X. Ltd v. Y. and Z. S.p.A. [The Ras Laffan Subcontract] BGE/ATF 134 III 565, No. 4A_128/2008 - Swiss International Arbitration Law Reports (SIALR) - 2008 Volume 2 No. 2

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December, 2008

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Headnote

■ According to the principle of privity of contract, an arbitration

agreement is binding only on the contracting parties.

■ The arbitration clause contained in a building contract is not

binding on the ultimate parent company controlling the owner which

has issued a guarantee for the benefit of the contractor where such

parent guarantee is a primary, autonomous guarantee issued to

secure payment by the owner.

Summary of the Decision

A Cypriot subcontractor and a Qatari contractor concluded a contract

for the construction of an industrial complex under which the

subcontractor undertook to perform dredging works. The Contract

provided that the contractor was to issue a payment guarantee, which the

contractor’s (Italian) parent company provided in order to secure the

contractor’s payment obligation.

A dispute arose in relation to submarine soil conditions and the

subcontractor brought arbitration proceedings against the contractor and

the contractor’s parent company. The parent company objected that it

was not bound by the arbitration agreement. The arbitrators made a

partial award declaring that they lacked jurisdiction over the parent

company guarantor. The subcontractor then filed an application before

the Swiss Federal Supreme Court seeking to have the partial award set

aside on the ground that the arbitrators wrongly declined jurisdiction

over the parent company.

To determine whether an arbitration clause contained in a commercial

contract is binding on a guarantor, which is not a party to such contract

but has undertaken to guarantee the payment obligations arising out of

such contract, a distinction should be made: if the guarantor has assumed

a debt or an obligation under a so-called cumulative assumption of a debt

or an obligation, then the guarantor is bound by the arbitration clause; if

the guarantor has undertaken to guarantee such payment obligation under

the terms of a guarantee contract, whether it be a secondary, accessory

suretyship agreement or a primary, autonomous guarantee or indemnity,

then the guarantor is not bound in principle by the arbitration clause