Publications

Simon Gabriel; in: dRSK, 07.01.2021
Com­men­tary on Swiss Fed­er­al Tri­bunal deci­sion 4A_124/2020 on November 13, 2020

The Swiss Fed­er­al Tri­bunal set aside an inter­im award which extend­ed the arbi­tra­tion agree­ment of a main con­tract to a sub­con­trac­tor for rea­sons of its inter­fer­ence in the con­clu­sion and per­for­mance of the main con­tract: The offi­cial­ly com­mu­ni­cat­ed posi­tion of the sub­con­trac­tor super­sedes actions which might oth­er­wise be suf­fi­cient for an exten­sion of an arbi­tra­tion agree­ment to a non-signatory.

I. Back­ground

[1] In ICC arbi­tra­tion pro­ceed­ings with seat in Gene­va, Switzer­land the con­trac­tor («Con­trac­tor») of a pow­er plant in Bangladesh sued its cus­tomers («Cus­tomers») for pay­ment of open invoic­es under the main con­tract («Main Con­tract»; sec. A.a, A.b, and B).

[2] In these arbi­tra­tion pro­ceed­ings, the Cus­tomers sub­mit­ted coun­ter­claims and a request for a third par­ty join­der of the Contractor’s sub­con­trac­tor who had deliv­ered the rel­e­vant engines for the pow­er plant («Sub­con­trac­tor») under a sep­a­rate sup­ply con­tract with the Con­trac­tor («Sub­con­tract»; sec. A.b and B).

[3] The Sub­con­trac­tor was not a sig­na­to­ry to the Main Con­tract which includ­ed the rel­e­vant arbi­tra­tion agree­ment. But it con­tributed to the Main Con­tract regard­ing the engines in var­i­ous ways (sec. A.c).

[4] It should also be not­ed that the Con­trac­tor and the Sub­con­trac­tor were at least at some point in time affil­i­at­ed, but at all times clear­ly dis­tin­guish­able so that there was no argu­ment of an undue mix­ing of spheres of com­pa­nies of the same group (sec. 3.2).

[5] Nev­er­the­less, the arbi­tral tri­bunal iden­ti­fied six indi­ca­tions in par­tic­u­lar which, in the arbi­tral tribunal’s view, were suf­fi­cient to extend the arbi­tra­tion agree­ment of the Main Con­tract to the Sub­con­trac­tor (sec. 3.2):

1. The Sub­con­trac­tor was present at the first meet­ing between the Con­trac­tor and the Customers.
2. The Sub­con­trac­tor deliv­ered an appen­dix to the Main Con­tract regard­ing the spec­i­fi­ca­tions of the engines and the test procedures.
3. Dur­ing the instal­la­tion of the pow­er plant, the Sub­con­trac­tor installed and mod­i­fied the engines on site.
4. The Sub­con­trac­tor direct­ly com­mu­ni­cat­ed with the Cus­tomers with respect to defects of the engines.
5. In an e‑mail (Exhib­it R‑22), the Con­trac­tor, appar­ent­ly after dis­cus­sions with the Sub­con­trac­tor, con­firmed that the Con­trac­tor would guar­an­tee the qual­i­ty of the engines togeth­er with the Subcontractor.
6. In a let­ter which was sent in the name of the Con­trac­tor and the Sub­con­trac­tor by a per­son that was appar­ent­ly an autho­rized rep­re­sen­ta­tive of both com­pa­nies at that time (Exhib­it R‑25), both com­pa­nies in essence promised to do what­ev­er was nec­es­sary to rem­e­dy any defects of the engines.

[6] Based on these indi­ca­tions, the arbi­tral tri­bunal decid­ed in an inter­im award that it had juris­dic­tion over the Sub­con­trac­tor as a result of the Subcontractor’s inter­fer­ence in the Main Con­tract (sec. 3.2).

[7] The Sub­con­trac­tor ini­ti­at­ed set­ting aside pro­ceed­ings against the inter­im award of the arbi­tral tri­bunal before the Swiss Fed­er­al Tri­bunal and chal­lenged the deci­sion on jurisdiction.

II. Deci­sion

[8] The Swiss Fed­er­al Tri­bunal first refers to its long­stand­ing jurispru­dence regard­ing the inter­pre­ta­tion of arbi­tra­tion agree­ments and exten­sion to non-sig­na­to­ries (sec. 3.1). It empha­sizes in this regard that the exten­sion of an arbi­tra­tion agree­ment to a non-sig­na­to­ry is indeed pos­si­ble under cer­tain con­di­tions, but a restric­tive inter­pre­ta­tion stan­dard applies when the exclu­sion of the ordi­nary state court juris­dic­tion is at issue (sec. 3.1.2).

[9] The Fed­er­al Tri­bunal fur­ther notes that the arbi­tral tri­bunal did not find an actu­al con­sent of the Cus­tomers and the Sub­con­trac­tor to arbi­trate, but rather decid­ed to extend the arbi­tra­tion agree­ment of the Main Agree­ment as a result of the inter­pre­ta­tion of the behav­iour of the Sub­con­trac­tor. There­fore, the ques­tion at issue is a legal ques­tion which the Swiss Fed­er­al Tri­bunal reviews with full degree of scruti­ny. In con­trast, the (fac­tu­al) find­ing of an actu­al con­sent to arbi­trate by an arbi­tral tri­bunal would be bind­ing for the Fed­er­al Tri­bunal and could not be reviewed from a fac­tu­al point of view (sec. 3.3).

[10] When analysing the indi­vid­ual indi­ca­tions men­tioned in the inter­im award, the Swiss Fed­er­al Tri­bunal empha­sizes that the Sub­con­trac­tor was express­ly men­tioned as sub­con­trac­tor for the engines of the rel­e­vant pow­er plant in the Main Agree­ment itself (in Annex 1 there­to). It could thus not be sur­pris­ing that the Sub­con­trac­tor in its func­tion as sub-sup­pli­er of engines, also con­tributed to the spec­i­fi­ca­tions of these engines in the Main Con­tract and attend­ed meet­ings with the Cus­tomers (sec. 3.3.2).

[11] The Cus­tomers must thus have been aware that any con­tri­bu­tions of the Sub­con­trac­tor to the Main Agree­ment were pre­cise­ly made in its func­tion of a sub­con­trac­tor. These con­tri­bu­tions could thus not have been rea­son­ably (mis)understood as inter­fer­ence in the Main Con­tract in the sense of an implic­it accep­tance of the Sub­con­trac­tor to be a par­ty there­to (sec. 3.3.2).

[12] The Fed­er­al Tri­bunal also under­lines that the evi­dent con­trac­tu­al func­tion of the Sub­con­trac­tor con­sti­tutes an impor­tant dif­fer­ence com­pared to BGE 129 III 727 where an indi­vid­ual inter­fered in a con­trac­tu­al per­for­mance with­out hav­ing a con­trac­tu­al­ly agreed func­tion in the rel­e­vant project (sec. 3.3.2).

[13] The Fed­er­al Tri­bunal final­ly also analy­ses the Exhibits R‑22 and R‑25 and con­cludes that the state­ments made there­in were not suf­fi­cient expres­sions of the Sub­con­trac­tor to agree to arbi­tra­tion in light of the restric­tive inter­pre­ta­tion stan­dard and the gen­er­al con­text of the case (sec. 3.3.2).

[14] For these rea­sons the Fed­er­al Tri­bunal set aside the deci­sion of the arbi­tral tri­bunal and referred the case back for a new decision.

III. Com­ments

[15] First, the present deci­sion con­cerns the exten­sion of an arbi­tra­tion agree­ment to a non-sig­na­to­ry with a spe­cial sta­tus in a project: name­ly, the sub­con­trac­tor of one of the par­ties to the rel­e­vant arbi­tra­tion agreement.

[16] The core state­ment of the deci­sion is: The offi­cial­ly com­mu­ni­cat­ed posi­tion of a par­ty in a project as sub­con­trac­tor super­sedes actions of this par­ty which might – oth­er­wise – be seen as suf­fi­cient for an exten­sion of an arbi­tra­tion agree­ment to a non-signatory.

[17] Specif­i­cal­ly, if a par­ty is referred to in a con­tract itself as sub­con­trac­tor to the main con­trac­tor, there is an assump­tion that this par­ty will act in the func­tion of a sub­con­trac­tor when it con­tributes to a project (rather than de fac­to accept­ing the posi­tion of anoth­er con­trac­tor under the main contract).

[18] In the author’s view, the present deci­sion reflects a rea­son­able approach which pro­vides legal cer­tain­ty for projects with numer­ous par­ties work­ing in dif­fer­ent functions.

[19] This clar­i­fi­ca­tion is also wel­come in view of expect­ed COVID-19 cas­es where typ­i­cal­ly sev­er­al con­trac­tors and sub­con­trac­tors or sup­pli­ers and sub-sup­pli­ers in sup­ply chains could be con­sid­ered as joint­ly respon­si­ble for delays or dis­rup­tions in projects.

[20] To the extent that these sub­con­trac­tors’ respec­tive posi­tions have been trans­par­ent­ly com­mu­ni­cat­ed in a project, it will be very dif­fi­cult to drag them into arbi­tra­tion pro­ceed­ings under an arbi­tra­tion agree­ment which they have not signed.

[21] Sec­ond, the present deci­sion illus­trates how del­i­cate and still how impor­tant the legal dis­tinc­tion between (i) an actu­al con­sent to an arbi­tra­tion agree­ment (i.e. a fac­tu­al find­ing) and (ii) the inter­pre­ta­tion of an arbi­tra­tion agree­ment or the behav­iour of a par­ty (i.e. a legal inter­pre­ta­tion) can be: Only the sec­ond con­clu­sion (inter­pre­ta­tion) can be reviewed by the Fed­er­al Tri­bunal in set­ting aside proceedings

[22] Had the arbi­tral tri­bunal found (after hear­ing wit­ness­es) that e.g. Exhib­it R‑25 reflect­ed the actu­al inten­tion of the Sub­con­trac­tor to joint­ly assume cer­tain oblig­a­tions under the Main Con­tract togeth­er with the Con­trac­tor and thus also to accept the arbi­tra­tion agree­ment in the Main Con­tract, this find­ing could not have been reviewed and over­turned by the Fed­er­al Tribunal.

[23] Con­se­quent­ly, it is of cru­cial impor­tance for arbi­tral tri­bunals to clear­ly dis­tin­guish between the fac­tu­al find­ing of an actu­al con­sent of par­ties to arbi­trate and the legal inter­pre­ta­tion of an arbi­tra­tion agree­ment or the behav­iour of a par­ty in this regard.