Die Ukraine-Krise aus völkerrechtlicher Sicht: ein Streitfall zwischen Recht, Geschichte und Politik

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1 SZIER Schweizerische Zeitschrift für internationales und europäisches Recht RSDIE Revue suisse de droit international et européen 25. Jahrgang 2/ e année Krim, Ostukraine und Völkerrecht Luzius Wildhaber Die Ukraine-Krise aus völkerrechtlicher Sicht: ein Streitfall zwischen Recht, Geschichte und Politik Peter Hilpold Die Theorie der local data: dogmatische Bruchstelle im klassischen IPR Tim W. Dornis L application provisoire des traités : Droit et pratique suisses Claude Schenker The Jurisprudence of the World Trade Organization in 2014 Thomas Cottier, Ilaria Espa, Rachel Liechti-McKee & Tetyana Payosova Spruchpraxis zum EU-Wettbewerbsrecht (2014) Jürg Borer Case Notes on International Arbitration Xavier Favre-Bulle Swiss Review of International and European Law Rivista svizzera di diritto internazionale e europeo

2 SZIER Schweizerische Zeitschrift für internationales und europäisches Recht RSDIE Revue suisse de droit international et européen RSDIE Rivista svizzera di diritto internazionale e europeo SRIEL Swiss Review of International and European Law / Herausgegeben von / Édité par: Schweizerische Vereinigung für internationales Recht (SVIR) Website / Kontakt: Société suisse de droit international (SSDI) site / contact: Publiziert mit Unterstützung der Schweizerischen Akademie für Geisteswissenschaften Publié avec le soutien de l Académie suisse des sciences humaines et sociales Redaktionskomitee / Comité de rédaction: Prof. Dr. Andreas Furrer, Universität Luzern (Vorsitz / Président; Internationales Privatrecht / Droit international privé) Prof. Dr. Daniel Girsberger, Universität Luzern (Internationales Privatrecht / Droit international privé) Prof. Dr. Christine Kaddous, Université de Genève (Europarecht / Droit européen) Prof. Dr. Robert Kolb, Université de Genève (Völkerrecht / Droit international public) Prof. Dr. Christa Tobler, Universität Basel (Europarecht / Droit européen) Prof. Dr. Ursula Cassani, Université de Genève (Strafrecht / Droit pénal) Prof. Dr. Oliver Diggelmann, Universität Zürich (Völkerrecht / Droit international public) Managing Editor: Dr. Lorenz Langer, Universität Zürich Regelmässige Beiträge von / Collaborateurs: Dr. Jürg Borer, Prof. Dr. Andreas Bucher, Prof. Dr. Lucius Caflisch, Prof. Dr. Ursula Cassani, Prof. Dr. Thomas Cottier et al., Prof. Dr. Sabine Gless, Dr. Xavier Favre-Bulle, Prof. Dr. Michel Hottelier, Prof. Dr. Christine Kaddous Dr. Laurent Killias, Prof. Dr. Robert Kolb, Prof. Dr. Vincent Martenet, Dr. Thomas Mayer, Prof. Dr. Ivo Schwander, Prof. Dr. Christa Tobler Adresse der Redaktion / Adresse de la rédaction: Lorenz Langer, Kirchweg 41, CH-8966 Oberwil-Lieli, Switzerland Tel.: +41 (0) , Lorenz.Langer@szier.ch Manuskripte bitte an oben stehende Adresse senden oder per Mail übermitteln. Die Richtlinien für Autorinnen und Autoren sind unter abrufbar. Les manuscrits doivent être envoyés à l adresse ci-dessus par courrier ou par mail. Les directives à l intention des auteurs sont disponibles à l adresse Verlag und Abonnementsverwaltung / Edition et administration Schulthess Juristische Medien AG, Zwingliplatz 2 Postfach, 8022 Zürich, Telefon: Fax: zs.verlag@schulthess.com Internet: Erscheint 4mal jährlich / Paraît 4 fois par an Abonnementspreis / Prix de l abonnement: CHF 250. Mitgliederabonnement: CHF Einzelnummer / Prix du numéro: CHF 71. ISSN PrintPlu Mit dem PrintPlu -Abonnement haben Sie die Möglichkeit, Ihre Zeitschrift digital zu lesen. Zeitgleich mit der Printausgabe haben Sie Zugang zu den Beiträgen in digitaler Form. Detaillierte Informationen finden Sie unter L abonnement PrintPlu vous permet de télécharger votre revue en version numérique. Cette version est la reproduction exacte de l édition papier et vous permet donc de lire votre revue sur le support papier ou/et numérique de votre choix. Vous trouverez davantage d informations en suivant ce lien : Jahresabonnement: CHF Mitgliederabonnement: CHF Anzeigenverkauf / Annonces publicitaires Zürichsee Werbe AG Herr Pietro Stuck, Seestrasse 86, 8712 Stäfa pietro.stuck@zs-werbeag.ch, +41 (0)

3 Inhaltsübersicht / Table des matières Tagungen / Workshops Aktuell / Actualité Luzius Wildhaber Krim, Ostukraine und Völkerrecht Artikel / Article Peter Hilpold Die Ukraine-Krise aus völkerrechtlicher Sicht: ein Streitfall zwischen Recht, Geschichte und Politik Tim W. Dornis Die Theorie der local data: dogmatische Bruchstelle im klassischen IPR Praxis / Chronique Claude Schenker L application provisoire des traités : Droit et pratique suisses Thomas Cottier, Ilaria Espa, Rachel Liechti-McKee & Tetyana Payosova The Jurisprudence of the World Trade Organization in Jürg Borer Spruchpraxis zum EU-Wettbewerbsrecht (2014) Xavier Favre-Bulle Case Notes on International Arbitration SZIER/RSDIE 2/

4 Case Notes on International Arbitration By Xavier Favre-Bulle 1 The objective of these Case Notes on International Arbitration is to report and comment on a selection of decisions on international arbitration made by the Swiss Federal Supreme Court in During that year, the Court made 36 decisions on international arbitration (as well as 17 on domestic arbitration). Eight landmark decisions are covered here. Contents I. Commercial Arbitration A. X. AG v. Z., BGE/ATF 140 III 75, 4A_490/2013, 28 January 2014 B. X. Oy v. Y. EAD, 4A_460/2013, 4 February 2014 C. X. v. Y. Engineering S.p.A. and Y. S.p.A., 4A_450/2013, 7 April 2014 D. A. v. B., BGE/ATF 140 III 278, 4A_508/2013, 27 May 2014 E. A. SA v. B. SA, 4A_124/2014, 7 July 2014 F. A. SA v. B., BGE/ATF 140 III 477, 4A_74/2014, 28 August 2014 II. Sports Arbitration A. A. v. Club B., BGE/ATF 140 III 520, 4A_6/2014, 28 August 2014 B. Fenerbahçe Spor Kulübü v. Union des Associations Européennes de Football (UEFA), 4A_324/2014, 16 October 2014 I. Commercial Arbitration A. X. AG v. Z., BGE/ATF 140 III 75, 4A_490/2013, 28 January 2014 (Original in French) Receptum arbitri Delays in the making of the award Agreement that the sole arbitrator should resign in case the award is not notified within a certain time limit Expiry of the sole arbitrator s power to make an award: lack of jurisdiction Ad hoc award set aside An award notified after the expiry of the sole arbitrator s term of office (functus officio) may be set aside for lack of jurisdiction since the arbitrator 1 Dr. iur.; LL.M.; Lenz & Staehelin (Head Arbitration and Sports Law Groups, Geneva). I would like to thank Ms Yasmine Al-Khudri, Mr Sandy Grandjean, Mr David Dubin and other Lenz & Staehelin associates for their assistance during the preparation of these case notes. SZIER/RSDIE 2/ Praxis / Chronique

5 Xavier Favre-Bulle (although properly appointed) no longer had any authority to make such an award. Relevant provisions: Arts. 179(1), 190(2)(a), 190(2)(b) PILA Art. 366(1) CCP Art. 77(3) FSCA Art. 404(1) CO Comments: AJP/PJA 2014, 1550, note Stacher ASA Bull. 2014, 635, note Molina (Swiss Federal Supreme Court Annuls Belated Award of Resigning Arbitrator: A Curse in Disguise?) Rev. arb. 2014, 1003, note Tschanz/Fellrath European International Review [EIAR] 2014, 29, note Poncet (The Arbitrator Was Late by One Day and His Jurisdiction Expired ) New Developments in International Commercial Arbitration 2014, Müller/ Rigozzi/Besson (Eds.), Zurich/Basle/Geneva 2014, 129, 156, note Robert- Tissot SZZP/RSPC 2014, 269 No. 1506, note Schweizer, note Bruchez Facts: X. AG, a Swiss company, and Z., a French company, entered into two lease agreements regarding propeller aircrafts. After a dispute had arisen, a sole arbitrator was appointed by the parties and confirmed by the Geneva Court of First Instance in May 2010, in accordance with the ad hoc arbitration clause contained in the agreements. The proceedings on the merits started on 7 June 2010 by a statement of claim and were closed on 4 May 2011 after a hearing for oral argument, pending the sole arbitrator s award. The provisional timetable issued by the sole arbitrator during the proceedings indicated April 2011 as the approximate dates for the notification of the award. In mid-june 2012, the new counsel instructed by X. AG enquired about the status of the award. The sole arbitrator answered that the award would, in principle, be made by the end of that month. After some ten additional enquiries and various promises by the sole arbitrator, X. AG on 24 October 2012 threatened to apply to the court of competent jurisdiction for assistance pursuant to Art. 185 of the Federal Private International Law Act, 1987 ( PILA ). This threat was reiterated on 18 January 2013, although no court action was eventually brought. By an dated 3 June 2013, X. AG s manager complained to the sole arbitrator for not notifying the award by the promised date of 31 May They enjoined him to either notify the award within one week or resign. This caused the sole arbitrator to propose that Subject to the Praxis / Chronique 288 SZIER/RSDIE 2/2015

6 Case Notes on International Arbitration approval of both parties counsel, I shall resign if the award is not rendered by June 30, By a letter dated 8 August 2013 but sent on 27 August 2013, the parties informed the sole arbitrator that his proposal to resign was accepted for 30 August 2013 in case no award was made and received by that date. Although he stated that he would comply with the parties decision, the sole arbitrator requested another extension and proposed that the award be served on Monday 2 September 2013 at the respective offices of the parties counsel. Such extension was granted by the parties, who jointly confirmed that the sole arbitrator s resignation would be accepted and effective as at 2 September 2013 at 5:00 pm should the award not be delivered by that time. The sole arbitrator accepted those terms. The award was delivered to Z. s counsel in the afternoon of 3 September On 3 September 2013 at 6:29 pm, X. AG s counsel sent the sole arbitrator a fax in which he took note of the absence of notification of the award within the agreed time limit and, consequently, of the sole arbitrator s resignation. The sole arbitrator immediately replied that he would deliver the award within the next half an hour; however, by an sent at 7:24 pm, the sole arbitrator explained that the delivery (two boxes) was not possible due to the offices of X. AG s counsel being closed. The award was ultimately notified to that party in the afternoon of 4 September When acknowledging receipt of the boxes, X. AG s counsel wrote on the receipt that he did not accept an award which could be contained in those boxes. X. AG s counsel had also sent an earlier to the sole arbitrator indicating that he would accept delivery of the package but not of its contents, his client s right to refuse the acceptance and validity of the award being reserved. Later on 4 September 2013, X. AG s counsel informed the sole arbitrator that his client indeed refused to accept the award which was considered as null and void, given that the sole arbitrator had resigned prior to the notification of the award. A lawyer acting for the sole arbitrator took the position vis-à-vis the parties that the receipt of the boxes containing the award implied the acceptance of the validity of the award and its proper notification. The parties denied that position. On 6 September 2013, the sole arbitrator sent the parties an amended operative part of the award, the validity of which was denied by the parties on the ground that the award was null and void. X. AG sought to have the award (as amended) set aside by the Federal Supreme Court, mainly for improper appointment of the sole arbitrator, with a declaration that no valid award had been made during the period of that appointment and that the Geneva Court of First Instance should appoint a new sole arbitrator. The Federal Supreme Court allowed the application and set aside the award for lack of jurisdiction. SZIER/RSDIE 2/ Praxis / Chronique

7 Xavier Favre-Bulle Reasons: The Federal Supreme Court shall normally decide on the basis of the findings of the arbitral tribunal. However, the petitioner may here rely on additional facts (description of the procedural steps of the arbitration) not contained in the award insofar as those facts constitute the basis for the ground for setting aside that the sole arbitrator had resigned before making his award. The issue to be decided is whether the award was made by the sole arbitrator before his term of office had come to an end. The agreement (receptum arbitri) entered into between an arbitrator and the parties would in most instances come to an end when the final award (if valid and not set aside) is made. This agreement may also be terminated at an earlier stage under certain circumstances such as after a withdrawal of claim or settlement, or when the arbitrator dies, is challenged, removed or resigns. The following categories must be considered in the present case. Firstly, according to Art. 179(1) PILA, arbitrators may be revoked in accordance with the agreement of the parties. Such revocation by (all) the parties may be made at any time, without any particular ground and is not subject to any formal requirement. An agreement to revoke an arbitrator is also valid as regards third party-appointed or court-appointed arbitrators. Secondly, arbitrators may be removed by a court or arbitration institution at the request of a party showing just cause. Such a measure is justified in particular when the arbitrator is unable to fulfil his duties in due time or with the diligence required. Thirdly, although this is not specifically addressed in the Swiss law of arbitration, an arbitrator may resign on his own initiative. However, such resignation is only valid if for just cause. Art. 404(1) of the Swiss Code of Obligations ( CO ) allowing for agency contracts to be terminated at any time does not apply to a contract with an arbitrator. A resignation has the same effect as a revocation if all parties accept the arbitrator s resignation. Finally, the parties may agree to limit the arbitrator s term of office. This right provided for in Art. 366(1) of the Swiss Code of Civil Procedure ( CCP ) for domestic arbitration should also apply in international arbitration. The duration of the arbitrator s term of office can be limited in the arbitration agreement or in a subsequent agreement between the parties, and it may be extended by agreement or a court order. The intentions of the parties and the sole arbitrator, in particular those expressed in the correspondence exchanged between June and September 2013, must be interpreted in order to determine whether the sole arbitrator s term of office came to an end by revocation, removal, resignation or limitation in time. Removal can clearly be excluded since no application was brought before the Geneva Court of First Instance to that effect (although this was a possibility). The classification among the other categories is more difficult. Although the sole arbitrator offered his resignation on 3 June 2013 in case the award was not made by 30 June 2013, he did not do so upon his own initiative but rather in Praxis / Chronique 290 SZIER/RSDIE 2/2015

8 Case Notes on International Arbitration response to a suggestion by X. AG. Furthermore, his resignation was subject to the agreement of the parties, and was postponed upon his request for additional time extensions. Since the sole arbitrator intended to carry out his tasks, it is difficult to admit the existence of a resignation stricto sensu. On the other hand, a joint and conditional revocation of the sole arbitrator cannot be deducted from the parties exchanges. Finally, an agreement between the parties limiting the arbitrator s term of office would be inconsistent with the circumstance that the sole arbitrator actively participated in the discussions regarding his term and how it could come to an end. In sum, it must be considered that the sole arbitrator and the parties entered into a tripartite agreement. The parties first agreed between them that the contract with the arbitrator would ipso facto be at an end on 2 September 2013 at 5:00 pm in case either party had not received the award by that time. In turn, the arbitrator could not, in good faith, understand the parties intention differently; he agreed to what the parties had provided as regards the premature end of his term of office. In view of such an agreement, there was no need for just cause in the resignation. Nor was it relevant that the award notified after the agreed term was accepted by Z.; this would run counter to inter alia the pacta sunt servanda principle, considering that X. AG did not accept the belated notification of the award without any reservation. Therefore, the award dated 3 September 2013 was made after the arbitrator s term of office had come to an end on 2 September 2013 at 5:00 pm. An award made after the expiry of the arbitrator s term of office is not null and void ab initio; it may be set aside in court proceedings. Most commentators take the view that such a procedural flaw is an issue of jurisdiction ratione temporis within the meaning of Art. 190(2)(b) PILA. For some others, an arbitrator who decides after the expiry of his term of office must be considered as an arbitrator improperly appointed (Art. 190(2)(a) PILA). The jurisdictional classification (Art 190(2)(b) PILA) must be preferred. The proper constitution of the tribunal or proper appointment of an arbitrator under Art. 190(2)(a) PILA covers the manner in which the arbitrator(s) was/were nominated or replaced (Art. 179 PILA), as well as issues regarding his/their independence (Art. 180 PILA). The situation where an arbitrator or tribunal failed to decide within the applicable time limit is different, in that the arbitrator/tribunal has validly been appointed/constituted but has not complied with the time limitation of his/its jurisdiction. Although the criterion to distinguish these two categories remains rather blurred, legal certainty requires that this question be decided. Therefore, the ground for setting aside in case of such a procedural flaw is the lack of jurisdiction within the meaning of Art. 190(2)(b) PILA. Although the petitioner exclusively relied on Art. 190(2)(a) PILA, declaring the application to set aside inadmissible would amount to excessive formalism, all the more so because of SZIER/RSDIE 2/ Praxis / Chronique

9 Xavier Favre-Bulle the uncertainty which prevailed so far as to the classification of the procedural flaw at stake. In addition, Z. did not raise any objection as to the legal ground relied upon. In such circumstances, the award shall be set aside on the ground that the sole arbitrator wrongly held that he had jurisdiction while his power to make an award had already expired. The petitioner did not commit any abuse of right in challenging the validity of the award (in order to obtain that an award unfavourable to its case be set aside); its course of action vis-à-vis the sole arbitrator was consistent. Further relief sought by the petitioner shall be dismissed (declaration that no valid award was made; request that the Geneva Court of First Instance should appoint a new arbitrator). Since the award is fully set aside, there is no need to consider the alternative relief that the sole arbitrator omitted to decide on two prayers for relief. Note: This decision has been widely reported including outside Switzerland. Its relevance does not primarily lie in the reasons of the Federal Supreme Court. The case is interesting because of the set of facts which affected the award (those facts are described in a detailed manner above for a better understanding). The outcome was very unfortunate for the arbitrator, for the parties and for the whole arbitration community. This case shows that delays in the making of an award exist in practice and such delays may have serious consequences. Arbitration institutions seek to tackle this issue in sanctioning the arbitrators in case of delays (reduction of their fees; no appointment in future cases; replacement of the careless arbitrator as ultima ratio). Another possible route in ad hoc arbitration is for a party to seek assistance from the court at the place of arbitration, which could remove the arbitrator if the requirements set under the applicable law are met (under Swiss law, this could be a case of application of Art. 185 PILA). Although this tool was used as a threat vis-à-vis the arbitrator, it was ultimately not implemented in the present case. The legal issue at stake was how to classify the agreement reached between the parties and the arbitrator. On the facts, the situation was clear: the arbitrator agreed to resign if his award was not ready by a certain date and time. Since the arbitrator notified his award after the agreed time limit had lapsed, it should be undisputed that the arbitrator was deprived of his authority to make an award and, should an award nevertheless be made after the agreed time, this award could be set aside. In such unambiguous circumstances, one may wonder whether the decision required such a long analysis. The reasons of the decision Praxis / Chronique 292 SZIER/RSDIE 2/2015

10 Case Notes on International Arbitration seem rather academic and could have been shorter 2. In our view, the procedural flaw of an arbitrator deciding after his term of office has come to an end (functus officio) is of a jurisdictional nature 3. The jurisdiction of the arbitrator who had agreed to resign no longer exists ratione temporis; a new arbitrator would have to be appointed. As decided by the Court, the award could thus be set aside for lack of jurisdiction under Art. 190(2)(b) PILA. The ground of the improper appointment of the arbitrator under Art. 190(2)(a) PILA must remain limited to situations where the arbitral tribunal was appointed in breach of what the parties had agreed upon (in addition to issues of independence and impartiality), as recalled by the Court in a leading case decided on 13 November The petitioner exclusively relied on Art. 190(2)(a) PILA, without addressing the lack of jurisdiction under Art. 190(2)(b) PILA. Consistent with decided cases 5, a strict application of the law (Art. 77(3) of the Federal Supreme Court Act, 2005; FSCA ) could have led to the application to set aside being dismissed. Showing unexpected leniency, the Court nevertheless allowed the award to be set aside although the proper legal ground for doing so had not been invoked. The Court might be less flexible in the future when dealing with a similar case as the correct ground (Art. 190(2)(b) PILA) is now clearly set. The Court held that the arbitrator wrongly accepted jurisdiction (paragraph 4.1 of the decision). It is unclear on the facts whether the arbitrator expressly addressed his jurisdiction in his award. However, considering that his term of office was considered as at an end by at least a party, his decision had in any event to be interpreted as pertaining to jurisdiction in addition to the merits of the case. Another interesting question is whether the Court could have dismissed the application to set aside on the ground that the petitioner was abusing of his legal rights in challenging an unfavourable award for the sole reason that it was tardy, as argued by Z. On balance, the Court preferred to look at the delay in the making of the award. The parties had to wait for two years and four months to receive the final award, despite several reminders sent by the parties to the sole arbitrator. As the court put it, la patience a des limites. The blame was on the non-diligent arbitrator, not on the party then challenging the belated award. This seems correct. 2 See also Molina, Swiss Federal Supreme Court Annuls Belated Award of Resigning Arbitrator: A Curse in Disguise?, ASA Bull. 2014, Contra: Stacher, AJP/PJA 2014, ; Molina, Swiss Federal Supreme Court Annuls Belated Award of Resigning Arbitrator: A Curse in Disguise?, ASA Bull. 2014, Club X. SA v. Z., BGE/ATF 139 III 511, 13 November 2013, commented in SZIER/RSDIE 2014, X. v. Y., decision by the Federal Supreme Court No. 4A_538/2012 of 17 January SZIER/RSDIE 2/ Praxis / Chronique

11 Xavier Favre-Bulle B. X. Oy v. Y. EAD, 4A_460/2013, 4 February 2014 (Original in German) Waiver of setting aside proceedings Breach of the right to be heard Failure to consider a defence raised by a party ICC award partially set aside The mere reference in an arbitration agreement to an award as final does not satisfy the requirements of Art. 192(1) PILA to exclude setting aside proceedings before the Federal Supreme Court. The right to be heard is of a formal nature, in that a breach may be found by the Court independently of the merit of the argument which the arbitral tribunal failed to address. Relevant provisions: Arts. 190(2)(d), 192(1) PILA Art. 100 CO Comments: New Developments in International Commercial Arbitration 2014, Müller/ Rigozzi/Besson (Eds.), Zurich/Basle/Geneva 2014, 129, 136/200/234, note Robert-Tissot SZZP/RSPC 2014, 182 No. 1473, note Schweizer Facts: In 2006, Y. EAD, a Bulgarian company, and X. Oy, a Finnish company, entered into an agreement whereby X. Oy undertook to supply Y. EAD with devices and equipment for the modernisation of an industrial boiler for a cellulose plant, for a price of EUR 6.1 million. The boiler primarily served for the burning of the plant s residual substances, which produced steam used in the plant s manufacturing process. The agreement contained a clause (Art. 22.1) excluding X. Oy s liability for any indirect, casual, subsequent, punitive or edifying damages of whatever nature including but unlimited loss of profit [ ], costs for replacement of the capacities etc. and limiting its aggregate liability to 30% of the contract price. A dispute arose between the parties with respect to an alleged delay by X. Oy in the delivery of the agreed goods. In March 2009, Y. EAD initiated ICC arbitration proceedings, seeking payment of a penalty and damages for lost profits, as well as the reduction of the contract price. X. Oy opposed the claim and asserted a counterclaim. In May 2009, the parties entered into a new arbitration agreement, which replaced the one initially contained in the agreement and provided for the dispute to be finally settled by a three-member arbitral tribunal sitting in Zurich under the ICC Rules. Praxis / Chronique 294 SZIER/RSDIE 2/2015

12 Case Notes on International Arbitration The arbitral tribunal decided to bifurcate the proceedings and deal first with preliminary issues, in particular whether X. Oy had been grossly negligent in the performance of the agreement and whether the agreed exclusion of liability was valid under Art. 100 f. CO. In a partial award made in 2012, the arbitral tribunal held that X. Oy was liable to pay damages for the belated delivery of documentation, it dismissed Y. EAD s claim for payment of a penalty and held that X. Oy s gross negligence had not been proven. In 2013, the arbitral tribunal made a final award ordering X. Oy to i) pay a certain amount as price reduction for improper performance, ii) pay damages due to reduced steam production, and iii) pay the amount decided in the partial award. The arbitral tribunal partially allowed X. Oy s counterclaim. Further claims were dismissed. X. Oy sought to have the final award set aside by the Federal Supreme Court with respect to Y. EAD s claims allowed in the final award as well as the decision on costs. The Court allowed the application, partially set aside the award (operative part on the price reduction, damages and costs) and referred the matter back to the arbitral tribunal for a new decision. Reasons: According to Art. 192(1) PILA, if neither party has its domicile or habitual residence or has a registered office or a branch in Switzerland, as in this case, the parties may agree to waive setting aside proceedings against an award by an express declaration in their arbitration agreement or a subsequent agreement. The declaration must be unambiguous and express the common intention of the parties to have Art. 192(1) PILA applied and waive setting aside proceedings before the Federal Supreme Court. Whether this is the case must be determined by interpreting the arbitration agreement at stake. The language of the arbitration agreement of May 2009 (which replaced the arbitration clause initially contained in the agreement of 2006) does not meet the requirements set by the Court for a valid waiver pursuant to Art. 192 PILA. The mere reference to a final award does not exclude extraordinary remedies as understood in civil procedure, but only the (free) review of the award in ordinary appeal proceedings. This is also the meaning of Art. 190(1) PILA, which describes an arbitral award as final while Art. 190(2), (3) and Art. 191 PILA provide for grounds for setting aside such an award before the Court as the exclusive instance. In the present circumstances, there is no valid waiver of setting aside proceedings according to Art. 192 PILA. According to the decided cases, the parties right to be heard in adversarial proceedings within the meaning of Articles 182(3) and 190(2)(d) PILA does not require that an international arbitral award should set out reasons. Nevertheless, there exists a minimum duty for the arbitrator to examine and deal with the issues relevant to its decision. When an award is made without addressing elements which are obviously important for the resolution of the dispute, then it SZIER/RSDIE 2/ Praxis / Chronique

13 Xavier Favre-Bulle will be for the arbitrators or to the defendant to explain the reason(s) for such omission in their comments to be filed on the application to set aside. This could be done either by demonstrating that, contrary to the petitioner s complaints, the omitted elements were not pertinent in order to resolve the case, or that they were refuted implicitly by the arbitral tribunal. Yet, the arbitrators do not have a duty to discuss each and every argument made by either party; therefore they will not be regarded as being in breach of the parties right to present their case and their own duty to provide minimum reasons for failing to dismiss a point, even implicitly, which is objectively devoid of any relevance to their decision. The Court does not have to examine whether the award would have been different had the relevant submission been taken into account. Given the formal nature of the right to be heard, its breach shall lead to the award being set aside, irrespective of the merit of the submission. In the present case, reliance on a breach of the right to be heard is wellfounded. The petitioner has demonstrated that, in the course of the arbitration proceedings, it made its argument on the exclusion of liability for damages (contained in Art of the agreement) in each of its submissions (both before and after the making of the partial award). When the arbitral tribunal made its partial award holding that it had not been established that the petitioner had acted with gross negligence, the exclusion of liability in relation to the late performance was relevant. Despite the obvious importance of this question in relation to the damages claimed, the arbitral tribunal in its decision only mentioned the exclusion of liability in the summary of the parties positions and failed to make any legal considerations on the petitioner s argument. The award sought to be set aside contains no concrete indication that the exclusion of liability was implicitly rejected by the arbitral tribunal. Neither the arbitral tribunal, which refrained from making comments in the setting aside proceedings, nor the defendant have attempted to demonstrate the contrary. Section V.A.1.b of the operative part of the award (ordering X. Oy to pay damages for the reduced steam production) was therefore made in violation of X. Oy s right to be heard. The same is true with regard to the decision on the reduction of the purchase price for improper performance of the contract. The petitioner repeatedly stated during the course of the proceedings that a claim for reduction of the purchase price was contractually excluded (by the exclusion of liability contained in Art. 22.1). Here again, the argument was only addressed in the final award in the section summarising the parties positions. The reasons of the award sought to be set aside do not contain any legal consideration on this objection. The arbitral tribunal allowed Y. EAD s claim without showing that it had reviewed the relevant argument of the contractual exclusion and dismissed it as unfounded. Given the lack of justification of the arbitral tribunal and the defend- Praxis / Chronique 296 SZIER/RSDIE 2/2015

14 Case Notes on International Arbitration ant s insufficient arguments presented in the setting aside proceedings, the petitioner should not be prejudiced for its failure to explain the reasons for the silence of the arbitral tribunal on this issue. Section V.A.1.a of the operative part of the award (ordering X. Oy to pay a certain amount as price reduction for improper performance), and consequently section V.C (ordering X. Oy to pay a part of the arbitration costs), were made in violation of X. Oy s right to be heard. Note: This decision is not characterised by any significant novelty. Both as regards a waiver of setting aside proceedings (Art. 192(1) PILA) and the ground for challenge that a party s right to be heard has been breached (Art. 190(2)(d) PILA), the Court recalled the applicable principles and properly applied the law to the facts of the matter. The decision is nevertheless interesting in that the award was partially set aside and the case referred back to the arbitral tribunal for a new decision, on the ground that a relevant point of substance (validity of an exclusion of liability) had not been decided upon. The language used in the applicable arbitration agreement, whereby the dispute was to be finally settled by arbitration, is extremely frequent in practice. It is settled law that such wording is entirely insufficient to constitute a valid waiver under Art. 192 PILA for it does not express an unambiguous intention of the parties to waive setting aside proceedings before the Federal Supreme Court (for all or part of the grounds set out in Art. 190 PILA), as required by that legal provision as interpreted by the Court 6. In 2012, the Court held that Art. 192 PILA does not run counter to Art. 6 ECHR and the right to a fair trial 7. Such position, which is to be approved, requires that a waiver is not admitted too easily and that the parties intention to exclude setting aside proceedings is sufficiently clear when interpreting the arbitration agreement so that there is no room for any doubts. With respect to the right to be heard, the standard and correct test applied by the Court is the following: when a relevant objection (such as a contractual exclusion of liability) has been raised by a party in its submissions, this objection must be addressed by the arbitral tribunal in its award, with sufficient indications enabling to understand whether the objection is sustained or dismissed, albeit not necessarily with thorough reasons as to why the arbitrators reached such a conclusion. This is all the more so when the arbitral tribunal itself mentioned the objection in the summary of the parties positions (as was the case here): this shows that the arbitral tribunal duly noticed the objection raised and 6 X. SA v. ATP Tour., BGE/ATF 133 III 235, 22 March 2007; A. v. B. and C., BGE/ATF 131 III 173, 4 February X. v. Z. SA, decision by the Federal Supreme Court No. 4A_238/2011 of 4 January 2012, commented in SZIER/RSDIE 2014, 295. SZIER/RSDIE 2/ Praxis / Chronique

15 Xavier Favre-Bulle should therefore have ruled on it. In setting aside proceedings, it is not always obvious for the Court to determine whether the point at issue was ultimately decided upon since complete reasons are not mandatorily required (although recommended in practice) and some awards may be drafted in a poor way. The Court rightly emphasised that the comments made by the arbitral tribunal and the arguments of the defendant in the submissions filed during the setting aside proceedings may be useful in this respect (although this opportunity given to the arbitrators to cure flaws in their award through their subsequent comments did not seem to be admitted in prior decided cases) 8. However, in case such elements are missing (for instance, the arbitral tribunal is not compelled to comment on the application to set aside), it is not for the petitioner to bear the burden of second-guessing why the objection at stake does not seem to be addressed in the award. In the present case, the circumstances described by the Court suggest that there was a serious oversight by the arbitrators, who had not decided on the application of the agreed exclusion of liability, although that point had properly been raised by a party and was highly relevant to the claims to be adjudicated upon. At first glance, it seems inconsistent to find that a party was not grossly negligent (partial award of the arbitral tribunal) and not to decide what consequences arise from that finding under Art. 100 f. CO as to the validity of an exclusion of liability clause. It may well be that the arbitral tribunal was aware of that issue and considered that it had sufficiently been addressed (although not expressly) in the award. It will be for the arbitrators to explain their position when deciding afresh. At this juncture, the outcome nevertheless remains that the award was partially set aside and the matter has to be heard again. Whether the final decision as to the claims at stake will be the same or not is irrelevant since the right to be heard is of a formal nature. The (unknown) reasons which the arbitrators may have had to dismiss the petitioner s reliance on the exclusion of its liability (if they so held) were also immaterial for the Court as long as such specific point does not appear in the award and was not explained during the setting aside proceedings. 8 Note by Schweizer, SZZP/RSPC 2014, 184 No Praxis / Chronique 298 SZIER/RSDIE 2/2015

16 Case Notes on International Arbitration C. X. v. Y. Engineering S.p.A. and Y. S.p.A., 4A_450/2013, 7 April 2014 (Original in French) Jurisdiction of the arbitral tribunal over non-signatory parties Interpretation of a parent company s conduct according to the rules of good faith ICC award partially set aside If a company of a group, which is not a party to an agreement entered into by another company of the group with a third party, does not wish the third party to rely on the appearance of adherence to the agreement which the company has itself created, it must state so clearly. In the absence of conclusive circumstances to the contrary, adherence to an agreement implies the submission to the arbitration clause contained therein. Relevant provisions: Arts. 178(2), 190(2)(b), 190(2)(d) PILA Art. 175 CO Comments: AJP/PJA 2014, 1557, note Stacher New Developments in International Commercial Arbitration 2014, Müller/ Rigozzi/Besson (Eds.), Zurich/Basle/Geneva 2014, 129, 171, note Robert- Tissot Facts: In 2001, X., an Iranian company, and Y. Engineering S.p.A ( Y. Engineering ), an Italian company, entered into three agreements for the turnkey supply and service of an aluminium foil manufacturing plant in Iran for a contract price of EUR 73 million. Y. Engineering was a subsidiary of Y. Group S.p.A ( Y. Group ), which was itself owned by another group of companies, Z. S.p.A. The agreements were signed by A., financial officer of Y. Group, who had been authorised by B., chairman of Y. Engineering and executive officer of Y. Group. Both Y. Group and Y. Engineering were later placed in voluntary liquidation. In parallel, Y. S.p.A. ( Y ), a sister company of Y. Group and subsidiary of Z. S.p.A., was set up and acquired Y.D., a division of Y. Group. In 2003, the parties suspended the performance of the agreements and entered into negotiations to resolve their dispute. They drew up a Plan of Execution, which they did not sign, which referred inter alia to X. s request that the project should no longer be performed by Y. Engineering but by Y.D. In a letter to X. dated 20 April 2004, C., head of Y.D., explained that a member from the Y.D. division would take over as project manager. Another letter, written on SZIER/RSDIE 2/ Praxis / Chronique

17 Xavier Favre-Bulle Y. Engineering s letterhead, signed by its CEO and countersigned as Acknowledgement by a representative of Y. Group, was annexed. That separate letter contained a statement that Y. Engineering agreed to entrust C. with the full responsibility for completion of the project, and that Y. Group acknowledged and agreed with this decision. From that moment onwards, Y. Engineering was no longer directly involved in the performance of the project. In 2004, X. and C. (who was acting on behalf of Y. Engineering) signed two protocols aiming at putting an end to the ongoing dispute and completing the project as soon as possible. The second protocol referred to the transfer of responsibility addressed in the abovementioned letter of 20 April Y. Group was also to provide X. with an irrevocable guarantee for its obligations under the service agreement. In 2005, Y. Engineering informed X. that it suspended the performance of the works in particular due to X. s failure to pay invoices. In 2006, the parties attempted to reach an amicable settlement but to no avail. In a letter to X. s majority shareholder, B. wrote inter alia that he had accepted to transfer the realisation of the project from Y. Engineering to Y.D. as notified in Y. s letter dated 20 April The contractual relationship with X. was later terminated by Y. Engineering. Relying on the arbitration clauses contained in the agreements, Y. Engineering in January 2006 initiated ICC arbitration proceedings against X., seeking payment of some EUR 9.6 million. X. objected that Y. Engineering was liable for the project s failure; X. sought compensation from that company and also asserted a counterclaim against Y. The arbitral tribunal was constituted in July However, a new chairman had to be appointed in February 2013 due to the decease of the first chairman who had conducted the whole proceedings. Given Y. s refusal to participate in the proceedings, X. withdrew its counterclaim against Y. and initiated separate ICC proceedings against Y. and Y. Engineering, seeking payment jointly and severally of a total amount of some EUR 53 million. Those respondents raised a jurisdictional objection regarding Y. Following the consolidation of both proceedings, Y. agreed to participate as a co-respondent to X. s counterclaim, although maintaining that the arbitral tribunal lacked jurisdiction. In a 752-page final award notified in July 2013, the arbitral tribunal inter alia denied its jurisdiction over Y., dismissed all counterclaims against that party and dismissed X. s prayer for relief that Y. Engineering lacked standing (locus standi) and could not bring claims on its own against X. since Y. Engineering and Y. were necessary parties to the proceedings ( consorts nécessaires ). On the merits, the award partially allowed some of the claims made by Y. Engineering and X.; X. s specific counterclaim for damages of some EUR 13 million due to the delay caused by Y. and Y. Engineering in the performance of the project was entirely dismissed (n o 22 of the operative Praxis / Chronique 300 SZIER/RSDIE 2/2015

18 Case Notes on International Arbitration part of the award). Each party-appointed arbitrator submitted a dissenting opinion. X. sought to have the award set aside by the Federal Supreme Court, on the ground that the arbitral tribunal improperly declined its jurisdiction over Y., and requested that the matter should be referred back to the arbitral tribunal for a new decision acknowledging jurisdiction. X. also sought the annulment of n o 22 of the operative part of the award for breach of its right to be heard and requested that the arbitral tribunal should make a new decision on its counterclaim for damages for the delay in the performance of the project. The Court partially allowed the application, set aside n o 1 of the operative part of the award (where jurisdiction over Y. had been denied) and referred the matter back to the arbitral tribunal for a new decision on the issue of jurisdiction over Y. in the light of the reasons contained in the Court s decision. Reasons: Called upon to deal with a complaint that an arbitral tribunal wrongly denied jurisdiction, the Federal Supreme Court will freely examine the questions of law, including preliminary questions of substance that determine a tribunal s jurisdiction, although without becoming a court of appeal. When examining whether it has jurisdiction to determine the dispute submitted to it, the arbitral tribunal must determine which parties are bound by the arbitration agreement (personal scope) and, if applicable, whether one or more third parties who are not designated in the agreement nevertheless fall within the scope of the arbitration agreement. This question of the arbitral tribunal s jurisdiction ratione personae (substantive matter) must be decided in the light of Art. 178(2) PILA, which provides for three alternative connecting factors in favorem validitatis, including the application of Swiss law. Under the principle of privity of contract, an arbitration agreement contained in a contract is binding only on the contracting parties. However, the Court has accepted that an arbitration agreement may be binding even on persons who have not signed it or are not mentioned in it, and this is so in a number of situations, such as in the case of assignment, assumption (simple or cumulative) of a debt or an obligation or transfer of a contract. Moreover, a third party intervening in the performance of a contract containing an arbitration agreement will be deemed to have adhered by conduct to the arbitration agreement whenever an intention to be a party to the arbitration can be inferred from such intervention. In addition, when dealing with legal persons and depending on the circumstances, contractual obligations may also be binding on a parent company in case of confusion between the spheres of the parent company and its subsidiary. On a theoretical level, a number of legal constructions may justify a refusal to consider the formal independence between a parent company and its subsidiary vis-à-vis third parties. Apart from the lifting of the corporate veil SZIER/RSDIE 2/ Praxis / Chronique

19 Xavier Favre-Bulle ( Durchgriff ) and apparent authority ( procuration apparente ), the liability based on legal appearance ( apparence juridique ) aims at protecting the other party in its inaccurate belief, according to the rules of good faith, that it entered into an agreement with the parent company and not its subsidiary, or even with both. The petitioner errs when arguing that the arbitral tribunal considered Y. as Y. Group s successor in interest, on the basis that the latter transferred its assets to the former. In its decision, the arbitral tribunal held that, even if it were to admit that Y. Group had become a party to the agreements, the question would remain whether the acquisition of the Y.D. division by Y. would have led to the assignment of the agreements containing the arbitration clauses from Y. Group to Y. This issue became moot since the arbitral tribunal held that Y. Group had not become a party to the agreements. Consequently, if the Court were to disagree with the arbitral tribunal s finding that Y. Group had not become a party to the agreements, it could not directly acknowledge that the arbitral tribunal had jurisdiction over Y., as the petitioner specifically requested, but would have to set aside n o 1 of the operative part of the award and refer the case back to the arbitral tribunal for a decision on the question the arbitral tribunal had left undecided (i.e. whether the acquisition of the Y.D. division had led to the assignment of the agreements to Y.). According to the arbitral tribunal, Y. Group was not a party to the agreements when they were entered into as this fact was admitted by X. in the arbitration proceedings. This finding cannot be reviewed by the Court. However, the question is whether Y. Group subsequently adhered to the agreements. In accordance with the rules of good faith, the terms used in the 20 April 2004 letter, which implied the transfer of the full responsibility between two entities of the same group for the performance of the remaining works, could not have been interpreted by X. otherwise than as an assumption (cumulative or not) by a third party (Y.D., i.e. Y. Group) of the obligations undertaken by the initial contracting party (Y. Engineering). In addition, although it is not impossible that a parent company may become a subcontractor in the relationship between one of its subsidiaries and the owner, such a situation seems rather atypical. Terms such as subcontract or agency ( mandat ) have not been used by the parties in the correspondence exchanged. The Plan of Execution drawn up by the parties (although unsigned) may be relevant to determine the true meaning of the statements contained in the 20 April 2004 letter and whether Y.D. acted as a mere representative of Y. Engineering or in its own name. As regards the two subsequent protocols, they were signed by C., designated as of Y. Engineering, although C. was in fact the head of the Y.D. division of Y. Group at the time. This added to the confusion surrounding the parties to the agreements. Such general confusion started with Praxis / Chronique 302 SZIER/RSDIE 2/2015