Internal arbitration: arbitrariness complaint against the interpretation of a budget reduction clause in the marketing agreement

Facts

Parties and proceedings: The appellant is a Swiss advertising and marketing agency (arbitration claimant), and the respondent is a European distribution company of the [B.] Group (arbitration respondent). The subject matter is internal arbitration. The appellant challenges the final arbitral award of the arbitral tribunal seated in Zurich dated 27 March 2019 (ICC Case No. 22613/FS) by way of a civil law appeal to the Federal Supreme Court.

Contractual basis: Since 1999, the [A.] Group has provided comprehensive marketing and advertising services to the [B.] Group on the basis of a framework agreement, and since 2002 on an exclusive basis. The Marketing Agreement MV 2016 of February/March 2016 provided for a first ordinary termination effective at the end of 2020, but granted the respondent a special right of termination at year-end against compensation. The arbitration clause (§ 14.2) refers to the ICC Rules of Arbitration, seat Zurich, language of the proceedings German, and applicable substantive German law.

Subject matter of the dispute: After the [B.] Group was taken over by a Japanese group, the respondent reduced the marketing budget in 2016 by approximately EUR 6 million and terminated MV 2016 effective at the end of 2016. The appellant disputed the validity of the termination and, in the arbitration, claimed outstanding payments for 2016 (EUR 2'251'408.--, alternatively EUR 21'634'094.--) as well as, in the event of a valid termination, damages or the lump-sum compensation claim under § 13.3 MV 2016. The respondent accepted the lump-sum compensation of EUR 7'977'694 and otherwise requested dismissal of the claim.

Arbitral award: The arbitral tribunal ordered the respondent to pay EUR 7'981'326.35 plus interest and otherwise dismissed the claim. It affirmed the validity of the termination, rejected a damages claim and a residual claim for 2016 (the advance payments exceeded the entitlement). The compensation payment under § 13.3 MV 2016 was calculated at a rate of 35% as EUR 10'611'352.15, and the respondent's counterclaims of EUR 2'630'025.80 were set off.

Requests before the Federal Supreme Court: The appellant requested the partial annulment of operative paragraph 2 (dismissal of EUR 6'990'607.25) and paragraph 3 (allocation of costs), with remittal to the arbitral tribunal, alternatively complete annulment. The respondent requested dismissal of the appeal. The arbitral tribunal considered the result and reasoning under German law to be free of error.

Considerations

Admissibility and scope of review: Since the parties had their seats in Switzerland when concluding the arbitration agreement and the PILA had not been agreed, the rules of internal arbitration (Art. 353 ff. CPC) apply. In the absence of a choice of a cantonal appellate court, the final arbitral award is directly challengeable by civil law appeal (Art. 389 para. 1, Art. 391 lit. a CPC, Art. 77 para. 1 lit. b FSCA). The grounds for challenge under Art. 393 CPC are exhaustive; the Federal Supreme Court only examines duly raised and substantiated complaints (Art. 77 para. 3 FSCA). It is bound by the factual findings of the arbitral tribunal (Art. 105 para. 1 FSCA), unless admissible complaints such as manifest inconsistency with the file (Art. 393 lit. e CPC) are raised.

No challenge to the termination and inadmissible challenges to facts: Before the Federal Supreme Court, the appellant no longer disputed the validity of the termination. Its factual submissions deviating from the findings of the arbitral tribunal were not raised as admissible complaints under Art. 393 CPC and therefore remained unconsidered.

Standard of arbitrariness under Art. 393 lit. e CPC: The appellant solely complained that the award was arbitrary in its result because it was based on a manifest violation of law or of equity (Art. 393 lit. e CPC). The concept of arbitrariness corresponds to that under Art. 9 Cst.: a decision is only arbitrary when it is manifestly untenable, clearly contradicts the situation, grossly violates a norm or an undisputed principle of law, or offends against the sense of justice. Whether the review also extends to foreign law is disputed in legal scholarship; the Federal Supreme Court left the question open, since the award withstood review even from the perspective of arbitrariness.

Interpretation of § 4.2 MV 2016 (budget reduction): The arbitral tribunal interpreted the clause, under which the respondent is entitled, by a unilateral declaration requiring receipt, to remove 'individual services' from the marketing budget, as meaning that this limits reductions to concretisable services but permits flexible in-year adjustment of the volume. The appellant complained that this was economically one-sided and contrary to good faith under § 157 BGB, and that the interpretation rendered the clause devoid of content. The…