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59 Setting Aside Arguments Rejected as Inadmissible
Commentary by Simon Gabriel on Swiss Federal Tribunal decision 4A_338/2018 on November 28, 2018
The Swiss Federal Tribunal rejected FIFA’s 59 setting aside arguments against an arbitral award as inadmissible after having scrutinized them. The decision is a forceful reminder on how strictly the Swiss Federal Tribunal construes the onus of the setting aside applicant to clearly specify and specifically explain the relevant setting aside grounds against an arbitral award. While the present case is a domestic case, the same standard applies for setting aside applications in international cases (Article 77 paragraph 3 Federal Tribunal Act).
I. Background
[1] The Fédération Internationale de Football Association («FIFA») was sued in Swiss arbitration proceedings by the Swiss company C.
[2] C alleged that FIFA had infringed C’s rights to purchase World Cup tickets pursuant to an agreement captioned «Agreement regarding sale and purchase for the FIFA World Cup 2010, 2014, 2018 and to 2022 only if the US Soccer Federation will host the FIFA World Cup» («2010 Agreement»; sec. A) as well as various further undertakings.
[3] C requested to receive damages in an amount of roughly USD 16 million for the World Cup 2014 and delivery of tickets to specified conditions for the World Cup 2018.
[4] FIFA disputed C’s claims and alleged, inter alia, that the relationship with C had changed from the initial reseller relationship to an agency relationship through an agency agreement between C and the FIFA partner company B in 2014 («Agency Agreement»). According to FIFA, the Agency Agreement should have governed the sale of the tickets instead of the 2010 Agreement and other disputed undertakings (sec. 3.1).
[5] It appears that the arbitral tribunal came to the conclusion that FIFA had given relevant assurances to C in addition to the terms of the Agency Agreement which – in the arbitral tribunal’s view – justified C’s requests for relief (sec. 4.1.2).
[6] By arbitral award dated 2 May 2018 («Award») the arbitral tribunal thus rendered a decision in C’s favour. FIFA initiated setting aside proceedings before the Swiss Federal Tribunal and requested setting aside of the Award pursuant to the Swiss arbitration law for domestic arbitrations. FIFA submitted numerous arguments for its application, including arbitrariness as a result of incompatibility of the Award with the record and clear misapplication of the law as well as infringement of the right to be heard (sec. C). According to the count of the Federal Tribunal, FIFA submitted some 59 arguments why the Award should be set aside.
[7] C requested that FIFA’s setting aside application should be dismissed or, as subsidiary position, only paragraph 7 of the Award (operative part) should be set aside.
[8] Upon ex parte application of FIFA, the Federal Tribunal provisionally granted suspensive effect regarding paragraphs 1, 4, 6 and 8 of the Award (operative part). However, in the following the Federal Tribunal revoked its initial ex parte decision and dismissed the requested suspensive effect for the Award (sec. C).
[9] Finally, it is worth noting that the Federal Tribunal highlighted the fact that FIFA had submitted its own extensive summary of the facts of the case up to page 45 of its submission with an exclamation mark (in the German original: «bis Seite 45!»; sec. C). The decision of the Federal Tribunal will show that the highest Swiss judicial body disapproved of what it had understood to be mainly an undue re-pleading of the merits of the case.
II. Decision
[10] The Federal Tribunal started by noting that the present case was legally speaking a domestic case as FIFA and C had their respective seats in Switzerland and had not agreed on an application of the Swiss international arbitration law. Therefore, the Swiss Code of Civil Procedure («CCP») applied which provides for some additional setting aside grounds (e.g. arbitrariness in Article 393 lit. e CCP) compared to the Swiss Private International Law Act («PILA» which only applies, if one of the parties has its seat outside of Switzerland; sec. 1.1).
[11] It was then explained that the Federal Tribunal required the applicant to precisely name and specifically explain the grounds for the requested setting aside of the award and that it was not the duty of the court to investigate the said grounds in any way (Article 77 paragraph 3 Federal Tribunal Act; sec. 1.2). Any explanations of the applicant must refer to the considerations of the arbitral tribunal as starting point (and not to its own different understanding of the facts; sec. 1.2 and 1.3).
[12] Moreover, the Federal Tribunal clarified that the application defendant (here C) was not entitled to submit requests against the challenged award in its response to the setting aside application (sec. 1.4).
[13] FIFA submitted that 26 statements in the Award were contrary to the record and thus arbitrary (Article 393 lit. e CCP).
[14] The Federal Tribunal clarified that only inadvertent misquotations or oversights of parts of the record by the arbitral tribunal were covered by the relevant setting aside ground. However, wrong or even arbitrary considerations resulting from correctly quoted parts of the record were not covered by the relevant Article 393 lit. e CCP (sec. 2). In application of this interpretation, the Federal Tribunal came to the conclusion that all of FIFA’s submissions in this legal category were inadmissible as they all criticized in one or the other way the conclusions of the arbitral tribunal instead of demonstrating misquotations or oversights regarding the record (sec. 3.2).
[15] FIFA further submitted that 13 alleged misapplications of the law existed in the Award which was thus arbitrary (Article 393 lit. e CCP).
[16] In the view of the Federal Tribunal, FIFA partly unduly criticized the merits of the Award and partly failed to sufficiently address the considerations in the Award (sec. 4.1 to 4.4). Therefore, all of FIFA’s respective submissions were also rejected as inadmissible.
[17] Moreover, FIFA submitted 19 alleged infringements of its right to be heard (Article 393 lit. d CCP).
[18] The Federal Tribunal rejected 18 out of the 19 alleged infringements based on the fact that they were submitted by using standardized phrasing. Such standardized phrasing did not meet the strict requirement of precisely naming and specifically explaining the grounds for the requested setting aside of the Award and FIFA’s respective submissions were thus rejected as inadmissible (sec. 5.1).
[19] In one instance, FIFA alleged that it was unduly surprised by the application of the law by the arbitral tribunal. The Federal Tribunal referred to the principle of iura novit arbiter and found that FIFA had failed to sufficiently explain why the application of the law was impossible to anticipate as it would be required according to BGE 130 III 35 (sec. 5). Hence, also this last submission of FIFA was considered as inadmissible.
[20] Finally, FIFA criticised the cost decision in the Award as arbitrary (Article 393 lit. e CCP).
[21] The Federal Tribunal clarified that the setting aside ground of clear misapplication of the law exclusively referred to the misapplication of substantive law (but not to procedural law; sec. 2). Infringements of procedural law were only relevant to the extent that they either formed part of procedural public policy or were covered by the fundamental procedural guarantees specifically named in Article 393 CCP (or Article 190 paragraph 2 PILA in international arbitrations; sec. 2).
[22] In application of these principles, the Federal Tribunal found that cost issues were issues of procedural law and that FIFA had failed to allege an infringement of procedural public policy. Therefore, also this last submission was rejected as inadmissible (sec. 6).
III. Comments
[23] The decision of the Swiss Federal Tribunal is remarkable, indeed: The Federal Tribunal decided to entirely reject FIFA’s application as inadmissible – which means that it did not formally enter into a discussion on the substance of even 1 out of FIFA’s 59 setting aside arguments (in German legal language: «nicht eintreten»).
[24] First, the decision is a forceful reminder for all practitioners on how strictly the Swiss Federal Tribunal construes the onus of the setting aside applicant to clearly specify and specifically explain the relevant setting aside grounds. It also shows, at least between the lines, that the Swiss Federal Tribunal can be quite annoyed with unduly merits-focused, lengthy, or repetitive setting aside applications.
[25] Counsel who represent clients in Swiss setting aside proceedings regarding arbitral awards may thus want to consider the following:
[26] (i) The Swiss Federal Tribunal is not interested in the general merits of an arbitration case. Rather, it is interested in the question of whether or not the arbitral tribunal made a seriously enough mistake to justify the setting aside and sending back of the award to the arbitral tribunal. It goes from the present decision that the focus of any setting aside submission should thus be on the meticulous explanation of how precisely a specific part of the award infringes one of the specified setting aside grounds of the applicable arbitration law (domestic or international). This is a completely different persuasion exercise than in arbitration proceedings and comprehensive story telling in particular appears not to be effective in setting aside cases.
[27] (ii) The best one to three arguments may be more convincing than dozens of them. The present decision demonstrates in particular that the Federal Tribunal is not prepared to hear any kind of merits pleadings or standardized arguments.
[28] (iii) Expectation management vis-à-vis the client appears to be crucial as well: It is recommended to (a) inform the client on the relevant statistics (over 90% of the setting aside applications are unsuccessful; see Felix Dasser / Piotr Wojtowicz, Challenges of Swiss Arbitral Awards Updated Statistical Data as of 2017, ASA Bull. 2/2018, p. 394) and (b) anticipate potential straightforward language of the Federal Tribunal regarding its view on an application’s quality. Experience shows that this can happen to the most diligent lawyers.
[29] Second, from a legal perspective, the present decision confirms that the setting aside ground of Article 393 lit. e CCP is not a full-fledged appeal against any arbitrary decisions of arbitral tribunals. Rather, it is merely a means to challenge two narrow categories where an award is arbitrary in its result based on (i) misquotations or oversights of parts of the record or (ii) clear misapplication of the law. Arbitrary assessment of the evidence is not sufficient to request setting aside of an arbitral award (see also Simon Gabriel, Aktenwidrige Feststellung versus willkürliche Beweiswürdigung, in: dRSK, published on 9. September 2016).
[30] Arbitrators who sit in domestic arbitrations may want to note that the Federal Tribunal will not set aside any award based on (potentially wrong) conclusions from any documents, but rather merely from misquotations and oversights of the record. It thus appears that the parts of the award where procedural history, parties’ positions and content of documents is reflected are far more sensitive in terms of setting aside proceedings than the merits parts where the evidence is considered and conclusions from documents are explained.
[31] Finally, the following three side takeaways should also be noted:
[32] (i) The Swiss Federal Tribunal accepts ex parte application for interim measures in setting aside proceedings (Article 104 Federal Tribunal Act).
[33] (ii) The defendant in setting aside proceedings is not entitled to submit applications against the relevant award. Such applications would need to be submitted within the ordinary 30-days time limit from the (formal) receipt of the award for setting aside applications (for the definition of formal receipt, see Decision of Federal Tribunal 4A_40/2018 of 10 October 2018, sec. 2.2).
[34] (iii) While the cost decision is a procedural issue, any decision on the arbitrators’ fees and expenses is a substantive decision which can be separately challenged in domestic arbitration proceedings (Article 393 lit. f CCP; but not in international arbitrations). In this respect, it should not be omitted that these two issues base on different agreements: (a) The cost decision between the parties is based on the arbitration agreement. (b) The decision on the arbitrators’ fees and expenses is based on the arbitrator agreement (receptum arbitri).
Zitiervorschlag:
Simon Gabriel, 59 Setting Aside Arguments Rejected as Inadmissible, in: dRSK, publiziert am 14. Januar 2019