Switzerland: The Federal Tribunal sets aside an award because the sole arbitrator’s mission had previously been terminated by agreement of the parties

On January 28th, 2014, the Swiss Federal Court set aside an award issued in an ad hoc arbitration, on the ground that the sole arbitrator had wrongly accepted jurisdiction even though his mission had previously been terminated by agreement of the parties.

The sole arbitrator had been appointed on May 27th, 2010 to “promptly” resolve a dispute which had arisen between a French and a Swiss company. The arbitral proceedings were governed by the Swiss federal private international law (PIL) as well as by the civil procedure law of the Canton of Geneva (LPC).

By a first procedural order issued on October 18th, 2010, the sole arbitrator set up a provisional procedural timetable stating that the award should be rendered on April 20th, 2011.

Despite many reminder letters from the parties’ counsel, the award was still not rendered in June 2013, that is, two years after the date initially envisaged in the provisional timetable.

The arbitrator then proposed to the parties to resign if the award was not rendered and received by both parties’ counsel before 5 p.m. on September 2nd, 2013. This offer was accepted by the parties.

However, the award was received by the parties’ counsel on September 3th and 4th. Thus, one of the counsel immediately filed an action to set the award aside before the Swiss Federal Tribunal, on the ground that the award had been rendered after the arbitrator’s resignation.

The application for annulment was based on Article 190-2 section (a) of the PIL, which states that an award can be set aside “a) when the sole arbitrator has been irregularly appointed or the Arbitral Tribunal irregularly constituted […]”.

The Swiss Federal Tribunal found the application was admissible and ruled that the sole arbitrator’s mission was terminated on September 2th, 2013, at 5p.m, by agreement of the parties as foreseen under Article 179-1 of the PIL.

By judgment issued on January 28th, 2014, the Swiss Federal Tribunal set aside the award rendered by the sole arbitrator, not on the ground raised by the Claimant, i.e., the irregularity in the appointment of the arbitrator, but on that of Article 190-2, section (b) of the PIL, i.e., that the tribunal had accepted jurisdiction when his mission was terminated.

This judgment may help clarify the grounds on which an award should be set aside when an arbitrator renders an award after the termination of his mission under French law.  Indeed, French scholars and courts have been pondering since the statutory order of 2011 whether this issue fell under Article 1492-1 of the French Code, i.e., that “the Tribunal wrongfully accepted jurisdiction”, or under Article 1492-3, that is, that “the Tribunal ruled without conforming to his function”.

This judgment also reveals the flaws of ad hoc arbitration, where only the parties can put an end to excessive time limits and repeated extension for the rendering of the award. In contrast, institutional arbitration rules regulate more firmly the time limits in which the award should be rendered, for example, by giving exclusive power to the institution to grant additional time, upon the arbitrator’s request. This system better guarantees the effectiveness and the rapidity of arbitration.

The decision is available here.

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