BGer 4A_462/2021 of 7 February 2022, in German.
Arbitration Newsletter Switzerland: Die ständige Pflicht zur Offenlegung – und die schweigsame Vorsitzende
This case,1 is about an arbitration held in Basel under the Swiss Rules. A panel of three arbitrators, all of them appointed by the Swiss Arbitration Center („SAC„), had to resolve a dispute between a Turkish manufacturer („Company A“ or „the Claimant„) and its exclusive Turkish agent („Company B“ or „the Respondent„), a subsidiary of an American group with over 250 subsidiaries worldwide („the B Group„). In 2016 the two parties entered into a joint venture by forming a company C but the joint venture did not develop as anticipated and Company A, therefore, terminated it, alleging breach of contract by Company B and requesting damages.
Arbitration proceedings were initiated on 25 October 2017 by Company A and the outcome was a final award („the Award„) dated 15 July 2021 whereby the Tribunal dismissed both the claim and counterclaim. The Award was rendered by a majority decision.
However, the real issue to be analysed further is how the Chairwoman (referred to in the Decision with the German term „die Vorsitzende“) handled her duty under Art. 179 (6) PILA, obliging any arbitrator sitting in Switzerland to
„disclose the existence of circumstances that could give rise to legitimate doubt as to his or her independence or impartiality. This obligation applies throughout the entire proceedings.“
In its action for annulment against this Award with the Swiss Federal Supreme Court (the „Supreme Court„), the Claimant requested, amongst others, that the Chairwomen be removed due to lack of independence and impartiality and that the Award be quashed.
The underlying facts of this request were that the Chairwoman had, by email on 1 September 2021, issued information according to which she was from now on working as a partner in the law firm G AG, which as such was not the problem, but the real problem was that the B Group was, apparently, a key client of the law firm G AG in the area of litigation and arbitration. It is not disclosed in the Decision how the Claimant learned about this fact.
To understand better the potential exposure of the Chairwoman in her move to law firm G AG, the following facts presented in the Decision are to be considered:
|· 2007 – 2009||The Chairwoman worked, together with the present in-house counsel of B, in the law firm G AG. In total, the Chairwoman had been employed for five years at the law firm G AG|
|· 19 – 24 October 2020||Hearing|
|· 19 January 2021||Submissions on Costs|
|· 28 January and
· 5 February 2021
|Deliberation by the Arbitral Tribunal and final decision internally|
|· 8 February 2021||The Chairwoman starts drafting the Award|
|· 26 February 2021||The Chairwoman meets representatives of the law firm G AG, for initial discussions|
|· 21 March 2021||Exchange of information between the Chairwoman and the law firm G AG, to detect potential conflicts of interests|
|· 16 April 2021||The Chairwoman receives a formal offer from law firm G AG|
|· 28 April 2021||The Chairwoman signs the offer|
|· 18 June 2021||The Chairwoman discloses in another arbitral procedure her move to law firm G AG|
|· 28 June 2021||In the Case Management Conference of those other arbitral proceedings, the Chairwoman discloses that she did not detect any conflicts of interests arising from her new position as partner in law firm G AG|
|· 15 July 2021||Award issued|
|· 1 September 2021||The Chairwoman informs per email that she has as per that date joined as a partner of the law firm G AG|
|· 14 September 2021||Claimant files its action for annulment at the Supreme Court|
|· 8 November 2021||In the consultation paper2 the Tribunal rejects the arguments of the Claimant|
|· 9 December 2021||Further submission of the Chairwoman|
2. Considerations of the Supreme Court
After having summarized the relevant facts – see above – the Supreme Court summarized its consistent jurisprudence in the field of independence of a judge or arbitrator. In particular, an extra-official judge.3 lacks independence if he acts at the same time as a lawyer for a party of the proceedings or has in the past been mandated by a party of such proceedings on various occasions – irrespective of whether such other mandates stand in any relation to the case in question4. Such lack of independence is assumed by the Supreme Court not only if the extra-official judge or arbitrator stands in such relation to one of the parties but also when only a partner of his law firm entertains such a client relationship with one party of the proceedings. A law firm is to be considered as one unit only5. These standards are the same for an arbitrator.
Thereafter, the Supreme Court rejected the Chairwoman’s argument, stating that all her fees generated in this arbitration were still attributed to her earlier law firm. According to the Supreme Court, the lack of independence can already be assumed if, based on the circumstances of the particular case, the impression could arise that an arbitrator might treat a party more favourably in view of his future activities in such a new law firm.
However, the Supreme Court saw no reason to assume a lack of independence by the Chairwoman in the present case because the three arbitrators jointly confirmed in their consultation paper to the Supreme Court that their final decision had already been rendered on 5 February 2021 – i.e. at a time where the Chairwoman had not yet commenced discussions with the law firm G AG. Therefore, the fact that B Group was a key client of the law firm G AG could not have played any role in the Chairwoman’s decision making process.
Applying the same reasoning, the Supreme Court also rejected the Claimant’s argument that the duty to disclose would stand until the very end of the proceedings. While the Supreme Court conceded that the process of reasoning of an award might still have an impact on the outcome of the case, this did, however, in view of the confirmation of the three arbitrators as to the timing of their decision making, not apply to the present case.
Finally, the Supreme Court dealt with Claimant’s argument that the Chairwoman deliberately withheld the information on her moving to the law firm G AG because she had already disclosed such a change earlier in another, unrelated arbitration proceeding but not in the present one. Such deliberate withholding would – in Claimant’s view – already by itself serve as prejudicial. Again, the Supreme Court concluded that with the final decision having already been rendered on 5 February 2021, the Chairwoman had had no duty to have advised of her change to the law firm G AG.
The wording of Art. 179(6) PILA is quite clear: the disclosure obligations continue to stand “throughout the entire proceedings.” Though this provision was introduced only in the recent amendment of Chapter 12 PILA, effective as of 1 January 2021, there remains a clear consensus that such ongoing duty of disclosure had already been imposed on any arbitrator before then6. The interpretation of the Supreme Court in tying such duty of disclosure to the actual date of the decision‑making is a rather courageous one. It finds no support in the clear wording of the relevant provisions, be it in Art. 179(6) PILA or in Art 12(3) Swiss Rules – which could not override the PILA provision anyway. The Decision sends the disturbing signal that the deadline for the duty of disclosure is of an individual nature, depending on the particular circumstances of each individual case. Quod non! The end of the case is when the award is delivered and the arbitral tribunal becomes functus officio. Up to that moment, it remains in officio and the duty for disclosure remains in force for any arbitrator sitting in this case.
The Claimant took also issue with the fact that the Chairwoman had disclosed her move to law firm G AG in another arbitration but not in the present one. This differentiation is indeed difficult to legitimize – and the Supreme Court had to opt also for the easy exit by simply tying its decision to 5 February 2021 again – the date of the decision-making within the arbitral tribunal. However, this does not serve as a persuasive answer as to why the Chairwoman could opt for two different levels of disclosure.
As already addressed in our most recent newsletter7 it is difficult to detect a consistent policy of the Supreme Court in disclosing or anonymizing the identity of a party. Why was the identity of the chairman in the earlier case discussed in our newsletter8 named (and shamed) and why was the identity of the Chairwoman not disclosed in the present case? The Supreme Court leaves its users with no guidance in this respect.
Finally, the Decision ties into a number of previous decisions9 where one wonders why the Supreme Court took in each of those cases such a lenient approach in deciding on the independence of an arbitrator. The signs were clearly on the wall in each of those individual cases that an arbitrator was not acting within his professional boundaries but he was nevertheless not sanctioned by the Supreme Court. Was it because, in its view, such fault of the arbitrator was not material to the outcome of the case? Was the Supreme Court satisfied with the result in substance and did, therefore – to avoid further innuendos and costs for the parties – leave things as they were, by taking a rather utilitarian approach? Only the Supreme Court knows.
It is due to such „Vernehmlassung“ by the Tribunal that the Decision could revert to internal date of the Tribunal.
BGE 147 II 89 consid. 4.2.2; BGer 4A_404/2021 consid. 22.214.171.124.
BGE 147 II 89 consid. 126.96.36.199; 140 III 221 consid. 4.3.2; 139 III 433 consid. 2.1.5; BGer 4A_404/2021 consid. 188.8.131.52.
Philipp Habegger, Das revidierte Kapitel 12 IPRG über die Internationale Schiedsgerichtsbarkeit, ZZZ 53/2021, p.371 et seq., in particular p. 380; BSK, Peter/Legler/Rusch, 4th Edition 2020, N 68 to Art. 179 PILA.
Newsletter of 19 April 2022, under margin 3.5.
Such as Mutu (BGer 4A_458/2009), Valverde (BGE 136 II 605), Paulisson (BGer 4A_110/2012) and most recently Hovell (BGer 4A_520/2021), see also our Newsletters of 7 December 2011, 14 November 2021 and 19 April 2022.
2022-05-23-Thouvenin-Arbitration-Newsletter-4A_462_2021.pdf (pdf 358 kB)