceptance that it was bound by the AA1 (award n. 432).
According to the Appellant, the facts found in the award of September 6, 2013, in support of this argument already existed when the HCC issued its judgment on April 11, 2012, so they were covered by the res judicata effect of this decision and could no longer be examined by the Arbitral Tribunal as a basis for the claim raised by the Respondent in the arbitration. Moreover, the behavior of the parties after the AA1 was signed had been analyzed in case n. 11/44 by the courts of V.________ until February 2011, something which the HCC took into consideration. The requirement of the identity of the object of the dispute was therefore met in the case at hand.
The Appellant cannot be followed on this path. Indeed, the existence of the same facts at the time of the first judgment is insufficient to conclude that the requirement is met, as was emphasized in the theoretical part of this judgment (see 3.3, above). Furthermore, it must have been possible, according to applicable procedural law, to submit these facts to the body issuing the first judgment, to offer them in evidence, and that the body involved could take them into consideration. Yet, this additional requirement is absent in the case at hand, as the Respondent convincingly shows in its answer with references (n. 171 to 197). It is shown there that, as a court of annulment only, the HCC had to adhere to the procedural framework imposed by the two lower courts – the Commercial Court of U.________ in its judgment of December 6, 2011, and the Court of Appeal of U.________ in its decision of March 13, 2012, – in case n. 32/409, which it did in limiting its own power of review – as the lower courts did – to the formal powers of representation of E.________ while reaching a conclusion as to this issue differing from the courts of first instance and appeal. However, the Appellant’s behavior after the AA1 was signed, which could have been likened to ratification of the deed entered into in its name by the alleged representative, did not and could not gain the attention of the HCC. That the court may have made reference to certain factual findings in case n. 11/44 does not change the situation that the Respondent enumerates at n. 185 to 197 of its answer, such as, among various reasons, the fact that this reference was merely obiter dictum not covered by the res judicata effect of the judgment at hand or also the lack of identity between the parties in cases n. 11/44 and n. 32/409. Moreover, the Appellant does not show or even argue that according to the procedural law of V.________, nothing prevented the Respondent from invoking – if not in the HCC, at least in the lower courts – the facts that the Arbitral Tribunal would later uphold to conclude that the Appellant had ratified the deed entered into in its name by an unauthorized representative, namely the AA1, or that those courts would have been obliged to take such facts into consideration to issue their decisions if they had been raised. Be this as it may, §432 of the award as written specifically shows that in the Appellant’s behavior after the April 11, 2012, judgment, the Arbitral Tribunal saw sufficient grounds to accept that, as the Respondent argued, the Appellant had agreed to be bound by the AA1. Such circumstances certainly constitute a new fact (true novum) which, logically, could not but be outside the res judicata effect ratione temporis of the aforesaid judgment.
4.3. Therefore, the object of the dispute was not identical, if not the parties, and the Arbitral Tribunal was right to reject the res judicata defense raised by the Appellant. Therefore, it cannot be said that it issued an award inconsistent with procedural public policy. The Appellant’s sole argument based on Art. 190(2)(e) PILA therefore fails.
The Appellant loses and must therefore pay the judicial costs (Art. 66(1) LTF) and compensate the opposing party (Art. 68(1) and (2) LTF).
Therefore the Federal Tribunal pronounces:
The appeal is rejected.
The judicial costs, set at CHF 50’000, shall be borne by the Appellant.
The Appellant shall pay to the Respondent an amount of CHF 60’000 for the federal proceedings.
This judgment shall be notified to the representatives of the parties and to the chairman of the ICC tribunal.
Lausanne, May 27, 2014
In the name of the First Civil Law Court of the Swiss Federal Tribunal
Presiding Judge: Clerk:
Klett (Mrs.) Carruzzo
- 1. 1 Translator’s Note: Quote as A.________ v. B.________, 4A_508/2013. 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: LTF is the French abbreviation of the Federal Statute of June 17, 2005, organizing the Federal Tribunal, RS 173. 110.
- 4. Translator’s Note: The official languages of Switzerland are German, French, and Italian.
- 5. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/setting-aside-of-award-for-violation-of-public-policy-principle-
- 6. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/setting-aside-of-award-for-violation-of-public-policy-principle-
- 7. Translator’s Note: In English in the original text.
- 8. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/alleged-lack-authority-representatives-creates-jurisdictional-issue
- 9. Translator’s Note: The English translation of this decision is available here: http://www.swissarbitrationdecisions.com/setting-aside-of-award-for-violation-of-public-policy-principle-