No violation of substantive public policy (argument based on pacta sunt servanda rule and on alleged contradiction in the award)
Introductory note
The case involved a claim by a company based in the Cayman Islands concerning some commissions allegedly due for the assistance provided to a construction company with a view to obtaining the works for a water supply system and a highway.
The contracts contained an arbitration clause providing for ICC arbitration in Switzerland and a three members arbitral tribunal was constituted with Bernhardt Meyer as Chairman, Pierre-Yves Gunter and Roberto Dallafior as arbitrators.
The Arbitral tribunal issued an award on June 24, 2010 essentially rejecting the claim and an appeal was made to the Federal Tribunal.
This is a very good example of an appeal that should never have been filed, for the following reasons:
(i) The Appellant raised an argument of public policy and claimed a violation of the rule of pacta sunt servanda. The Federal Tribunal repeated once again its often stated view that the rule of pacta sunt servanda does belong to the realm of substantive public policy but that it would be violated only if an arbitral tribunal found that there was a contractual obligation yet refused to enforce it or, conversely, if after finding that there was no contractual obligation, the arbitrators would pretend to enforce one. Obviously, this is most unlikely ever to happen in practice and whilst one can debate whether or not the approach of the Court is too restrictive in this respect, it is well established case law. In other words, the appeal simply did not stand a chance with this argument (see section 3 of the opinion in this respect).
(ii) The second argument was equally doomed as the Appellant argued a contradiction in the award constituting a violation of substantive public policy. The Court merely repeated that even if an award were intrinsically incoherent this would not constitute a violation of public policy (see section 4 of the opinion in this respect).
Considering that the Appellant had to fork over CHF 30’000 ( $ 33’000) of judicial costs and CHF 35’000 ($ 38’500) paid to its opponent, for which security for costs had been requested and obtained in the appeal proceedings, the cost of the appeal actually exceeds $ 10’000 per page of the opinion, probably a world record !
This shows how risky it is to appeal an international arbitral award to the Swiss Supreme Court with an inadequately reasoned claim that public policy was violated.
Mr Nicolas Ulmer also commented on the case entitled “Swiss Appeals, Swiss Efficiency” that you will find on the Kluwer arbitration blog at http://kluwerarbitrationblog.com/
Original version in French : 4A_481/2010
English translation :
4A_481/2010 [1] Judgement of March 15, 2011 First Civil Law Court Federal Judge Klett (Mrs), Presiding X.________ Inc., v. Y.________ Ltd., Facts: A. The dispute was submitted to a three members arbitral tribunal constituted under the aegis of the Court of arbitration of the International Chamber of Commerce (ICC). In a final award of June 24, 2010 the Arbitral tribunal rejected almost the entire claim, principally as a consequence of the statute of limitations. B. In its answer of February 1st, 2011 the Respondent submits that the matter is not capable of appeal to the extent that the appeal seeks more than the mere annulment of the award under appeal and moreover that it should be rejected. The Arbitral tribunal did not express a view on the appeal. By Presidential decree of November 18, 2010 the Appellant was invited to pay an amount of CHF 35’000 before December 17, 2010 as security for the Respondent’s costs. It did so timely. Reasons 1. 2. However, this does not apply to the Appellant’s submissions seeking more than the annulment of the award under appeal. Such submissions indeed disregard that a Civil law appeal may only seek the annulment of an international arbitral award, with rare exceptions, none of which are met in this case (see Art. 77 (2) LTF ruling out the application of Art. 107 (2) LTF). 3. 3.1 3.2 In this case the Arbitral tribunal applied the pertinent rules of law to the facts it had found and held that some of the claims in dispute were covered by the statute of limitations and others were not. It rejected the submissions relating to the former and granted the ones concerning the latter. This very finding shows that the argument based on an alleged violation of the rule of pacta sunt servandais to be rejected. 4. In judgment 4A_464/2009 of February 15, 2010 [5] the Federal Tribunal, coming back to the cases relied upon by the Appellant (judgment 4P.198/1998 of February 17, 1999 at 4a and 4P.99/2000 of November 10, 2000 at 3b/aa) held that the argument that the reasons of an award would be intrinsically incoherent does not fall within the definition of substantive public policy (reasons at 5.1; also see case 4A_386/2010 of January 3, 2011 at 8.3.1). Hence, the argument is manifestly unfounded. 5. 6. Therefore the Federal Tribunal pronounces: Lausanne March 15, 2011 In the name of the First Civil Law Court of the Swiss Federal Tribunal. The Presiding Judge: The Clerk: KLETT (Mrs) CARRUZZO [1] Translator’s note: Quote as X.________ v. Y.________ 4A_481/2010. The original of the decision is in French. The text is available on the website of the Federal Tribunal www.bger.ch. [2] Translator’s note: LTF is the French abbreviation for the Federal Statute of June 17, 2005 organizing the Federal Tribunal, RS 173.110. [3] Translator’s note: The official languages of Switzerland are German, French and Italian. [4] Translator’s note: PILA is the most commonly used English abbreviation for the Federal Statute on International Private Law of December 18, 1987, RS 291. [5] Translator’s note: an English translation is available at www.praetor.ch
Federal Judge Corboz,
Federal Judge Rottenberg Liatowitsch (Mrs),
Clerk of the Court: M. Carruzzo.
Appellant,
Represented by Mr. Pierre Schifferli,
Respondent,
Represented by Mr. Nicolas C. Ulmer and Mr. Lionel Serex,
There is a dispute between X.________ Inc. (hereafter: X.________), a company domiciled in the Cayman Islands on the one hand and Y.________ Ltd. (hereafter: Y.________), a construction company based in [name of country omitted] on the other hand. The former claims some commissions from the latter as a consequence of four Service Agreements concluded in the years 1990, by which it had undertook to help it obtain the award of the works for a water supply system and a highway in [name of country omitted].
On September 8, 2010 X.________ filed a Civil law appeal to the Federal Tribunal. It submits that the award should be annulled to the extent that its claims were rejected and that Y.________ should be ordered to pay various amounts. The Appellant also asks the Federal Tribunal to review the allocation of costs in the arbitral proceedings.
According to Art. 54 (1) LTF [2], the Federal Tribunal issues its decision in an official language [3], as a rule in the language of the decision under appeal. When that decision is in another language (in this case English), the Federal Tribunal resorts to the official language chosen by the parties. In front of the Arbitral tribunal they used English. The Appellant used French in its brief to the Federal Tribunal. According to its practice, the Federal Tribunal will accordingly resort to the language of the appeal and consequently issue its judgment in French.
In the field of international arbitration, a Civil law appeal is allowed against the decisions of arbitral tribunals within the requirements set at Art. 190 to 192 PILA[4] (Art. 77 (1) LTF).Whether as to the subject matter of the appeal, as to the standing to appeal or as to the time limit to do so, none of these requirements raises any problems in this case
In a first argument based on Art. 190 (2) (e) PILA the Appellant submits that the Arbitral tribunal disregarded the rule that contracts should be complied with, which constitutes one of the elements of substantive public policy.
The rule of pacta sunt servanda within the restrictive meaning it has been given by case law relating to Art. 190 (2) (e) PILA is violated only if the arbitral tribunal refuses to apply a contractual provision whilst admitting that it binds the parties or conversely, if it imposes on them compliance with a provision which it considers as not binding. In other words, the arbitral tribunal must have applied or refused to apply a contract provision in contradiction with the result of its own interpretation as to the existence or the content of the legal deed in dispute. However the process of interpretation itself and the legal consequences logically drawn therefrom are not governed by the principle that contracts should be complied with, so that they could not base an argument of violation of public policy. The Federal Tribunal emphasized many times that almost all disputes based on breach of a contract are outside the scope of protection of the rule ofpacta sunt servanda (judgment 4A_440/2010 of February 7, 2011 at 5.1.2 and the case quoted).
The Appellant totally disregards this case law although it was established long ago and ceaselessly recalled. It seeks to demonstrate that the Arbitral tribunal would not have interpreted one of the four Service Agreements in the same way as the other three similar agreements as to when the statute of limitations applicable to the commissions due by the Respondent should have started. Such an attempt is doomed from its very beginning because it does not involve the principle that contracts should be complied with as defined by the aforementioned case law.
Secondly the Appellant argues another violation of public policy because the Arbitral tribunal would have issued an intrinsically contradictory award as to the definition of the services it was to provide in one of the four contracts concluded with the Respondent.
Moreover the arguments submitted at pages 26/27 of the appeal are purely of an appellate nature and contain some inadmissible references to a brief submitted to the Arbitral tribunal. They are accordingly not admissible (see judgment 4A_25/2009 of February 16, 2009 at 3.1 and references).
Accordingly, this appeal may only be rejected to the extent that the matter is capable of appeal. The Appellant shall therefore pay the costs of the federal proceedings (Art. 66 (1) LTF) and pay costs to the Respondent (Art. 68 (1) and (2) LTF); these shall be taken from the deposit made with the Federal Tribunal.
