New Swiss Federal Tribunal Judgment regarding Challenge to Jurisdiction of Swiss Arbitral Tribunal

New Swiss Federal Tribunal Judgment regarding Challenge to Jurisdiction of Swiss Arbitral Tribunal

Yesterday, the Swiss Federal Tribunal (SFT) published a new judgment regarding an appeal filed with it against an arbitral award issued by a Swiss arbitral tribunal seated in Geneva (judgment 4A_12/2019 dated 17 April 2020, written in French), which contains a noteworthy consideration in relation to a challenge to the arbitral tribunal’s jurisdiction.

In a strongly condensed fashion, the parties in the relevant international commercial arbitration, i.e., the claimant (licensee), headquartered in London, on the one hand and, on the other hand, the Swiss defendant (licensor), had entered into a certain license agreement that contained an arbitration clause in favor of a SCAI arbitration. In the arbitration, the London-based claimant (licensee) asked for damages (loss of profits) that it did not incur itself, but that had been incurred by its Swiss subsidiary. The licensor (defendant) challenged the arbitral tribunal’s jurisdiction to hear and determine such claim brought against it, on the ground that the financial damage for which the licensee (claimant) asked to be compensated had, as mentioned, not been incurred by itself but by its Swiss subsidiary that was not a party to the license agreement and by thus not a party to the arbitration agreement (in the form of the arbitration clause contained in the license agreement).

Obviously, I have not seen the pleadings in the arbitration that led to the challenged arbitral award. That said, I would assume that the licensor (defendant) had argued, more or less, along the lines of the following thoughts: Given that the alleged loss of profits had been incurred by the licensee’s (claimant’s) Swiss subsidiary, the related claim for damages would have to be brought by the mentioned subsidiary, not by the licensee (claimant). However, since there was no arbitration agreement in place between such subsidiary and the licensor (defendant), the arbitral tribunal had no jurisdiction to hear the licensee’s (claimant’s) claim for damages at issue, given the basic principle that arbitral tribunals derive their jurisdiction from the parties’ agreement to submit their disputes to arbitration.

The problem that the licensee (claimant) obviously faced is known under the German word “Drittschaden“, i.e., that it was a party to the relevant license agreement, but had not incurred the financial damage that resulted from a violation of this agreement, whereas its subsidiary, which had incurred such damage, was not a party to the license agreement.

It would appear to be pretty obvious that under circumstances like the ones described above, an arbitral tribunal must have jurisdiction to materially deal with such a “Drittschadensanspruch“, i.e., a claim for damages based on the financial damage sustained not by the claimant itself, but by a third party. Still, it is noteworthy that in its new judgement A_12/2019 dated 17 April 2020, the SFT confirmed this expressly, by reference not to an earlier SFT precedent, which does presumably not exist (because otherwise the SFT would have cited it), but by reference to one single doctrinal source (see consideration 3.2 in fine; emphasis added):

“Déterminer si l’on peut déduire d’un contrat l’existence d’une obligation stipulée au profit d’un tiers et s’il est possible de prendre des conclusions en faveur d’un tiers, sur la base d’une stipulation pour autrui voire d’une autre cause, est une question de fond. Les arbitres sont compétents pour en connaître, du moment que les parties à l’arbitrage sont précisément les signataires du contrat en question et que celui-ci inclut une clause soumettant à l’arbitrage toute controverse relative au contrat, respectivement toute réclamation relative au contrat ou à sa violation […]. De même, lorsqu’une clause d’arbitrage couvre les litiges relatifs aux dommages-intérêts consécutifs à une violation contractuelle, il importe peu que le créancier fasse valoir son propre dommage ou celui d’un tiers : dans l’un et l’autre cas, ses conclusions entrent dans le champ d’une telle clause compromissoire (LEONORA MARTI-SCHREIER, Vertragliche Drittschadensliquidation, 2015, n° 345).”

Unofficial English translation, principally based on deepl.com: It is a material question of substantive law whether it is possible to infer from a contract the existence of an obligation stipulated in favour of a third party and whether it is possible to draw conclusions in favour of a third party on the basis of a stipulation for another person or even on the basis of another causa. The arbitrators shall have jurisdiction to determine such a question, provided that the parties to the arbitration are precisely the signatories to the contract in question and that the contract includes a clause referring to arbitration any controversy relating to the contract, or any claim relating to the contract or its breach […]. Similarly, where an arbitration clause covers disputes relating to damages for breach of contract, it is irrelevant whether the aggrieved party claims its own financial damage or that of a third party: in either case, its determinations fall within the scope of such an arbitration clause (LEONORA MARTI-SCHREIER, Vertragliche Drittschadensliquidation, 2015, No. 345).

Philipp H. Haberbeck, Zurich, 24 June 2020 (www.haberbeck.ch)

The information contained in this article is for general informational purposes only and is not intended to constitute legal advice. Readers of this article should not take any actions or decisions without seeking specific legal advice. Any mandate is subject to the full execution of an engagement letter.

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