Counsel, HVDB
I was appointed presiding arbitrator in an ICC case seated in Geneva, Switzerland. From the moment I made the “conflicts check”, I foresaw that the case would be challenging. However, little did I know that I would have to deal with anti-arbitration proceedings, and a non-participating respondent who was a sanctioned entity under the EU and Swiss international sanctions regimes.
The dispute in a nutshell
The claimant was a company incorporated in a EU Member State. The respondent was a partially state-owned entity established under the laws of a country which had been subject to international sanctions by both the EU and Switzerland. Notably, the respondent itself was a sanctioned entity under said regimes.
Over a decade ago, the parties had entered into a contract for the delivery of equipment and the provision of services concerning the construction of a processing plant (the “Contract”). The Contract was governed by Swiss law and contained an arbitration agreement. Pursuant to the arbitration agreement, any dispute arising out of the Contract would be decided by a three-member tribunal seated in Geneva in accordance with the ICC Rules.
In brief, the claimant argued that it had provided equipment and rendered certain services which had not been paid by the respondent. For months, the parties exchanged correspondence regarding the claimant’s claims. Eventually, the respondent filed an application seeking an anti-arbitration injunction before its local courts to prevent the claimant from initiating arbitration proceedings.
A first instance court sided with the respondent based on local legislation that granted local courts exclusive jurisdiction over commercial disputes — subject to specific conditions concerning international sanctions — despite the existence of an arbitration agreement. The decision was subsequently confirmed by the Court of Appeals and the Supreme Court.
A few days after the Supreme Court’s decision was issued, the claimant initiated arbitration proceedings against the respondent.
The respondent did not formally participate in the arbitration proceedings. It did not attend the case management conference, the hearing, nor did it file submissions on the dates set out in the procedural calendar. However, it did send a handful of emails at different stages of the arbitration, arguing that the arbitration agreement had become invalid under the law of the respondent’s jurisdiction, as had been recognised by the anti-arbitration injunction. Accordingly, in its view, the tribunal lacked jurisdiction to entertain the claimant’s claims.
Dealing with a non-participating respondent is cumbersome. Much ink has been spilled on the subject in prior editions of this newsletter. A tribunal must ensure that the respondent’s procedural rights are protected while ensuring the equality of the parties. This requires striking a delicate balance between sua sponte addressing certain issues that should have been raised by respondent, and not hindering the claimant’s rights.
Two noteworthy issues came up during the proceedings.
The validity of the arbitration agreement
In this case, the tribunal started from the principle of kompetenz-kompetenz and set out the law applicable to the validity of the arbitration agreement. We concluded that regardless of the outcome of the anti-arbitration proceedings, we had the authority to decide on our jurisdiction. Moreover, taking the Swiss Federal Act on Private International Law (which was the lex arbitri) as a starting point, we concluded that the validity of the arbitration agreement should be assessed under Swiss law.
We then assessed the substantive and formal requirements for the validity of an arbitration agreement under Swiss law. The arbitration agreement, being a standard ICC clause, complied with those conditions. Technically speaking, the respondent never argued that the arbitration agreement was invalid or incapable of being performed under the lens of Swiss law. That alone would have been sufficient to dismiss the respondent’s objection.
Nevertheless, wishing to avoid shortcuts, we opted to analyse whether the respondent’s law or the anti-arbitration proceedings could hinder the arbitration agreement from a Swiss law perspective. It was pivotal to analyse the EU and Swiss international sanctions regimes to understand whether, in this specific case, the respondent would have been able to perform the arbitration agreement notwithstanding the sanctions.
To answer this query, we considered, among others, the following issues: (i) whether despite some of the respondent’s bank accounts being frozen, the respondent could have sought permission to pay for legal services related to the arbitration with such funds; (ii) whether the respondent could have engaged local or EU/Swiss counsel/experts to represent its interest in the arbitration; and (iii) whether the imposition of visa restrictions to certain of the respondent’s employees could have affected its procedural rights in the arbitration.
Whether it was possible to conduct a virtual hearing
As it turned out, the arbitration agreement was oddly formulated and hinted that the proceedings should take place in Geneva.
In light of this wording, we looked into whether the arbitration agreement allowed virtual hearings. We raised this issue even before the case management conference, and for months, we gave the parties multiple opportunities to express their views. In this regard, suffice it to say that “winging it is easier with a parachute”. As an arbitrator, one needs to anticipate potential issues from the outset, be prepared, and, whenever possible, raise those issues with the parties well in advance.
The claimant argued that a hearing was not necessary, and, in the alternative, that it was in favour of a virtual hearing. The respondent remained silent.
We ultimately decided that holding a virtual hearing was essential to protect the respondent’s procedural rights and to ensure that the respondent would have yet another opportunity to present its case.
We analysed the arbitration agreement and concluded that there was no express prohibition to conduct a virtual hearing. We also considered that the current state of global affairs —strict visa requirements and lack of direct flights from the respondent’s jurisdiction to Geneva— could deter the respondent from attending an in-person hearing.
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An arbitrator, as a chess player, should always be looking ahead, anticipating and solving problems before they materialise. Additionally, one should not take shortcuts when it comes to fundamental issues in the decision-making process. Awards must be succinct, clear, well-reasoned, and legally sound. Occasionally, to ensure the quality and enforceability of the award, arbitrators must delve into issues that were not properly pleaded by the parties. Finally, aside from applying the law, one should always keep an eye open to the specific circumstances revolving around not only the dispute itself, but also the procedure.