A. LEGISLATION AND RULES
A.1 Legislation
On 1 January 2023, the revised Swiss Code of Obligations (CO) entered into force. The revised act includes a new article 697n, which expressly allows Swiss corporations (and by reference also limited partnerships and limited liability companies) to include a statutory arbitration clause in their articles of association.
The newly introduced article 697n CO applies to stock corporations or limited liability companies with seat in Switzerland, which provide or intend to provide in their articles of incorporation for the settlement of disputes under corporate law in an arbitral tribunal with seat in Switzerland. By contrast, the new regulation contains no statement on the admissibility and legal effectiveness of arbitration clauses in the articles of incorporation of foreign companies, even if such a company provides for an arbitration tribunal with seat in Switzerland. Likewise, it does not address the case in which the articles of incorporation of a Swiss corporation provides for an arbitral tribunal with seat abroad.
In terms of the subject-matter, article 697n CO provides that all disputes arising out of corporate law can be submitted to arbitration. Such disputes may include claims by and between the company, its shareholders and/or its directors and executive officers, such as, for instance, direct or derivative actions against members of the corporation’s directors and executive officers for breach of fiduciary duties or for the restitution of company funds, actions to set aside resolutions passed by the corporation’s shareholders’ meeting, actions for the enforcement of the shareholders’ or the directors’ rights of information, or actions for the dissolution of the corporation. By contrast, the arbitration clause may not extend to disputes between shareholders that do not derive from corporate law but other (contractual) basis such as a shareholders’ agreement.
Unless otherwise stipulated in the statutory arbitration clause, it is binding on the company itself, the company’s governing bodies and its members as well as the company’s shareholders, irrespective of whether the particular person gave their consent. By contrast, third parties, such as the company’s creditors, cannot be bound by an arbitration clause in a corporation’s articles of incorporation.
Arbitrations based on such a statutory arbitration clause must, by law, be seated in Switzerland and are subject to the provisions on domestic arbitration contained in part 3 of the Swiss Civil Procedure Code. The articles of association may regulate the specifics of the arbitration proceedings, be it directly or by reference to institutional rules. In any event, the arbitration clause will have to ensure that persons who may be directly affected by the legal effects of the arbitral award are informed about the commencement and termination of the arbitral proceedings and are given the opportunity to participate in the appointment of the arbitral tribunal and/or join the proceedings as a party.
A.2 Institutions, rules and infrastructure
In the light of the revised law on statutory arbitration clauses, the Swiss Arbitration Center has issued “Supplemental Swiss Rules for Corporate Law Disputes” (“Supplemental Swiss Rules”), which supplement the already existing Swiss Rules of International Arbitration (“Swiss Rules”) for the purpose of administering and conducting arbitration proceedings in relation to corporate law disputes as provided for under the new article 697n CO.
The Supplemental Swiss Rules apply to all arbitration proceedings that regard a corporate law dispute and are initiated on or after 1 January 2023 pursuant to a statutory arbitration clause that is contained in the articles of association of a corporate entity and refers to the Swiss Rules. To the extent the Supplemental Swiss Rules do not specifically regulate a matter, the provisions of the Swiss Rules will apply.
The Supplemental Swiss Rules propose a Model Statutory Arbitration Clause, which contains both recommended content required for a valid statutory arbitration clause as well as optional content. The suitability of such proposed content will naturally depend on the particular circumstances of each company, so that companies that wish to introduce a statutory arbitration clause are nevertheless well advised to carefully consider its intended content and seek legal advice if needed.
The Supplemental Swiss Rules further complement the existing Swiss Rules with additional rules that account for the specificities of corporate law disputes. They also implement the minimum requirements that the new law imposes for certain corporate law disputes that can lead to an arbitral award having direct legal effects not only towards the parties but also other persons (“Affected Persons”). In these types of disputes (e.g., disputes that regard the company’s existence or dissolution or the validity or legality of the resolutions of its governing bodies), Affected Persons must be notified about the commencement and the termination of the arbitration and obtain the possibility to submit comments on the appointment of the arbitral tribunal and/or participate in the arbitration proceedings in a capacity other than an additional party.
Finally, the Supplemental Swiss Rules amplify the arbitral tribunal’s discretion in dealing with requests for interim and emergency relief to ensure that such relief is granted in a most efficient and/or effective manner.
B. CASES
B.1 Swiss Supreme Court denies enforceability of arbitral award because of lack of debtor’s joint liability[1]
In a decision published on the 19 July 2022, the Swiss Federal Supreme Court (SFSC) dealt with a dispute originating from an arbitral award rendered in an investment arbitration between two investors and the Czech Republic before the Permanent Court of Arbitration (PCA). In this award, the two investors were ordered to pay a party compensation to the Czech Republic. Concretely, the relevant paragraph 466 of the award stated the following:
“The Claimants shall pay to the Respondent within 28 days of delivery of this award the sum of USD 1.75 million and GBP 178,125.50.”
The SFSC had to decide whether the award of the PCA constituted a sufficient enforcement title against the investor in debt collection proceedings initiated by the Czech Republic. This, among other stipulations, requires that the award obliges the debtor to pay a specific (i.e., quantifiable) sum.
In this case, the arbitral award did not include the usual wording of joint liability (“jointly and severally”) of the two debtors. Nor did the wording of the ruling or the considerations of the arbitral award regarding the consequences of costs and compensation show whether the party compensation was to be jointly imposed on the investors. Moreover, the applicable procedural rules do not contain any provisions on the joint liability of the losing parties for the compensation of the other party. Thus, the SFSC found that there was no legal basis for the investors’ joint liability.
The SFSC emphasized that the Swiss enforcement court is not obliged to interpret the award submitted as an enforcement title or to supplement it in accordance with an alleged practice of joint liability of the parties in international arbitration. Rather, the enforcement court only has to examine whether the debtor’s obligation to pay clearly derives from the submitted award; it is not the task of the enforcement court to help the creditor obtain an enforcement title, but merely to verify whether such a title exists. If the arbitral award does not prove to be enforceable, it is up to the arbitral tribunal to provide clarification in this regard.
This case shows the importance of ensuring that the arbitral award in cases with multiple claimants or respondents clearly allocates relevant payment obligations by specifically defining that the claimants or respondents are jointly and severally liable. If this is not the case, clarification by the arbitral tribunal should be requested before initiating enforcement proceedings.
B.2 No enforcement of an award set aside at the place of arbitration under the New York Convention[2]
In a decision published on 25 May 2022, the Cantonal Court of Graubünden had to deal with the question of whether a foreign arbitral award could be enforced in Switzerland, even though the award had in the meantime been set aside by a state court at the seat of the arbitral tribunal. This question had to be answered based on the New York Convention.
According to article 3 of the New York Convention, contracting states must recognize foreign arbitral awards as binding and enforce them in accordance with their own rules of procedure, but under the conditions laid down in the convention. Thus, the enforcement judge may only refuse the recognition and enforcement of a foreign arbitral award based on the formal conditions specified in article 4 or the material conditions defined in article 5 of the New York Convention. The enforcement court may not take into account any other grounds that would hinder the recognition and enforcement. In particular, arévision au fondis not permitted, i.e., the enforcement judge may not reassess the substance of the award.
According to article 5(1)(e) of the New York Convention, the recognition and enforcement of a foreign arbitral award may be refused at the request of the party against whom it is invoked, if that party furnished proof that the award has been set aside or suspended by a competent authority of the jurisdiction in which, or under the law of which, that award was made. It is controversial whether this provision imposes an obligation on national courts to refuse the recognition and enforcement of such awards, or merely grants them an option to do so. In the present case, the party invoking the arbitral award argued that the enforcement judge had the option to disregard the decision setting aside the arbitral award, among others because this decision was allegedly adopted in violation of the procedural ordre publicin Switzerland.
After extensive consideration of the different language versions of article 5(1)(e) of the New York Convention as well as opinions voiced in relevant national and international scholarship, the Cantonal Court arrived at the conclusion that the convention does not grant national courts any discretion and that they must refuse the recognition and enforcement of awards that have been set aside by the competent authority at the place of arbitration, unless there are exceptional circumstances — such as, in particular, manifest abuse of rights by a foreign state.
With its decision, the Cantonal Court of Graubünden protected the goals of the New York Convention, namely to reduce the complexities, insecurities, and delays in enforcement proceedings of foreign awards by limiting the grounds based on which national courts may refuse the recognition and enforcement of such awards. It found that this legal certainty with regard to recognition and enforcement was a strong incentive for globally active companies to opt for arbitration. As a consequence, it could not be the aim and purpose of the New York Convention to grant national courts discretion to allow the enforcement of an arbitral award even if such an award had been set aside by the competent authority.
B.3 Valid arbitration clause in unsigned contract[3]
In a dispute between a company domiciled in the United States and an insurance company domiciled in Liechtenstein, the latter claimed that it did not commit to arbitration since it did not sign the relevent insurance contracts. The clause was included, however, in drafts of insurance policies exchanged between the parties. The arbitral tribunal confirmed its jurisdiction referring to article 178, section 1 of the Private International Law Act (PILA), according to which no signature is required as long as there is evidence for the arbitration clause in a form which allows to prove its wording. The arbitral tribunal stressed that the parties had exchanged drafts of the policy and the insurance company had confirmed that it generally agreed with the proposed wording subject to some items which it wanted to address — which, however, did not include the arbitration clause. The arbitral tribunal also referred to a previous decision of the Swiss Supreme Court (BGE 142 III 239) in which an arbitration clause included in draft contracts exchanged between parties was held valid.
The Swiss Supreme Court confirmed the view of the arbitral tribunal. In particular, it rejected the insurance company’s argument that one would have to look not at the persons negotiating but at the persons who are corporate officers of the company, as a company is represented not only by its officers but also by other holders of powers of attorney. Also, there is no difference between arbitration clauses exchanged in draft contracts and those exchanged in other documents. Also here, no signature is required under article 178, section 1 PILA.
B.4 No revision of arbitral award based on subsequent facts[4]
In a dispute between two companies over a contract for the delivery of silicium, an arbitral tribunal had condemned Party B to pay USD 1.4 million and rejected its counterclaim. Subsequent to the arbitral award, Party B claimed to have discovered that a specific amendment to the contract was never signed by its CEO but that it was most likely forged. Party B produced various documents, all showing dates after the arbitral award, allegedly proving the forgery. It claimed a violation of the ordre public due to the use of apparently forged documents.
The Swiss Supreme Court rejected the request for revision under the new article 190a PILA (which was introduced at the beginning of 2021). In particular, the Supreme Court held that Party B had failed to establish that it only realized the circumstances indicating a forgery after the award and that it was not able to do so during the procedures. Moreover, there was no evidence that the documents were indeed forged, nor that respective criminal proceedings concerning the forgery would be pending.
B.5 No revocation of a frequently involved arbitrator[5]
In a sports arbitration case between a former vice president of the Brazilian Football Association and FIFA, each party had nominated a party appointed arbitrator. Since the parties were unable to agree on a chairman, the Tribunal Arbitral du Sport appointed Mr MH to act as the president of the arbitral tribunal. In a first disclosure notice, MH mentioned that FIFA is a party in another case he conducted as president of another arbitral tribunal in an ongoing arbitration proceeding. In a subsequent declaration of independence, he mentioned that he had “numerous” prior cases involving FIFA and he listed those which were ongoing, indicating in which cases he was nominated as party-appointed arbitrator by FIFA. In a third declaration of independence, he revealed sixteen other procedures.
Party A filed an appeal to the Swiss Supreme Court claiming that the arbitral tribunal was not properly constituted under article 190, sections 2(a) and (d) PILA, and that the arbitrator MH would have to be revoked. The Supreme Court rejected the request. It did not see an indication that the arbitrator with his three subsequent disclosures intentionally wanted to hide facts. The mere breach of a disclosure obligation in the absence of other suspicious circumstances would as such anyway not yet exclude an arbitrator. Concerning repeated nominations of the same arbitrator by the same party, the tribunal counted that MH was involved in 26 procedures to which FIFA was a party in the past three years. However, only those procedures in which he was appointed by FIFA (and not by the counterparty or by the Tribunal Arbitral du Sport) would be of a nature that could raise doubts about his impartiality. Since he was nominated only three times by FIFA in the past three years, and given the particularities of sports arbitration such as the closed list of arbitrators, this could in the view of the Supreme Court not raise legitimate doubts about his impartiality or independence.
B.6 Waiver of revision by waiving right to appeal[6]
Following a request for revision of an arbitral award rendered under the UNCITRAL Rules, the Swiss Supreme Court held that a broadly-worded clause waiving the right for an appeal may be interpreted to exclude also the remedy of revision. Under the PILA, in case neither party is domiciled in Switzerland, the parties can waive their right to appeal against an arbitral award, except for the right to revision pursuant to article 190a, section 1(b) PILA (that had entered into force at the beginning of 2021) which cannot be waived. In the dispute at hand, the Croatian state and the Hungarian oil and gas company MOL had concluded agreements transferring management control of a Croatian energy company to MOL. The Croatian state argued that the agreements should be declared null and void as MOL had allegedly paid a bribe to Croatia’s former prime minister. The UNCITRAL Arbitral Tribunal rejected Croatia’s claims.
In 2019, the former prime minister was convicted of bribery by Croatian courts. Croatia subsequently filed a request for revision before the Swiss Supreme Court, since the bribery conviction would amount to new material evidence under article 190a, section 1(a) PILA, and since the award had been influenced by a criminal act in the sense of article 190a, section 1(b) PILA.
The Swiss Supreme Court held that the request for revision had not been filed timely and that the underlying agreement had contained a waiver of appeal pursuant to article 192, section 1 PILA. In view of the fact that the arbitration clause predated the entry into force of article 190a, section 1 of the revised PILA, the Supreme Court concluded that the broadly worded waiver clause implies an exclusion of revision requests in the absence of an express statement to the contrary. Furthermore, the Supreme Court confirmed that a party cannot base its revision request on facts or evidence that came into existence after the award was issued. Finally, the Swiss Supreme Court noted that the arbitral tribunal had denied credibility of Croatia’s key witness, contrary to the opinion of the Croatian (criminal) courts. The Swiss Supreme Court concluded that it was not established that the award was influenced by a criminal act under article190a, section 1(b) PILA, in particular given these contradicting assessments. The court stressed that the tribunal was not bound by the findings of a criminal court. Furthermore, the court concluded that the criminal conviction for bribery does not automatically amount to forgery before the UNCITRAL Tribunal since the statements of the convicted person were not really material to the outcome of the arbitration.
[1] BGer 5A_335/2021 dated 19 July 2022.
[2] Decision of the Cantonal Court of Graubünden KSK 21 9 dated 25 May 2022.
[3] BGer 4A_460/2021 dated 3 January 2022.
[4] BGer 4A_464/2021 dated 31 January 2022.
[5] BGer 4A_520/2021 dated 4 March 2022.
[6] BGer 4A_69/2022 dated 23 September 2022.
