The Swiss Law Provision Allowing Foreign Parties To Waive Their Right To Seek The Annulment Of International Arbitration Awards Is Compatible With The Fair Trial Guarantees
Article 192 of the Private International Law Act (the "PIL Act") allows the parties to waive all or part of the legal grounds for challenges against international awards issued in Switzerland, as long as the parties are not domiciled, seated, and have no business establishment in Switzerland.
In a recent decision, the Swiss Supreme Court held that PIL Act Article 192 is not inconsistent with Article 6 of the European Convention on Human Rights (the "ECHR").
Mr. X, a Tunisian business man, and his three sons concluded four contracts, including an option agreement (the "Agreement") with a French firm Z. Under the Agreement, Z had a call option on all the shares in the Company A held by Mr. X and his three sons (the "Shares").
The Agreement included an arbitration clause which provided the following waiver: "Neither Z. nor the Grantors [i.e. Mr. X and his three sons] shall be entitled to commence or maintain any action in a court of law upon any matter in dispute arising from or concerning this Agreement or a breach thereof except for the enforcement of any award rendered pursuant to arbitration under this Agreement. The decision of the arbitration shall be final and binding and neither party shall have any right to appeal such decision to any court of law."
On June 2007, Z exercised its option but Mr. X and his sons refused to comply. On August 2008, Z started an ICC arbitration against Mr. X and his three sons. The place of arbitration was Geneva. The arbitral tribunal uphold Z's claims and ordered the immediate transfer of the Shares as per Z's option. Mr. X sought the annulment of the award before the Swiss Supreme Court mostly on jurisdictional and public order grounds. Z objected to the admissibility of the challenge relying on the conventional waiver.
The Swiss Supreme Court reaffirmed the validity of a conventional waiver under Swiss law, subject to a clear and unequivocal joint declaration by the parties to exclude all ordinary and extraordinary judicial challenges against the award.
In the case at hand, the Swiss Supreme Court considered that the waiver met the minimum requirements of Article 192. In particular, the Court found no sympathy in Mr. X's argument that the parties had merely intended to exclude ordinary means of appeal, but that they had not intended to exclude the extraordinary means of appeal, typically the annulment proceeding before the Swiss Supreme Court. The Court found support in the fact the legal systems related to the parties (namely American, French and Tunisian laws) did not provide for an ordinary appeal against awards rendered in international commercial arbitration but only an extraordinary appeal. Thus, the waiver must have intended to extend to the extraordinary appeal. The Court declined, however, to clarify once and for all the scope of the term "appeal" from perspective of PIL Act Article 192, whether inclusive or exclusive of the annulment proceeding before the Swiss Supreme Court. The Court considered that such determination was best made in the light of the concrete circumstances of the case.
The Court further confirmed the compatibility of Article 192 PIL Act with Article 6 ECHR. A conventional waiver of rights is admissible also under ECHR Article 6, subject to the condition that such waiver be expressed in an unequivocal manner and does not run counter to any important public interest. The Court considered that the wording Article 192 PIL Act, and the restrictive practice developed thereunder were consistent with these requirements.
It is not the first time that the question of the applicability of the fair trial guarantees is discussed in the context of international commercial arbitration, and it could be argued that the minima of ECHR Article 6 are not directly applicable to the arbitration proceeding as such as they are not directed by a state court or other state adjudicating authorities within the meaning of the human rights instruments. It is, however, the States' duty to monitor, through annulment and enforcement proceedings, that arbitration tribunals seated in their jurisdiction conduct arbitration proceedings in a way that is consistent with the minima of ECHR Article 6. Whilst the parties may chose to waive their right to such control even under the ECHR, it is paramount that such waiver be not accepted too lightly in law and in practice. With this decision, the Swiss Supreme Court stated, for the first time, that PIL Act Article 192, as construed in practice, offers sufficient guarantees in this respect. This conclusion results in the control of the fair process being left to the enforcement courts, in particular to the control as per the New York Convention.
This being said, this case would appear to confirm the general tendency towards a relaxation of the Swiss Supreme Court's practice when assessing the validity of a waiver stipulated in the arbitration agreement alluded to in our earlier contribution.
Swiss Supreme Court's decision 4A_238/2011. The full text of the decision is available in its original (French) language at http://www.bger.ch/fr/index/juridiction/jurisdiction-inherit-template/jurisdiction-recht/jurisdiction-recht-urteile2000.htm.
See in particular decisions 4A_486/2010, March 21 2011, ATF, 131 III 173, Ground 4, and ATF, 134 II 260, Ground 3 (waivers admitted); see decisions 4A_194/2008, August 21 2008, Ground 2.2 and 4A_224/2008, October 10 2008, Ground 2.6 (waivers denied).
2 See e.g., Besson, Chronique de jurisprudence étrangère, Revue de l'arbitrage 2005, p. 1071 at p. 1082, proposing a standard application of "appeal", which the Supreme Court rejected in the present decision.
3 See e.g. Jacot-Guillarmod,
'L'arbitrage privé face à l'article 6
§ 1 de la Convention européenne des Droits de
l'Homme', in Matscher, Petzold (eds), Protecting Human
Rights: The European Dimension, Studies in honour of Gérard
J. Wiarda, 1988, 281; Hodges, 'The Relevance of Article of the
European Convention on Human Rights in the Context of Arbitration
Proceedings', 10 International Arbitration Law Review 2007, p.
163; Besson, 'Arbitration and Human Rights', 24 ASA Bull
2006, p. 395; Flauss, 'L'application de l'article 6(1)
de la Convention européenne des Droits de l'Homme aux
procédures arbitrales', Gaz. Pal., July 3, 1986, p.
In an earlier decision in the matter 4P.105/2006, dated August 4, 2006, the Swiss Supreme Court had denied the admissibility of annulment grounds derived from art. 6 ECHR under article 192 PILA."
4 Schuler-Zgraggen v. Switzerland, European Court of Human Rights, Judgment of 24 June 1993, Series A no. 263, p. 19, para. 58: "The Court reiterates that the public character of court hearings constitutes a fundamental principle enshrined in paragraph 1 of Article 6 (art. 6-1). Admittedly, neither the letter nor the spirit of this provision prevents a person from waiving of his own free will, either expressly or tacitly, the entitlement to have his case heard in public, but any such waiver must be made in an unequivocal manner and must not run counter to any important public interest".
5 Validity of conventional waiver of judicial challenge against arbitration awards, ILO, July 14, 2011.
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