B. v. A. and ad-hoc Arbitral Tribunal c/o Daniel Wehrli, Esq. [The Two Call Options] - Swiss International Arbitration Law Reports (SIALR) - 2007 Vol. 1 Nos. 1 & 2

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December, 2007

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Headnote

An arbitrator does not exceed his jurisdiction by determining

preliminary questions with respect to the enforceability of the contracts

in dispute.

A decision to stay arbitration proceedings is discretionary unless the

stay is mandated by compelling reasons. A stay of proceedings, whether

ordered or denied by an arbitrator, does not in principle affect the parties’

right to present their case.

An arbitrator is not bound in principle to seek the parties’ views as to

the legal principles he will apply to the merits of the dispute; however, an

arbitrator is bound to do so if he intends to base his decision on a

principle of law that was not relied upon by either party and of which

neither party could possibly have expected to be applied in the award.

Summary of the Decision

B. entered into two contracts with A., obtaining call options for the

purchase of equity in C. Upon B.’s exercise of the call options, A.

challenged their validity as well as the validity of the underlying

contracts. B. then brought two separate arbitration proceedings against

A. In the arbitration at issue here, B. sought an award ordering specific

performance or damages in the alternative. The arbitrator dismissed the

action holding that the object and purpose of one of the contracts sued

upon were illegal and that the claimant’s beneficial owner had acted

against provisions of Russian criminal law. B. then sought to have this

award set aside claiming inter alia (1) that the arbitrators had exceeded

their jurisdiction and (2) that they had breached the petitioner’s right to

present its case (i) by refusing to stay proceedings and (ii) by relying in

their final award on legal provisions, the application of which could not

possibly have been anticipated.

The Federal Supreme Court held: (1) an arbitral tribunal called upon to

grant specific performance of a contract did not exceed its jurisdiction by

finding that provisions of criminal law had been breached and that the

contract sued upon was illegal, as such a finding determines only a

preliminary question with respect to the enforceability of the contracts in

dispute; (2) a decision to stay proceedings is within the arbitrator’s