Switzerland: The Text Evidencing An Agreement to Arbitrate Need Not Mention All The Parties Bound By The Agreement Provided There Is Consent

Facts : X, Y and Z entered into a contract containing an arbitration clause. Z initiated arbitration proceedings against X, Y and A, on the ground that A constantly intervened in the making and performance of the contract. X and Y objected to the arbitration tribunal's jurisdiction regarding A in the absence of any arbitration agreement binding X, Y and Z to A. The arbitral tribunal found that it had jurisdiction also with respect to A and issued an award ordering X, Y and A, jointly and severally, to pay damages to Z. X, Y and A challenged the award before the Swiss Supreme Court.

Held: The Court upheld the award finding that, based on the law chosen by the parties, an arbitration clause can be extended to a third party on the basis of that party's constant involvement in the making and performance of the contract. The Court expressly reserved its position as to the validity of a similar extension under Swiss law.

Reasons: For a valid agreement to arbitrate, Swiss Private International Law Act ("PIL Act") Article 178 requires both consent (substantive validity) and a text evidencing the agreement to arbitrate (formal validity). Whether a party is bound by a text is an issue of consent, i.e. substantive validity. Thus, the text need not evidence the consent of all the parties.

Regarding substantive validity, an arbitration clause is valid if it fulfils the requirements either of the law chosen by the parties to govern the arbitration agreement, or the substantive law applicable to the dispute, or Swiss law (PIL Act, Art. 178(2)), whichever is more favourable to the validity of the agreement. In the instant case, the parties had agreed to subject the dispute to both Lebanese law and relevant trade usages. The arbitration tribunal found in the relevant trade usages the legal justification for the extension of the arbitration clause to a third party on the basis of such party's constant involvement in the making and performance of the contract.