An award was challenged for want of going through pre-arbitration conciliation. The clause read in part (in translation):

Any controversy or dispute relating to the present contract and which cannot be resolved amicably (including conciliation under the WIPO rules) shall be submitted to an arbitral tribunal which alone shall have jurisdiction to decide finally, to the exclusion of the ordinary courts. Moreover, the arbitral tribunal shall alone have jurisdiction to decide on any dispute concerning the applicability of this arbitration clause. Negotiations underway shall in no way constitute a hindrance to the initiation of arbitration proceedings.

A dispute arose under a license agreement. Unsuccessful settlement discussions ensued. Licensor proposed to submit the dispute to arbitration, and licensee thereupon terminated the contract and demanded damages. Licensor initiated arbitration, during which an unsuccessful settlement offer was made. Licensee protested to the arbitral tribunal that the latter could not proceed because licensor should first initiate conciliation proceedings. The final award held in favor of licensor, finding that the arbitral tribunal had jurisdiction, and that the request for arbitration had not been premature.

The award was challenged before the Swiss Supreme Court – which hears challenges directly, thus resulting in a fast and high level review.

The Court examined whether pre-arbitration conciliation was required in the particular case. It found it was not. The Court relied on the facts as established by the arbitral tribunal, since the fact-finding proceedings themselves were not challenged. The Court held that the legal principles of contract interpretation should be applied to the clause in dispute and, after a detailed review, concluded that such principles were not violated by the arbitral tribunal. The absence of any time limit for conciliation in the clause played a significant role, as well as its last sentence (arbitration may be commenced while negotiations are underway).

The Court left open the question of whether non-compliance with a prior conciliation requirement goes to the arbitral tribunal’s jurisdiction, or results in liability.

A practical point for drafters of conciliation-arbitration and med-arb clauses is that failure to clarify the parties’ intent as to the operation of such clauses may create a risk for the finality of the award. The risk carries on to the enforcement of the award, as lack of jurisdiction is also a ground under the New York Convention.

Noteworthy is also a further reason to reject the challenge: even if conciliation were required prior to commencing arbitration, this requirement could not be asserted in good faith here since the party challenging the award neither proposed nor initiated conciliation before or during the arbitration, but only objected to jurisdiction, thus negating its alleged interest in conciliation proceedings. Typically, the Court scorns parties who attempt to preserve a ground to challenge an unfavorable award when they could act to remedy the problem during the arbitration.

Source: Decision of the Swiss Supreme Court of June 6, 2007, 4A_18/2007, currently available in German from the website of the Swiss Supreme Court, www.bger.ch (direct link to full text on http://www.bger.ch/fr/index/juridiction/jurisdiction-inherit-template/jurisdiction-recht/jurisdiction-recht-urteile2000.htm - search term "4A_18/2007").

For more information, please contact Pierre-Yves Tschanz (tschanz@taverniertschanz.com) or any member of the Tavernier Tschanz arbitration group, tel. +41 (0) 22 704 3700.
Geneva, August 2007

www.taverniertschanz.com

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.