In a recent decision published 1st April 2021, the Swiss Federal Supreme Court (“SFSC”) dismissed a challenge to set aside an arbitral award because in its view, a newly composed arbitral tribunal must not necessarily repeat all procedural steps that happened prior to its new constitution (case. no. 4A_332/2020 (in German), intended for official publication).
In the case at stake, a dispute had arisen between two parties about the validity of the termination of a framework contract. To clarify the issue, the claimant (and subsequently defendant before the SFSC proceedings) commenced arbitration proceedings under the Swiss Rules of International Arbitration (Swiss Rules 2012) of the Swiss Chambers’ Arbitration Institution (“SCAI”).
After the exchange of all written briefs, the holding of the main hearing (including witness hearings) and the formal conclusion of the proceedings by the arbitral tribunal, one of the three appointed arbitrators had to resign from the tribunal on the grounds of impartiality. The Court of the SCAI subsequently appointed a substitute arbitrator, after which the defendant requested that the entire proceedings be repeated. However, the newly composed arbitral tribunal decided to continue the proceedings without repeating any procedural steps, and issued its award accordingly. In this award, the arbitral tribunal in essence confirmed the claimant’s relief that the termination by the respondent had been invalid and thus the framework agreement continued to be in effect.
The respondent (and appellant before the SFSC proceedings) in the sequel filed an appeal against this decision with the SFSC, arguing that the arbitral tribunal was irregularly constituted, as the newly constituted tribunal had not repeated proceedings in which the biased ex-arbitrator was involved.
No irregular constitution of the newly composed arbitral tribunal for lack of repeating procedural steps prior to new composition
According to Art. 190(2)(a) of the Private International Law Act (“PILA”), an award may only be annulled ‘[if] the sole arbitrator was not properly appointed or if the arbitral tribunal was not properly constituted’. In its confirmed case law, the SFSC implied that the ground for setting aside an award under this provision is narrow.
In the case at hand, the SFSC concluded that after a biased arbitrator was replaced, only the newly composed tribunal may be subject to challenge. The newly composed tribunal may still rely on proceedings done during its old composition. When replacing an arbitrator, the newly composed arbitral tribunal decides at its own discretion whether to deviate from the rule of resuming the proceedings without repeating procedural steps. As a general rule, witness hearings prior to the replacement are only to be repeated if no minutes of the hearing are available, or, the arbitral award is based on a decisive point which can only be properly assessed by one arbitrator’s own perception.
Further, the SFSC stated that the arbitral tribunal did not violate the parties’ right to equal treatment or right to be heard by not repeating the arbitration (cf. Article 190(2)(d) PILA). In addition, public policy is not violated by not repeating certain proceedings (cf. Article 190(2)(e) PILA). Thus, these two attempts to challenge the award failed as well.
Arbitral Awards will only be set aside on substantive and clear ground of procedural unfairness
In Swiss case law it has been held that the list of grounds to challenge an award in Art. 190(2) PILA must be interpreted extremely narrowly (cf. decisions of the SFSC 116 II 721 (723) or 115 II 102 (105)). This latest ruling again shows that the SFSC is only setting aside an arbitral award in very rare cases, based on substantive and clear grounds of procedural unfairness.