The Swiss Federal Court (Bundesgericht) is pictured in Lausanne, Switzerland March 23, 2021. REUTERS/Denis Balibouse

In a decision published on 15th June 2021, the Swiss Federal Supreme Court (“SFSC”) dismissed a challenge to set aside an arbitral award because in its view, the request to reschedule the hearing was merely intended to delay the arbitral proceedings, an intention which is not protected by the right to be heard (case no. 4A_530/2020 (in French)).

Factual background

In the case at stake, a dispute had arisen between the main shareholders of an Indian corporate group, governed by a Subscription and Shareholders’ Agreement (“Agreement”). The Agreement, which also contained an arbitration clause, was binding on the group’s holding company, as well as its main shareholders, companies A, B and Z. It set out a list of actions that fall within the reserved area. This contained, inter alia, that A and B must ensure that there is no action without the written consent of Z.

Due to poor financial records in 2016, A decided to suspend the group CEO and took over this function ad interim; however, without having obtained the consent of Z. Consequently, the group’s holding company, represented by the directors of Z, obtained an order from the High Court of Justice of England and Wales to stop A’s actions. To further clarify the issue, Z (the claimant and subsequently defendant before the SFSC proceedings) filed a request for arbitration with the London Court of International Arbitration (“LCIA”) under the LCIA Rules 2014 against A and B (both, the respondents and appellants before the SFSC proceedings).

With the emergence of the COVID-19 crisis in 2020, the arbitral tribunal proposed a more adapted procedural timetable with the proposal to conduct the hearing remotely via video conference. The respondents replied in the affirmative, but showed no further reaction to the procedural timetable. Subsequently, the respondents failed to attend the scheduled test of the video-conferencing facility and also failed to provide answers or witness statements within the given time limit. Moreover, the respondents repeatedly changed their legal representatives, with the consequence that the proceedings became lengthy and slow.

Eventually, the respondents submitted a last minute request to postpone the scheduled hearing, without however submitting any substantiated reasons. The arbitral tribunal rejected the respondents’ request and decided to hold the hearing by video conference as planned. In its award issued thereafter, the arbitral tribunal in essence confirmed respondents’ breach of the Agreement and thus annulled all the previous actions taken without the claimant’s consent.

The respondents then filed an appeal against this decision with the SFSC, arguing that the arbitral tribunal had violated its right to be heard by not rescheduling the hearing accordingly.

The right to be heard in international arbitration as formal constitutional guarantee

According to art. 190(2)(d) of the Swiss Private International Law Act (“PILA”), an award may only be set aside ‘where the principle of equal treatment of the parties or their right to be heard in an adversary procedure has not been observed’ (unofficial translation). According to the reasoning of the SFSC, the violation of the right to be heard in principle entails the annulment of the challenged decision. It is undisputed that procedural denial may lead to violation of the right to be heard if the arbitral tribunal does not consider the allegations, arguments, evidence and offer of evidence presented by one of the parties and which are substantial for the award to be rendered. However, this right is not limitless.

Delaying tactics are not protected by the right to be heard

The intentional attempt to delay an arbitration from proceeding – so called delaying tactics – is not protected by the right to be heard. Indeed, delaying tactics are considered contrary to an expeditious resolution of the dispute, one of the main goals of arbitration (cf. art. 14.4 LCIA Rules 2014).

According to the reasoning of the SFSC, regardless of the chances of success of the appeal, the appellants are expected to explain what influence the alleged procedural defect may have had, if such defect is not immediately apparent. In the case at hand, the appellants’ silence on this point only strengthened the opinion that the alleged difficulties in finding a lawyer and gathering evidence during the COVID-19 pandemic were merely a pretext (cf. consideration 5.5 in fine). The appellants’ repeated change of lawyers had just caused delays and were a tactic to stall the normal course of the arbitration. Further to their un-cooperative behavior, they could have indicated whether they had any difficulties with the procedural timetable, which they had not done. Based thereon, the SFSC came to the conclusion that the arbitrators could refuse the postponement of the hearing without violating the appellants’ right to be heard, which is also why it dismissed the appellants’ appeal to set aside the arbitral award.