Simon Gabriel & Katal­in Meier, 
in: Indi­an Jour­nal of Arbi­tra­tion Law (IJAL), Vol­ume 5, Issue 2, 2017, p. 55 et seqq.

Abstract

Set-off sit­u­a­tions are fre­quent in inter­na­tion­al arbi­tra­tion and are treat­ed dif­fer­ent­ly in com­mon law and civ­il law juris­dic­tions. The present arti­cle analy­ses set-off from a Swiss civ­il law per­spec­tive and offers rec­om­men­da­tions to inter­na­tion­al arbi­tra­tion prac­ti­tion­ers. The key find­ings are: (i) Set-off dec­la­ra­tions may lead to the irrev­o­ca­ble acknowl­edg­ment of a coun­ter­vail­ing claim. To avoid such a legal con­se­quence, set-off must only be declared as defense in legal pro­ceed­ings togeth­er with an explic­it state­ment that it is only made as a sub­sidiary sub­mis­sion. (ii) The high­est Swiss Court acknowl­edges a grow­ing trend in inter­na­tion­al arbi­tra­tion to gen­er­al­ly accept arbi­tral juris­dic­tion for set-off defens­es. (iii) It appears to be rea­son­able to ask from a respon­dent, who relies on pro­ce­dur­al advan­tages in con­nec­tion with a sub­sidiary set-off defense, to com­ply with the applic­a­ble pro­ce­dur­al require­ments (e.g.to pay an advance on costs).
 

I. The Problem

Set-off defens­es are a fre­quent issue in inter­na­tion­al arbi­tra­tion. Some aspects con­cern­ing such defens­es, such as the issue of juris­dic­tion over set-off defens­es, have been much dis­cussed in legal lit­er­a­ture.¹ Oth­er aspects, such as the con­se­quence of fail­ure to pay an advance on costs regard­ing set-off defens­es, have remained more or less untouched by com­men­ta­tors. How­ev­er, oth­er prob­lems are scarce­ly con­sid­ered in the dis­cus­sion on the pre­vi­ous­ly men­tioned issues: for instance, whether it is per­mis­si­ble to make a dec­la­ra­tion of set-off on the con­di­tion that the main claim is jus­ti­fied in inter­na­tion­al arbi­tra­tion pro­ceed­ings [“sub­sidiary set-off” or in Ger­man ​“Even­tu­alver­rech­nung”].

The fol­low­ing sce­nario is derived from an actu­al case in which the first author was involved and illus­trates the issues that may arise in set-off dis­putes:²

A Greek Claimant sued an Aus­tri­an Respon­dent under the ICC Rules of Arbi­tra­tion 2012 [the ​“ICC Rules”] with the place of arbi­tra­tion in Zurich (Switzer­land). Swiss sub­stan­tive law was applic­a­ble to the mer­its of the case.

The Claimant request­ed to receive a pay­ment from the respon­dent in the amount of USD 3 mil­lion. The Claimant paid its share of the advance on costs under the ICC Rules and, lat­er, the Claimant also sub­sti­tut­ed the Respondent’s share of the advance on costs.

The Respon­dent request­ed that the claim should be dis­missed. As a sub­sidiary posi­tion,³ the Respon­dent sub­mit­ted that the claim should be set off against the Respondent’s own alleged coun­ter­vail­ing claim against the Claimant in the amount of USD 4 million.

At some point, it appeared that the set-off claim would require the arbi­tral tri­bunal to con­sid­er ​“addi­tion­al mat­ters” in the sense of Arti­cle 36 para­graph 7 of the ICC Rules. The ICC Sec­re­tari­at thus increased the glob­al advance on costs. The Claimant imme­di­ate­ly request­ed sep­a­rate advances to avoid its pre-financ­ing of the Respondent’s set-off defense. The Respon­dent object­ed and argued that, irre­spec­tive of any advance pay­ments, the arbi­tral tri­bunal was legal­ly bound to con­sid­er its set-off defense as a mat­ter of Swiss sub­stan­tive law. The Claimant, on the oth­er hand, was of the view that in the absence of the (sep­a­rate) advance pay­ment by the Respon­dent, the tri­bunal should not, as a mat­ter of pro­ce­dur­al law, con­sid­er the set-off defense, but rather lim­it its juris­dic­tion and only con­sid­er the main claim.

It was undis­put­ed that the Respon­dent had declared its uncon­di­tion­al set-off vis-à-vis the Claimant sev­er­al months before the arbi­tra­tion pro­ceed­ings started. 

Vari­a­tion: The Respon­dent had not declared its uncon­di­tion­al set-off before the pro­ceed­ings had begun, but rather mere­ly request­ed, dur­ing the pro­ceed­ings, that the tri­bunal should set off its coun­ter­vail­ing claim only if and to the extent that the main claim was found to be jus­ti­fied (in Ger­man: ​“Even­tu­alver­rech­nung”).

This case exam­ple illus­trates the prin­ci­pal ques­tions that arise in set-off situations:

1. What is the nature of a set-off defense? To what extent is it a mat­ter of pro­ce­dur­al law and to what extent a mat­ter of sub­stan­tive law? The fol­low­ing analy­sis will demon­strate that there are fun­da­men­tal dif­fer­ences between com­mon law and civ­il law sys­tems in this respect which prac­ti­tion­ers should be aware of.
2. When fur­ther analysing the prob­lem from a civ­il law per­spec­tive, the ques­tion aris­es as to whether or not set-off may be declared in a sub­sidiary (and thus con­di­tion­al) man­ner dur­ing arbi­tra­tion pro­ceed­ings. The answer to this ques­tion is not obvi­ous since set-off is usu­al­ly a sub­stan­tive legal con­cept in civ­il law juris­dic­tions, which must be declared in an uncon­di­tion­al man­ner.⁴
3. The issue as to what extent an arbi­tral tri­bunal has juris­dic­tion and there­fore, has author­i­ty to pre­side over a set-off claim is a typ­i­cal prob­lem and shall also be briefly dis­cussed in the fol­low­ing analysis.
4. Based on the analy­sis of the afore­men­tioned issues, the present arti­cle pro­pos­es an approach to resolve the prob­lem of whether or not an arbi­tral tri­bunal needs to decide a set-off defense, if the (sep­a­rate) advance for such defense was not paid.
5. Final­ly, the authors pro­pose prac­ti­cal rec­om­men­da­tions for arbi­tra­tors and coun­sel who have to deal with set-off issues in inter­na­tion­al arbi­tra­tion pro­ceed­ings based on a socalled ​“Con­di­tion­al­i­ty Test”.

II. Analy­sis

A. Nature of Set-Off: The Civ­il Law Approach from a Swiss Legal Perspective

i. The Ratio Legis of the Set-Off and the Civ­il Law Approach in Con­trast to the Com­mon Law Approach

The idea behind the legal con­cept of set-off is straight­for­ward: where two par­ties owe each oth­er sums of mon­ey⁵ or per­for­mance of iden­ti­cal oblig­a­tions (pro­vid­ed that both claims are due), they do not need to per­form a spe­cif­ic exchange of these sums or goods. Instead, both or at least one of the oblig­a­tions become extinct (through court order, dec­la­ra­tion or ipso iure) which means that noth­ing or just the bal­ance is owed by one of the parties.

In com­mon law juris­dic­tions, two types of set-off exist: (i) the so-called ​“set-off at law”, which is a pro­ce­dur­al defense that aims to take account of the bal­ance due between the par­ties⁶ and (ii) the so-called ​“equi­table set-off” (also referred to as ​“trans­ac­tion set-off”), which is a sub­stan­tive defense and may be invoked with­out the need of any order from an arbi­tral tri­bunal or a state court judge.⁷

The con­cepts of set-off at law and equi­table set-off are not only dif­fer­ent in their legal nature, but also have dif­fer­ent legal pre­req­ui­sites. The present arti­cle does not aim to inves­ti­gate into the spe­cif­ic char­ac­ter­is­tics of these com­mon law set-off instru­ments, but will rather con­cen­trate on the civ­il law per­spec­tive from a Swiss point of view.⁸

In most civ­il law juris­dic­tions, set-off is pri­mar­i­ly gov­erned by the sub­stan­tive law. It is con­sid­ered as a means to uni­lat­er­al­ly extin­guish sub­stan­tive oblig­a­tions that exist between the par­ties.⁹ At the same time, it must be not­ed that the con­cept of set-off has devel­oped slight­ly dif­fer­ent­ly in var­i­ous civ­il law juris­dic­tions. While in Italy, Bel­gium and Spain the effects of setoff emerge ipso jure, in Switzer­land, Ger­many, the Nether­lands, Japan, Korea and the Scan­di­na­vian coun­tries, set-off must be declared by one of the par­ties.¹⁰

There­fore, as a pre­lim­i­nary con­clu­sion, it can be not­ed that legal con­cepts dif­fer when it comes to set-off. While the ratio legis remains basi­cal­ly the same, the legal nature and the pre­req­ui­sites may vary to a con­sid­er­able extent. This is the rea­son why in inter­na­tion­al arbi­tra­tion pro­ceed­ings, where arbi­tra­tors and legal coun­sel may come from dif­fer­ent legal back­grounds, set-off sit­u­a­tions often lead to com­plex legal dis­cus­sions and some­times even to misunderstandings.

ii. Set-Off under Swiss Law is Con­sid­ered as Acknowl­edg­ment of the Main Claim

Pur­suant to Swiss sub­stan­tive law, set-off is only legal­ly avail­able if two coun­ter­vail­ing claims between the same par­ties exist.¹¹ The require­ment that both the main claim and the coun­ter­vail­ing set-off claim must exist¹² is of deci­sive importance.

It is thus gen­er­al­ly accept­ed that any (uncon­di­tion­al) sub­stan­tive set-off dec­la­ra­tion entails an acknowl­edg­ment of the main claim by the par­ty who declares set-off.¹³ This seems to be the pre­vail­ing legal opin­ion in oth­er civ­il law juris­dic­tions also, as, for exam­ple, in Aus­tria.¹⁴

This legal par­tic­u­lar­i­ty has to be kept in mind when fur­ther analysing the ques­tions at issue.

iii. Dis­tinc­tion between Set-Off Defense and Counterclaim

When set-off is declared in legal pro­ceed­ings, it must be strict­ly dis­tin­guished from counterclaims.

Set-off shows, irre­spec­tive of whether it is qual­i­fied as hav­ing sub­stan­tive or pro­ce­dur­al nature, a mere­ly defen­sive char­ac­ter. If set-off is declared and all the require­ments are met, the extinc­tion of the main claim and the coun­ter­vail­ing claim results to the extent that they can­cel each oth­er out.¹⁵ The coun­ter­vail­ing set-off claim only oper­ates up to the amount of the main claim. It can­not have any effects that go beyond the main claim as a mat­ter of law.¹⁶

In con­trast there­to, the coun­ter­claim is an offen­sive action to pos­i­tive­ly attack the coun­ter­par­ty. It rep­re­sents an inde­pen­dent, sub­stan­tive claim against the coun­ter­par­ty, while the main claim remains dis­put­ed.¹⁷

iv. The Law Applic­a­ble to Set-Off Claims from a Swiss Civ­il Law Perspective

In order to define the nature and the pre­req­ui­sites of set-off in arbi­tra­tion pro­ceed­ings, the applic­a­ble law must be estab­lished. In this respect, the law applic­a­ble to the (pro­ce­dur­al) admis­si­bil­i­ty of set-off on one hand, and the law applic­a­ble to the sub­stance of the set-off claim on the oth­er, must be dis­tin­guished.¹⁸

The pro­ce­dur­al admis­si­bil­i­ty of the set-off defense is gov­erned by the applic­a­ble lex arbi­tri,¹⁹ i.e. the pro­ce­dur­al arbi­tra­tion law at the seat²⁰ of the arbi­tra­tion. With­in the bound­aries of the manda­to­ry pro­vi­sions of the applic­a­ble lex arbi­tri, agree­ments of the par­ties (includ­ing ref­er­ences to arbi­tra­tion rules) may also be rel­e­vant in this respect.²¹

With regard to the ques­tion of which sub­stan­tive law is applic­a­ble to set-off in inter­na­tion­al arbi­tra­tion pro­ceed­ings with the seat in Switzer­land, the arbi­tral tri­bunal has to apply the law cho­sen by the par­ties (Arti­cle 187 para­graph 1 PILS). If there is no such choice of law, the law to which the case has the clos­est con­nec­tion must be applied (Arti­cle 187 para­graph 1 PILS). While arbi­tra­tors have con­sid­er­able dis­cre­tion²² to decide which law should be applied to set-off, they might be inspired (amongst oth­er sources) by the clas­si­cal con­flict of legal pro­vi­sions pro­vid­ed for in the Swiss PILS used in pro­ceed­ings before state courts.²³

There­by, arbi­tra­tors will find that the Swiss leg­is­la­tor made an express choice as to which law should be applic­a­ble to an inter­na­tion­al set-off defense before state courts. Accord­ing to Arti­cle 148 para­graph 2 of PILS, in the absence of any choice by the par­ties, the law applic­a­ble to the sub­stance of an inter­na­tion­al set-off is the law that gov­erns the claim against which set-off is assert­ed (i.e. the main claim). For exam­ple, if Swiss law applied to the main claim of Claimant and Respon­dent assert­ed a coun­ter­vail­ing claim for the pur­pose of set-off, Swiss law would also apply to the set-off claim.²⁴ How­ev­er, as in inter­na­tion­al prac­tice, most set-off claims are gov­erned by an express choice of law clause; the men­tioned con­flict of law con­cept is hard­ly ever applied in inter­na­tion­al arbi­tra­tion proceedings.

In the fol­low­ing, the authors will assume that Swiss lex arbi­tri and Swiss sub­stan­tive law apply, unless where stat­ed otherwise.

B. Sub­sidiary Set-Off Defens­es (“Even­tu­alver­rech­nung”) in Legal Proceedings

i. Start­ing Posi­tion under Swiss law

In Switzer­land, as a typ­i­cal civ­il law juris­dic­tion, the legal con­cept of set-off is gov­erned by sub­stan­tive law.²⁵ It is pro­vid­ed for in Arti­cles 120 – 126 of the Swiss Code of Oblig­a­tions [“CO”].

Arti­cle 120 para­graphs 1 and 2 of the CO provide:

Where two per­sons owe each oth­er sums of mon­ey or per­for­mance of iden­ti­cal oblig­a­tions, and pro­vid­ed that both claims have fall­en due, each par­ty may set off his debt against his claim.

The debtor may assert his right of set-off even if the coun­ter­vail­ing claim is con­test­ed.²⁶

In addi­tion, set-off has to be declared to the coun­ter­par­ty (Arti­cle 124 para­graph 1 CO):

A set-off takes place only if the debtor noti­fies the cred­i­tor of his inten­tion to exer­cise his right of set-off.²⁷

Accord­ing to Arti­cle 124 para­graph 2 of the CO, once the debtor has declared set-off, ​“to the extent that they can­cel each oth­er out, the claim and coun­ter­vail­ing claim are deemed to have been sat­is­fied as of the time they first became sus­cep­ti­ble to set-off”.²⁸

Hence, if the require­ments for set-off are met and set-off is prop­er­ly declared, the main claim and the coun­ter­vail­ing claim are extinct to the extent that they can­cel each oth­er out as a mat­ter of sub­stan­tive law.²⁹

It should fur­ther be not­ed that pur­suant to Swiss law, the set-off dec­la­ra­tion is a so-called trans­for­ma­tion right, i.e. a right to trans­form a legal rela­tion­ship in a uni­lat­er­al and legal­ly bind­ing man­ner, with­out the con­sent of the coun­ter­par­ty (“Gestal­tungsrecht”; ​“droit for­ma­teur”).³⁰ This is an excep­tion to the gen­er­al prin­ci­ple of pacta sunt ser­van­da, which states that all par­ties to an agree­ment must con­sent to trans­for­ma­tion of their legal rela­tion­ship in a legal­ly bind­ing man­ner.³¹

The trans­for­ma­tion dec­la­ra­tion, by which the trans­for­ma­tion right is uni­lat­er­al­ly exer­cised, must be uncon­di­tion­al, irrev­o­ca­ble and is sub­ject to receipt by the coun­ter­par­ty.³² The legal rea­son for these lim­i­ta­tions is found in the need to pro­tect the coun­ter­par­ty which should (at least) know with cer­tain­ty if, when and how a legal rela­tion­ship has been uni­lat­er­al­ly trans­formed.³³

As already men­tioned above, under Swiss law, an uncon­di­tion­al sub­stan­tive set-off dec­la­ra­tion entails an acknowl­edg­ment of the main claim by the par­ty declar­ing such set-off (see above sec­tion II.A.ii).

These legal par­tic­u­lar­i­ties of sub­stan­tive set-off, which are trig­gered by its qual­i­fi­ca­tion as a trans­for­ma­tion right, do not seem to fit when a set-off is declared in legal pro­ceed­ings. In legal pro­ceed­ings, the respon­dent typ­i­cal­ly does not want to acknowl­edge the main claim in the first place. The respon­dent is only pre­pared to accept the acknowl­edg­ing effect of a set-off dec­la­ra­tion (as described above) if the main claim is con­sid­ered as jus­ti­fied by the arbi­tral tri­bunal. Con­se­quent­ly, in legal pro­ceed­ings, the respon­dent has often a strong inter­est in assert­ing set-off only under the con­di­tion that the arbi­tral tri­bunal finds the main claim to be justified.

Two ques­tions arise against this back­ground: First, is it pos­si­ble to sub­mit con­di­tion­al set-off dec­la­ra­tions in Swiss court pro­ceed­ings (irre­spec­tive of the nature of set-off as an uncon­di­tion­al trans­for­ma­tion right)? Sec­ond, if so, would such a rule also apply to inter­na­tion­al arbi­tra­tion pro­ceed­ings? These ques­tions are addressed forthwith.

ii. State of Discussion

Accord­ing to long-stand­ing prac­tice of the Swiss Fed­er­al Tri­bunal, set-off can be assert­ed as a sub­sidiary (and thus con­di­tion­al) sub­mis­sion in state court pro­ceed­ings:³⁴

One has to dis­tin­guish between the set-off dec­la­ra­tion (Ver­rech­nungserk­lärung), which is addressed to the cred­i­tor and which leads to the extinc­tion of the claims that have been set off accord­ing to Art.124 para. 2 CO, and the set-off defense (Ver­rech­nung­sein­wen­dung) which is addressed to the judge in order to intro­duce the ques­tion of setoff in the pro­ceed­ings (on this dis­tinc­tion, see Vik­tor Aepli, Com­men­tary of Berne, sec. 117 of the pre­lim­i­nary remarks on Art. 120 – 126 CO). These two man­i­fes­ta­tions of will can, but do not have to be simul­ta­ne­ous. The admis­si­bil­i­ty of the first man­i­fes­ta­tion aris­es out of sub­stan­tive law, that of the sec­ond man­i­fes­ta­tion out of pro­ce­dur­al law. […] This set-off defense can also be sub­mit­ted as a mere­ly sub­sidiary defense. This is the case when the defen­dant con­tests the main claim and for the case that all his argu­ments are going to be dis­missed, he sub­mits sub­sidiar­i­ly either a pre­vi­ous­ly made set-off dec­la­ra­tion, or sub­mits such a dec­la­ra­tion in the pro­ceed­ings as an addi­tion­al legal rem­e­dy. (empha­sis added)

The opin­ion of the Swiss Fed­er­al Tri­bunal on the admis­si­bil­i­ty of a sub­sidiary set-off defense in state court pro­ceed­ings appears to be wide­ly undis­put­ed among Swiss legal schol­ars.³⁵

It is espe­cial­ly also acknowl­edged that (i) the set-off dec­la­ra­tion as a right to extin­guish the main and coun­ter­vail­ing claim (“Ver­rech­nungserk­lärung”) and (ii) the set-off defense in legal pro­ceed­ings (“recht­saufhebende Ein­wen­dung”) are two dif­fer­ent man­i­fes­ta­tions of will which must be dis­tin­guished.³⁶

The same is true, in prin­ci­ple, for the laws of oth­er civ­il law juris­dic­tions, such as Ger­many³⁷ and Aus­tria.³⁸

To the best of the authors’ knowl­edge, there has been no spe­cif­ic legal lit­er­a­ture on whether or not the opin­ion of the Swiss Fed­er­al Tri­bunal also applies to Swiss inter­na­tion­al arbi­tra­tion pro­ceed­ings.³⁹

iii. Analysis

Con­sid­er­ing the men­tioned state of the dis­cus­sion, two issues require fur­ther analy­sis: First, is the legal rea­son­ing of the Swiss Fed­er­al Tri­bunal for state court pro­ceed­ings also valid for inter­na­tion­al arbi­tra­tion pro­ceed­ings? Sec­ond, is the legal rea­son­ing of the Swiss Fed­er­al Tri­bunal entire­ly consistent? 

In the view of the authors, the first ques­tion must be answered in the affir­ma­tive. Sub­sidiary setoff defens­es should also be admit­ted in Swiss (and applic­a­ble mutatis mutan­dis in oth­er) inter­na­tion­al arbi­tra­tion pro­ceed­ings, using the con­cept devel­oped by the Swiss Fed­er­al Tri­bunal by anal­o­gy, for the fol­low­ing rea­sons: First, the Swiss lex arbi­tri for inter­na­tion­al arbi­tra­tion pro­ceed­ings does not pro­vide for any diver­gent rule that would jus­ti­fy any sep­a­rate approach for arbi­tral pro­ceed­ings. Sec­ond, the respon­dents in arbi­tral pro­ceed­ings have the very same needs and inter­ests in sub­mit­ting sub­sidiary set-off defens­es as in state court pro­ceed­ings.⁴⁰ Third, state courts and arbi­tral tri­bunals are both author­i­ta­tive deci­sion mak­ing bod­ies that can be addressed by the par­ties. Hence, the authors are of the view that a sub­sidiary ​“set-off defense (Ver­rech­nung­sein­wen­dung) which is addressed to the judge​”⁴¹ must also be admis­si­ble in inter­na­tion­al (and domes­tic) arbi­tra­tion proceedings.

With respect to the sec­ond ques­tion, the authors note that the Swiss Fed­er­al Tri­bunal states: ​“This set-off defense can also be sub­mit­ted as a mere­ly sub­sidiary defense. This is the case when the defen­dant con­tests the main claim and for the case that all his argu­ments are going to be dis­missed, he sub­mits sub­sidiar­i­ly either a pre­vi­ous­ly made set-off dec­la­ra­tion, or sub­mits such a dec­la­ra­tion in the pro­ceed­ings as an addi­tion­al legal rem­e­dy.”⁴² It is rea­son­able to say that it must be admis­si­ble for a respon­dent to declare sub­sidiary and thus con­di­tion­al set-off defense vis-à-vis the arbi­tra­tor (or judge) in legal pro­ceed­ings. Oth­er­wise, a respon­dent would, in a first pro­ce­dure, have to con­test the main claim and if it is not suc­cess­ful, it would, in a sec­ond pro­ce­dure, have to claim for its coun­ter­vail­ing (set-off) claim. This is not a cost-effec­tive solu­tion and the legal rea­son­ing of the Swiss Fed­er­al Tri­bunal right­ly appears to take this prob­lem into account.

At the same time, the Swiss Fed­er­al Tri­bunal also refers to the sit­u­a­tion where ​“a pre­vi­ous­ly made set-off dec­la­ra­tion” exists, when address­ing the pos­si­bil­i­ty of sub­sidiary set-off defens­es.⁴³ This dis­tinc­tion of the Swiss Fed­er­al Tri­bunal between a set-off dec­la­ra­tion made before the ini­ti­a­tion of the pro­ceed­ings on one hand and a pro­ce­dur­al set-off defense only raised in the pro­ceed­ings on the oth­er, is per­fect­ly accu­rate from a pro­ce­dur­al point of view.

The authors under­stand the dis­tinc­tion of the Swiss Fed­er­al Tri­bunal as fol­lows: in a sit­u­a­tion where a set-off has been declared before the ini­ti­a­tion of the pro­ceed­ings, the respon­dent will (if the set-off is suc­cess­ful), most prob­a­bly lose its prin­ci­pal posi­tion from a sub­stan­tive point of view because any uncon­di­tion­al set-off, which was declared before the ini­ti­a­tion of legal pro­ceed­ings, implies acknowl­edg­ment of the coun­ter­vail­ing claim (i.e. the main claim in the legal pro­ceed­ings).⁴⁴

In the authors’ opin­ion, the dis­tinc­tion of the Swiss Fed­er­al Tri­bunal can­not mean that the uncon­di­tion­al char­ac­ter of a set-off declared before the ini­ti­a­tion of the pro­ceed­ings, could be reversed in legal pro­ceed­ings. This would be in bla­tant con­tra­dic­tion to the firm prin­ci­ples of Swiss law regard­ing trans­for­ma­tion rights.⁴⁵

The authors fur­ther under­stand the Swiss Fed­er­al Tribunal’s find­ings in the way that the sub­sidiary set-off defense is only declared vis-à-vis the judge or the arbi­tra­tor, but not vis-à-vis the coun­ter­par­ty. Only once the main claim is found to be jus­ti­fied and the sub­sidiary set-off defense is effec­tive­ly con­sid­ered by the judge or the arbi­tra­tor, it is also deemed as declared vis-àvis the coun­ter­par­ty. Fol­low­ing this under­stand­ing, the authors con­clude that the Swiss Fed­er­al Tribunal’s argu­men­ta­tion, which jus­ti­fies sub­sidiary set-off defens­es in legal pro­ceed­ings, is con­sis­tent in the above dis­cussed manner.

iv. Conclusion

A clear dis­tinc­tion must be drawn between (i) sub­stan­tive set-off dec­la­ra­tions addressed to the coun­ter­par­ty before the ini­ti­a­tion of the pro­ceed­ings and (ii) pro­ce­dur­al set-off defens­es addressed to the judge or arbi­tral tri­bunal. The for­mer are uncon­di­tion­al and imply an acknowl­edg­ment of the main claim as a mat­ter of sub­stan­tive law. The lat­ter may be sub­mit­ted as a sub­sidiary defense (and thus sub­ject to the find­ings of the deci­sion mak­er on the main claim) in state courts and/​or arbi­tra­tion proceedings.

How­ev­er, in sit­u­a­tions in which an uncon­di­tion­al set-off dec­la­ra­tion was already expressed vis-àvis the coun­ter­par­ty before the ini­ti­a­tion of the pro­ceed­ings, the sub­sidiary pro­ce­dur­al sub­mis­sion of a set-off defense does not affect (or even reverse) the uncon­di­tion­al effect of the acknowl­edg­ment of the main claim pur­suant to the sub­stan­tive law. 

C. Arbi­tral Juris­dic­tion for Set-Off Claims

i. Start­ing Position

The arbi­tra­tion agree­ment is the foun­da­tion of the arbi­tra­tors’ juris­dic­tion.⁴⁶

Accord­ing to the Swiss Tri­bunal Fed­er­al, the essen­tialia negotii of the arbi­tra­tion agree­ment are as fol­lows:⁴⁷

An arbi­tra­tion clause is an agree­ment by which two deter­mined or deter­minable par­ties agree to sub­mit one or sev­er­al exist­ing or future dis­putes to the bind­ing juris­dic­tion of an arbi­tral tri­bunal to the exclu­sion of the orig­i­nal state juris­dic­tion, on the basis of a legal order deter­mined direct­ly or indi­rect­ly (BGE 130 III 66 at 3.1 p. 70). It is deci­sive that the inten­tion of the par­ties should be expressed to have an arbi­tral tri­bunal, i.e. not a state court, decide cer­tain dis­putes (BGE 129 III 675 at 2.3 p. 679 ff).

It fol­lows that the gen­er­al rule for com­mer­cial arbi­tra­tion goes: No arbi­tra­tion agree­ment – no arbi­tral juris­dic­tion.⁴⁸

At the same time, the Swiss Fed­er­al Tri­bunal also devel­oped the prin­ci­ple of ​“le juge de l’action est le juge de l’exception” (in Eng­lish: the judge of the main claim shall also be the judge of any objec­tions there­to). Accord­ing to this con­cen­tra­tion prin­ci­ple, the judi­cial body hav­ing juris­dic­tion over the main claim also has juris­dic­tion over the objec­tions and defens­es against such claim.⁴⁹

The two afore­men­tioned fun­da­men­tal prin­ci­ples stat­ed by the Swiss Fed­er­al Tri­bunal are in con­flict with each oth­er: The require­ment of a clear inten­tion by the par­ties to refer a dis­pute to arbi­tra­tion may fre­quent­ly con­flict with the prin­ci­ple of ​“le juge de l’action est le juge de l’exception”, name­ly, in all cas­es where set-off defens­es are not cov­ered by the same or a sim­i­lar arbi­tra­tion agreement.

ii. State of Discussion

As already point­ed out at the out­set, there has been a live­ly dis­cus­sion on whether or not an arbi­tral tri­bunal has juris­dic­tion over a set-off claim, although such claim does not fall with­in the scope of the arbi­tra­tion agree­ment (or an arbi­tra­tion agree­ment with sim­i­lar con­tent as the arbi­tra­tion agree­ment cov­er­ing the main claim).

When approach­ing the issue from a Swiss legal per­spec­tive, it is first not­ed that Chap­ter 12 of the Swiss PILS lacks any pro­vi­sions address­ing the issue of juris­dic­tion of the arbi­tral tri­bunal over set-off claims.⁵⁰ Con­se­quent­ly, arbi­tral tri­bunals in inter­na­tion­al arbi­tra­tion pro­ceed­ings have to exam­ine whether the par­ties explic­it­ly agreed on this issue, be it direct­ly by a pro­vi­sion in the arbi­tra­tion agree­ment or by ref­er­ence to insti­tu­tion­al arbi­tra­tion rules.⁵¹ In gen­er­al, there are three types of insti­tu­tion­al arbi­tra­tion rules:⁵²

rules restrict­ing set-off to cross-claims cov­ered by the same arbi­tra­tion agree­ment, rules con­fer­ring juris­dic­tion upon the arbi­tral tri­bunal to decide on set-off claims irre­spec­tive of juris­dic­tion­al pro­vi­sos of the cross-claim and rules not address­ing set-off.

Arti­cle 3 para­graph 2 of the 2009 AAA/ICDR Inter­na­tion­al Arbi­tra­tion Rules, which restricts the arbi­tral tribunal’s juris­dic­tion over set-off claims, falls under the first type of rule.⁵³ Arti­cle 21 para­graph 5 of the 2012 Swiss Rules fol­lows the lib­er­al approach and con­fers juris­dic­tion upon the arbi­tral tri­bunal to decide on set-off claims and falls under the sec­ond type.⁵⁴ How­ev­er, the major­i­ty of the insti­tu­tion­al arbi­tra­tion rules fall under the third type of rules: the 2010 UNCI­TRAL Arbi­tra­tion Rules,⁵⁵ the 2013 VIAC Rules of Arbi­tra­tion,⁵⁶ the 2014 ICC Rules of Arbi­tra­tion,⁵⁷ the 1998 DIS Rules,⁵⁸ the 2014 LCIA Arbi­tra­tion Rules,⁵⁹ or the 2016 ICA Rules of Arbi­tra­tion,⁶⁰ to name just a few. All these rules do not give an answer as to whether the arbi­tral tri­bunal has juris­dic­tion over set-off claims, if they are not gov­erned by the same arbi­tra­tion agree­ment as the main claim.

Thus, if nei­ther an express agree­ment by the par­ties, nor ref­er­ence to arbi­tra­tion rules con­tain rel­e­vant pro­vi­sions to resolve the issue, the arbi­tral tri­bunal must bal­ance the prin­ci­ples of (i) clear inten­tion of the par­ties to refer a dis­pute to arbi­tra­tion and (ii) ​“le juge de l’action est le juge de l’exception”.⁶¹

When con­sid­er­ing the ques­tion of juris­dic­tion over set-off claims, arbi­tral tri­bunals can rely on a great deal of schol­ar­ly writ­ing that dates before 2011.⁶² How­ev­er, the legal schol­ars at that time focused main­ly on the sub­stan­tive and pro­ce­dur­al aspects of set-off, where­as the con­cept of ​“le juge de l’action est le juge de l’exception” has hard­ly been dis­cussed in this con­text.⁶³

In the view of the authors, the legal sit­u­a­tion (at least in Switzer­land) has recent­ly devel­oped and author­i­ta­tive sources of inspi­ra­tion are avail­able that should be con­sid­ered; name­ly, the Swiss leg­is­la­tor made an express choice in 2011 regard­ing domes­tic arbi­tra­tion, and also the Swiss Fed­er­al Tri­bunal made a state­ment in 2011:

First, before the Swiss Code of Civ­il Pro­ce­dure [“CCP”] was intro­duced in 2011, the so-called Con­cor­dat on Arbi­tra­tion [“Con­cor­dat”] had gov­erned Swiss domes­tic arbi­tra­tion pro­ceed­ings. Arti­cle 29 of the Con­cor­dat pro­vid­ed that arbi­tral tri­bunals could only hear set-off defens­es if all claims con­cerned were cov­ered by arbi­tra­tion agree­ments both hav­ing sim­i­lar con­tent.⁶⁴ Hence, the Con­cor­dat favored the prin­ci­ple that only claims cov­ered by arbi­tra­tion agree­ments could be admit­ted by arbi­tral tri­bunals. How­ev­er, since 2011, the CCP has actu­al­ly inversed the bal­ance of the two prin­ci­ples: Arti­cle 377 CCP pro­vides that the ​“arbi­tral tri­bunal has juris­dic­tion to decide the setoff defence, even if the claim to be set off does not fall with­in the scope of the arbi­tra­tion agree­ment or is sub­ject to anoth­er arbi­tra­tion agree­ment or an agree­ment on juris­dic­tion”.⁶⁵ Hence, the Swiss leg­is­la­tor has explic­it­ly cho­sen to favor the prin­ci­ple of ​“le juge de l’action est le juge de l’exception” in set-off situations.

Sec­ond, recent leg­is­la­tion of the Swiss Fed­er­al Tri­bunal sug­gests a sim­i­lar approach: The high­est Swiss judges held in an inter­na­tion­al arbi­tra­tion mat­ter in an obiter dic­tum that the prin­ci­ple of ​“le juge de l’action est le juge de l’exception” is increas­ing­ly also accept­ed in con­nec­tion with set-off defens­es in inter­na­tion­al arbi­tra­tion.⁶⁶

Based on these legal devel­op­ments, recent Swiss pub­li­ca­tions right­ly con­clude that arbi­tral tri­bunals have juris­dic­tion over any set-off defens­es that lead – if suc­cess­ful – to the sub­stan­tive extinc­tion of the main claim.⁶⁷

iii. Conclusion

Arbi­tral juris­dic­tion for set-off claims which lead to the sub­stan­tive extinc­tion of the main claim applies as a rule based on the prin­ci­ple ​“le juge de l’action est le juge de l’exception”.⁶⁸ How­ev­er, arbi­tral juris­dic­tion for set-off claims which do not lead to the sub­stan­tive extinc­tion of the main claim most prob­a­bly does not apply in the absence of any valid arbi­tra­tion agree­ment for such a set-off claim. 

At the same time, the Swiss leg­is­la­tor and Swiss legal schol­ars hard­ly seem to dis­tin­guish between the (i) uncon­di­tion­al sub­stan­tive set-off dec­la­ra­tions (addressed to the coun­ter­par­ty) and (ii) sub­sidiary pro­ce­dur­al set-off defens­es (addressed to the arbi­tral tri­bunal). This issue remains to be analysed par­tic­u­lar­ly with a view to the prob­lem of the sep­a­rat­ed advance on costs.

D. Advance on Costs for Set-Off Claims 

i. Start­ing Position

In the case exam­ple described at the out­set, the Respon­dent accepts juris­dic­tion of the arbi­tral tri­bunal. It sub­mits a set-off defense to counter the main claim which is based on a pre­vi­ous uncon­di­tion­al set-off dec­la­ra­tion vis-à-vis the coun­ter­par­ty. In the vari­a­tion of the case, the Respon­dent only sub­mits its set-off defense (which was not expressed pre­vi­ous­ly) to the arbi­tral tri­bunal under the con­di­tion that the tri­bunal con­sid­ers the main claim as jus­ti­fied (i.e. in a sub­sidiary man­ner, which is admis­si­ble pur­suant to Swiss lex arbi­tri⁶⁹).

The Claimant is of the opin­ion that a sep­a­rate advance on costs must be paid by the respon­dent regard­ing the set-off defense. The claimant argues that if such advance is not paid, then the arbi­tral tri­bunal shall decline its juris­dic­tion over the set-off claim.

Sub­mis­sion of a set-off claim by the respon­dent typ­i­cal­ly leads to an increase in the work­load of the arbi­tral tri­bunal. This means that more time has to be spent by the arbi­tra­tors to assess the case. Togeth­er with the amount in dis­pute, time is increas­ing­ly becom­ing one of the deci­sive fac­tors when the arbi­tra­tors’ and the institution’s fees are fixed.⁷⁰ The work­load of the arbi­tra­tor can sig­nif­i­cant­ly increase if the arbi­tra­tor needs to assess an addi­tion­al claim based on a legal rela­tion­ship which dif­fers from that of the main claim. The ICC Rules, for exam­ple, pro­vide for the fol­low­ing pro­vi­sion in these sit­u­a­tions: “[…] set-off shall be tak­en into account in deter­min­ing the advance to cov­er the costs of the arbi­tra­tion in the same way as a sep­a­rate claim inso­far as it may require the arbi­tral tri­bunal to con­sid­er addi­tion­al mat­ters”.⁷¹ Oth­er major arbi­tra­tion rules take a sim­i­lar approach.⁷² It fol­lows that intro­duc­tion of set-off claims, which require the arbi­tral tri­bunal to con­sid­er addi­tion­al mat­ters, increase the amount of the advance on costs to be pro­vid­ed by the parties.

If the respon­dent does not par­tic­i­pate in the pre-financ­ing of the arbi­tra­tion pro­ceed­ings, the claimant may resort to Arti­cle 36 para­graph 3 of the ICC Rules and request the insti­tu­tion to ​“fix sep­a­rate advances on costs for the claims and the coun­ter­claims”. If the request is grant­ed, each par­ty has to pay the advance on costs for its respec­tive claims and set-off claims.

If sep­a­rate advances are ordered by the insti­tu­tion and the respon­dent def­i­nite­ly refus­es to pay the sep­a­rate advance for the set-off claim, such claim is con­sid­ered as with­drawn.⁷³ At the same time, if the main claim did not exist any­more as a mat­ter of sub­stan­tive law (due to a valid setoff), the arbi­tral tri­bunal would have to award a non-exist­ing claim.

In such a sce­nario, the arbi­tral tri­bunal is in a del­i­cate sit­u­a­tion: it either assess­es the set-off defense with­out being paid for its efforts, or it does not deal with the set-off defense and risks award­ing a claim which was extin­guished in the past as a mat­ter of sub­stan­tive set-off.

ii. State of Discussion

There has been lit­tle dis­cus­sion on the effect of set-off on the advance of costs.⁷⁴

Swiss schol­ars sub­mit that sep­a­rate advances on costs are rarely appro­pri­ate in cas­es of a set-off defense, because the set-off defense ​“entails [an] auto­mat­ic extinc­tion of the main claim when it is valid­ly raised” accord­ing to Swiss law.⁷⁵ They sug­gest that the set-off defense ​“as a rule, must be con­sid­ered even if the respon­dent fails to pay its share of the advance”.⁷⁶

In con­trast, a Ger­man author sub­mit­ted in the 1990s that by refer­ring to the ICC Rules, ​“the par­ties agree that the set-off shall only be enter­tained by the tri­bunal if the advance for the set-off has been paid”.⁷⁷ It has also been stat­ed by schol­ars that the unre­strict­ed admis­sion of juris­dic­tion over a set-off defense could ​“fright­en the claimant into set­tle­ment and add imme­di­ate finan­cial bur­dens through the arbi­tral advance on costs”.⁷⁸

iii. Analysis

In the view of the authors, the dis­tinc­tion made by the Swiss Fed­er­al Tri­bunal between (i) uncon­di­tion­al sub­stan­tive set-off dec­la­ra­tions (sole­ly addressed to the coun­ter­par­ty) and (ii) sub­sidiary pro­ce­dur­al set-off defens­es (addressed – ini­tial­ly – sole­ly to the arbi­tral tri­bunal)⁷⁹ is of con­sid­er­able sig­nif­i­cance to the present issue:

1. In the first case, the par­ty declar­ing uncon­di­tion­al set-off acknowl­edges the main claim as a mat­ter of sub­stan­tive law.⁸⁰ It takes the risk that the (acknowl­edged) main claim will be award­ed, while the poten­tial­ly dis­put­ed coun­ter­vail­ing claim may not be award­ed (e.g. for lack of evidence).
2. In the sec­ond case, the par­ty declar­ing the sub­sidiary set-off (i.e. set-off only under the con­di­tion that the main claim is found to be jus­ti­fied by the tri­bunal, with­out ini­tial­ly declar­ing uncon­di­tion­al set-off vis-à-vis the coun­ter­par­ty) avoids the risk of the first case. Indeed, this par­ty uses the ser­vices of the arbi­tral tri­bunal pre­cise­ly in order to avoid the risk that the main claim will be con­sid­ered as acknowl­edged (and thus award­ed), while the set-off claim may be dis­missed as unproven. In this sce­nario, at the moment of the award, the arbi­tral tri­bunal shall only con­sid­er the set-off claim if both claims are jus­ti­fied, but it shall not con­sid­er the set-off claim if the main claim is not jus­ti­fied per se. The par­ty address­ing the arbi­tral tri­bunal in this man­ner pri­mar­i­ly relies on pro­ce­dur­al law, and only relies on sub­stan­tive law under the men­tioned con­di­tion that both claims are jus­ti­fied.⁸¹ This makes an impor­tant dif­fer­ence com­pared to the first sit­u­a­tion of an uncon­di­tion­al set-off declaration.

Con­se­quent­ly, the test of whether a set-off defense is stat­ed in an uncon­di­tion­al man­ner or whether it is stat­ed as a sub­sidiary posi­tion and thus as a con­di­tion­al defense, shows whether a par­ty exclu­sive­ly relies on sub­stan­tive law or whether it relies on pro­ce­dur­al law in the first place. This test, which the authors pro­pose to refer to as ​“Con­di­tion­al­i­ty Test”, is help­ful in find­ing an appro­pri­ate solu­tion for the present issue of the sep­a­rat­ed advances on costs in case of set-off.

It is wide­ly undis­put­ed that the refusal to pay advances on costs results in pro­ce­dur­al con­se­quences: In sit­u­a­tions of sep­a­rate advances, the claims or set-off defens­es of a par­ty which fails to pay its advance are typ­i­cal­ly not heard and dealt with­in the rel­e­vant pro­ceed­ings.⁸² At the same time, the authors are not aware of any schol­ar­ly opin­ion, pur­suant to which the non­pay­ment of an advance would affect the sub­stance of a claim. There­fore, the non-admis­si­bil­i­ty of the set-off in the men­tioned sec­ond sce­nario would not lead to a sub­stan­tial depri­va­tion of the respon­dent in the sense that it could assert its set-off claim any­time again in the future, except from the on-going proceedings.

Against this back­ground, the ​“Con­di­tion­al­i­ty Test” offers a rea­son­able solu­tion for the issue on the advance on costs in case of set-off as defined here­in above:⁸³

1. If a par­ty declares uncon­di­tion­al set-off exclu­sive­ly based on sub­stan­tive law, the arbi­tral tri­bunal needs to con­sid­er the poten­tial extinc­tion of the main claim based on sub­stan­tive law irre­spec­tive of any advance pay­ments. Oth­er­wise, the tri­bunal might award a nonex­ist­ing (main) claim which appears to be unrea­son­able and may prove dif­fi­cult to be cor­rect­ed at a lat­er stage.⁸⁴
2. How­ev­er, if a par­ty exclu­sive­ly declares sub­sidiary set-off, it relies on pro­ce­dur­al law in the first place and address­es the arbi­tral tri­bunal⁸⁵ in order to improve its own posi­tion in the pro­ceed­ings.⁸⁶ In such a sit­u­a­tion, the main claim has not been extinct as a mat­ter of sub­stan­tive law, yet. Only if the arbi­tral tri­bunal – based on pro­ce­dur­al law – con­sid­ers the sub­sidiary set-off defense as request­ed by the respec­tive par­ty, the extin­guish­ing effect based on sub­stan­tive law is trig­gered (most prob­a­bly only at the moment when the award is ren­dered; in Ger­man ​“Urteil­szeit­punkt”). In oth­er words, the par­ty declar­ing a sub­sidiary setoff requests an activ­i­ty by the tri­bunal based on pro­ce­dur­al law. Con­sid­er­a­tion of such a pro­ce­dur­al request may well depend on an advance pay­ment as the sub­stan­tive extinc­tion of the main claim will not be effect­ed if the arbi­tral tri­bunal remains inactive.

iv. Conclusion

Con­se­quent­ly, judi­cial con­sid­er­a­tion of sub­stan­tive and uncon­di­tion­al set-off declared before the time of the award must not depend on any advance pay­ments. The arbi­tral tri­bunal has to take it into con­sid­er­a­tion, irre­spec­tive of any advance pay­ments. At the same time, it is the view of the authors that judi­cial con­sid­er­a­tion of a mere­ly sub­sidiary set-off defense based on pro­ce­dur­al law may well depend on an advance pay­ment as fore­seen in many insti­tu­tion­al arbi­tra­tion rules.

III. Final Con­clu­sions and Recommendations

A. The ​“Con­di­tion­al­i­ty Test” is Help­ful in Inter­na­tion­al Arbitration

Based on the above analy­sis, the authors are of the view that the ​“Con­di­tion­al­i­ty Test”, name­ly the dis­tinc­tion between (i) con­di­tion­al and (ii) uncon­di­tion­al set-off dec­la­ra­tions, is rea­son­able in order to dis­tin­guish two entire­ly dif­fer­ent types of set-off in inter­na­tion­al arbi­tra­tion. There­by, it makes no dif­fer­ence whether the source of one or the oth­er type of set-off is com­mon law, civ­il law, and whether it is of pro­ce­dur­al or sub­stan­tive legal nature.

The first uncon­di­tion­al type of set-off entails acknowl­edg­ment of the main claim and, there­fore, reduces the sub­ject mat­ter of a dis­pute to the ques­tion of whether or not the set-off claim is jus­ti­fied. If so, the main claim is extinct. If not, the main claim still exists and must be awarded.

The sec­ond con­di­tion­al type of set-off does not entail acknowl­edg­ment of the main claim and leaves all options open for the respon­dent. If the main claim is dis­missed, respon­dent still has the option to pur­sue the set-off claim in sep­a­rate legal proceedings.

While the uncon­di­tion­al type of set-off does not require an active role of the arbi­tral tri­bunal, the con­di­tion­al type of set-off requires that the arbi­tral tri­bunal, at the moment of the award, makes the cal­cu­la­tion of the set-off on behalf of the respon­dent. In con­sid­er­a­tion of the men­tioned dif­fer­ences and, in par­tic­u­lar, the ben­e­fits of a respon­dent who sub­mits a con­di­tion­al set-off defense, it appears to be rea­son­able to treat such a respon­dent dif­fer­ent­ly from a respon­dent who sub­mits an uncon­di­tion­al set-off defense.

Gen­er­al­ly speak­ing, the uncon­di­tion­al set-off should be con­sid­ered irre­spec­tive of any pro­ce­dur­al require­ments, while the con­di­tion­al set-off, which requires actions of the arbi­tral tri­bunal, may well be tied to pro­ce­dur­al require­ments. The dif­fer­ent treat­ment in the sit­u­a­tion of the sep­a­rat­ed advances is one exam­ple, but there are like­ly to be addi­tion­al ones.

To sum it up: the ​“Con­di­tion­al­i­ty Test” offers a means to dis­tin­guish dif­fer­ent types of set-off which have tru­ly dif­fer­ent legal effects. The said test might be par­tic­u­lar­ly help­ful in inter­na­tion­al arbi­tra­tion pro­ceed­ings as it offers a dis­tinc­tion that is valid irre­spec­tive of the dif­fer­ent judi­cial tra­di­tions or the appli­ca­tion of spe­cif­ic laws.

B. The Fol­low­ing Should be Con­sid­ered by Inter­na­tion­al Arbi­tra­tion Practitioners

The first and fore­most rec­om­men­da­tion con­cerns – again – the issue of con­di­tion­al­i­ty: Legal coun­sel should be aware that there are leg­is­la­tions in which set-off dec­la­ra­tions lead to the irrev­o­ca­ble acknowl­edg­ment of a main claim if they are not expressed in legal pro­ceed­ings togeth­er with an explic­it state­ment that they are only made as a sub­sidiary submission. 

The sec­ond rec­om­men­da­tion con­cerns the issue of juris­dic­tion: The rule that ​“the judge of the action is also the judge of the objec­tion” appears to gain ground in inter­na­tion­al arbi­tra­tion. There­fore, coun­sel for respon­dents may want to pos­i­tive­ly ask their clients for poten­tial cross claims even if they are sub­ject to a dif­fer­ent dis­pute res­o­lu­tion mech­a­nism than the main claim.

The third rec­om­men­da­tion con­cerns arbi­tral tri­bunals: When fac­ing set-off defens­es in con­nec­tion with pro­ce­dur­al imped­i­ments (such as the unpaid sep­a­rate advance), it may be use­ful to con­sid­er whether or not the respon­dent requires any action from the arbi­tral tri­bunal. Only if this is the case, the respon­dent needs to com­ply with pro­ce­dur­al rules in order to make the setoff perfect.

Foot­notes

1. See, e.g., PAS­CAL PICHON­NAZ & LOUISE GUL­LIF­ER, SET-OFF IN ARBI­TRA­TION AND COM­MER­CIAL TRANS­AC­TIONS ¶ 3.01 (2014); Alex­is Mourre, The Set-off Para­dox in Inter­na­tion­al Arbi­tra­tion, 24 Arb. Int’l. 392 (2008); JEAN-FRANÇOIS POUDRET & SÉBASTIEN BESSON, COM­PAR­A­TIVE LAW OF INTER­NA­TION­AL ARBI­TRA­TION ¶ 317 (2007); Michael Schöll, Set-off Defences in Inter­na­tion­al Arbi­tra­tion, Cri­te­ria for Best Prac­tice – A Com­par­a­tive Per­spec­tive, in BEST PRAC­TICES IN INTER­NA­TION­AL ARBI­TRA­TION 122 (Wirth ed., 2006); CHRISTOPH ZIM­MER­LI, DIE VER­RECH­NUNG IM ZIVIL­PROZESS UND IN DER SCHIEDS­GERICHTS­BARKEIT: UNTER BESON­DER­ER BERÜCK­SICH­TI­GUNG INTER­NA­TIONALER VER­HÄLT­NISSE 201 (2003); Eugen Buch­er, Kom­pen­sa­tion im Prozess: Zurück zum materiellen Recht, in EIN­HEIT UND VIELFALT DES RECHTS, FESTSCHRIFT FÜR REIN­HOLD GEIMER ZUM 65. GEBURT­STAG 97 (2002); Klaus Peter Berg­er, Set-Off in Inter­na­tion­al Eco­nom­ic Arbi­tra­tion, 15 Arb. Int’l. 64 (1999); DOMENIC GROSS, DAS RECHTLICHE SCHICK­SAL VON VER­RECH­NUNGSANSPRÜCHEN IM SCHIEDSVER­FAHREN 37 (1999).
2. Names of par­ties, coun­tries involved and sub­ject mat­ter are mod­i­fied to safe­guard confidentiality.
3. For the present arti­cle, the authors relied on the Glos­sary of Arbi­tra­tion and ADR Terms and Abbre­vi­a­tions, in ASA SPE­CIAL SERIES No. 30 (3^d ed., 2008) for legal ter­mi­nol­o­gy. In legal prac­tice, the term ​“alter­na­tive” posi­tion is also com­mon­place to express a posi­tion that is sub­mit­ted as sub­sidiary vis-à-vis the prin­ci­pal position.
4. See, e.g., OBLIG­A­TIO­NEN­RECHT [OR] [CODE OF OBLIG­A­TIONS], art. 120 (Switz.); BURG­ER­LICH­ES GESTZBUCH [BGB] [CIV­IL CODE], § 387 (Ger.); ALL­GE­MEINES BURG­ER­LICH­ES GESTZBUCH [ABGB] [CIV­IL CODE] § 1438 (Aus­tria) and CODE CIV­IL [C. CIV.] [CIV­IL CODE] art. 1290 (Fr.).
5. In gen­er­al, it is not required that the claims be in the same cur­ren­cy, at least under Swiss law; see BERN­HARD BERG­ER, ALL­GE­MEINES SCHUL­DRECHT ¶ 1370 (2012).
6. PICHON­NAZ & GUL­LIF­ER, supra note 1, ¶ 2.26; Berg­er, supra note 1, at 56.
7. Id.
8. Id.
9. PICHON­NAZ & GUL­LIF­ER, supra note 1, ¶ 2.20; BERG­ER, supra note 5, ¶ 1394; JEAN-MARC SCHALLER, EIN­WEN­DUN­GEN UND EINRE­DEN IM SCHWEIZ­ERISCHEN SCHUL­DRECHT (2010), ¶¶ 519 and 529; Berg­er, supra note 1, at 55.
10. POUDRET & BESSON, supra note 1, ¶ 317; Berg­er, supra note 1, at 55. For the spe­cial case of France, where three dif­fer­ent vari­a­tions of set-off exist, see POUDRET & BESSON, supra note 1, ¶ 317.
11. See II.B.i. (below) for the com­plete pre­req­ui­sites for set-off under Swiss law.
12. BERG­ER, supra note 5, ¶ 1366.
13. MAR­CO STACH­ER, BERNE COM­MEN­TARY ON CIV­IL PRO­CE­DURE CODE, VOL­UME III, ART. 353 – 399 CPC AND ART. 407 CPC ¶ 30 to art. 377 (2014), with ref­er­ence to VIK­TOR AEPLI, ZURICH COM­MEN­TARY ON CODE OF OBLIG­A­TIONS, BD. V/1H/1, art. 114 – 126 CO ¶¶ 72 and 83 to art. 124 (3^d ed., 1991). See, for an in-depth dis­cus­sion of the entan­gle­ments between sub­stan­tive and pro­ce­dur­al aspects of set-off, CORINNE ZELL­WEGER-GUTKNECHT, HAUSHEER & WAL­TER, BERNE COM­MEN­TARY ON CODE OF OBLIG­A­TIONS, BD. VI/1/7/2, art. 120 – 126 CO ¶ 118 to art. 120 – 126 (2012). But see, for a dif­fer­ent opin­ion, SCHÖLL, supra note 1, at 100 and Buch­er, supra note 1, at 105.
14. CHRIS­T­IAN KOLLER, AUFRECH­NUNG UND WIDERK­LAGE IM SCHIEDSVER­FAHREN, UNTER BESON­DER­ER BERÜCK­SICH­TI­GUNG DES SCHIED­SORTS ÖSTER­RE­ICH 39 (2009) (how­ev­er, Koller does not fol­low the men­tioned pre­vail­ing opinion).
15. PICHON­NAZ & GUL­LIF­ER, supra note 1, ¶ 2.08; BERN­HARD BERG­ER & STE­FANIE PFIS­TER­ER, SWISS RULES OF INTER­NA­TION­AL ARBI­TRA­TION, COM­MEN­TARY ¶ 14 to art. 19 (Zuber­büh­ler et al. eds., 2^d ed., 2013); BERG­ER, supra note 5, ¶ 1394; SCHALLER, supra note 9, ¶¶ 519 and 529.
16. POUDRET & BESSON, supra note 1, ¶ 318.
17. STACH­ER, supra note 13, ¶ 19 to art. 377; BERG­ER & PFIS­TER­ER, supra note 15, ¶ 15 to art. 19.
18. Berg­er, supra note 1, at 61.
19. NIGEL BLACK­A­BY ET AL., RED­FERN AND HUNTER ON INTER­NA­TION­AL ARBI­TRA­TION ¶ 3.42 (2015).
20. Id. ¶ 3.53.
21. Chris­t­ian Koller, Con­tem­pla­tions on Set-off and Coun­ter­claim, in AUS­TRI­AN ARBI­TRA­TION YEAR­BOOK 66 (Klauseg­ger et al. eds., 2008); Berg­er, supra note 1, at 61.
22. BERN­HARD BERG­ER & FRANZ KELLER­HALS, INTER­NA­TION­AL AND DOMES­TIC ARBI­TRA­TION IN SWITZER­LAND (3^d ed., 2015), ¶ 1413.
23. KURT SIEHR, DAS INTER­NA­TIONALE PRI­VA­TRECHT DER SCHWEIZ 721 (2002).
24. In con­trast to that, accord­ing to the French and Bel­gian con­flict of law rules, set-off would have to be jus­ti­fied both under the laws applic­a­ble to the main and the coun­ter­vail­ing claim. The lat­ter method fol­lows the so-called ​“cumu­la­tive the­o­ry”; see Koller, supra note 21, at 67; Berg­er, supra note 1, at 61. In this con­stel­la­tion, if the main claim would be gov­erned by Bel­gian or French law and the coun­ter­vail­ing claim by the laws of India, the set-off would need to be jus­ti­fied under both legislations.
25. Deci­sion 63 II 139, ¶¶ 2 and 3.c (Swiss Fed­er­al Tri­bunal) (March 17, 1937).
26. See the offi­cial trans­la­tion of the Swiss Code of Oblig­a­tions avail­able at https://​www​.admin​.ch/​o​p​c​/​e​n​/​c​l​a​s​s​i​f​i​e​d​-​c​o​m​p​i​l​a​t​i​o​n​/​1​9​1​1​0​0​0​9​/​i​n​d​e​x​.html.
27. Id. The dec­la­ra­tion can also be qual­i­fied as a require­ment, see WOLF­GANG PETER, BASLE COM­MEN­TARY ON CODE OF OBLIG­A­TIONS ¶ 16 to art. 120 (Hon­sell et al. eds., 5^th ed., 2011); AEPLI, supra note 13, ¶ 7 to art. 124.
28. See for the offi­cial trans­la­tion, supra note 26. The con­cept of the ret­ro­spec­tive effect of set-off has been crit­i­cized as a legal­ly uncer­tain con­struct, see PETER, supra note 27, ¶¶ 5 – 6 to art. 124. This con­cept has been explic­it­ly reject­ed for Arti­cle 8.3 of the UNIDROIT Prin­ci­ples regard­ing set-off, see KLAUS PETER BERG­ER, Set-Off, in UNIDROIT PRIN­CI­PLES: NEW DEVEL­OP­MENTS AND APPLI­CA­TIONS sec. IV (2005).
29. BERG­ER, supra note 5, ¶ 1394; SCHALLER, supra note 9, ¶¶ 519 and 529.
30. Deci­sion 4C-90/2005, ¶ 4 (Swiss Fed­er­al Tri­bunal) (June 22, 2005); Deci­sion 107 Ib 98, ¶ 8.d (Swiss Fed­er­al Tri­bunal) (Dec. 14, 1993); BERG­ER, supra note 5, ¶¶ 1393 – 1394 and ¶¶ 100 – 104; PETER, supra note 27, ¶¶ 1 and 3 to art. 124; SCHALLER, supra note 9, ¶¶ 518 – 519; AEPLI, supra note 13, ¶¶ 13 and 16 to art. 124.
31. BERG­ER, supra note 5, ¶¶ 175 – 178.
32. BERG­ER, supra note 5, ¶ 1394; PETER, supra note 27, ¶¶ 1 and 3 to art. 124; SCHALLER, supra note 9, ¶ 532.
33. Deci­sion 4C-90/2005, ¶ 4 (Swiss Fed­er­al Tri­bunal) (June 22, 2005); PETER, supra note 27, ¶ 3 to art. 124. See also supra note 28 regard­ing the ret­ro­spec­tive effect of set-off and the relat­ed uncertainties.
34. Deci­sion 4A_290/2007, ¶ 8.3.1 (with fur­ther ref­er­ences) (Swiss Fed­er­al Tri­bunal) (Dec. 10, 2007) (infor­mal trans­la­tion) (Orig­i­nal word­ing in French: ​“Il con­vient de dis­tinguer la déc­la­ra­tion de com­pen­sa­tion (Ver­rech­nungserk­lärung), qui est adressée au créanci­er et qui entraîne l’extinction des dettes com­pen­sées dans la mesure fixée à l’art. 124 para. 2 CO, de l’objection de com­pen­sa­tion (Ver­rech­nung­sein­wen­dung), qui est adressée au juge en vue d’introduire la ques­tion de la com­pen­sa­tion dans le procès (sur cette dis­tinc­tion, cf. Vik­tor Aepli, Com­men­taire bernois, n. 117 des remar­ques prélim­i­naires aux art. 120 – 126 CO). Les deux man­i­fes­ta­tions de volon­té peu­vent certes être con­comi­tantes, mais elles né le sont pas néces­saire­ment. La valid­ité de la pre­mière relève du droit matériel, celle de la sec­onde du droit de procé­dure. […]. Cette objec­tion peut aus­si n’être soulevée qu’à titre éventuel. Il en va ain­si lorsque le com­pen­sant con­teste la demande et, pour le cas où ses argu­ments seraient rejetés, fait val­oir sub­sidi­aire­ment la com­pen­sa­tion déclarée antérieure­ment ou dans le procès comme moyen supplémentaire […]”).
35. See ZELL­WEGER-GUTKNECHT, supra note 13, ¶ 185 to art. 120 – 126; PETER, supra note 27, ¶ 3 to art. 124; SCHALLER, supra note 9, ¶¶ 914 – 915; ZIM­MER­LI, supra note 1, at 113; HEI­DI KER­STIN JAUCH, AUFRECH­NUNG UND VER­RECH­NUNG IN DER SCHIEDS­GERICHTS­BARKEIT, EINE RECHTSVER­GLE­ICHENDE STUDIE DEUTSCH­LAND / SCHWEIZ 55 (2001).
36. See SCHALLER, supra note 9, 532 – 544 for an in-depth discussion.
37. SEBAS­T­IAN STOLZKE, AUFRECH­NUNG UND WIDERK­LAGE IN DER SCHIEDS­GERICHTS­BARKEIT IN: SCHRIFTEN­REI­HE DER DEUTSCHEN INSTI­TU­TION FÜR SCHIEDS­GERICHTS­BARKEIT, GER­MAN INSTI­TU­TION OF ARBI­TRA­TION 86 (2006).
38. KOLLER, supra note 14, at 40.
39. For a dis­cus­sion from a Ger­man point of view, see STOLZKE, supra note 37, at 88.
40. See above sec­tion II.B.i.
41. See above sec­tion II.B.ii.
42. Id.
43. Id.
44. See above sec­tion II.A.ii.
45. See above sec­tion II.B.i.
46. BLACK­A­BY, supra note 19, ¶ 2.01; GARY B. BORN, INTER­NA­TION­AL COM­MER­CIAL ARBI­TRA­TION 250 (2^d ed., 2014); POUDRET & BESSON, supra note 1, ¶ 149.
47. BGE 138 III 29, ¶ 2.2.3 (Swiss Fed­er­al Tri­bunal) (Nov. 7, 2011) (infor­mal translation).
48. Sim­i­lar­ly, Red­fern and Hunter hold that there must be a clear inten­tion of the par­ties to resolve their dis­putes by arbi­tra­tion, see BLACK­A­BY, supra note 19, ¶ 2.76. Accord­ing to Red­fern and Hunter, the arbi­tra­tion agree­ment con­fers a man­date upon the tri­bunal to decide spe­cif­ic dis­putes with­in the scope of the arbi­tra­tion agree­ment. If the arbi­tral tri­bunal goes beyond this man­date, it risks the future recog­ni­tion and enforce­ment of the arbi­tral award; see BLACK­A­BY, supra note 19, ¶ 2.63. Such risk would par­tic­u­lar­ly exist in the present­ly dis­cussed set-off con­stel­la­tions, if the coun­ter­vail­ing set-off claim would be con­sid­ered as being beyond the scope of the arbi­tra­tion agree­ment. In this regard, Born points out that the objec­tion to the juris­dic­tion of the arbi­tral tri­bunal (present­ly due to the lack of con­sent to sub­mit the coun­ter­vail­ing set-off claim to a spe­cif­ic arbi­tra­tion) must be raised at the com­mence­ment of the pro­ceed­ings. Oth­er­wise, there would be a tac­it con­sent through par­tic­i­pa­tion in the pro­ceed­ings; see GARY B. BORN, INTER­NA­TION­AL ARBI­TRA­TION: LAW AND PRAC­TICE 74 (2^d ed., 2016); BORN, supra note 46, at 2222. To under­stand the Swiss Fed­er­al Tribunal’s prac­tice in an inter­na­tion­al con­text, see Born on the issues of lack of con­sent to arbi­trate and scope of the arbi­tra­tion agree­ment in BORN, supra note 46, at 763 – 767 and 1331 – 1332 (with spe­cif­ic ref­er­ence to the Swiss Fed­er­al Tribunal’s practice).
49. Deci­sion 85 II 103, ¶ 2.b (Swiss Fed­er­al Tri­bunal) (May 5, 1959) (“[…] il incombe en principe à l’autorité chargée de stat­uer sur la pré­ten­tion prin­ci­pale de se pronon­cer sur l’existence de la créance oppose en com­pen­sa­tion: le juge de l’action est le juge de l’exception”).
50. BERG­ER, supra note 5, ¶ 526; POUDRET & BESSON, supra note 1, ¶ 322. Accord­ing to Jauch and Zim­mer­li, the lack of a pro­vi­sion address­ing the issue of set-off in Chap­ter 12 of the Swiss PILS was inten­tion­al; see JAUCH, supra note 35, at 158 and ZIM­MER­LI, supra note 1, at 129.
51. STACH­ER, supra note 13, ¶ 44 to art. 377; FELIX DASS­ER, BASLE COM­MEN­TARY ON INTER­NA­TION­AL PRI­VATE LAW (Hon­sell et al. eds., 3^d ed., 2013), ¶ 21 to art. 148; Berg­er, supra note 1, at 61.
52. KOLLER, supra note 21, at 70.
53. AAA/ICDR Inter­na­tion­al Dis­pute Res­o­lu­tion Pro­ce­dures, Includ­ing Medi­a­tion and Arbi­tra­tion Rules, Amend­ed and Effec­tive as of June 1, 2009, see art. 3, ¶ 2 of the Inter­na­tion­al Arbi­tra­tion Rules (“[…] a respon­dent may make coun­ter­claims or assert setoffs as to any claim cov­ered by the agree­ment to arbi­trate […]”). How­ev­er, in the cur­rent ver­sion of the same rules, amend­ed and effec­tive as of June 1, 2014, the word­ing has been adapt­ed so that only coun­ter­claims have to be cov­ered by the arbi­tra­tion agree­ment, but not set-off claims (“[…] Respon­dent may make any coun­ter­claims cov­ered by the agree­ment to arbi­trate or assert any setoffs […]”).
54. BERG­ER & PFIS­TER­ER, supra note 15, ¶ 32 to art. 21. For a dis­cus­sion of the Swiss Rules see also PICHON­NAZ & GUL­LIF­ER, supra note 1, ¶¶ 3.73 – 3.76; Maxi Scher­er, The Award and the Courts, Set-Off in Inter­na­tion­al Arbi­tra­tion, in AUS­TRI­AN YEAR­BOOK ON INTER­NA­TION­AL ARBI­TRA­TION 460 (Zeil­er et al. eds., 2015).
55. See 2010 UNCI­TRAL Arbi­tra­tion Rules, art. 21, ¶ 3. The UNCI­TRAL Arbi­tra­tion Rules are often applied in ad-hoc arbi­tra­tion pro­ceed­ings; Berg­er, supra note 1, at 64 (Klaus Peter Berg­er refers to the delib­er­a­tions of the Work­ing Group on the old UNCI­TRAL Rules and points out that the idea was to restrict the scope of the arbi­tra­tion clause to set-off claims which arise out of the same con­tract as pro­vid­ed in the main claim. Accord­ing to Klaus Peter Berg­er, the Work­ing Group intend­ed to deprive respon­dent of the pos­si­bil­i­ty to uni­lat­er­al­ly enlarge the arbitrator’s juris­dic­tion). How­ev­er, accord­ing to an analy­sis of the 2010 UNCI­TRAL Rules by Pichon­naz and Gul­lif­er, the new word­ing ​“pro­vid­ed that the arbi­tral tri­bunal has juris­dic­tion over it” was a com­pro­mise. The idea was that the arbi­tral tri­bunal ​“could take account of the sit­u­a­tion where the claim had been extin­guished by the set-off”; see PICHON­NAZ & GUL­LIF­ER, supra note 1, ¶¶ 3.63 – 3.69.
56. VIAC Rules of Arbi­tra­tion, art. 45 (2013) [here­inafter ​“VIAC Rules”].
57. Set-off is mere­ly implied in ICC Rules of Arbi­tra­tion (2012), art. 36, ¶ 7 [here­inafter ​“ICC Rules”], a pro­vi­sion regard­ing the advance on costs of the arbi­tra­tion. See PICHON­NAZ & GUL­LIF­ER, supra note 1, ¶¶ 3.70 – 3.72.
58. See GEORG VON SEGESS­ER & AILEEN TRUTTMANN, INTER­NA­TION­AL ARBI­TRA­TION IN SWITZER­LAND, A HAND­BOOK FOR PRAC­TI­TION­ERS 404 (Geisinger & Vos­er eds., 2013) (Accord­ing to Von Segess­er and Truttmann, the arbi­tral tri­bunal decides on the admis­si­bil­i­ty (i. e. juris­dic­tion) of a set-off claim by anal­o­gy to art. 10, ¶ 2 of the DIS Rules regard­ing counterclaim).
59. 2014 LCIA Arbi­tra­tion Rules, art. 2, ¶ 1(iii) [here­inafter ​“LCIA Rules”] (does not direct­ly address the issue of juris­dic­tion over a set-off defense). See PICHON­NAZ & GUL­LIF­ER, supra note 1, ¶¶ 3.77 – 3.78.
60. Rules of Arbi­tra­tion of the Indi­an Coun­cil of Arbi­tra­tion (2016), art. 5, ¶ 1(iv) [here­inafter ​“ICA Rules”] (also does not direct­ly address the issue of juris­dic­tion over a set-off defense).
61. See above sec­tion II.C.i.
62. Mourre, supra note 1, at 392; POUDRET & BESSON, supra note 1, ¶ 317; Schöll, supra note 1, at 122; ZIM­MER­LI, supra note 1, at 201; Buch­er, supra note 1, at 97; Berg­er, supra note 1, at. 64; GROSS, supra note 1, at 37.
63. See authors men­tioned in supra note 62. Mourre, supra note 1, at 392 (Mourre refused to apply the prin­ci­ple of ​“le juge de l’action est le juge de l’exception” in the con­text of set-off claims say­ing that ​“the arbitrator’s pow­er does not direct­ly derive from law, but from the par­ties’ consent”).
64. POUDRET & BESSON, supra note 1, ¶ 321.
65. See the offi­cial trans­la­tion of the Swiss Civ­il Pro­ce­dure Code avail­able at https://​www​.admin​.ch/​o​p​c​/​e​n​/​c​l​a​s​s​i​f​i​e​d​-​c​o​m​p​i​l​a​t​i​o​n​/​2​0​0​6​1​1​2​1​/​i​n​d​e​x​.html.
66. Deci­sion 4A_482/2010, ¶ 4.3.1 (Swiss Fed­er­al Tri­bunal) (Feb. 7, 2011).
67. BERG­ER, supra note 5, ¶ 522; STACH­ER, supra note 13, ¶ 2 to art. 377; PICHON­NAZ & GUL­LIF­ER, supra note 1, ¶¶ 3.49 3.61; MARKUS SCHOTT & MAU­RICE COUR­VOISI­ER, BASLE COM­MEN­TARY ON INTER­NA­TION­AL PRI­VATE LAW ¶ 85 to art. 186 (Hon­sell et al. eds., 3^d ed., 2013); BERN­HARD BERG­ER, BERNE COM­MEN­TARY ON CIV­IL PRO­CE­DURE CODE, VOL­UME I ¶ 56 to art. 17 (2012).
68. See above sec­tion II.C.ii.
69. See above sec­tion II.B.iii.
70. BLACK­A­BY, supra note 19, ¶ 4.24.
71. ICC Rules, art. 36, ¶ 7.
72. Swiss Rules, Appen­dix B, art. 2, ¶ 4; VIAC Rules, art. 44, ¶ 6.
73. ICC Rules, art. 36, ¶ 6.
74. For a gen­er­al intro­duc­tion on the top­ic of advance on costs, see BORN, supra note 46, at 2247.
75. Micha Büh­ler & Mar­co Stach­er, Costs in Inter­na­tion­al Arbi­tra­tion, in ARBI­TRA­TION IN SWITZER­LAND, THE PRAC­TI­TION­ER​’S GUIDE ¶ 32 (Arroyo ed., 2013); MAR­CO STACH­ER, SWISS RULES OF INTER­NA­TION­AL ARBI­TRA­TION, COM­MEN­TARY ¶ 11 to art. 41 (Zuber­büh­ler et al. eds., 2^d ed., 2013); BERG­ER & PFIS­TER­ER, supra note 15, ¶ 16 to art. 19.
76. Büh­ler & Stach­er, supra note 76, ¶ 11 to art. 41.
77. Berg­er, supra note 1, at 81; see also Klaus Peter Berg­er, Die Aufrech­nung im Inter­na­tionalen Schiedsver­fahren, in RECHT DER INTER­NA­TIONALEN WIRTSCHAFT 431 (Wegerich & Baumgärt­ner eds., 1998). See also PIT­TET, LA COM­PE­TENCE DU JUGE ET DE L’ARBITRE EN MATIÈRE DE COM­PEN­SA­TION, ÉTUDE DE DROIT INTERNE ET INTER­NA­TION­AL ¶ 344 (2001).
78. Michael Pryles & Jeff Wain­cymer, Mul­ti­ple Claims in Arbi­tra­tion Between the Same Par­ties, 14 ICCA Con­gress Series 484 (2009) (Paper pre­sent­ed at Van Den Berg: 50 Years of the New York Con­ven­tion: ICCA Inter­na­tion­al Arbi­tra­tion Conference).
79. See above sec­tion II.B.ii.
80. See above the Deci­sion of the Swiss Fed­er­al Tri­bunal in sec­tion II.B.ii.
81. Id. See for a dif­fer­ent under­stand­ing, STACH­ER, supra note 13, ¶ 2 to art. 377 (Stach­er holds that the exis­tence of the main claim depends on the coun­ter­vail­ing set-off claim. Stach­er sub­mits that the set-off defense has to be decid­ed as a pre­lim­i­nary issue by the arbi­tral tribunal).
82. See, e.g., ICC Rules, art. 36, ¶ 6; Swiss Rules, art. 41, ¶ 4; DIS Rules, art. 25; VIAC Rules, art. 42, ¶ 3 and ICA Rules, art. 3, ¶¶ 3 and 4.
83. See sec­tion II.D.i (above).
84. For sim­i­lar opin­ions, see BERG­ER & PFIS­TER­ER, supra note 15, ¶ 16 to art. 19; STACH­ER, supra note 72, ¶ 11 to art. 41 (Berg­er, Pfis­ter­er and Stach­er hold that if sep­a­rate advances for set-off sit­u­a­tions are to be allowed, set-off defens­es would have to be con­sid­ered in any case as they auto­mat­i­cal­ly entail extinc­tion of the main claim as a mat­ter of sub­stan­tive law). But see PIT­TET, supra note 78, ¶ 344; Berg­er, supra note 1, at 81 (Pit­tet and Kl. P. Berg­er are of the con­trary opin­ion that the arbi­tra­tors can dis­re­gard the set-off if no sep­a­rate advance on costs is paid, irre­spec­tive of whether the set-off was declared dur­ing or pri­or to the arbi­tra­tion). See also DASS­ER, supra note 52, ¶ 28 and AEPLI, supra note 13, ¶ 118 to art. 120 (Dass­er and Aepli are of the opin­ion that in gen­er­al, it is irrel­e­vant whether set-off has been declared pri­or or dur­ing the pro­ceed­ings. How­ev­er, these two authors do not specif­i­cal­ly con­sid­er the sit­u­a­tion of cost advance in set-off con­stel­la­tions, and mere­ly make this state­ment with regard to the tribunal’s jurisdiction.).
85. See above the Deci­sion of the Swiss Fed­er­al Tri­bunal in sec­tion II.B.ii.
86. See above sec­tion II.D.iii.