Mrs Y. v. Z. and ad-hoc Arbitral Tribunal [The Bahamian Offshore Structure] - Swiss International Arbitration Law Reports (SIALR) - 2007 Vol. 1 Nos. 1 & 2

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48 pages

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December, 2007

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Headnote

A party is precluded under the rules of good faith from challenging

arbitral jurisdiction for the first time in setting aside proceedings.

Language contained in an arbitration agreement, to the effect that all

disputes “arising out of, or in connection with” the agreement are subject

to arbitration, is sufficiently broad and unqualified so as to cover the

matter in dispute.

A tribunal’s anticipatory assessment of the evidence is not reviewable

by the Federal Supreme Court, except under a challenge based on public

policy.

Summary of the Decision

X., an inventor, established an offshore structure consisting of a

network of agreements and companies, the purpose of which was to

minimize the taxable profits of Swiss company C. Upon X.’s, death, Y.

and Z. (stepmother and son) in effect became principal and equal

shareholders in the offshore structure. Z. sought to dissolve the offshore

structure, and in this regard concluded an agreement with Y. pursuant to

which Y. received a payment for agreeing to waive all her rights in a

trust, through which Y. held her interest in the offshore structure.

Subsequently, the Swiss Federal Tax Administration began a tax

investigation and found that Z., as a prior shareholder in the offshore

structure, owed withholding taxes in an amount of approximately CHF

28 million. After paying the withholding tax owed, Z. then brought

arbitration proceedings against Y. seeking payment in proportion to Z.’s

previous equity holdings in the offshore structure, as well as payment for

half of the costs in connection with the tax investigation.

The arbitral tribunal found that Y. and Z. had become severally liable

in a simple unincorporated partnership. As Z. had paid more than his

share of the tax debt and costs arising from the tax investigation, the

tribunal determined that Z. held a right of contribution against Y. in an

amount corresponding to Z.’s respective liability in the partnership. The

tribunal ordered Y. to pay such amount, whereupon Y. brought setting

aside proceedings based on the grounds that (1) the tribunal wrongly

accepted jurisdiction; (2) the tribunal decided the matter ultra petita; (3)

the tribunal breached her right to present her case and violated the