2. September 2019

Arbitration Newsletter Switzerland: Das Westjordanland Casino zum Zweiten

On 18 July 2019, the Swiss Federal Supreme Court (the „Supreme Court“) published on its website a new decision in the field of international arbitration (the „Decision“)¹ dealing with the question of whether an arbitral tribunal had respected the Supreme Court’s instructions in a previous judgment in which it had annulled the arbitral tribunal’s previous award. The Supreme Court found that it had not and, therefore, also annulled the latest award issued by the tribunal.

The Decision was rendered by all five members of the First Civil Chamber on 4 July 2019.

1. Facts

The facts underlying the dispute between the parties concern concessions for a tourism project, including a casino and a hotel, in the West Bank.

The dispute, fought out in a Swiss Rules arbitration before an arbitral tribunal seated in Zurich, led to a first final award on 2 August 2016, which was then annulled by the Supreme Court in its decision 4A_532/2016 of 30 May 2017 (the „First Decision“). The Supreme Court therein concluded that the arbitral tribunal had violated claimant’s right to be heard by not taking into account claimant’s main argument regarding the requested issuance of a concession for the operating of the hotel in the West Bank.

In its First Decision, the Supreme Court had considered that the arbitral tribunal had not presented any reasoning as to why the operation of a hotel would not be legal in Palestine, in particular it had not stated that the operation of a hotel would be illegal in Palestine under past or present law or that the criminal prohibition of gambling would also apply to the operation of the hotel. The award also had not contained any indication that the tribunal had at least implicitly dealt with that question. Notably, the tribunal, in its statement to the Supreme Court, also confirmed that it had not dealt with that question given that the separate issuance of a concession for the operating of a hotel would not have been part of the present dispute. The Supreme Court, however, disagreed with that part of the tribunal’s statement.

More details on the facts up until the First Decision and the considerations of the Supreme Court can be found in our newsletter of 26 June 2017.²

After the First Decision, the arbitral tribunal resumed its work and on 5 July 2018 issued – after submissions by the parties – its new final award wherein it decided not to enter into certain prayers for relief of claimant and to reject claimant’s alleged claims entirely. With regard to the requested concession for the operating of the hotel, the tribunal held that claimant’s procedural submissions would have to be understood in the way that claimant’s prayer for relief had not included any request for a separate concession for the hotel.

Claimant then challenged the new final award by filing an action for annulment with the Supreme Court.

A filed an appeal³ against the judgment with the Supreme Court and requested that it be annulled and the matter sent back to the Commercial Court.

The Supreme Court dismissed A’s appeal, even though it disagreed with the reasoning of the Commercial Court.

2. Considerations

Claimant contended that the tribunal had disregarded the Supreme Court’s First Decision and had violated its right to be heard by declaring that it had not examined claimant’s alleged claim for the issuance for a separate hotel concession.

The Supreme Court upheld claimant’s contentions: In its First Decision, the Supreme Court had expressly rejected the tribunal’s argument that the separate issuance of a hotel license (irrespective of the operation of the casino) had never been the subject of the dispute. Contrary to respondents’ view, it would therefore not be accurate to contend that that the Supreme Court had merely criticized the lack of reasoning for the (narrow) tribunal’s interpretation of the prayer for relief in question and that it had merely requested it to give reasons for this (narrow) interpretation.

The Supreme Court reasoned that the first arbitral award had been annulled in the first place as it had not contained any reasons as to whether and why the requested licenses to operate the hotel should also be affected by the criminal law prohibiting gambling, even though the claimant had invoked the admissibility of the hotel operation in the arbitration proceedings.

The question to be answered by the tribunal should have been, regardless of the criminal law prohibiting gambling, whether claimant was entitled to be granted the licenses and permits required for hotel operations. By not expressly answering that question and by justifying this by stating that no such a claim had been introduced by claimant and would therefore never have been the subject of the arbitration proceedings, the tribunal disregarded the Supreme Court’s First Decision by assessing the matter in question based on legal points expressly rejected by the Supreme Court.

Therefore, also the attacked second arbitral award was annulled and the case referred back to the tribunal.

3. Considerations

The instructions by the Supreme Court in its First Decision were as follows:

„4.3 […] the arbitral tribunal will be required to honor the parties‘ right to be heard by conducting a review as to whether a claim may potentially exist for the grant of the licenses and permits necessary to operate a hotel in X. with a term running to 13 September 2028, notwithstanding the criminal prohibition on gambling, and whether the request for relief in para. 1(ii) should be upheld, at least partially.“³

Instead of following this roadmap depicted by the Supreme Court, the tribunal had opted to follow its own route – which then led to a dead end! There seemed to be simply no room anymore for the tribunal merely to reconfirm its only procedurally motivated first award, namely that there was no prayer for relief which would request a separate decision for the granting of a hotel license. Instead, the tribunal had been directed by the Supreme Court to enter into the merits of the case and to decide whether such license was to be issued covering the period up to 13 September 2028. The Decision makes it quite clear that any court – whether state court or arbitral tribunal – being confronted with an annulment of its decision by the Supreme Court has to base its new decision strictly on the conclusions of the Supreme Court leading to the annulment. Not more, because the arbitral tribunal is neither allowed to expand the issues under dispute nor to lay new legal foundations; but also not less, because the tribunal has to follow strictly the lines set by the Supreme Court.

The tribunal may find some consolation in the fact that it is not the only tribunal whose award was remitted twice by the Supreme Court. In a domestic arbitration, under the narrower realm of „arbitrariness“ pursuant to Article 393(e) Swiss Code of Civil Procedure, the Supreme Court had first annulled an award because the tribunal had failed to justify its decision to award part of the claim for abuse of right under Article 2(2) Swiss Civil Code⁴ .

In its second award the tribunal added some considerations but still confirmed its first award. In doing so, it ignored the relevant arguments of the Supreme Court which had indicated the line of arguments it should follow to establish the alleged abuse of right. Hence, the annulment of the second award by the Supreme Court was also inevitable⁵.

In providing directions in which respects the annulled award has to be amended the Supreme Court walks on a thin line. It has to make it clear which issues have to be addressed by the tribunal without indicating what decision the tribunal has to render. In the present case this was clear as the arbitral tribunal had to conduct „[…] a review as to whether a claim may potentially exist […]„. In other words, the tribunal is still at liberty to reach in the third award the conclusion that no such claim exists, provided such decision is rendered on the merits of the case.

Finally, the Decision prompts the following question, with which we want to conclude: Who pays for all of this and, in particular, is the arbitral tribunal entitled to ask for additional fees to resolve (finally) the dispute along the lines drawn by the Supreme Court?

 

2019-09-02-Arbitration-Newsletter.pdf (pdf 618 kB)