The Swiss Federal Supreme Court has rendered a notable judgment confirming that, as a matter of Swiss law, the threshold for extending an arbitration agreement to a non-signatory is high. Absent clear evidence that the non-signatory intended to be bound by the arbitration clause, a claimant seeking to commence arbitration against the non-signatory will be very unlikely to succeed. Parent companies that guarantee performance by a subsidiary of a contract containing an arbitration agreement will not, without more, be deemed to have acceded to that arbitration agreement: the guarantor must have demonstrated, either expressly or by its conduct, that it intended to be bound to arbitrate.

This case concerned a contract between a Qatari entity and a Cypriot entity for the performance by the former of dredging works in respect of a construction project in Qatar. The contract was subject to Swiss law and contained a dispute resolution clause providing for ICC arbitration in Geneva. The Qatari party's Italian parent issued a letter by which it guaranteed performance by its subsidiary of the contracted dredging works and undertook to reimburse certain sums if owing by reason of its subsidiary's default. The Cypriot entity initiated arbitration against the Italian parent for USD 20 million in costs allegedly arising as a result of the Gulf War and other unforeseen conditions. In January 2008 an arbitral tribunal duly appointed by the ICC found that it had no jurisdiction to determine the claim.

In upholding the tribunal's award, the Federal Supreme Court confirmed that the circumstances in which an arbitration clause will be applicable to a non-signatory are very limited. While such an extension may be upheld when a right to which the arbitration clause applies has been assigned to a third party, or when a third party assumes the debts of a contracting party, it will not be upheld simply because a third party has guaranteed the obligations of one contracting party and/or is a member of the same group of companies as a contracting party.

The Court distinguished its decision in a 2003 case, in which a third party had consistently interfered in the performance, by a company it owned, of a contract containing an arbitration clause. That interference was construed to amount to an acceptance by the third party that it was bound by the arbitration clause. The Court distinguished the present case on the basis that mere provision of a parent guarantee would not by itself operate to extend the arbitration agreement. Explicit evidence (within the guarantee document or by other communication or conduct) that the guarantor intended to be bound to arbitrate was required.

This case serves as a reminder that parties to multi-contract transactions should include careful drafting to avoid the risk of costly jurisdictional battles and/or parallel proceedings.

(Swiss Federal Supreme Court, 4A_128/2008)