A recent decision by the Swiss Federal Supreme Court (4A_628/2015) has addressed the jurisdictional hurdles that can result from multi-tiered dispute resolution clauses, under which parties must first submit disputes to conciliation before being able to commence arbitration.
Background
The parties had agreed that, before referring disputes to arbitration in Switzerland in accordance with the UNCITRAL Arbitration Rules, they would make an attempt to resolve the matter through conciliation pursuant to the then existing ICC ADR Rules (since replaced by the ICC Mediation Rules).
Relying on this clause, the claimant initially filed a request for conciliation with the ICC International Centre for ADR. As a result of disagreements relating to the organisation of an initial meeting with the conciliator, the claimant later decided not to pursue the conciliation and instead filed a request for arbitration. The conciliator noted that, according to the ICC ADR Rules, the proceedings could not be terminated by the claimant’s withdrawal without an initial hearing. The claimant nonetheless proceeded with the arbitration. Although the respondent objected to the tribunal’s jurisdiction on the grounds that there had not been an attempt at conciliation pursuant to the multi-tiered clause, the arbitral tribunal confirmed its jurisdiction in a partial award. The validity of this partial award was now successfully challenged in a setting-aside application to the Swiss Federal Supreme Court – though, as explained below, with limited practical consequences.
When is a conciliation deemed to have been attempted?
The decision by the Swiss Federal Supreme Court to annul the partial award is based on the finding that the arbitral tribunal lacked jurisdiction ratione temporis because the conciliation had not been properly terminated under the applicable ICC ADR Rules.
In reaching this conclusion, the Swiss Federal Supreme Court noted that the (by now replaced) ICC ADR Rules require the parties and the conciliator to discuss the settlement technique and ADR procedure they intend to use before the proceedings can be terminated by a party’s withdrawal. While the arbitral tribunal had concluded that the preliminary exchange of correspondence between the parties and the conciliator was sufficient in this regard, the Swiss Federal Supreme Court disagreed and held that an exchange of views on a live basis (e.g. if not in person, then at least by telephone or videoconference) regarding the conduct of the conciliation was required pursuant to the ICC ADR Rules.
Consequences of non-compliance with the agreed conciliation procedure
An arbitral tribunal declining jurisdiction due to non-compliance with a requirement of prior conciliation can have drastic consequences for the parties, both from a cost perspective and because the commencement of arbitration may be a prerequisite for interrupting limitation periods or observing other time limits.
The Swiss Federal Supreme Court took these potential complications into account and held that, in situations where the parties have not yet completed a mandatory conciliation procedure, the arbitral tribunal should not decline jurisdiction or dismiss the claim altogether, but rather suspend the proceedings and fix a time limit for the parties to attempt to settle their dispute amicably. In doing so, arbitral tribunals are encouraged to provide clear guidance as to the exact conditions under which a party may resume the arbitral proceedings, so as to avoid undue delays and dilatory tactics. This solution allows parties to interrupt limitation periods with a request for arbitration even though the arbitration cannot proceed for the time being.
Comment
The decision is noteworthy and will have to be taken into account by arbitrators and counsel alike. It not only highlights the practical complications which can result from multi-tiered dispute resolution clauses, but also clarifies the consequences of a party’s non-compliance with mandatory conciliation proceedings on the jurisdictional powers and duties of arbitral tribunals seated in Switzerland.
