My favorite part of the entire Giedo van der Garde kerfuffle is the way the appellate court cites to the lower court’s judgment:

Giedo van der Garde BV v Sauber Motorsport AG [2015] VSC 80 (‘Reasons’).

In other words, van der Garde literally won because reasons. Which is probably a pretty accurate reflection of how most people view legal reasoning, after all. But van der Garde’s lawsuit gave him the leverage to persuade Sauber to pay him $16 million—twice his initial investment—so let’s take a closer look.

Arbitration in Switzerland

We don’t actually know much about the arbitration, except that the Swiss Chambers of Commerce Association for Arbitration and Mediation seems to be the organization that handled it. The lack of information is no surprise, though; arbitration is generally closed to the public. That is one of the reasons people choose to use it. Other reasons include lower cost and faster dispute resolution. Long-running uncertainty (as is usually the case with litigation) can be more expensive than losing quickly.

Since van der Garde seems to have been seeking publicity, arbitration doesn’t seem like the obvious choice. So why did he choose it? He probably didn’t have a choice, actually. His contract with Sauber probably included a mandatory arbitration clause. Unlike your contract with your wireless carrier, van der Garde—or rather his management company, Giedo van der Garde BV—probably had a choice in the matter, and before this dispute arose he may very well have wanted an arbitration clause as much as Sauber did.

Why Switzerland? Well, Sauber Motorsport AG’s headquarters are in Hinwil, Switzerland, so it seems like the obvious place. The contract would have specified Switzerland, as well. The Swiss arbitration organization’s standard artbitration clause (which is similar to other arbitration clauses I have seen) requires the parties to explicitly state the place where arbitrations must be held.

I don’t know for sure that van der Garde’s contract contained an arbitration clause; I’m just making an educated guess based on what we do know. It is also possible that van der Garde decided to try arbitrating in Switzerland for other reasons (maybe he thought it would be faster than litigating in the Swiss courts) and Sauber accepted. But I think it’s a safe bet that the contract contained a mandatory arbitration clause.

In any case, we do know what the arbitrator decided, thanks to the Australian court that decided van der Garde’s enforcement action. In his judgment (pdf), Judge Croft included the key part of the award:

[Sauber must] refrain from taking any action the effect of which would be to deprive Mr. van der Garde of his entitlement to participate in the 2015 Formula One Season as one of Sauber’s two nominated race drivers.

It’s interesting that the award is stated in the negative—it says that Sauber must not prevent van der Garde from participating rather than saying Sauber must put him in a car. More on this later. It’s also interesting that the arbitrator awarded specific performance instead of money damages. A court would probably have ordered Sauber to pay van der Garde back his $8 million instead of ordering Sauber to let him drive. That could mean the contract contained a specific performance clause, but it could also mean van der Garde got lucky.

Things get even more interesting—and we get more information—when van der Garde takes his arbitration award to Australia for enforcement.

Ligitation in Australia

Arbitrators just decide who wins and what they win. They do not have the power to force the loser to comply. For that, you need a court, which can bring law enforcement officers to bear if necessary. So once you have an arbitration award, you have to take it to a court for enforcement.

There aren’t many reasons why a court can refuse to enforce an arbitration award. Arbitration is an alternative to litigation, and in order to be an effective alternative, arbitration awards have to be enforceable. Otherwise the party who loses could always just try again in court, which would wind up being less efficient (not to mention more expensive). Under the International Arbitration Act of 1974, which Commonwealth countries like Australia use to decide whether to enforce foreign arbitration awards,1 there are just a handful of reasons in sections 8(5) and 8(7).

In the initial enforcement proceeding, Sauber’s arguments boiled down to three:

The arbitration award was beyond the scope of the arbitration because van der Garde being a driver was incidental to the contract, which was between GVDG BV and Sauber. The dispute was not arbitrable because Marcus Ericsson and Felipe Nasr weren’t involved. The award was against public policy and constituted a breach of natural justice because putting van der Garde in a Formula One car would be dangerous.

Judge Croft broke this out into seven sub-arguments, making it seem like Sauber was just throwing a lot of crap at the wall to see what might stick. None of it did. Judge Croft did not waste many words dispensing with Sauber’s arguments and deciding to enforce the arbitration award.

With regard to the safety issues that received so much attention in the press, Judge Croft pointed out that “nobody, certainly not the Court, would contemplate that compliance with the Orders would involve compromising safey, training, insurance or other like requirements.” He said “the negative character of [the arbitration award] is determinative.” In other words, because the award didn’t actually require Sauber to do anything at all, it couldn’t argue that it was being forced to do anything dangerous. (Judge Croft even offered to be on call to help resolve any disputes: “this Court is always available at the request of either party … at all times and at all hours, seven days a week.”)

It is really important to understand that when deciding whether or not to enforce an arbitration award, a court may not consider the merits of the case (i.e., whether the arbitrator decided the matter correctly). Judge Croft went out of his way to emphasize this. All he can do is make sure the arbitrator had the right to make the decision he did. Which he did.

On appeal (pdf), the three-judge panel basically just backed up Judge Croft. There wasn’t a lot of substance to the analysis, and the court wasted few words before dismissing Sauber’s appeal.

Outcome

The result of the Australian litigation was that Sauber had to “refrain from taking any action the effect of which would be to deprive Mr. van der Garde of his entitlement to participate in the 2015 Formula One Season as one of Sauber’s two nominated race drivers.” But van der Garde didn’t have a Super License and hadn’t gone through the necessary extraction tests.

So what could Sauber do?

If van der Garde had been able to obtain a Super License from the FIA and pass the extraction tests in time for the start of the Australian Grand Prix, Sauber would have had to put him in a car as long as the race stewards cleared him to drive. But Sauber had already nominated Ericsson and Nasr, who apparently kicked in a lot more money than van der Garde was able to. If they didn’t get to drive, some or all of their money would probably evaporate.

So Sauber had little choice but to settle, and van der Garde had all the bargaining power. Everyone knows the outcome by now: Sauber paid van dear Garde $16 million—about twice what he brought to Sauber in 2014—to go away. As Peter Sauber said to Martin Brundle in Malaysia, “the price was too high.” But probably unavoidable.

Mopping Up

I really should have ended this post with that last section, but if you’re into legal procedure, I found one more judgment (pdf) related to van der Garde’s legal action. After the settlement (and after the Australian Grand Prix), the parties came back to court to ask it to set aside its order in light of the settlement. In other words, “hey, we settled this so you don’t need to enforce the arbitration award after all.”

This is actually the longest of the three judgments I found, which puzzled me until I realized what was going on. The court realized that if it set aside its order, it would basically be invalidating the arbitration award, which it can’t do under the IAA and isn’t the right outcome anyway. What van der Garde and Sauber (or their lawyers, actually) should have done is go back to the arbitrator to ask it to set aside the award, then go back to Australia and ask it to enforce the arbitrator’s decision to set aside the award. Since that is clunky and it would have been a big waste of everyone’s time and money, Judge Croft decided to stay enforcement of the award in light of the settlement rather than set aside the order.

It’s effectively the same result the parties asked for, but the court took an interesting route to get there.