Judgment of the Federal Supreme Court of 19 January 2021
Case Reference : 4A_503/2020

Facts

By agreement dated 27 July 2017, two Swiss companies undertook to work together on an IT project, whereby one of the contractual partners had to carry out work for the Swiss government.

According to Article 9, paragraph 5 of the agreement, any dispute arising from the contract shall be settled through negotiations. If such dispute cannot be settled, it may be submitted before the Commercial Court of the canton of Zurich (“Bei Meinungs verschiedenheiten ist vor Anrufung des Richters eine gütliche Einigung anzustreben. Sollte sich dennoch eine gerichtliche Beurteilung nicht vermeiden lassen, gilt als Gerichtsstand: das Handelsgericht Zürich[.]”).

Under Article 2 of the agreement, the parties attached a binding specification sheet for the IT project and further specified that the latter would prevail in case of conflict with the main contract. The specification sheet itself referred to two different sets of general terms and conditions: those of one of the parties, i.e. the defendant (hereafter: the “Defendant’s Terms”), and those of the Swiss Federal government (hereafter: the “Federal Terms”).

The two sets of terms and conditions differed from the main contract regarding the forum clause: the Defendant’s terms set out the jurisdiction of the general courts of the canton of Zurich, rather than that of its Commercial Court (“Gerichtsstand: das Handelsgericht Zürich”, original emphasis), while the Federal Terms had set out the jurisdiction of the courts of the canton of Bern (“Ausschliesslicher Gerichtsstand ist Bern”). Both sets of terms, however, also stipulated that negotiated contractual documents shall prevail over their own provisions.

On 8 April 2020, one of the parties sued its counterpart before the Commercial Court in Zurich, claiming damages on the grounds of an alleged breach of contract. The defendant challenged the jurisdiction of the Commercial Court, and argued inter alia that since the agreement was subject to three contradictory choice of forum clauses, the clauses were void and the competent jurisdiction should be determined in light of the default rule of Article 31 of the Swiss Civil Procedure Code (SCPC), which sets out the jurisdiction of the courts of the canton of either the defendant’s registered office or the place where any of the contractual obligations are to be performed.

Given that the Commercial Court ultimately confirmed its jurisdiction to hear the case on the grounds of the choice of forum clause contained in the main cooperation agreement, the defendant appealed the case before the Federal Supreme Court (FSC), which gave rise to the judgment presented hereunder.

Issues at stake

When several contractual documents, i.e. the main contract and general terms and conditions, contain conflicting choice of forum clauses, which one should prevail?

Judgment

Under Swiss law, the substantive validity of a choice of forum clause rests upon whether the involved parties consented to the jurisdiction of the selected court; in this regard, their choice must be precisely and clearly demonstrated so as to allow said court to establish its competence beyond a reasonable doubt (Art. 17 para. 1 SCPC, see also ATF 132 III 268).

Through the application of this principle, the FSC found that the parties had validly selected the Commercial Court of the canton of Zurich through Article 9 paragraph 5 of the cooperation agreement, which prevailed over the other choice of forum clauses. The Federal Supreme Court held, inter alia, that:

• Article 9 paragraph 5 could be reasonably understood by both parties as selecting the Commercial Court of the canton of Zurich;
• The provision in question had been individually negotiated, whereas the other clauses were set out in pre-formulated general terms and conditions, and were therefore not indicative of the parties’ common intent; and
• Both the Defendant’s Terms and Federal Terms recognized the above principle of interpretation by stating that individually negotiated terms prevailed over them; furthermore, the cooperation agreement only referred to the IT specification sheet itself and not directly to either of the Terms.

The FSC thus concluded that the Commercial Court in Zurich had rightly confirmed its jurisdiction over the case matter and upheld its decision to let the court hear the case.

Key take-away

This case provides helpful guidance for cases where conflicting choice of forum clauses are contained in a contract and its annexes. The FSC will primarily resolve such conflicts by referring to the parties’ common will as expressed in their negotiated contract but also through their other communications and statements of intent. Pre-formulated documents – such as general terms of conditions – shall on the other hand not be considered as an indication of the parties’ common will, and are thus unlikely to prevail over the former.

Comment

The judgment handed down by the FSC, which was rendered in the context of an internal (intra-Switzerland) dispute subject to the SCPC, is in line with the principles applicable to choice of forum clauses in international disputes, including under the Brussels I (recast) Regulation. In its judgment of 8 March 2018 (Case C-64/17, Saey Home & Garden v Lusavouga-Máquinas e Acessórios Industriais), the Court of Justice of the European Union (CJEU) similarly stated that the parties’ consent to a choice of forum clause must be clearly established, e.g. through an express reference made thereto in the main contract. Accordingly, the CJEU voided a choice of forum clause which was contained in a seller’s general terms and conditions since it was only referred to by said seller in its invoices to its counterparty.

As a result, parties to a contract should be aware that choice of forum clauses contained in their general terms and conditions will generally not be enforced by courts in the absence of an express agreement made with their contractual partner(s).

Judgment of the Federal Supreme Court of 2 November 2020
Case Reference : 4A_151/2020

Facts

The dispute concerned a loan. On an undisclosed date, the lender transferred an amount of EUR 500,000 to the borrower. By a later agreement executed on 30 June 2006, the parties confirmed that this transaction constituted a formal loan. Under the terms of the agreement, the borrower undertook to repay the EUR 500,000 with interest by 30 June 2006; he also formally declared himself debtor to that sum under Swiss insolvency law (which constituted an acknowledgment of debt within the meaning of Art. 82 of the Federal Debt Enforcement and Bankruptcy Act [DEBA]). The loan agreement further contained conflicting dispute resolution clauses: first, a general jurisdiction clause under which all disputes under the contract should be brought before the courts of Lugano (Switzerland), and, second, an arbitration clause stating that specific disputes on the interpretation and application of the contract should be brought before a single arbitrator (the said clause states [in Italian]: “sull’interpretazione e sull’applicazione della presente convenzione”).

On 23 March 2005, the parties concluded a second loan agreement, drafted under the same terms, for the additional sum of EUR 250,000 with a maturity date of 1 March 2007.

Around a year later, on 29 March 2006, the borrower acknowledged his total debt of EUR 750,000 (a) by signing an account statement in favor of the lender, and (b) by constituting, through a further agreement executed with the lender, a collateral on his above-mentioned debt by pledging several shares he owned in a company.

With the borrower having failed to repay the amount of the loan by the contractually agreed maturity dates, the lender sued the borrower before the courts in Lugano for the sum of EUR 750,000. Among other arguments, the borrower disputed the jurisdiction of the courts by claiming that the dispute fell within the scope of the arbitration clause.

Issue

What is the material scope of an arbitration clause limiting the arbitrator’s competence to disputes over the interpretation and application of the relevant contract? Does this substantive scope cover legal proceedings initiated in order to request the performance of the contract?

Decision

Under Swiss law, interpretation of contractual clauses – including arbitration clauses – rests upon an examination of the true and common intention of the parties, which prevails over the objective method of contract interpretation based on a plain meaning of the text (Art. 18 of the Swiss Code of Obligations [SCO]). On that basis, the FSC found that the arbitration clause was meant by the parties to only cover disputes centered on the interpretation and application of the loan contracts. The lender’s claim in repayment of the loan, which sought performance of the borrower’s repayment obligation under the contract, was not such a dispute and therefore fell outside of the scope of the arbitration clause. Based on this reasoning, the FSC rejected the borrower’s challenge to the jurisdiction of the Swiss courts and affirmed their jurisdiction over the matter.

Another interesting issue which was resolved by the FSC in this decision is mentioned below.

Under Art. 257 of the Swiss Civil Procedure Code (SCPC), claimants in civil proceedings may file their suits under expedited summary proceedings when their claims concern so-call “clear cases” (cas clairs). Clear cases are those disputes in which (a) the facts are either undisputed by the parties or directly documented by proof, and in which (b) the legal situation is clear enough to be immediately resolved by the judge.

In the case at hand, the lender filed suit before the lower court in Lugano under expedited proceedings, arguing that the borrower’s multiple written acknowledgements of the full amount of the loan directly provided the legal grounds for his claim in reimbursement (under Art. 82 DEBA), which in his view led to a clear case. The borrower disputed this point before the FSC. He alleged that the agreements and declarations that he signed in relation to his debt did not reflect the actual dealings between the parties, which he portrayed as complex and tainted by several acts of misrepresentation on the part of the lender. Ultimately, the FSC sided with the lender and found that the documentation at hand was sufficient to clearly establish the claim in payment and thus capable of being adjudicated under expedited proceedings as a clear case.

Key takeaway

This case illustrates the risks of careless contract drafting resulting in conflicting dispute resolution clauses. In this case, the FSC held that legal proceedings for the enforcement of contractual obligations fell outside the scope of the arbitration clause limited to the interpretation and application of the contract.

Comments

The FSC’s decision appears sound when confronted with the specific facts of the case at hand, in which the lender’s claim in payment was unambiguously supported by the terms of the parties’ agreements. One may, however, question whether the Supreme Court’s decision may still be valid in situations in which the enforcement of a contract would require the interpretation of its terms.

This dispute illustrates the risks for parties in drafting so-called “hybrid dispute resolution clauses” by which the parties decide to split the jurisdictional powers between courts and arbitral tribunals depending on the nature of the disputes that may arise between them. Indeed, such clauses may cause difficulties in case of overlap between the respective jurisdictional powers of arbitral tribunals and/or state courts. Parties to commercial contracts may avoid these risks by opting for a single forum to decide all disputes arising under their agreement.