International Arbitration 2019

Last Updated August 08, 2019

Switzerland

Law and Practice

Authors



GABRIEL Arbitration is an independent dispute resolution boutique law firm specialising in international arbitration with its office in Zurich, Switzerland. The team presently consists of: Dr Simon Gabriel, founder and partner; Dr Axel Buhr, partner; Dr Johannes Landbrecht, of counsel; Dr Nataša Hadžimanović, senior associate; and Andreas Schregenberger, senior associate. Clients benefit from first class-dispute resolution services, fewer conflicts of interest and competitive pricing. The firm's lawyers are particularly experienced in disputes concerning joint ventures and consortia, energy-related issues, international sales contracts, licensing contracts, and post-M&A issues. In terms of industries, the team is experienced in disputes on commodity trading, pharmaceutical products, construction projects, production of high-tech equipment, and oil and gas.

Switzerland is one of the leading places of arbitration worldwide. The local hubs are Geneva (in the French-speaking part of Switzerland) and Zurich (in the German-speaking part). There is also some international arbitration activity in Lausanne (the seat of the Court of Arbitration for Sport, CAS), Lugano (in the Italian-speaking part), and Basel (a pharmaceutical hub in the German-speaking part).

The importance of Switzerland as a place of arbitration stems from Switzerland's traditional neutrality, its cultural diversity as reflected by the four different official languages of the country and, most importantly, the quality and integrity of the legal profession.

Switzerland as a place of arbitration is often chosen together with Swiss substantive law because the latter has influenced the making of the laws of some countries in South Eastern Europe and beyond, the most prominent among them being Turkey. Swiss substantive law is, therefore, in many cases both neutral and familiar to both parties in a dispute – this being an advantage that only few substantive laws have. Other advantages of Swiss substantive law are its flexibility and the high priority of parties' agreements.

Furthermore, Switzerland also has a tradition of efficiently administering small and mid-size disputes, with the Swiss Rules of International Arbitration stipulating that disputes up to a value of CHF1 million are dealt with in expedited proceedings within six months. The expedited proceedings are increasingly also chosen by parties in larger disputes when time is of the essence.

Finally, Switzerland promotes efficient international arbitration because an arbitral award that was rendered by a tribunal with its seat in Switzerland can only be set aside for very limited reasons, and only the Swiss Federal Tribunal (the highest Swiss judicial authority) is competent to hear such a case. There is even the possibility to exclude any challenge proceedings (see 11.2 Excluding/Expanding the Scope of Appeal).

It is a growing trend in the jurisprudence of the Swiss Federal Tribunal to further enhance the efficiency of challenge proceedings through a stricter interpretation of the parties' rights of appeal. A prime example may be the Swiss Federal Tribunal's jurisprudence on infringements of the parties' right to be heard. For many years, the Swiss Federal Tribunal held that the right to be heard was of a 'formal nature' and infringements of the right to be heard automatically resulted in the right to challenge arbitral awards in Switzerland for that reason. In recent judgments (such as the decision of the Swiss Federal Tribunal No 4A_424/2018), the Swiss Federal Tribunal has increasingly parted from the former automatism. In order to be successful in challenge proceedings, an applicant today must not only (i) demonstrate an infringement of the right to be heard on an important argument of the applicant, but also (ii) show that such violation had an adverse impact on the outcome of the dispute. This jurisprudence contributes to more efficient arbitration proceedings and alleviates 'due process paranoia'. At the same time, the threshold for successful challenge applications has been raised again.

In addition, diversity remains a huge issue in and beyond the arbitration community.

There has been no exceptional increase of arbitration proceedings in any particular industry in Switzerland.

Key industries that usually appreciate arbitration as dispute resolution method are the pharmaceutical industry, the construction industry, commodity traders, as well as exporters of technical equipment.

The financial industry in Switzerland is not yet a frequent user of arbitration and it will be interesting to follow the developments in this regard.

The leading arbitration institutions are the International Chamber of Commerce (ICC Rules) and the Swiss Chambers' Arbitration Institution (Swiss Rules).

The Swiss Association of Engineers and Architects (SIA) has recently published new arbitration rules specifically designed for construction disputes. These rules are not publicly available and there are no statistics on their use for the time being. 

International arbitration proceedings in Switzerland are governed by the 12th Chapter of the Swiss Private International Law Act (PILA), which comprises 19 articles (Article 176 to Article 194 PILA, the so-called 'lex arbitri').

The PILA is not directly based on the UNCITRAL Model Law, although it is evident that the drafters of the PILA were aware of the ideas and concepts of the Model Law, and some Swiss scholars even state that the spirit of the Model Law can be recognised in many provisions of the PILA.

The Swiss legislature currently envisages a minor revision of the Swiss international arbitration law (ie, the 12th Chapter of the PILA). A first draft of an expert committee was circulated to interested bodies for consultation in 2017 and a revised draft was released in 2018 (final draft). The amendments aim (inter alia) to reflect already existing continuous practice of the Swiss Federal Tribunal for the sake of transparency, and to make the legal framework even more arbitration-friendly. For example, the current draft provides for the possibility to file submissions in challenge proceedings before the Swiss Federal Tribunal in the English language. At the same time, no major legal changes of the Swiss international arbitration law are expected to take place. Subject to further amendments in the legislative process, the revised law may enter into force in 2020.

In the following, the most important amendments of the Swiss lex arbitri (final draft) will be noted in the relevant sections.

From a formal point of view, the arbitration agreement is required to be evidenced by text (so-called 'text form', Article 178.1 PILA); therefore, arbitration agreements in emails or telefax communications are formally valid in Switzerland.

In a recent landmark decision (decision of the Swiss Federal Tribunal No 4A_646/2018), the Swiss Federal Tribunal confirmed that the text form requirements are congruent with those of Article II.2 of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 10 June 1958 (the New York Convention). It further held that in line with Article II.2 of the New York Convention, an arbitration agreement can bind non-signatories – eg, in a scenario where a non-signatory is involved in the performance of an agreement and implicitly declares, by its conduct, that it intends to be party to the arbitration agreement. Similarly, the Swiss Federal Tribunal confirmed that an arbitration agreement can be implicitly extended and bind a non-signatory without the extension being evidenced by text.

From a substantive point of view, the minimal requirements for an arbitration agreement are as follows:

  • it provides for an agreed exclusion of the state court jurisdiction in favour of arbitral jurisdiction;
  • it relates to a defined dispute (eg "all disputes arising out of or in connection with a certain contract"); and
  • it details a definable arbitral tribunal.

Finally, it should be noted from a substantive point of view that an arbitration agreement is also considered valid in Switzerland if it meets the substantive legal requirements of either the law chosen by the parties or the law that applies to the merits of the case or Swiss law (Article 178.2 PILA; principle of favor validitatis).

Swiss lex arbitri Revision: the final draft clarifies that the rules of lex arbitri also apply to arbitration agreements in unilateral legal instruments (such as last wills).

Article 177.1 PILA provides that every claim "of financial interest" ("vermögensrechtlich") may be referred to international arbitration. Claims that concern family status issues (eg, separation, divorce or children-related claims) are thus not arbitrable in Switzerland, and neither are insolvency matters arbitrable which have the aim of dissolving a company for lack of assets. At the same time, a company in insolvency proceedings is still bound by its arbitration agreements (unless the insolvency negatively affects the general legal capacity of an entity according to the decisions of the Swiss Federal Tribunal Nos 4A_118/2014, 138 III 714 and 4A_428/2008 – the so-called 'Vivendi' decision). 

One important point for proceedings with state involvement is that Article 177.2 PILA provides that a state or state-owned entity is not entitled to rely on its own law in order to argue that certain issues in dispute are not arbitrable or that it is not capable of being a party in arbitration proceedings. This provision of the PILA can be very useful for any party that contracts with state-owned entities.

The Swiss Federal Tribunal considers that (at least) the core of the arbitration agreement (ie, the exclusion of the state courts in favour of arbitration) is of a procedural nature.

If a party starts legal proceedings before state courts in a dispute that is subject to an arbitration agreement, the state court will – first of all – wait and see whether the counterparty objects to state court jurisdiction based on the arbitration agreement. If there is an objection, it will decline its jurisdiction and the claimant will need to start arbitration proceedings. However, the state court will consider the absence of any objection as tacit agreement to proceed before state courts (Article 7 PILA).

Against this background, the (procedural) Swiss approach is slightly different from the (substantive) US approach, where courts positively order parties to attend arbitration proceedings, but the result remains the same: if a valid arbitration agreement exists and one of the parties insists on arbitration, Swiss courts will respect the arbitration agreement by declining their jurisdiction and the parties must proceed with arbitration in order to obtain a decision on the merits.

This approach is in line with Article II.3 of the New York Convention, of which Switzerland is a contracting state.

Article 178.3 PILA expressly provides that an arbitration agreement may be considered valid even if the rest of the contract is invalid (so-called 'doctrine of separability').

At the same time, there may be situations in which a defect of the main contract also affects the arbitration agreement. This can be the case, for example, if an unauthorised person signed a contract that includes an arbitration agreement. However, in such a situation it would be for the arbitral tribunal (and not a state court) to assess whether the arbitration agreement is valid, since the arbitral tribunal is competent to rule on its own competence (Article 186.1 PILA).

In exceptional cases, an arbitration agreement in a draft contract can even be valid and binding before the main contract is signed. This is the case if an intention to be bound by the arbitration agreement can be established independently of the conclusion of the main contract (see Gabriel/Wicki, Vorvertragliche Schiedszuständigkeit – Pre-contractual Jurisdiction of Arbitral Tribunals, ASA Bull. 2/2009, p 236 et seq for further information on this issue).

The parties are free to nominate any arbitrator in line with the arbitration agreement (Article 179.1 PILA).

However, if an arbitrator nominated by a party is not sufficiently independent and/or impartial, she or he may be challenged by the other party, and may be subject to removal and replacement.

It is important to note that such a challenge must be brought forward immediately after a party gains knowledge of the reasons for such a challenge. While the PILA does not provide for a fixed time limit, it is advisable to submit a challenge at the latest within ten days of learning of the respective reasons unless the arbitration agreement – including referenced institutional arbitration rules – provides for a different time limit for challenges. 

Swiss lex arbitri Revision: for arbitrator challenges, a time limit of 30 days after learning of the respective reasons is provided for in the final draft. 

If the parties' chosen method for selecting arbitrators fails, they may approach the state court judge at the place of arbitration ("juge d'appui") and request that he or she designate an arbitral tribunal (Article 179.2 PILA). Depending on the specific circumstances, the state court judge will either apply the arbitration agreement to the extent possible or, in the absence of any viable agreement, apply the rules of the Swiss Code of Civil Procedure (CCP) and designate the missing members of the arbitral tribunal (Article 362 CCP).

Swiss lex arbitri Revision: the final draft clarifies that the juge d'appui may nominate the entire arbitral tribunal in multiparty situations.

A state court cannot intervene in the selection of arbitrators unless an arbitrator is rightly challenged and thus removed for lack of independence and/or impartiality. Even in this case, it is not for the state court to designate the replacement of the arbitrator, but rather the replacement will (again) take place according to the relevant provisions in the arbitration agreement.

Article 180 PILA governs the challenge and potential removal and replacement of arbitrators. Reasons for challenging an arbitrator include:

  • reasonable doubts with respect to impartiality and/or independence;
  • a failure to meet characteristics provided for in the arbitration agreement; and
  • any further reasons provided for in the arbitration agreement.

Swiss lex arbitri Revision:the final draft provides additional rules for the removal and replacement of arbitrators upon joint agreement of the parties or, unilaterally – ie, by one of the parties, in case of incapability of the arbitrator.

According to Article 180 PILA and pertinent jurisdiction of the Swiss Federal Tribunal, arbitrators must be independent and impartial comparable to state court judges (see, for example, the decision of the Swiss Federal Tribunal No 4A_620/2012, paragraph 3.1). The Swiss Federal Tribunal takes note of the IBA Guidelines on Conflict of Interest in International Arbitration on a case-by-case basis, but does not consider itself to be bound by any standards noted therein.

If an arbitrator does not meet the required (high) standard of independence and impartiality, any award that was rendered with his or her participation risks being set aside.

Any disputes of financial interest (ie monetary value) may be referred to arbitration pursuant to the Swiss lex arbitri (see on the Swiss lex arbitri 2.1 Governing Law and on arbitrable disputes 3.2 Arbitrability), as long as they are covered by a valid arbitration agreement.

The arbitral tribunal can assess whether it is competent to make a decision on the merits of a dispute (Article 186.1 PILA: so-called "competence-competence"). When making use of its competence-competence, the arbitral tribunal may render a decision on its jurisdiction even in lis pendens situations (ie where the same matter is already pending before a state court or a different arbitral tribunal). In such lis pendens situations, the arbitral tribunal is not required to stay its proceedings, unless justified by notable circumstances (Article 186.1bis PILA).

The Swiss Federal Tribunal is the only judicial instance that has the power to review any decision on jurisdiction in potential challenge proceedings, if a respective objection is brought forward by a party.

The Swiss Federal Tribunal freely assesses the accurate application of the law in this respect. At the same time, it is not in a position to review the findings of an arbitral tribunal with respect to the facts underlying the award on jurisdiction.

Only arbitral awards are subject to challenge proceedings and thus also to challenges with respect to the jurisdiction of an arbitral tribunal. At the same time, the parties are required to object to arbitral jurisdiction in their first submission on the merits. Otherwise, the jurisdictional challenge will be barred due to an assumed tacit agreement to arbitral jurisdiction ("materielle Einlassung"; see also 3.3 National Courts' Approach for the same requirement before state courts).

If arbitral jurisdiction is disputed in arbitral proceedings, the tribunal is generally required to decide on its jurisdiction in a preliminary award, in order to enable an early challenge in this respect (Article 186.3 PILA).

The Swiss Federal Tribunal has the power to review fully issues of jurisdiction with respect to the correct application of the law. At the same time, it has no power to review the arbitral tribunal's findings on the facts of the case (see also 5.3 Circumstances for Court Intervention).

According to recent statistics in 2018, only 11.3% of all jurisdictional challenges have been successful since the PILA was introduced in 1989 (see Dasser/Wojtowicz, Challenges of Swiss Arbitral Awards – Updated Statistical Data as of 2017, ASA Bull. 2/2018, p 276), so it appears fair to conclude that the Swiss Federal Tribunal has remained deferent to reasonable jurisdictional decisions of arbitral tribunals. 

Swiss courts will deny state court jurisdiction and the party that commenced state court proceedings in breach of an arbitration agreement will have to restart the proceedings before an arbitral tribunal (see also 3.3 National Courts' Approach).

The Swiss Federal Tribunal has accepted extensions of arbitration agreements to non-signatories in the following situations:

  • if an assignment of a claim, an assumption of a debt or a transfer of a contract takes place;
  • if a third party intentionally interferes with the performance of a contract in full knowledge of the fact that this contract contains an arbitration agreement; or
  • if a contract for the benefit of a third party is concluded; the third party then needs to respect an arbitration agreement as well (unless otherwise stated in said arbitration agreement).

A summary of this legislation can be found in the decision of the Swiss Federal Tribunal No 4A_627/2011, paragraph 3.2 (with further references; see also 3.1 Enforceability).

Article 183 PILA expressly authorises arbitral tribunals to order interim measures, unless the parties agreed otherwise in the arbitration agreement.

Interim measures in the sense of the PILA would be measures of a temporary nature which aim to maintain the status quo between the parties while a dispute is pending, safeguard the arbitral process (eg, by preserving evidence), or preserve assets in order to satisfy a subsequent award (eg, security for costs).

Even though it is not expressly excluded according to the terms of the PILA, Swiss arbitral tribunals would be very reluctant to order anti-suit injunctions as there is no legal tradition of applying this measure in Switzerland.

The arbitral tribunal may require a security from the party requesting interim measures in order to secure potential damages from the party against which the order is directed (Article 183.3 PILA).

Increasingly, there are also emergency arbitration proceedings in Switzerland (mostly under the ICC Rules or the Swiss Rules). In this respect it should be noted that under the Swiss Rules ex parte applications are also admissible before emergency arbitrators.

If a party does not voluntarily comply with an interim measures order from an arbitral tribunal, the state courts may assist in the enforcement of the order upon request of the arbitral tribunal (Article 183.2 PILA).

Swiss lex arbitri Revision: the final draft clarifies that the state courts may assist in the enforcement of the order also upon the request of a party. It is further clarified that the Swiss state courts will also support arbitral tribunals and parties to arbitration proceedings with place of arbitration outside Switzerland to implement preliminary or securing measures.

According to a large majority of legal commentators, arbitral tribunals are in a position to order security for costs in the sense that (typically) the impecunious claimant would have to provide security for the potential procedural costs of the respondent.

The specific requirements are – at the same time – controversially discussed by legal scholars. The majority of legal commentators still require that the financial situation of the party against which the request is directed (typically the claimant) has deteriorated since the conclusion of the arbitration agreement. This means that any party that chooses to contract with an impecunious counterparty (eg, a shell company or special purpose vehicle) risks that eventually no security for costs will be granted.

Articles 182 to 185 PILA provide a few general rules on arbitral procedure.

For example, it is provided that arbitral tribunals are competent to order specific procedural steps to the extent that the parties did not agree on the applicable procedure. Moreover, and as a matter of mandatory procedural law, Article 182.3 PILA provides that, in any event, arbitral tribunals need to safeguard the parties' equal treatment as well as their right to be heard in contradictory proceedings.

As long as the parties are treated equally and their right to be heard in contradictory proceedings is safeguarded, Swiss law does not prescribe any particular procedural steps.

At the same time, it should be noted that the right to be heard in contradictory proceedings guarantees the following minimum standard of participation in arbitration proceedings:

  • the opportunity to submit arguments on the merits of the case in accordance with the procedural rules;
  • participation in oral hearings, if any;
  • access to records; and
  • the opportunity to comment on the arguments of the other party.

The arbitral tribunal has the power to order the individual procedural steps in the event that the parties have not reached any agreements regarding the procedure. In this respect, and as already mentioned above, the arbitral tribunal is required to treat the parties equally and grant them the right to be heard in contradictory proceedings (see also 7.1 Governing Rules and 7.2 Procedural Steps).

At the same time, the arbitrators have a duty to conduct a reasonably expedited procedure and issue the necessary orders in good time. They also have a duty to deliberate on the merits of the case and make an award on the basis of the applicable substantive law (which is applied ex officio in Swiss arbitration proceedings pursuant to the principle of iura novit arbiter). An exception applies if the parties agreed that the arbitral tribunal shall decide ex aequo et bono (Article 187.2 PILA).

Finally, the application of the law by the arbitral tribunal must not be surprising. However, a surprise has been acknowledged by the Swiss Federal Tribunal only in very exceptional cases where an arbitral tribunal applied a legal act to which no party had made reference in the arbitral proceedings and the application of which could not have been foreseen by the parties (decision of the Swiss Federal Tribunal No 4A_424/2018 paragraph 5.2.3).

There are no legal requirements for legal representatives in arbitration proceedings in Switzerland, but it is highly recommended to choose a legal representative who is not only educated in Swiss law but also experienced in international arbitration. Candidates should specifically be asked about their experience in international arbitration before being instructed in an arbitration case.

For legal representation of parties before any Swiss state courts (also in challenge proceedings against an arbitral award before the Swiss Federal Tribunal), a Swiss bar exam or an international accreditation as a lawyer in Switzerland is required.

Typically, Swiss arbitrators use the IBA Rules on the Taking of Evidence in International Commercial Arbitration (IBA Rules) as a source of inspiration for the taking of evidence. This means:

  • there are usually no US-style discovery proceedings, but requests for the production of specific documents that may be relevant for the outcome of the case are generally considered to be admissible (typically in the format of the so-called 'Redfern Schedule');
  • correspondence between clients and legal counsel is usually considered to be legally privileged and is thus excluded from any production orders;
  • documentary evidence is to be submitted together with the written submissions;
  • written witness statements are fairly common in Swiss international arbitration proceedings;
  • in the oral witness hearings, there is typically a brief direct examination (to 'warm up' the witness) and then cross-examination on all relevant issues – in many cases, Swiss arbitral tribunals admit redirect examination limited to issues covered in cross-examination and re-cross-examination limited to issues covered in redirect examination; and
  • the tribunal often takes the prerogative to ask questions of witnesses at any time during the examinations, but experienced arbitrators will rarely interfere with the examinations of versed counsel, unless there are specific reasons to do so.

Article 184.1 PILA (merely) provides that it is for the arbitral tribunal to administer the taking of evidence, and Article 184.2 PILA provides that the arbitral tribunal may seek the assistance of the state courts with respect to the taking of evidence.

Against the background of the right to be heard, the tribunal is required to consider evidence which was offered in accordance with the procedural rules.

As mentioned above, the arbitral tribunal may seek the assistance of the state courts with respect to the taking of evidence (see 8.2 Rules of Evidence). If relevant evidence is not under the control of either party, there may be no other option than to seek the assistance from a state court, even though it is rarely seen in practice.

However, if relevant evidence is under the control of a party, tribunals may anticipate a so-called 'adverse inference' if the evidence is not produced, rather than seeking assistance of the state courts.

Swiss lex arbitri Revision: the final draft clarifies that the state courts will also assist arbitral tribunals and parties to arbitration proceedings with a place of arbitration outside Switzerland with the taking of evidence.

Swiss arbitration proceedings are confidential in the sense that they are not open to the public (expressly confirmed by the Swiss Federal Tribunal in connection with the 'Causa Pechstein' in decision No 4A_612/2009, paragraph 4.1).

Furthermore, it is widely acknowledged that, based on the arbitrators' agreement with the parties (receptum arbitri), arbitrators have a duty to keep any information from the arbitral proceedings confidential.

At the same time, legal scholars have controversially discussed whether and to what extent the parties themselves have any confidentiality duties arising out of the arbitration agreement. If the arbitration agreement (including arbitration rules potentially referred to) does not address the issue of confidentiality, it is difficult to find a legal basis for a respective duty between the parties, as the PILA is silent on this issue. Nevertheless, some Swiss commentators suggest that any arbitration agreement should be interpreted to the effect that the mere existence of arbitration proceedings is not confidential, while any materials submitted in the proceedings as well as the award should be considered as confidential.

The Swiss Rules, for example, provide for a general confidentiality provision in Article 44, whereas the ICC Rules do not.

Article 189.1 PILA provides that the arbitral award shall be made in the form and according to the procedure agreed upon by the parties.

Article 189.2 PILA provides that, in the absence of any agreement between the parties, the following requirements apply:

  • the award shall be made by majority vote or, in the absence of any majority, by the president of the tribunal;
  • the award shall be in written form (the signature of the president is sufficient) and show the date on which it is rendered; and
  • the award shall be reasoned (at least with respect to the most relevant arguments of the parties).

As a general rule, the arbitral tribunal may and shall award what is owed pursuant to the applicable substantive law. At the same time, there are some limits which must be considered. First, any arbitral award rendered in Switzerland must remain within the boundaries of Swiss public policy (the so-called 'ordre public'). Any legal consequences which are not in line with Swiss public policy must not be awarded, and such an award would be at risk of being set aside by the Swiss Federal Tribunal. There are indications that punitive damages might be considered as infringement of Swiss public policy by the Swiss Federal Tribunal (see, for example, the decision of the Swiss Federal Tribunal No 122 III 463, paragraph 5.c.cc).

Second, as mentioned above (see 3.2 Arbitrability), only claims 'of financial interest' are arbitrable in Switzerland, so an arbitral tribunal must not award remedies for claims that fall outside the definition of arbitrability.

The issue of the recovery of legal costs is a matter of procedural law and is thus governed by the arbitration agreement (including reference to any institutional rules). If the arbitration agreement is silent on the allocation of legal costs but both parties request to be compensated for their legal costs, it appears reasonable to accept an implied agreement that legal costs should be allocated. If the parties do not request compensation of legal costs, the issue of the allocation becomes moot, as the tribunal must not award any position that was not requested by either of the parties.

Generally, Swiss tribunals allocate legal costs in proportion to the success of the parties on the merits of the case. Further circumstances (such as the procedural behaviour of the parties) are sometimes considered as well.

The so-called 'American Rule', where each party bears its own costs, is only applied if agreed upon by the parties or if the proportion of the success on the merits is close to 50/50.

In Switzerland, an arbitral award may be challenged before the Swiss Federal Tribunal. The available grounds are expressly noted in Article 190.2 PILA and can be summarised as follows:

  • incorrect designation and/or composition of the arbitral tribunal;
  • inaccurate decision on arbitral jurisdiction;
  • the decision either does not cover all of the parties' requests for relief (infra petita) or goes beyond the requests for relief of the parties (ultra petita or extra petita);
  • infringement of the principles of the right to be heard and/or equal treatment; and
  • infringement of Swiss public policy.

The challenge application must be submitted to the Swiss Federal Tribunal within 30 days of the date of receipt of the award, and must specifically demonstrate that at least one of the above reasons for challenge applies to the award at issue. The Swiss Federal Tribunal invites the counterparty and the arbitral tribunal to submit comments (unless a challenge is considered as evidently inadmissible or unfounded by the Swiss Federal Tribunal), and typically decides within a timeframe of four to six months in total.

Moreover, the Swiss Federal Tribunal has admitted requests for the exceptional legal remedy of the so-called 'revision' against binding awards (decisions of the Swiss Federal Tribunal Nos 122 III 492 and 134 III 286), which is only available if sufficient reasons are discovered after an award was rendered. Sufficient reasons for a revision include fundamental procedural defects, violation of the European Convention on Human Rights, and other grounds, such as discovery of new material facts or criminal behaviour which affected the award.

A request for revision on the grounds of newly discovered facts must be submitted within 90 days of the discovery of such new facts.

Swiss lex arbitri Revision: the final draft expressly provides for limited grounds for a revision in international arbitration, namely, (i) discovery of new material facts, (ii) criminal behaviour which affected the award, (iii) discovery of new circumstances which give rise to doubts as to an arbitrator's independence or impartiality. Furthermore, the final draft provides for the right of a party to request from the arbitral tribunal the correction of typos, the explanation of unclear or ambiguous considerations and the rendering of an additional award on any claims not dealt with.

If no party is domiciled in Switzerland, the parties may exclude any challenge proceedings (Article 192 PILA).

If the parties wish to expand the scope of review of a higher instance, they have the possibility to agree on an appeal mechanism before a second arbitral tribunal, but the Swiss Federal Tribunal will review challenges only as defined in Article 190.2 PILA.

The Swiss Federal Tribunal does not review the merits of the case, unless it is indispensable in order to review issues of arbitral jurisdiction.

Switzerland has signed and ratified the New York Convention (without reservations; see also 3.1 Enforceability).

Enforcement of an arbitral award does not require a separate recognition procedure in Switzerland. Rather, the competent court will examine as a preliminary question within the specific enforcement procedure whether or not the requirements of the New York Convention are fulfilled.

The applicable state court jurisdiction and the details of the enforcement procedure are provided for in Articles 335 et seq CCP and the Swiss Debt Enforcement and Insolvency Act.

Swiss courts are rightly considered to be arbitration-friendly and there are rarely any public policy concerns that would impede enforcement of an arbitral award.

Collective arbitration procedures do not exist and requests for representative relief cannot be submitted to arbitration in Switzerland.

Subject to a very limited number of exceptions, claimants are not entitled to submit any claims but their own to arbitration. Likewise, Swiss awards strictly entitle and bind the parties to the arbitration only.

All qualified Swiss lawyers who are registered to represent parties in state courts must comply with Switzerland's professional rules, including its ethical provisions. Their entire contentious and non-contentious legal work (whether in or out of court) must comply with these professional rules. This includes, as a general rule, any work as arbitrator or counsel in arbitration proceedings, including cases with place of arbitration outside Switzerland.

International soft law (such as the IBA International Principles on Conduct for the Legal Profession or the IBA Guidelines on Party Representation) are often viewed with scepticism (with the exception of the IBA Guidelines on Conflicts of Interest in International Arbitration which are also used by the Swiss Federal Tribunal as guidelines, as mentioned above; see 4.5 Arbitrator Requirements).

Third-party funding is not specifically addressed by Swiss statutory laws or Swiss arbitration law. However, the possibility of third-party funding and its limitations have been confirmed and analysed by the Swiss Federal Tribunal numerous times (decisions of the Swiss Federal Tribunal Nos 131 I 223 and 2C_814/2014).

Third-party funding must not prevent Swiss lawyers from acting in line with the professional rules. As in all other cases, Swiss lawyers must act independently, keep client-related information confidential, and avoid conflicts of interest. In addition, Swiss lawyers must comply with the following limitations for success fee arrangements, which have been recently highlighted by the Swiss Federal Tribunal (decision of the Swiss Federal Tribunal No 4A_125/2018):

  • the fees which are not performance-related must cover the lawyer's costs and include a reasonable profit margin;
  • the performance-related fees must not be higher than the fees which are not performance-related;
  • the success fee arrangement must be made either at the beginning or after the completion of the case. During the proceedings, lawyers must not enter into success fee arrangements with their clients.

Consolidation is not specifically addressed by Swiss arbitration law. Consolidation of compatible proceedings is possible, and usually governed by institutional rules (eg, by Article 4 of the Swiss Rules).

Arbitration agreements can extend to non-signatories only in the limited number of situations described above (see 5.7 Third Parties).

As a general rule, awards cannot be enforced against any party but the award debtor. Piercing of the corporate veil at the enforcement level is only possible in very exceptional cases that must typically include an abuse of corporate structures.

GABRIEL Arbitration

AG Rämistrasse 6,
CH-8001 Zurich
Switzerland


+41 44 206 20 80

+41 44 206 20 81

s.gabriel@gabriel-arbitration.ch www.gabriel-arbitration.ch
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NIEDERER KRAFT FREY is a leading full-service Swiss law firm based in Zurich with an international approach. The firm works closely with its clients in Switzerland and internationally, to implement strategic goals, strengthen businesses and navigate change effectively. Niederer Kraft Frey's dispute resolution team is a leader in the Swiss legal market for contentious matters and provides a comprehensive service. The team is known for being easy to work with, efficient and business-aware. The firm's client base includes global banks, leading technology firms and large international sports organisations. Members of Niederer Kraft Frey's dispute resolution group regularly serve as chairpersons, single arbitrators, party-appointed arbitrators and counsels in national and international arbitration proceedings. The firm's track record is particularly strong in high-stakes arbitration proceedings. Extensive experience with arbitral proceedings both as arbitrators and party representatives, in-depth knowledge of the different rules governing the proceedings, and strong ties with leading law firms all over the world allow Niederer Kraft Frey to represent clients' interests in national and international arbitral proceedings effectively.

Switzerland – an Important Venue for International Arbitration

Switzerland is one of the most important hubs for international arbitration. An empirical study of the European Parliament on arbitration in the EU and Switzerland came to the conclusion that Switzerland is among the most recommended places for arbitration and thus is without doubt one of the of the leading arbitration venues worldwide. A similar picture emerges from recent statistics of the International Chamber of Commerce in Paris (ICC) where Geneva was the most often chosen seat of arbitration after Paris and London. In addition, Swiss nationals were the third most frequently appointed arbitrators in these ICC arbitration proceedings. Switzerland is also often chosen as a place for commercial arbitration according to the Swiss Rules of International Arbitration of the Swiss Chambers' Arbitration Institution, and it hosts the Court of Arbitration for Sport (TAC/CAS) in Lausanne, which is the highest instance in sports-related disputes worldwide, as well as the WIPO Center for Arbitration and Mediation.

In the course of the preparatory work for the revision of the Swiss Private International Law Act (PILA) - which will be discussed in more detail below - the Swiss Federal Office of Justice interviewed various stakeholders of international arbitration in Switzerland. With regard to Switzerland's success in this area, the discussion partners cited the excellent legal framework as the most important factor for success in arbitration (in particular the 12th chapter of the PILA) and, at the same time, the high quality and consistency of the Swiss Federal Court's case law in the field of international arbitration. The size and dynamics of a constantly renewing pool of highly qualified and multi-lingual Swiss arbitrators were also mentioned as factors contributing to the success of Switzerland as an internationally recognised place for arbitration. All this is complemented, according to the interviewees, by the traditional quality factors of the Switzerland as a place for business, such as political neutrality and stability, the quality of the infrastructure and the accessibility of legal sources in the three official languages, German, French and Italian, with a number of these sources also being available in English translations.

Switzerland's tradition of arbitration ties in with the tradition of good offices in foreign policy. Within this framework, Switzerland has played, and continues to play, a role as facilitator and supports parties in the search for negotiated solutions without taking sides itself. While literature mentions first arbitration proceedings already occurring in the Middle Ages, the Alabama Arbitration Procedure of 1872 is commonly mentioned as the birth of modern public arbitration. At that time, the Governments of the United States of America and the United Kingdom submitted claims for damages arising during the American Civil War. Later, private international commercial arbitration reached its current significance with the upturn in cross-border trade in the twentieth century when all Swiss cantons regulated arbitration. The PILA came into force in 1989 and its 12th chapter regulates international arbitration in Switzerland. For the area of domestic arbitration, the Federal Constitution of 18 April 1999 cleared the way for a federal regulation, which came into force on 1 January 2011 as the third part of the Swiss Code of Civil Procedure (CPC), and replaced the regulations on cantonal level. The creation of a uniform arbitration law in the sense of a unique code (covering both international and domestic arbitration) was, however, deliberately waived at that time.

Revision of the Legislative Framework for International Arbitration in Switzerland

Almost 30 years after its adoption, the 12th chapter of the PILA continues to apply internationally as an innovative arbitration law of great quality. It is appreciated as a clear and concise law, which gives the parties great autonomy and flexibility in procedural design, while at the same time providing a transparent framework secured by the state courts. Thanks to these characteristics, the 12th chapter of the PILA is a suitable legal framework for different types of arbitration such as ad hoc proceedings, institutional arbitration, sports arbitration and investment arbitration.

Triggered by a motion of the Swiss Parliament, the legislation governing international arbitration was revised, and on 24 October 2018, the Swiss Federal Council released the report and the draft bill for the proposed revision of the 12th chapter of the PILA that aims at strengthening further the current strengths as well as at increasing legal certainty and clarity. The draft, in particular, enshrines the case law of the Federal Tribunal, removes ambiguities and makes the law more user-friendly. In addition, the draft also takes into account the developments in international trade and other arbitration laws worldwide and incorporates a number of innovations aimed at further optimising the Swiss law on international arbitration.

The main goals of the proposed amendment are the following:

Keeping Track of Court Practice and Clarification of Open Questions

In the almost 30 years since the PILA came into force, the Federal Tribunal has clarified various questions and supplemented the law in important points. In the interest of transparency and user-friendliness, the Federal Council deems it necessary to update or, where appropriate, supplement the jurisprudence in the law. At the same time, open issues should be clarified by law where appropriate.

These revision points include the following:

According to the draft, the legal remedies for corrections, explanation, amendment and revision of arbitral awards shall now be expressly regulated in the law. While today's PILA contains no provisions in this respect, the Federal Tribunal has recognised that decisions of arbitration tribunals in international arbitration can also be rectified, explained or amended and are also accessible for revision. By implementing the draft, the framework of legal remedies will be comprehensively dealt with in the text of the law. Consequently, the 12th chapter of the PILA will satisfy the claim of the historical legislator to regulate international arbitration comprehensively and conclusively in the PILA.

According to its Article 176, the PILA shall apply to arbitration tribunals domiciled in Switzerland "provided that at least one party has its domicile or habitual residence when concluding the arbitration agreement in Switzerland". In a decision on the question of the scope of applicability of the PILA, the Federal Tribunal examined the circumstances of the later parties to the arbitration (and not of the parties to the arbitration agreement). This decision was unanimously criticised by academic writers. According to that decision, the applicable arbitration law (CPC or PILA, depending on the domicile, seat or habitual residence of the parties) cannot be established until an arbitration procedure has been initiated. This creates legal uncertainty, particularly in contracts with several parties, because it is often impossible to predict which parties to the contract will be involved in a subsequent legal dispute. This legal uncertainty is a major weakness of the current system. Therefore, the revised PILA shall now explicitly refer to the parties to the arbitration agreement.

The current law does not clarify the applicable procedure for proceedings before the state court if it is acting as juge d'appui. The draft therefore expressly provides that the summary procedure according to the CPC shall apply in such cases in both domestic and international arbitration.

Strengthening Party Autonomy

The 12th chapter of the PILA grants the parties great freedom in the design of procedural matters. The aim of the proposed amendment of the PILA is to strengthen this characteristic by implementing the following:

Under the current law, an arbitration agreement shall be concluded in writing, by telegram, telex, tele copier or in any other form of transmission "which allows proof of the agreement by text". Initially, the preliminary draft of January 2017 stipulated that the formal requirement should be moderately simplified by allowing that only one party to the arbitration agreement shall have to fulfil the form. However, due to criticism expressed during the consultation process, such simplification was ultimately not adopted in the draft bill published in October 2018. In order to modernise the wording of the aforementioned provision on formal requirements for arbitration agreements, and in line with the already applicable formal requirements for domestic arbitration, the draft bill now merely stipulates that an arbitration agreement must be "in writing or in any other form that allows it to be evidenced by text".

The draft now also expressly provides that, in addition to the usual bilateral or multilateral arbitration agreement, jurisdiction may also be conferred to an arbitral tribunal based on an arbitration clause contained in a unilateral legal transaction such as a last will, a foundation, a trust and others, if that clause was effectively established in accordance with the substantive law applicable thereto.

Strengthening User-friendliness

The PILA competes with foreign legal systems. User-friendliness is therefore extremely important. The proposal for the partial revision of the 12th chapter of the PILA intends to address parties' needs further by implementing the following measures:

An arbitration is international in accordance with the 12th chapter of the PILA if at least one party to the arbitration is from abroad. That party may not be familiar with the Swiss legal system. For foreign parties it is, therefore, a decisive advantage if the lex arbitri is comprehensively settled in one specific decree. In the interest of user-friendliness, references to the CPC in the PILA shall, therefore, be replaced by direct regulations in the PILA itself, so that the PILA solely and comprehensively regulates international arbitration. In that sense, the PILA shall now regulate the appointment, the refusal and the dismissal of a member of an arbitral tribunal in cases where these proceedings require the assistance of state courts, ie, where the parties have not themselves stipulated the relevant provisions in their arbitration agreement.

English is the predominant language in international arbitration. In appeal proceedings, the Federal Tribunal already accepts submission of exhibits in English with the consent of the other parties. The draft proposes to make a further step in this context and provides that it shall now also be possible to submit the legal briefs to the Federal Tribunal in English in cases where it acts as the competent appeal body in arbitration matters. In view of the strict conditions for appeals against an arbitral award (cf below) it is not expected that the number of appeal proceedings brought before the Federal Tribunal will increase because of this change. However, the admission of legal documents in English will lead to a reduction in the translation workload for the parties, thus further enhancing Switzerland's attractiveness as a venue for international arbitration. As this proposed amendment was met with resistance from the Federal Tribunal, it remains to be seen whether the provision will be included in the revised law.

The draft for a revision of the 12th chapter of the PILA is to be submitted to the Swiss Parliament for discussion and approval and it is not clear at the time of writing when the revised law will come into force.

Jurisprudence of the Swiss Federal Tribunal

The Swiss Federal Tribunal in Lausanne is the last instance in arbitration matters.

According to Article 190 of the PILA, an arbitral award in international arbitration shall, in principle, be final when communicated. The PILA, however, allows a challenge to the arbitral award before the Federal Tribunal for some limited grounds. It can be challenged if:

  • a sole arbitrator was irregularly designated or the arbitral tribunal was irregularly constituted;
  • if the arbitral tribunal erroneously held that it had or did not have jurisdiction;
  • the arbitral tribunal ruled on matters beyond the claims submitted to it or if it failed to rule on one of the claims submitted;
  • the parties were not treated equally or the right to be heard in an adversarial proceeding was not respected; or
  • the award is incompatible with Swiss public order (ordre public).

In order to strengthen the power of arbitral tribunals in Switzerland, Article 192 of the PILA even allows the exclusion of appeals against an arbitral award if neither party has a domicile, place of habitual residence or place of business in Switzerland, provided the parties expressly agree so in the arbitration agreement or a subsequent written agreement.

Success rates of appeals against arbitral awards with the Federal Tribunal are low. In 2016 and 2017, a total of three challenges were successful.

In the author's view, the following decisions of the Federal Tribunal in arbitration matters during the past twelve months are worth noting:

Right to be Heard

A party's right to be heard is not violated, in the event that the arbitral tribunal applies legal reasoning to which no party had referred. Namely, the arbitral tribunal reduced the claim for damages due to fault on the part of the party claiming such damages, even though the opposing party had not expressly requested any such reduction.

Deviation from Agreed Procedural Rules

Procedural rules agreed upon by the parties to an arbitration proceeding are not mandatory procedural rules in the sense of Article 190 para 2 lit d of the PILA (regarding the equal treatment of the parties and their right to be heard). In consequence, the arbitral tribunal did not breach the right of the parties to be heard by deviating from procedural rules on the deadline for submitting new evidence or new arguments as agreed between the parties to be binding on the arbitral tribunal.

Jurisdiction of an Arbitral Tribunal to decide Retention Claims

An arbitral tribunal not only has jurisdiction to hear claims based on an agreement containing an arbitration agreement, but also in relation to retention rights raised by the responding party in defence against such claims, provided that those retention rights have a link to the respective claim as per the applicable Swiss substantive law.

Immunity of Foreign States in Attachment Proceedings

The Federal Tribunal rendered a landmark decision with regard to immunity of foreign states in enforcement proceedings of arbitral awards against state-owned assets located in Switzerland, as well as with regard to the relationship between Swiss procedural law and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1985, governing the enforcement of foreign arbitral awards in Switzerland. In summary, the Federal Tribunal found that the New York Convention does not prevent Swiss procedural law from applying restrictions in terms of enforcement proceedings against foreign states' assets located in Switzerland, and that consequently the prerequisites of the enforceability of a claim against a foreign state as per consistent Swiss case law, and in particular the requirement of a sufficient domestic nexus of the claim to be enforced to the territory of Switzerland, also apply within the area of application of the New York Convention.

Beginning of the 30-day Deadline for Filing an Annulment Action

The receipt of a courtesy copy (pursuant to the ICC Rules) of the arbitral award by email from the ICC secretary's office is not deemed to trigger the commencement of the 30-day period for filing an application for annulment of the award, but only the receipt of an original by mail or courier.

NIEDERER KRAFT FREY

Niederer Kraft Frey Ltd
Bahnhofstrasse 53
8001 Zurich

+41 58 800 80 00

+41 58 800 80 80

nkf@nkf.ch www.nkf.ch
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GABRIEL Arbitration is an independent dispute resolution boutique law firm specialising in international arbitration with its office in Zurich, Switzerland. The team presently consists of: Dr Simon Gabriel, founder and partner; Dr Axel Buhr, partner; Dr Johannes Landbrecht, of counsel; Dr Nataša Hadžimanović, senior associate; and Andreas Schregenberger, senior associate. Clients benefit from first class-dispute resolution services, fewer conflicts of interest and competitive pricing. The firm's lawyers are particularly experienced in disputes concerning joint ventures and consortia, energy-related issues, international sales contracts, licensing contracts, and post-M&A issues. In terms of industries, the team is experienced in disputes on commodity trading, pharmaceutical products, construction projects, production of high-tech equipment, and oil and gas.

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NIEDERER KRAFT FREY is a leading full-service Swiss law firm based in Zurich with an international approach. The firm works closely with its clients in Switzerland and internationally, to implement strategic goals, strengthen businesses and navigate change effectively. Niederer Kraft Frey's dispute resolution team is a leader in the Swiss legal market for contentious matters and provides a comprehensive service. The team is known for being easy to work with, efficient and business-aware. The firm's client base includes global banks, leading technology firms and large international sports organisations. Members of Niederer Kraft Frey's dispute resolution group regularly serve as chairpersons, single arbitrators, party-appointed arbitrators and counsels in national and international arbitration proceedings. The firm's track record is particularly strong in high-stakes arbitration proceedings. Extensive experience with arbitral proceedings both as arbitrators and party representatives, in-depth knowledge of the different rules governing the proceedings, and strong ties with leading law firms all over the world allow Niederer Kraft Frey to represent clients' interests in national and international arbitral proceedings effectively.

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