'8. The principles of contract interpretation

8.1. The Option Agreement and the Supplemental Agreement are governed by Swiss law … in particular by the Swiss Code of Obligations ("CO"). Pursuant to Article 1 in conjunction with Article 18 CO, in order to establish whether the parties entered into an agreement and, in the affirmative, in order to establish its content, the common intent of the parties is to be established. If no corresponding intent expressed and understood on both sides in accordance with what the parties actually intended to express can be established ("factual consensus"), then the court or the arbitrator has to interpret the parties' respective declarations in accordance with the principle of good faith. Every declaration must be analysed as to how it could and had to be understood. In doing so, the court or the arbitrator has to consider the wording, the context and all other relevant circumstances. This "normative" meaning has to be compared to how the respective declaration actually was understood by the receiving party. If these understandings concur there is an effective contract even if the party expressing the declaration in question did not want to bind itself contractually at all or did not want to enter into a contract with that specific contents [sic] ("normative consensus", cf. Decisions of the Federal Tribunal, "DFT" 127 III 444, 445; 121 III 118, 123; Ernst A. Kramer, Berner Kommentar, Obligationenrecht, N. 37 ad Art. 1).

8.2. Interpretation of contracts in accordance with the parties' actual intent or in accordance with the principle of normative consensus is not limited to contracts ambiguously drafted. Even a seemingly clear wording does not necessarily reflect the parties' true understanding or the understanding justified under the principle of good faith (cf. DTF 127 III 444, 445; Kramer, op. cit., N. 47 ad Art. 18).

8.3. The Option Agreement contains an "Entire Agreement Clause":

a) The clause reads as follows:

8.4. Entire Agreement

8.4.1. This agreement constitutes the whole agreement between the parties hereto relating to its subject matter and no variations hereof shall be effective unless agreed in writing by the parties to this agreement.

8.4.2. None of the parties has entered into this agreement in reliance upon any representation, warranty or undertaking by or on behalf of any other party whether oral or written which is not expressly set out in this agreement. No party shall have any remedy in respect of any misrepresentation or untrue statement made by any party hereto unless and to the extent that a claim lies for breach of warranty under this agreement save that this clause shall not exclude any liability for fraudulent misrepresentation.

b) It is Respondent's position that the Parties, by agreeing on the Entire Agreement Clause, wished to rely on the written text of the Option Agreement, and that such clause "diminishes the worth of prior negotiations" to the extent that they may only be taken into account "if they lead to an unambiguous result contrary to the wording." (Respondent's Closing Brief …).

c) In Claimants' submission, the main purpose of entire agreement clauses is "to avoid contradictions between oral agreements and correspondence during the negotiations prior to the execution of the written agreement, on the one hand, and provisions of the written agreement, on the other hand" (Claimants Closing Submission …).

d) The Arbitrator notes the following:

- It is not in dispute between the Parties that the Entire Agreement Clause applies not only to the Option Agreement of which it is a part, but also to the Supplemental Agreement although there is no specific reference in the Supplemental Agreement in this respect.

- The result of the considerations to be developed in the following paragraphs will establish that the wording of the Supplemental Agreement is in accordance with the Parties' intentions. Accordingly, there is no need, in the instant case, to determine the weight of the wording in relation to other factors.

8.4. The elements to be considered when determining the content of a contract vary according to the circumstances. In the instant case, it appears that the content of the Supplemental Agreement may be determined by reviewing both

a) the wording of the Supplemental Agreement, and

b) the negotiations leading to the final wording, in particular the draft agreements and the correspondence exchanged.

9. The wording of the supplemental agreement

9.1. Reference is made to paragraph 1.1 of the Supplemental Agreement as quoted in § 5.3.1 The Parties are in dispute whether "the Company" as defined in that paragraph must necessarily be a company situated, in the corporate structure, beneath [Respondent] (Respondent's case) or whether [Respondent]'s obligations, in particular its payment obligation (cf. paragraph 3.1 of the Supplemental Agreement), are also triggered by any sale or series of sales of shares in [Respondent] itself (Claimants' case).

9.2. Without any reference to the Parties' negotiations, in an attempt to understand paragraph 1.1 of the Supplemental Agreement exclusively based on its wording, the following considerations may be made:

a) At the time of the conclusion of the Supplemental Agreement, [Respondent] owned indirectly [Company A] which at that time carried on the Business … Therefore, based simply on a reading of the clause, it appears that the first requirement for the application of paragraph 1.1 (the one expressed in the first two lines) is fulfilled: [Respondent] is a company "owning the business presently carried on by [Company A]"; in other words: [Respondent] qualifies as a company the shares in which may be sold and such sale triggers [Respondent]'s payment obligation.

b) The second requirement is fulfilled if the sale of the shares has as a consequence that [Respondent] - or [Company B] or any company controlled by [Respondent] or [Company B] - do no longer own 50% or more of the shares in the company owning the Business. However, should shares in [Respondent] itself be sold as a means of indirectly selling the Business, the Business, or the company owning the Business, continues to be controlled, by majority, by [Respondent]. Accordingly, a sale of shares in [Respondent] itself does not appear to qualify, at first sight, as a sale triggering the payment obligation.

9.3. Since even seemingly clear wordings are open to interpretation in accordance with the Parties' actual intent or with the principle of normative consensus, the Parties' negotiations have to [be] taken into account as a particularly important element of contract interpretation. Before doing so, it appears to be helpful to describe the corporate structure above and beneath [Respondent].

………

12. The proper interpretation of the Supplemental Agreement, paragraph 1.1

12.1. It results from the narrative of the negotiations in § 11 above that Claimants' intent was directed, from the very start of the discussions, towards an agreement providing for their entitlement to a payment, by whatever entity under control of [a series of trusts], in the event of a sale resulting in a situation in which the ownership and control over the Business, or a major part thereof, had been transferred to a party or parties outside of the group controlled by [the trusts] …

………

12.3. The very first draft of the Supplemental Agreement … was, to a large extent, in accordance with Claimants' case:

a) [Respondent]'s payment obligation was to be triggered by the "sale of more than 50% of the shares of any company directly or indirectly owning the Business presently carried on by [Company B]". At the relevant point in time, [Respondent] did indirectly own the Business.

b) There is no provision in the … Draft which limits the scope thereof to sales of the shares in the Company by [Respondent] as selling shareholder. In particular, and in contrast both to the draft Option Agreement of the same date … and to the wording used by [Respondent's witness] …, the definition of the obligor as "Selling Shareholder" is not used in the … Draft.

c) Accordingly, pursuant to the wording proposed in that draft, [Respondent] could be both, the Company the shares in which were sold, and the obligor with regard to the payment obligation triggered by such sale.

12.4. [Respondent's witness] submitted the … Draft as an "Offer", subject only to three issues relating rather to the Option Agreement than to the Supplemental Agreement … However, it is [Respondent]'s position, confirmed by witness testimony …, that the triggering of [Respondent]'s payment obligation by a sale of shares in [Respondent] itself was not intended to be expressed by the … Draft, and would not have been accepted, by [Respondent], had it been considered.

12.6. In accordance with the contract interpretation principles summarized in § 8 above, the relevant criterion is not necessarily the actual intent of the party making the declaration, but the manner in which the other party could - acting in good faith - and did understand such declaration. Applying such principles to the … Draft, i.e. assuming (for discussion purposes) that this Draft corresponds to the final and signed version of the Supplemental Agreement, the following points have to be taken into consideration:

a) It is doubtful whether Claimants could have relied, in good faith, on an understanding that the … Draft covers sales of shares in [Respondent] itself. Good faith requires a certain diligence. Claimants who were advised by professional advisers when discussing the … Draft should have taken into consideration that the draft was presented as supplemental to the proposed Option Agreement under which [Respondent]'s obligations were triggered in the event of [Respondent] being "the Selling Shareholder". Acting diligently, Claimants could not pass over in silence their alleged understanding that [Respondent], in contrast to the proposed Option Agreement, could be the obligor in the event of a private sale of the shares in [Respondent] itself. Apart from the contrast to the Option Agreement, Claimants should also have taken into account the substantial difference, with respect to [Respondent]'s balance sheet situation, between a payment obligation triggered in the event of sales proceeds being received by itself or by a company owned by [Respondent], and a payment obligation triggered without such counterpart.

b) The question whether [Respondent] could have relied, in good faith, on the unrestricted scope of the wording in the … Draft may be left undecided since Claimants did not actually consider that the payment obligation might be triggered by the sale of shares in [Respondent] itself. The advisers acting for Claimants were "focusing downwards from [Respondent]" … since they considered "[Respondent] to be the top company …" or more precisely "the trust company, the company through which the trustees managed the trust property" … Influenced by such misapprehension of the corporate structure of the [trusts], Claimants' advisers failed to consider the possibility that the shares in [Respondent] itself might be sold. Such misapprehension resulted from … reluctance to disclose any information relating to the structure of entities above [Respondent]. When Claimants' advisers tried to ask questions in this respect, they "got slapped down, really" (Witness … Transcript …).

12.6. The Arbitrator concludes that both Parties' intentions deviated from the wording of the … Draft to the same extent: in both Parties' consideration, a sale of shares in [Respondent] was not to be dealt with. Accordingly, had the … Draft become the final version, it would have had to be interpreted in such narrow sense. In other words: Claimants would not have been entitled to rely on the unrestricted wording of the … Draft, had such draft become the executed document.

12.7. Moving now to the Supplemental Agreement in its final and executed version, the following points have to be taken into consideration:

a) Paragraph 1.1 of the Supplemental Agreement has been amended mainly on the suggestions of Claimants' advisers …

b) The amendment relating to the first limb of that paragraph was suggested in order to cover Claimants' concern that the agreement might not "bite" in the event of sequential sales as opposed to one single sale … Accordingly, the words "or series of sales" were included in the first line of that paragraph.

c) Most importantly, Claimants' advisers suggested to specify, in the second part of the clause, that the triggering sale should be a sale "which results in [Respondent] or [Company B] or any company controlled by [Respondent] or [Company B] holding less than 50 per cent of the shares of such Company" … Obviously, Claimants' advisers submitted this suggestion based on their understanding that [Respondent] was the "top company" and would never be the company to be sold. Thus, they suggested an amendment - probably with the aim of a more precise drafting - which restricted, as compared to the … Draft, the range of sales triggering [Respondent]'s payment obligation to sales of shares beneath [Respondent].

12.8. Apart from an amendment at the end of paragraph 1.1 which is not relevant in the present context, the wording suggested by Claimants' advisers became the final wording of the Supplemental Agreement. Such wording is in perfect accordance with both Parties' intent: neither [Respondent]'s representatives nor Claimants' advisers considered the possibility that shares in [Respondent] itself might be sold. Thus, the final wording of paragraph 1.1 of the Supplemental Agreement is in better harmony with both Parties' understanding of the scope of transactions to be covered than the … Draft which, on its face, covered a scope exceeding the Parties' intentions.

12.9. Claimants do not submit that they had, at the time when they executed the Supplemental Agreement, a better understanding of the corporate structure above [Respondent] than their professional advisers and that, as a consequence thereof, their intent differed from their advisers' intent with respect to the levels of the corporate structure to be covered by the Supplemental Agreement.

………

12.11. At a certain stage of the proceedings, reference was made by Claimants to an oral agreement … As to the merits of Claimants' argument, the following points have to be taken into consideration:

a) In cross-examination, [Claimants' witness] admitted that no binding, enforceable agreement was reached in his meetings with [Respondent's representative] and that in the event of a variance between the principles of the arrangement orally agreed on with [Respondent's representative] and a documented agreement, the written agreement would prevail ...

b) The narrative of the negotiations establishes without doubt that the Parties' intention was to reach an agreement in writing. Accordingly, the legal presumption that the Parties intended not to be bound prior to the execution of a written agreement (Article 16.1 CO) applies. This is confirmed by various explicit reservations "subject to contract" appearing in the correspondence ...

c) The Arbitrator concludes that Claimants' thesis relating to the Oral Agreement Issue fails.

12.12. The Parties discussed in some detail whether the enlargement of the definition of [Company B] … may have an impact on the interpretation of paragraph 1.1. of the Supplemental Agreement:

a) Claimants referred to the recital to the Supplemental Agreement which provides that the definitions used in the Option Agreement shall have the same meaning when used in the Supplemental Agreement. "[Company B]" is defined in the Option Agreement as … Claimants submit that, under the second limb of paragraph 1.1 of the Supplemental Agreement, the sale or sales of shares shall result in some other entity (above the Company) holding less than 50% of the shares of the Company, Claimants further submit that [the selling company] was [Respondent]'s shareholder and has subsequently come to hold less than 50% of the shares in [Respondent]. Since [Respondent] indirectly owned the business that had been carried on by [Company A] at the time of the conclusion of the Supplemental Agreement, [Respondent] fell, in Claimants' submission, within the definition of "the Company" …

b) As the Respondent points out, the definition of [Company B] given in the Option Agreement must be seen in the context of the intended flotation of [Company B]: at the time of the Option and Supplemental Agreements, [Company B] did not own [Company A] or the business operated by [Company A]. In order to successfully float [Company B], [Company A] or the Business had to be brought into [Company B]. It is for this reason, that the words "or such other entity as shall own or control the majority of the shares in [Company A] or the major part of the business currently operated by [Company A]" were included in the definition of [Company B] …

c) The Arbitrator holds that in the light of the clear evidence to the contrary the enlargement of the definition of [Company B] was not meant to cover sales of shares by entities above [Respondent].

12.13. Based on the considerations presented above, the Arbitrator concludes that the Supplemental Agreement, properly construed in the light of its wording and the negotiations, does not cover sales of shares in [Respondent] itself. In other words: sales of shares in [Respondent] do not qualify as sales "of the shares of any company directly or indirectly owning" the Business ...'

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Editor's note: § 5.3 reads: '[Respondent] agrees to perform the obligations set out in paragraph 3 below, in respect of whichever of the following shall first occur: 1.1 any sale or series of sales of the shares of any company directly or indirectly owning the business presently carried on by [Company A] (together "the Company") after the date of this Supplemental Agreement which results in [Respondent] or [Company B] or any company controlled by [Respondent] or [Company B] holding less than fifty per cent (50%) of the shares of such Company and any subsequent sale of the shares of the Company, or 1.2 the disposal of the entire undertaking or substantially the entire undertaking of the Company by way of asset sale.'