Switzerland: The Objection Of Arbitral Awards – Demanding And Rarely Successful

I. INTRODUCTION

Recent Swiss Federal Tribunal decisions on objections of arbitral awards pursuant to art. 389 et seq. CPC and art. 190 et seq. PILA ("Objections of Arbitral Awards" or "Objections")¹ have made it clear, once again, how demanding it is to be successful with this legal instrument. The number of cases² paints a clear picture: of the material or actual³ 165 Objections identified, after consulting the Swiss Federal Tribunal, which were filed in the years 2016 to 2018, 96 Objections were dismissed, 40 were inadmissible, 21 Objections were withdrawn, and only 8 Objections were fully or partially upheld.⁴

This success rate of just under 5 percent - with over 82 percent of unsuccessful⁵ Objections - is rarely mentioned when talking with practitioners, not to mention the considerable attorney fees⁶ and court costs associated with these proceedings. Also, the mentions by the Swiss Federal Tribunal, from time to time recalled in its decisions, on its strict practice regarding Objections of Arbitral Awards, hardly have a deterring effect on the parties to international arbitration proceedings⁷ (this also applies to internal arbitration proceedings). Our own experience shows that it is not easy to convince lawyers – especially from large foreign law firms – of the low chances of success of the Swiss Objection of Arbitral Awards. Often, too much is at stake.

There are various reasons for challenging an award and, of course, there are false arbitral awards. It is, however, key to keep an eye on the corresponding opportunities and particular risks and to acquaint the client and foreign correspondence lawyer therewith.

II. GROUNDS FOR OBJECTION

It is well known that the grounds for objection against an arbitral award are more limited than those against a state court decision. The laws enumerate them conclusively: art. 393 CPC for domestic arbitration and art. 190 PILA for international arbitration. The grounds for objection in art. 393 lit. a-d CPC correspond to those in art. 190 para. 2 lit. a-d PILA, which is why these provisions are, in principle, to be interpreted in the same way.⁸ When assessing the grounds for objection, the doctrine and case-law on these provisions can be fully taken into account.⁹

In addition to a cost challenge not provided for in the PILA (art. 393 lit. f CPC¹⁰), art. 393 lit. e CPC contains an objection which must be distinguished from the result-oriented public policy (ordre-public) challenge pursuant to art. 190 para. 2 lit. e PILA.¹¹

In the following, select aspects are discussed in connection with the Objection of an Arbitral Award under art. 393 lit. e CPC and the complaint for the violation of the right to be heard under art. 393 lit. d CPC and art. 190 para. 2 lit. d PILA. First, however, the requirements for the duty of objection (Rügepflicht), the reasoning of the objection (Beschwerdebegründung) as well as the principle of the facts relevant to setting aside an arbitral award in domestic and international arbitration proceedings must be addressed.

III. DUTY OF OBJECTION AND REASONING OF OBJECTION

The strict duty of objection or the so-called qualified duty of objection applies: the Swiss Federal Tribunal only examines the Objections of Arbitral Awards that are raised and substantiated in the appeal; it therefore disregards questions which have not been expressly submitted and reasoned (art. 77 (3) in conjunction with art. 106 (2) FSCA¹²). The applicant must clearly state in the notice of appeal which grounds for objection have been fulfilled in accordance with art. 393 CPC or art. 190 PILA or asserted with the corresponding complaint. In this context, the criticism for a legally sufficient analysis (Auseinandersetzung) has to be directed against the legally incorrect considerations of the arbitral tribunal.¹³ Mere references to the files are irrelevant. The same applies, for example, to references to a dissenting opinion of an arbitrator (in which case it should also be noted that a dissenting opinion is not part of the arbitral award but an independent opinion without any legal significance of its own¹⁴). The Federal Court itself will not carry out any such enquiries. It will not admit Objections of Arbitral Awards on the grounds of unfoundedness if the complaints are not specified.¹⁵ It is therefore indispensable, yet often neglected in practice, to focus on these aspects when drafting an Objection.

IV. RELEVANT FACTS OF THE CASE

The Swiss Federal Tribunal bases its decision on the facts established by the arbitral tribunal (art. 105 (1) FSCA). It follows from the often-neglected Article 77 (2) FSCA, that the Federal Court cannot correct or supplement such facts even if they are obviously incorrect or based on an infringement of a right within the meaning of art. 95 FSCA. The Swiss Federal Tribunal can only review the actual findings of the contested arbitral award if admissible challenges pursuant to art. 393 CPC or art. 190 para. 2 PILA have been made with reference to the corresponding findings of fact or if, in exceptional cases, novelties have to be taken into account.¹⁶ If an appellant wishes to invoke an exemption from the obligation of the Swiss Federal Tribunal to be bound to the factual findings of the arbitral tribunal and to have the facts corrected or supplemented in application of art. 105 (2) FSCA, it must demonstrate with references to the file that it has already established the corresponding factual claims in the arbitral proceedings. If it does not do so, the asserted facts are to be assessed as new and thus inadmissible, which in this respect can result in inadmissibility.¹⁷ The clear recommendation is thus to rely on the facts established by the arbitral tribunal and to focus on accurately pleading the correct, selected grounds of challenge of an arbitral award.

V. OBJECTIONS BASED ON ARBITRARINESS (WILLKÜRBESCHWERDE/-RÜGE) ACCORDING TO ART. 393 LIT. E CPC

The statements of fact on which the Objection can be based under current law are limited in two respects. According to art. 393 lit. e CPC, the ground of arbitrariness may (only) be invoked if the arbitral award is "arbitrary in its result" because it is (1) "based on facts obviously contrary to the facts as stated in the case files" or (2) because it "constitutes an obvious violation of law or equity".¹⁸ The Swiss Federal Tribunal repeatedly states the following in this regard:

With regard to (1) findings of fact, the limitation of objections based on arbitrariness results in the appellant only being able to assert that the arbitral tribunal has made factual findings which are obviously contrary to the record. The arbitral tribunal has thus based its assessment of the evidence on incorrect factual premises. This is only the case if the arbitral tribunal has erroneously contradicted the file by carelessly overlooking a part thereof or by accidently assigning the false substance thereto, or if the arbitral tribunal mistakenly assumed that a fact has been verified by the file although such fact does not arise therefrom. This challenge is therefore limited to clear cases.¹⁹

It cannot be emphasized enough that findings of fact obviously contrary to the file (Aktenwidrigkeit) according to 393 lit. e CPC do not correspond to an arbitrary assessment of evidence. In other words, the result of the arbitral tribunal's assessment of the evidence, the way in which the arbitral tribunal assesses the evidence and the discretion on which such assessment is often based as well as the question if the arbitral tribunal handled such discretion arbitrarily are not subject of the challenge based on arbitrariness. It is therefore not about the assessment of the evidence and the conclusions drawn therefrom. The free assessment of evidence by an arbitral tribunal, including giving meaning to a piece of evidence which diverges from that of the appellant, cannot be the subject of an Objection in accordance with art. 393 lit. e CPC. In constant jurisprudence, the Swiss Federal Tribunal is categorical here; it wants "to [omit] this elusive field when reviewing arbitral awards. Anyone who submits his dispute to an arbitral tribunal has to accept its assessment of the evidence."²⁰ Corresponding objections are therefore without chance, and there is a manifest risk that the Swiss Federal Tribunal will not admit an Objection alleging findings that are obviously contrary to the facts as stated in the case files, with which the appellant in reality criticizes the assessment of the case file as such.²¹

In international arbitration proceedings, the ground for objection of the violation of public policy pursuant to art. 190 para. 2 lit. e PILA is limited further, as even findings of fact obviously contrary to the file (or an open violation of the law; see immediately) are not in themselves sufficient to set aside an arbitral award.²²

With the objection based on arbitrariness of (2) an obvious violation of law under art. 393 lit. e CPC, a further restriction applies. Only a violation of substantive law can be asserted, not a violation of procedural law. (In analogy to the case-law on art. 190 para. 2 lit. e PILA) procedural errors, which constitute a violation of the procedural public policy, do, however, remain reserved. Such errors include the right to an independent and impartial expert or the compliance with the principle of res iudicata, which also includes earlier partial awards of the same arbitral tribunal.²³

VI. OBJECTION BASED ON THE RIGHT TO BE HEARD (GEHÖRSRÜGE) ACCORDING TO ART. 393 LIT. D CPC UND ART. 190 ABS. 2 LIT. D

Also, the Objection based on the right to be heard is subject to the strict duty of objection according to art. 77 para. 3 in conjunction with art. 106 para. 2 FSCA. The appellant only satisfies the strict demands for reasoning (Begründungsanforderung) if it is able to show in detail why the grounds for objection are fulfilled, whereby the appellant has to direct its objection against the considerations of the arbitral tribunal which it considers legally incorrect. The Swiss Federal Tribunal does not admit objections based on the right to be heard without independent content or entirely appellative objections.²⁴

The right of the parties to be heard regarding the legal assessment of the arbitral tribunal is affirmed by the Swiss Federal Tribunal only to a limited extent, namely if the legal basis in question was not raised in the proceedings, if no party invoked it and if its relevance could not have been foreseen by the parties.²⁵ With regard to the principle iura novit arbiter, the Swiss Federal Tribunal has for some time pursued a very restrictive practice. It aims to prevent the appellant from opening a back door with the assertion of the surprise argument and thus a material review of the arbitral award by the appellate court.²⁶ The Swiss Federal Tribunal has therefore mostly rejected the surprise argument²⁷ and only rarely allowed it. Examples of the few cases in which the Swiss Federal Tribunal recognized the surprise argument are arbitral awards in which an arbitral tribunal carried out a legal analysis which had no connection to the elements on which the parties' debate had been based,²⁸ or when it applied Swiss law, which was diametrically opposite to the applicable foreign law and which none of the parties had invoked.²⁹ The application of a provision of the general part of the Swiss Code of Obligations, which has not been invoked by the parties but is related to the legal positions they have pleaded from the general part of the Code of Obligations, as well, will generally not be such a case.³⁰

VII. CONCLUSION

A significant reason for why Switzerland is such an attractive place of arbitration is the limited possibility of appeal against arbitral awards of national and international arbitral tribunals domiciled in Switzerland (art. 353 CPC and art. 176 PILA). This competitive advantage over, in this respect, far "laxer" foreign legal systems³¹ also has a downside: the Objection against Swiss Arbitral Awards is a very demanding legal remedy and rarely crowned with success. It is obviously not easy to convey this fact, especially in arbitration proceedings with high values of interest. However, when there is talk of expensive arbitration proceedings, it is important to recognize that this also applies to proceedings aiming at setting aside an arbitral award and that an Objection contributes its share to the costs of arbitration proceedings, respectively. These costs must be put in relation to the chances of success.

Footnotes

1. Inter alia Swiss Federal Tribunal, 4A_338/2018, 28.11.2018; Swiss Federal Tribunal, 4A_308/2018, 23.11.2018; Swiss Federal Tribunal, 4A_560/2018, 16.11.2018; Swiss Federal Tribunal, 4A_284/ 2018, 17.10.2018.

2. Status: January 29, 2019; figures in fide. The author would like to thank his colleague Ms. lic. iur. Christin Terruzzi for the research.

3. Result of the proceedings: approval, dismissal, non-entry or withdrawal.

4. Swiss Federal Tribunal, 4A_422/2015, 16.3.2016; Swiss Federal Tribunal, 4A_628/2015, 16.3.2016; Swiss Federal Tribunal, 4A_570/2016, 7.3.2017; Swiss Federal Tribunal, 4A_532/2016, 30.5.2017; Swiss Federal Tribunal, 4A_150/2017, 4.10.2017; Swiss Federal Tribunal, 4A_432/2017, 22.1.2018; Swiss Federal Tribunal, 4A_478/2017, 2.5.2018; Swiss Federal Tribunal, 4A_642/2017, 12.11.2018.

5. Dismissed or inadmissible.

6. Including the party indemnification to be borne by the unsuccessful party.

7. Swiss Federal Tribunal, 4A_525/2017, 9.8.2018, consid. 3.1, in connection with an objection based on the right to be heard (Gehörsrüge): "Vrai est-il, toutefois, que la retenue qu'il s'impose de longue date face à un tel argument n'a guère eu d'effet dissuasif sur les auteurs potentiels de recours en matière d'arbitrage international" (for more on objections based on the right to be heard see below).

8. MARKUS SCHOTT, in: Thomas Sutter-Somm/Franz Hasenböhler/Christoph Leuenberger (Hrsg.), Kommentar zur Schweizerischen Zivilprozessordnung, 3. Ed., Zurich 2016, art. 393 ZPO N 2.

9. BERNHARD BERGER/FRANZ KELLERHALS, Internationale und interne Schiedsgerichtsbarkeit, Berne 2006, N 1711–1716; MICHAEL MRÁZ, in: Karl Spühler/Luca Tenchio/Dominik Infanger (Hrsg.), Basler Kommentar, Schweizerische Zivilprozessordnung (ZPO), 3. Ed., Basel 2017, art. 393 ZPO N 8, 28, 52 und 65.

10. Merely the amount of fees and expenses of the arbitral tribunal as well as a violation of the procedural public policy can be challenged (DFT 142 III 284 consid. 3.2; Swiss Federal Tribunal, 4A_511/2013, 27.2.2014, consid. 2.3.3; Swiss Federal Tribunal, 4A_60/2018, 27.6.2018, consid. 5).

11. DFT 116 II 634 consid. 4; Daniel Marugg/Anna Neukom Chaney, in: Berner Kommentar, Schweizerische Zivilprozessordnung, Bd. III, art. 353–399 und 407, Berne 2014 (cit. BK-Marugg/Neukom Chaney), art. 393 N 2 with further references.

12. DFT 134 III 186 consid. 5; DFT 133 II 249 consid. 1.4.2 p. 254; DFT 128 III 50 consid. 1c p. 53.

13. Swiss Federal Tribunal, 4A_356/2017, 3.1.2018, consid. 1.2 with further references.

14. Swiss Federal Tribunal, 4A_322/2015, 27.6.2016, consid. 2.2.1; Swiss Federal Tribunal, 4A_319/2015, 5.1.2016, consid. 4.2.2.

15. Swiss Federal Tribunal, 4A_338/2018, 28.11.2018; DFT 133 III 589 consid. 2.

16. DFT 138 III 29 consid. 2.2.1; DFT 134 III 565 consid. 3.1; DFT 133 III 139 consid. 5.

17. DFT 140 III 86 consid. 2 with further references.

18. According to the notion of arbitrariness (Willkürbegriff) as established by the Swiss Federal Tribunal regarding art. 4 of the old Swiss Federal Constitution and art. 9 of the Swiss Federal Constitution, respectively (DFT 131 I 45 consid. 3.4).

19. DFT 131 I 45 consid. 3.6 und 3.7; Swiss Federal Tribunal, 4A_642/2017, 12.11.2018, consid. 4.1.1; Swiss Federal Tribunal, 4A_407/2017, 20.11.2017, consid. 1.5.

20. DFT 131 I 45 consid. 3.7; Swiss Federal Tribunal, 4A_599/2014, 1.4.2015, consid. 3.1.

21. Inter alia Swiss Federal Tribunal, 4A_338/2018, 28.11.2018, consid. 3.2.

22. DFT 131 I 45 consid. 3.7; DFT 116 II 634 consid. 4; DFT 115 II 102 consid. 3a; STEPHANIE PFISTERER, in: Heinrich Honsell/ Nedim Peter Vogt/ Anton K. Schnyder/Stephen V. Berti (Hrsg.), Basler Kommentar, Internationales Privatrecht, 3. Ed., Basel 2013 (cit. BSK IPRG/LugÜ-Pfisterer), art. 190 IPRG N 80.

23. Swiss Federal Tribunal, 4A_338/2018, 28.11.2018, consid. 2; Swiss Federal Tribunal, 4A_599/2014, 1.4.2015, consid. 3.1, in: SJ 2015 I 405; Swiss Federal Tribunal, 4A_511/2013, 27.2.2014, consid. 2.3.2.

24. Swiss Federal Tribunal, 4A_338/2018, 28.11.2018, consid. 5.1.

25. DFT 130 III 35 consid. 5.

26. Swiss Federal Tribunal, 4A_525/2017, 9.8.2018, consid. 3.1; Swiss Federal Tribunal, 4A_716/2016, 26.1.2017, consid. 3.1.

27. Swiss Federal Tribunal, 4A_525/2017, 9.8.2018, consid. 3.1; Swiss Federal Tribunal, 4A_716/2016, 26.1.2017, consid. 3.2; Swiss Federal Tribunal, 4A_136/2016, 3.11.2016, consid. 5.2; Swiss Federal Tribunal, 4A_322/2015, 27.6.2016, consid. 4.4; Swiss Federal Tribunal, 4A_324/2014, 16.10.2014, consid. 4.3; Swiss Federal Tribunal, 4A_544/2013, 26.5.2014, consid. 3.2.2; Swiss Federal Tribunal, 4A_305/2013, 2.10.2013; Swiss Federal Tribunal, 4A_214/2013, 5.8.2013; Swiss Federal Tribunal, 4A_407/2012, 20.2.2013, consid. 5.3; Swiss Federal Tribunal, 4A_538/2012, 17.1.2013, consid. 5.1; Swiss Federal Tribunal, 4A_46/2011, 16.5.2011, consid. 5.1.3; Swiss Federal Tribunal, 4A_254/2010, 3.8.2010, consid. 3.3; Swiss Federal Tribunal, 4A_240/2009, 16.12.2009, consid. 3, und Swiss Federal Tribunal, 4P_105/2006, 4.8.2006, consid. 7.2; further s. BSK IPRG/LugÜ-Pfisterer (Fn 23), art. 190 IPRG N 66 et seqq., and BK-Marugg/Neukom Chaney (Fn 12), art. 393 ZPO N 77 et seqq. with further references.

28. DFT 130 III 35 consid. 6.2 («pour construire un raisonnement juridique très éloigné des thèses qu'elles avaient l'une et l'autre soutenues»).

29. Swiss Federal Tribunal, 4A_400/2008, 9.2.2009, consid. 3.2.

30. Swiss Federal Tribunal, 4A_338/2018, 28.11.2018, consid. 5.2, whereby the Swiss Federal Tribunal considered the Objection inadmissible due to a lack of substantiation.

31. Recently heard statement of a counsel in non-European arbitration proceedings: "The arbitral proceedings are only the first stage of the proceedings; we will simply continue in state court (appeal) proceedings"

Originally published by ZZZ Swiss Journal of Civil Procedure and Enforcement Law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.