Switzerland: Awards Based on Grounds not Submitted by the Parties

Awards made in Switzerland may be challenged (directly before the Supreme Court) if the arbitrators have violated the parties’ "right to be heard in adversary proceedings" (guaranteed by Articles 182(3) and 190(2)(d) of the Swiss Private International Law Act).

The right to be heard applies in connection with factual as well as legal issues. As to legal issues, however, the right to be heard does not prevent the arbitrators from deciding the case on arguments or rules that have not been submitted. Nor is there a right of the parties to be given an opportunity to supplement their legal submissions before the arbitrators decide on such a different basis. Several cases have so held.

The case reported has now created an exception to the above rule. This case holds that if the arbitrators wish to decide the dispute on a legal basis that was unforeseen and unforeseeable for the parties, the arbitrators must give an opportunity to the parties to supplement their submissions on such unforeseeable legal issue.

The case was about the validity of a termination based on a governmental decree rendering some contractual clauses illegal. The terminating party had based its termination on the clause of the contract dealing with force majeure and further relied on theories of illegality and changed circumstances (clausula rebus sic stantibus). These were the bases asserted and discussed during the arbitration. Further, both parties argued on the assumption that their contract had made no specific provision for the situation at hand. The tribunal found, however, that the decree was to be treated as the lack of a governmental license and was consequently addressed in the contractual provision dealing with the absence of a license.

In view of previous cases, the exception created by the case reported here may come as a surprise. The Supreme Court’s previous decisions have consistently sanctioned the arbitrators’ complete freedom to go outside the parties’ legal submissions. The case probably does not signal a change in the law, however. The case appears to have been an extreme one. Not only could the parties not have foreseen the arbitrators’ reasoning, but one gets the impression that given the opportunity, the parties could easily have put the arbitrators right by providing evidence as to what the contract meant.

Pierre-Yves Tschanz, tschanz@taverniertschanz.com