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Blogs - Arbitration Case Digest

Extension of arbitration agreement to non-signatory upheld under New York Convention

23.05.2019 – Case Number: 4A_646/2018 (17 April 2019)

In a recently published German-language decision, slated for publication in the official court reporter, the Swiss Supreme Court upheld a judgment in which a lower court extended an arbitration agreement to a non-signatory because it had intervened in the performance of the main agreement. Moreover, the lower court had also held that an arbitration agreement may be "tacitly prolonged". Accordingly, the lower court declined jurisdiction to hear the claims brought before it and referred the parties to arbitration in accordance with Article II(3) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (NYC).

The case concerned a distribution agreement containing an arbitration clause, between two companies. In practice, a sister company (defendant) of the distributor, which was not a signatory to the distribution agreement, performed the agreement and went on to do so beyond the agreement's initial term. The principal (petitioner) sought payment of the allegedly outstanding amounts from the defendant before the court of competent jurisdiction. The defendant raised an arbitration defence and the principal argued that the defendant was not bound by the arbitration clause given that it did not sign the distribution agreement. In addition, the principal alleged that the tacit prolongation of the term of the distribution agreement did not entail the prolongation of the arbitration clause on the grounds that the latter was separate and independent from the distribution agreement.

In a landmark ruling, the Supreme Court held that where a non-signatory party is involved in the performance of an agreement and shows, by its conduct, that it intends to be party to the agreement and the arbitration clause, an arbitration clause can bind non-signatories under Article II of the NYC. Furthermore, the Supreme Court found that the formal requirements of Article II(2) of the NYC were not a bar to a tacit prolongation of the agreement and the arbitration clause contained therein. (Decision 4A_646/2018 (17 April 2019) (Swiss Supreme Court).)