In a recent decision,(1) the Supreme Court found that an arbitral tribunal had not violated the plaintiffs' right to be heard by rejecting their request to postpone the hearing, which was allegedly based on covid-19 pandemic-related difficulties. The Supreme Court held that the request was merely intended to delay the proceedings. The Supreme Court also found that the arbitral tribunal had not violated procedural public policy by giving res judicata effect to judgments issued by the High Court of England and Wales in a related litigation.
A shareholders' dispute was referred to arbitration in Geneva under the London Court of International Arbitration (LCIA) Rules 2014. Difficulties establishing the timetable of the proceedings arose after the arbitral tribunal issued a consent award and a partial award. More particularly, the respondents proposed an extended timetable, referring to difficulties in dealing with the arbitration and other related and unrelated proceedings in parallel, which the arbitral tribunal did not find acceptable. Subsequently, the respondents requested to:
- close the proceedings as the majority of the claims had been decided in the partial award and in judgments issued by the High Court of England and Wales; and
- deal with the remaining issues in a new arbitration or in another pending arbitration, which the arbitral tribunal refused to do.
The respondents also changed their legal representatives repeatedly during the proceedings and they did not file any statement of defence or witness statements.
Further to the arbitral tribunal's suggestion of a date for the hearing (which was shortly postponed at the claimant's request) and to hold the hearing remotely due to the covid-19 emergency, the respondents remained silent. They further failed to participate in a test of the videoconferencing facility's suitability.
On the day before the hearing, the respondents filed a last-minute request to postpone the hearing, without providing substantiated reasons in support of their request. The arbitral tribunal rejected the request, referring to the duty to avoid "unnecessary delay" (article 14 of the LCIA Rules), and maintained the remote hearing as planned. Thereafter, the arbitral tribunal issued its final award in which it granted the entirety of the claimant's claims. The arbitral tribunal explained that many of the alleged contractual breaches had been established by the judgments of the High Court of England and Wales and, therefore, that it adopted the High Court's analysis in this respect.
The respondents sought the annulment of the award before the Swiss Supreme Court, arguing a violation of:
- their right to be heard;
- parties' equal treatment; and
- substantive public policy.
The Supreme Court recalled that the principle of good faith requires a party to raise potential procedural defects in a timely manner, to try to obtain their correction pendente lite – under penalty of foreclosure – rather than keeping such a plea in reserve and invoking it only in the event of an unfavourable outcome. Although the plaintiffs (the respondents in the arbitration) waited for the notification of the final award to challenge the refusal to postpone the hearing, the Supreme Court considered that this obligation was not breached because the arbitral tribunal had declared the proceedings to be closed at the end of the hearing.(2)
The Supreme Court also recalled that:
while the right to be heard is a constitutional guarantee of a formal nature, the violation of which leads in principle to the annulment of the disputed decision regardless of the chances of success of the challenge, the plaintiff is expected to explain what influence the alleged defect may have had on the procedure when such defect is not immediately apparent.
In the present case, the plaintiffs failed to do so and their alleged difficulties in finding replacement legal representatives and collecting evidence during the covid-19 pandemic appeared to be merely a pretext to delay the proceedings. Further, if they were having difficulties with the procedural timetable, they should have indicated so (which they did not). Therefore, the arbitral tribunal did not violate the plaintiffs' right to be heard by refusing the postpone the hearing.(3)
The Supreme Court also denied that the arbitral tribunal had treated the parties unequally by refusing the plaintiff's request to postpone the hearing while having granted a postponement at the defendant's request (the claimant in the arbitration). The defendant had cooperated with the arbitral tribunal in the establishment of the timetable and it had explained why it needed a short hearing postponement. It is true that the plaintiffs were not consulted on this postponement, but the arbitral tribunal had invited the parties to indicate any difficulties with the new hearing date as soon as possible, which the plaintiffs did not until the hearing was shortly due to start. Thus, the arbitral tribunal could not be criticised for treating the two situations differently, since they were clearly not similar in context.(4)
Regarding the alleged violation of public policy, the Supreme Court first recalled the contours of the concept of res judicata under Swiss law. In this context, the Supreme Court emphasised the following:
An arbitral tribunal based in Switzerland must . . . determine the authority of a previous decision according to the lex fori, i.e. the principles developed by the Swiss Federal Supreme Court regarding res judicata, unless an international treaty provides otherwise.
The Supreme Court also confirmed its refusal to apply a broader notion of res judicata, as advocated by some scholars through reference to the recommendations of the International Law Association.(5)
Turning to the plaintiffs' argument, the Supreme Court found that the arbitral tribunal had provided several reasons for "incorporating" the English judgments into their award, and the plaintiffs had themselves given credence to the English judgments. Further, the witnesses heard in the arbitration proceedings confirmed several facts underlying the High Court of England and Wales's findings, and the arbitrators dealt in detail with the determination of the losses without really relying on those findings. Under these circumstances, it could be argued that the arbitral tribunal had incorporated the High Court's findings without discussion.(6)
The Supreme Court rejected the plaintiffs' argument whereby the arbitral tribunal would have breached its minimum duty to examine the relevant issues by:
- failing to discuss the requirements to apply the res judicata effect under Swiss law; and
- retaining the plaintiffs' contractual liability without making any findings of fact or developing any legal analysis.
In this respect, the Supreme Court recalled that:
the right to be heard . . . does not confer the right to a reasoned award, nor does it guarantee the substantive accuracy of the arbitral award. It is violated when the plaintiff has been deprived of the possibility of participating effectively in the proceedings, of influencing them and of expressing its point of view.
However, in relation to both criticisms formulated by the plaintiffs, the Supreme Court found that the plaintiffs had not explained which arguments had been articulated by them and ignored by the arbitral tribunal.(7)
Applying its well-established practice regarding the right to be heard, the Supreme Court clarified that the covid-19 pandemic is not a sufficient reason to justify the postponement of a hearing when it is used as a delaying tactic; particularly in the specific circumstances where it appeared that, even before the covid-19 crisis, the plaintiffs were already using such tactics to postpone the final decision.
The Supreme Court also confirmed that the concept of res judicata must be interpreted restrictively, and that there is no room to recognise the broader common law concepts of issue estoppel and issue preclusion.
For further information on this topic please contact Daniela Franchini or Frank Spoorenberg at Tavernier Tschanz by telephone (+41 22 704 3700) or email ([email protected] or [email protected]). The Tavernier Tschanz website can be accessed at www.taverniertschanz.com.
(1) Supreme Court, 4A_530/2020, 15 June 2021.