On 4 September 2023, the Swiss Federal Tribunal Court (“SFSC”) decided on appeals raised against three closely linked cases (case nos. 4A_144/2023, 4A_146/2023, 4A_148/2023). Its decision provides important clarifications on the concept of autonomy of an arbitration clause in the context of the assessment of the contractual party’s legal capacity to act as well as on the extension of an arbitration clause to non‑signatory third parties due to their involvement in the execution of the contract containing the arbitration clause.
A.A. is a business man domiciled in Switzerland and has four sons, A.B., A.C., A.D. and A.E. A.A. founded a group of companies active in the oil and gas industry (“the Group”). The Group, among others, includes two Dutch companies H. and F. and two Panamanian companies Y. Ltd and Z. Ltd.
From 2011, A.A. and his sons started to hold meetings within the framework of a “family council” to provide for a formal setting to discuss strategic decisions for the Group, such as its administration as well as investments. Between June 2010 and November 2011, five different loan agreements were concluded among various Dutch and Panamanian subsidiaries of the Group. All loan agreements are governed by Swiss law and contain an identical arbitration clause, providing that any dispute, controversy or claim arising out of or in relation to the loan agreements shall be resolved by arbitration with seat in Geneva in accordance with the Swiss Rules of International Arbitration. By means of a debt assumption agreement dated 14 January 2021 containing an identical arbitration clause and signed by A.A., the Panamanian companies Y Ltd. and Z. Ltd. became jointly and severally liable for repaying the Group-internal loans.
In September 2021, the competent Swiss authorities found that A.A. suffered from forgetfulness and needed help with most basic activities of daily life and ordered a legal guardianship for A.A.
On 4 February 2021, the Dutch companies F. and H. initiated arbitration proceedings against A.A., his four sons as well as the Panamanian companies Y. Ltd. as well as Z. Ltd. based on the arbitration clause contained in the loan agreements and the debt assumption agreement, seeking repayment of the amounts advanced under two of the loan agreements. Two of the sons (A.B. and A.C.), A.A. as well as Y. Ltd. and Z. Ltd. challenged the validity of the arbitration clause and the jurisdiction of the arbitral tribunal. Y. Ltd. and Z. Ltd. argued in particular that the arbitration agreement contained in the debt assumption agreement was invalid since A.A. lacked the legal capacity to act when he signed the agreement. A.A., A.B. and A.C. further argued that, as non-signatories, they were not bound by the arbitration agreement contained in the loan and debt assumption agreements.
The decisions of the SFSC
On 31 January 2023, the arbitral tribunal issued an interim award wherein it affirmed its jurisdiction. Y Ltd. and Z Ltd. (case no. 4A_148/2023). The sons (A.B. and A.C.) (case no. 4A_144/2023) as well as A.A. (case no. 4A_146/2023) appealed this interim award to the SFSC on the grounds of lack of jurisdiction in accordance with Art. 190 para. 3 in conjunction with Art. 190 para. 2 lit. b of the Swiss Private International Law Act (“PILA”).
A request for the joinder of the three appeal proceedings was dismissed. Even though the SFSC held that the appeals are closely linked, it found that the issues raised differ significantly. Therefore, a joinder was not justified from a procedural efficiency perspective.
- Autonomy of the arbitration clause (case no. 4A_148/2023)
In the appeal raised by Y Ltd. and Z Ltd., the SFSC confirmed its long standing case law that the validity of the arbitration clause must be evaluated separately from the validity of the main contract, or in this case the disputed debt assumption agreement. However, the SFSC emphasized that this principle of autonomy is not absolute and may be subject to exceptions. Thus, a defect affecting the validity of the main contract may also lead to the invalidity of the arbitration clause, for instance if the person signing the main contract was not authorized to act on behalf of the relevant party. Nevertheless, according to the SFSC and contrary to what the appellants argued, this does not mean that a defect related to the person signing the main contract always extends to the arbitration clause. Rather, the autonomy of the arbitration clause remains the rule in accordance with Art. 178 para. 3 PILA.
With regard to the specific defect in question, namely A.A.’s legal capacity to act, the SFSC emphasized that this is a relative concept and must be assessed individually in relation to a specific act. In view of this, it is possible for a person to have the legal capacity to agree to an arbitration clause, but not to a main contract, such as the debt assumption agreement in question, or the other way around. The SFSC therefore confirmed the arbitral tribunal’s conclusion that no exception from the principle of autonomy of the arbitration clause applied in the present case and that A.A.’s legal capacity to act had to be assessed solely with regard to the arbitration clause, and not with regard to the debt assumption agreement as a whole.
In the sequence, the SFSC recalled that, in principle, the legal capacity to act of a person is presumed and that the burden of proof of A.A.’s lack thereof was on the appellants. The SFSC emphasized that a reversal of the burden of proof could only be accepted, if the person concerned were in a permanent state of mental weakness. As the arbitral tribunal had, in the SFSC’s view, correctly held, this was not the case. Consequently, the SFSC dismissed the appeal and upheld the interim award on jurisdiction of the arbitral tribunal.
- Extension of the arbitration clause to non-signatory third parties (case nos. 4A_144/2023 and 4A_146/2023)
In the appeal raised by A.A., A.B. and A.C., the appellants argued that the arbitral tribunal unjustifiably extended the scope of the arbitration clause contained in the loan agreements beyond the companies signing these loan agreements to them as non-signatory third parties. In its decisions, the SFSC confirmed its standing case law that, under certain circumstances, the arbitration agreement may be binding on persons who have not signed or are not mentioned in it. This is the case in particular if a third party interferes in the performance of a contract containing an arbitration clause in a way that it can be deemed to have agreed to the arbitration agreement. This case law is based on the principle of good faith, which is why a will of a third party to be bound by an arbitration agreement cannot be assumed lightly.
Based on this case law, the arbitral tribunal found that the involvement of the appellants in the execution of the disputed loan agreements demonstrated their willingness to be bound by the arbitration agreement contained in the loan agreements. Thus, the arbitral tribunal established a general willingness of the members of the family A. to submit possible disputes to arbitration. Moreover, the arbitral tribunal deemed it likely that the appellants were involved in discussions on the conclusion of the Group-internal loan agreements as members of the “family council” and benefitted directly or indirectly from the granted loans. Lastly, the arbitral tribunal found that the appellants took an active part in the discussions concerning the repayment of the loans in particular because they opposed the sale of real estate acquired with the funds in question.
The arbitral tribunal thus based its decision on an expressed actual will of the appellants to be bound by the arbitration clause. Considering that the SFSC is, in principle, bound by the facts established by the arbitral tribunal, its review was limited. Ultimately, the SFSC confirmed the arbitral tribunal’s assessment and held that the appellant’s actions can objectively be interpreted as an expression of their willingness to be bound by the arbitration clause. Consequently, the SFSC dismissed the appeal and upheld the jurisdiction of the arbitral tribunal.
In these three connected decisions, the SFSC further developed its case law on important principles governing the interpretation of arbitration clauses, namely the autonomy of arbitration agreements from the main contract and the extension of arbitration clauses to non-signatory third parties.
The SFSC in particular clarified that a defect affecting the main contract will not necessarily extend also to the arbitration agreement, or vice-versa. Namely, if the signatory of a main contract containing an arbitration clause lacks the legal capacity to act, the consequences thereof must be assessed separately for the arbitration agreement and the main contract, since a person’s legal capacity to act must be evaluated individually in relation to a specific act.