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26 July 2018
In a recently published decision, the Supreme Court has confirmed its jurisdiction to decide claims secured by a retention right as provided for by Swiss law (Article 895 of the Swiss Civil Code).(1)
The dispute pertained to, among other things, the return of a share certificate of company X from lawyer A to foundation B. The latter was the sole heir of C, with whom A had entered into a mandate agreement in relation to X.(2) Following C's death, B claimed the return of the share certificate from A, who refused and asserted a retention right to secure his claims for outstanding payments under various agreements, including under the mandate agreement.
Based on the arbitration agreement contained in the mandate agreement, B started an ad hoc arbitration in Zurich to obtain the return of the certificate. In an interim award, the arbitral tribunal found that it had jurisdiction to decide all of B's prayers for relief.
A challenged this award before the Supreme Court for lack of jurisdiction. It requested the Supreme Court, among others, to annul the arbitral tribunal's abovementioned finding in respect of the alternative part of prayer for relief 1 (which was for an order that A return the share certificate to B, alternatively against payment by B of an amount corresponding to A's retention claims (ie, the claims purportedly secured by the retention right) as set by the arbitral tribunal) and of prayer for relief 10 (which was for a declaration that A had no claims against B arising out of the contractual relationship created by the mandate agreement, respectively arising out of the disputes resulting from its termination). According to A, the arbitral tribunal had jurisdiction to decide prayer for relief 10 only to the extent that it involved A's claims resulting from the mandate agreement and it had no jurisdiction to decide the alternative claim contained in prayer for relief 1.
The Supreme Court first summarised the findings in the challenged award and A's arguments against such findings, as follows:
The Supreme Court then noted that the arbitral tribunal had not established a common and actual intention of the parties regarding the scope of the arbitration agreement. Therefore, such scope had to be interpreted objectively.(5) In this respect, the Supreme Court recalled that, in the absence of specific circumstances, it must be assumed that the parties want to submit their entire dispute to the arbitral tribunal and to avoid that single questions must be submitted to other tribunals for decision, which is why arbitration agreements covering disputes arising out of a specific contract also cover disputes over the conclusion and termination of that contract.(6)
The Supreme Court thus found that even if the arbitration agreement rather restrictively referred to "disputes arising out of" the mandate agreement, it had to be understood in good faith as also encompassing disputes in relation to the conclusion and termination of that agreement. Therefore, to the extent that A brought claims in relation to the termination of the agreement, the arbitral tribunal had rightly admitted its jurisdiction to decide prayer for relief 10.(7)
Regarding the alternative part of prayer for relief 1, the Supreme Court held that, if there is a "sufficiently strict natural link" between the retained object (ie, the share certificate) and the secured claims (ie, the outstanding payments) and ultimately with the mandate relationship, it must be assumed that the parties agreed to submit to the arbitral tribunal not only the contractual claim for the return of the certificate, but also the secured claims. This assumption remains even if the possession of the retained object and the secured claims do not have the same legal cause. Therefore, the Supreme Court found that the arbitral tribunal's jurisdiction encompassed also the claims that showed a sufficient link with the possession of the share certificate.(8)
The Supreme Court thus rejected the challenge and confirmed the arbitral tribunal's jurisdiction to decide both the disputed prayers for relief. However, the Supreme Court made clear that such jurisdiction did not exist in respect of claims unrelated to the termination of the mandate agreement or unconnected with the retention of the share certificate.(9)
For further information on this topic please contact Frank Spoorenberg or Daniela Franchini at Tavernier Tschanz by telephone (+41 22 704 3700) or email (email@example.com or firstname.lastname@example.org). The Tavernier Tschanz website can be accessed at www.taverniertschanz.com.
(2) The mandate agreement and other agreements between A and C were terminated by a lawyer on behalf of C after a number of custodial measures had been ordered due to C's status of health. A disputed such terminations.
(5) For further details regarding the interpretation of arbitration agreements see "Award set aside for lack of consent to arbitrate".
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