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 of Switzerland).
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).
To begin with, it goes without saying that the current COVID-19 pandemic has had a considerable impact on arbitration proceedings in Switzerland both on the procedural and on the substantive side:
In-person meetings have been impossible for several months and many hearings have had to be postponed to the second half of 2020, or even 2021. Against this background, the increased use of technical tools to conduct hearings has generally gained more attention from the parties. In this respect, tribunals often require the parties to liaise with each other for the agreement on a cyber protocol for virtual examinations. However, in bigger cases with more than ten participants, there is often still a certain reluctance to depart from the traditional in-person hearing format.
From a substantive perspective, the COVID-19 pandemic is likely to generate an unprecedented case load based on force majeure clauses and/or questions as to whether a party was excused from performing its obligations which were otherwise due under the contract. In many cases, this will lead to new and delicate issues.
Another big topic is the recently completed revision of the Swiss lex arbitri: 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. The most visible improvement will probably be the possibility to file arbitration-related submissions in proceedings before the Swiss Federal Tribunal in English. This is a key development of making the Swiss Federal Tribunal as accessible to international parties as its counterparts in the English-speaking world. The revised law also contains many other improvements, but the legislator has deliberately refrained from extensive amendments (see 2.2 Changes to National Law).
There has been no exceptional increase of arbitration proceedings in any particular industry in Switzerland. As previously mentioned, this may change, however, in the wake of the COVID-19 pandemic.
Key industries that usually appreciate arbitration as a dispute resolution method are the pharmaceutical industry, the construction industry, and 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).
In 2018, The Swiss Association of Engineers and Architects (SIA) published, as SIA standard 150:2018, new arbitration rules specifically designed for construction disputes. These rules are not publicly available and, for the time being, there are no statistics on their use.
International arbitration proceedings in Switzerland are governed by the 12th Chapter of the Swiss Private International Law Act (PILA), which currently comprises 19 articles (Article 176 to Article 194 of the PILA, the so-called "Swiss lex arbitri").
The PILA is not directly based on the UNCITRAL Model Law on International Commercial Arbitration (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.
On 19 June 2020, the Swiss legislator approved a minor revision of the Swiss international arbitration law (ie, the 12th Chapter of the PILA) (see 1.2 Trends). For example, the revised law provides for the possibility to file submissions in arbitration-related proceedings before the Swiss Federal Tribunal in the English language (see 11.1 Grounds for Appeal). At the same time, no major legal changes to the Swiss international arbitration law will take place. Subject to an optional referendum (which would need to be taken by 8 October 2020), the revised law can be expected to enter into force in early 2021. It will apply to arbitration proceedings initiated thereafter, whereas arbitration agreements as such will be subject to the revised law irrespective of when they have been concluded.
In the following, the most important amendments of the revised Swiss lex arbitri 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 of the 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 145 III 199), 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 (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:
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 of the PILA; principle of favor validitatis).
Revised Swiss Lex Arbitri
The revised law clarifies that the rules of the Swiss lex arbitri also apply by analogy to arbitration agreements in unilateral legal instruments (such as last wills) or in articles of association (Article 178.4 of the revised PILA).
Article 177.1 of the 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 of the 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 of the 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 of the PILA expressly provides that an arbitration agreement may be considered valid even if the remainder 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 of the 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 and replace any arbitrator in line with the arbitration agreement (Article 179.1 of the 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 (see 4.4 Challenge and Removal of Arbitrators).
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 she or he designate an arbitral tribunal (Article 179.2 of the PILA). Depending on the specific circumstances, the state court judge will currently 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 (CPC) and designate the missing members of the arbitral tribunal (Article 362 of the CPC).
Revised Swiss Lex Arbitri
The revised law provides further guidelines on the procedure so that a recourse to the CPC will no longer be necessary:
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 of the PILA governs the challenge and potential removal of arbitrators. Reasons for challenging an arbitrator include:
Generally, it is important to note that a challenge must be brought forward immediately after a party gains knowledge of the reasons for such a challenge. While the current 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.
Revised Swiss Lex Arbitri
The revision introduces a new set of rules as to the procedure for arbitrator challenges:
According to Article 180 of the PILA and pertinent jurisprudence 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 her or his participation risks being set aside.
Any disputes of financial interest (ie, monetary value) may be referred to arbitration pursuant to the Swiss lex arbitri (for the Swiss lex arbitri, see 2.1 Governing Law and for arbitrable disputes, see 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 of the 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 of the PILA).
The Swiss Federal Tribunal is the only judicial instance that has the power to review any decision on jurisdiction (whether positive or negative) in potential challenge proceedings, if a respective objection is brought forward by a party (Article 191 of the PILA). If not challenged, a negative ruling on jurisdiction by the arbitral tribunal becomes final, with the effect that the same matter cannot validly be submitted (again) to arbitration.
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 of the 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:
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 of the 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 of the 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 of the PILA).
Revised Swiss Lex Arbitri
The revised law clarifies that the state courts may assist in the enforcement of the order also upon the request of a party (Article 183.2 of the revised PILA). It is further provided that the state courts will also support arbitral tribunals of and parties to arbitration proceedings with a place of arbitration outside Switzerland (i) to implement preliminary or securing measures (Article 185a.1 of the revised PILA), or (ii) in the taking of evidence (in the case of a party, only upon approval by the tribunal) (Article 185a.2 of the revised PILA).
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 requires 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 of the PILA provide a few general rules on arbitral procedure.
As a matter of mandatory procedural law, Article 182.3 of the 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.
Revised Swiss Lex Arbitri
The revised law expressly stipulates that a party who continues the proceedings without objecting to an infringement against the procedural rules, immediately after it took or could have taken notice thereof, will later be precluded from invoking that infringement (Article 182.4 of the revised PILA).
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 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 previously mentioned, 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 of the 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:
Article 184.1 of the PILA (merely) provides that it is for the arbitral tribunal to administer the taking of evidence, and Article 184.2 of the PILA provides that (i) the arbitral tribunal may seek the assistance of the state courts with respect to the taking of evidence and (ii) the state courts apply their own (domestic) law.
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.
Revised Swiss Lex Arbitri
The revised law clarifies that the state courts may assist with the taking of evidence also upon the request of a party (upon approval by the tribunal) (Article 184.2 of the revised PILA). State courts may apply or consider different procedural rules as their own on request, which may in particular be helpful for the examination of witnesses (Article 184.3 of the revised PILA).
As previously mentioned, 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 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 the assistance of the state courts.
Revised Swiss Lex Arbitri
Under the revised law, the Swiss state courts will also assist arbitral tribunals of and parties (upon approval by the tribunal) to arbitration proceedings with a place of arbitration outside Switzerland with the taking of evidence (Article 185a of the revised PILA).
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 of the 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 of the PILA provides that, in the absence of any agreement between the parties, the following requirements apply:
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 previously mentioned (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 of the PILA and can be summarised as follows:
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. The respective jurisprudence of the Swiss Federal Tribunal has served as a basis for the formal inclusion of the revision in the Swiss lex arbitri (see section on the revised Swiss lex arbitri below).
A request for revision on the grounds of newly discovered facts must be submitted within 90 days of the discovery of such new facts.
Revised Swiss Lex Arbitri
The revised law provides that the briefs in appeal or revision proceedings can be submitted in the English language (Article 77.2bis of the revised Federal Tribunal Act) (see 1.2 Trends).
Further, the revised law now 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, and (iii) discovery of new circumstances which give rise to doubts as to an arbitrator's independence or impartiality (Article 190a.1 of the revised PILA). Furthermore, the revision 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 (Article 189a.1 of the revised PILA). Finally, the revision clarifies that a revision has in any event to be submitted within ten years of the award coming into legal force, with the exception of criminal behaviour which affected the award (Article 190a.2 of the revised PILA).
If no party is domiciled in Switzerland, the parties may exclude any challenge proceedings (Article 192 of the 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 of the PILA.
Revised Swiss Lex Arbitri
The revised law provides that the parties may not exclude a revision on the ground of criminal behaviour which affected the award (Article 192.1 of the revised PILA) (see 11.1 Grounds for Appeal).
The Swiss Federal Tribunal does not review the merits of the case, unless it is indispensable in order to review issues of (i) arbitral jurisdiction or (ii) substantive public policy.
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 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 CPC 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. The entirety of their 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 a 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) is 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):
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 in 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.
A Popular International Hub
Switzerland is one of the most important and sought-after hubs for international arbitration. According to the latest survey on international arbitration conducted by the School of International Arbitration at Queen Mary University of London in 2018, Switzerland is one of the leading arbitration venues worldwide, with 38% of the respondents including at least one Swiss city or Switzerland itself as their preferred seats. Geneva ranked among the top five most preferred seats after London, Paris, Singapore and Hong Kong, and is the third most preferred seat in Europe and Africa after London and Paris. Furthermore, 33% of respondents were of the opinion that Switzerland will benefit most from the impact of Brexit.
Switzerland's status as one of the primary hubs for international arbitration was further confirmed by the recently published statistics on dispute resolution by the International Chamber of Commerce (ICC) for the year 2019. In ICC arbitration proceedings, Switzerland was the third most chosen country for arbitral seats after the UK and France, Swiss nationals were the second most frequently appointed arbitrators, and Swiss law was the second most chosen law. In addition, Switzerland 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.
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 historic literature mentions the first arbitration proceedings in the Middle Ages, the Alabama Arbitration Procedure of 1872 is commonly understood to have marked the birth of modern public arbitration. At that time, the governments of the USA and the UK 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 20th century when all Swiss cantons regulated arbitration. The Swiss Private International Law Act (PILA) came into force in 1989 and its 12th Chapter governs 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 a cantonal level. The creation of a uniform arbitration law in the sense of a "code unique" (covering both international and domestic arbitration) was, however, deliberately waived at that time.
Switzerland's popularity in international arbitration is perhaps primarily due to its modern and arbitration-friendly legislation, namely the 12th Chapter of the PILA governing international arbitration proceedings seated in Switzerland. With the objective of further increasing Switzerland's attractiveness for international arbitration proceedings, the 12th Chapter of the PILA was subject to legislative revisions, which will be discussed in more detail below.
In the course of the preparatory work for the revision of the PILA, the Swiss Federal Office of Justice interviewed various stakeholders of international arbitration in Switzerland. The discussion partners named Switzerland's excellent legal framework, and the high quality and consistency of the Swiss Federal Tribunal's case law in the field of international arbitration as main factors for Switzerland's popularity in international arbitration. The size and dynamics of a constantly renewing pool of highly qualified and multilingual Swiss arbitrators were also mentioned as factors contributing to the success of Switzerland as an internationally recognised venue for arbitration.
All this is complemented, according to the respondents, by the traditional appeal of Switzerland as a place for business, factors 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 being also available in English.
Revision of the Swiss Legislative Framework
Almost 30 years after its enactment in 1989, 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 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 and sports arbitration.
Triggered by a motion of the Swiss Parliament, the 12th Chapter of the PILA was revised in order to further strengthen its current strengths as well as to increase legal certainty and clarity. On 19 June 2020, the Swiss Parliament approved the final draft bill of the revised 12th Chapter of the PILA, which is expected to enter into force in early 2021.
The revised legislation enshrines the case law of the Swiss Federal Tribunal, removes ambiguities and makes the law more user-friendly. In addition, developments in international trade and other arbitration laws worldwide have been taken into account and a number of innovations aimed at further optimising the Swiss legislation on international arbitration were incorporated.
The key changes to Chapter 12 of the PILA are outlined below.
Submissions to the Swiss Federal Tribunal in English
English is the predominant language in international arbitration. In appeal proceedings, the Swiss Federal Tribunal already accepts submission of exhibits in English with the consent of the other parties. The revised 12th Chapter of the PILA makes a further step in this context and stipulates the possibility of filing submissions to the Swiss Federal Tribunal in English.
In view of the strict conditions for appeals against an arbitral award (see below), it is not expected that the number of appeal proceedings brought before the Swiss Federal Tribunal will increase because of this change. However, the admission of submissions 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.
Modernisation of form requirements
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 ought to be concluded in writing, by telegram, telex, tele-copier or in any other form of transmission "which allows proof of the agreement by text". 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 revised bill now includes any written communication, which permits the arbitration agreement to be evidenced by text (including emails and, presumably, even text messages provided that the sender can be reliably identified).
In addition, the revised PILA 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 – for example, a will or the articles of incorporation of a foundation, a trust or association.
The PILA competes with foreign legal systems. User-friendliness is therefore extremely important and, to further this, the revised 12th Chapter of the PILA implements the following new measure: an arbitration is international in accordance with the 12th Chapter of the PILA if at least one party to the arbitration is from abroad. Such 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 are, therefore, replaced by direct regulations in the PILA itself, so that the PILA solely and comprehensively regulates international arbitration. In addition, the PILA now also governs the appointment, the refusal and the dismissal of a member of an arbitral tribunal.
Clarification of the scope of application
According to its current Article 176, the PILA applies if "at least one party has its domicile or habitual residence in Switzerland when concluding the arbitration agreement". In its practice, the Swiss Federal Tribunal examined the circumstances of the parties to the arbitration proceedings, and not of the parties that concluded the arbitration agreement when it assesses whether an arbitration was international or domestic.
As a result of this practice of the highest court in Switzerland, the question as to whether the CPC (domestic arbitration) or the PILA (international arbitration) was to apply could not be determined at the time of the conclusion of the arbitration agreement, but only when either of the parties initiated arbitration proceedings.
This practice was criticised in the legal doctrine for creating legal uncertainty, particularly with regard to contracts with several parties, as it is often impossible to predict which parties to the contract will be involved in a subsequent legal dispute. The revised PILA specifies that its provisions shall apply to an arbitration if, at the time of conclusion of the arbitration agreement, at least one of the parties to the agreement had its domicile, habitual residence, seat or place of business outside Switzerland.
Appointment of arbitrators by the juge d'appui
As per the current Article 179 of the PILA, the state court at the seat of the arbitration (the juge d'appui) has jurisdiction to appoint or replace arbitrators if the parties have not agreed on a procedure or rules in this regard. However, in the event that the arbitration agreement did not specify the seat of the arbitration or merely referred to a seat "in Switzerland", the parties were prevented from having the arbitrator(s) appointed or replaced as provided for in Article 179 of the PILA.
In order to close such gap, the revised PILA provides for the jurisdiction of the court first seized to appoint the arbitrator(s) in the event that the parties have not agreed on a seat. Thereafter, it is up to the arbitral tribunal thus constituted to choose a seat within Switzerland or anywhere in the world, in the event that the parties have not agreed on a specific country.
Furthermore, the revised PILA provides for the state court to appoint all members of the arbitral tribunal in multiparty arbitrations, in the event that the parties fail to appoint the arbitrators.
Assistance of state courts in foreign arbitration proceedings
As arbitral tribunals are not vested with sovereign power, in the event that parties do not voluntarily comply with interim and provisional measures or the production of evidence ordered by a tribunal, the enforcement of such measures and orders requires the assistance of state courts. In order to facilitate and expedite such procedure, the revised PILA grants arbitral tribunals and parties to arbitration proceedings outside Switzerland direct access to the Swiss state courts at the place where enforcement is sought.
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 is, in principle, final when communicated. According to the PILA, however, an arbitral award can be challenged before the Swiss Federal Tribunal for some limited grounds – namely, if:
In order to strengthen the power of arbitral tribunals in Switzerland, Article 192 of the PILA even allows for the exclusion of the right to appeal against an arbitral award if the parties expressly agree so in the arbitration agreement or subsequent written agreement and provided that neither party has a domicile, place of habitual residence or place of business in Switzerland.
Success rates of appeals against arbitral awards with the Federal Tribunal are low: in 2016 and 2017, only three challenges were successful.
In our view, the following decisions of the Swiss Federal Tribunal in arbitration matters during the past 12 months are particularly worthy of note.
Extension of arbitration agreement to non-signatory under the New York Convention
In a landmark decision, the Swiss Federal Tribunal upheld a decision by a lower court, in which an arbitration agreement was extended to a non-signatory as such third party had intervened in the performance of the main contract.
While the Swiss Federal Tribunal found that an arbitration agreement included in a contract is in principle only binding on the contracting parties, it held that the arbitration agreement may, under certain conditions, also bind persons that have not signed the contract and are not mentioned therein, namely in case of the assignment of the claim, the assumption of a debt or the assumption of a contract. In addition, an arbitration agreement may be extended to a non-signatory if such third party is involved in the performance of a contract and shows by its conduct that it intends to be party to the contract and the arbitration clause.
Arbitrator’s unilateral contact with party counsel after appointment
The applicant filed an appeal against an award of an ad hoc arbitral tribunal on the grounds that one member of the tribunal proposed by the other party lacked independence and impartiality.
The applicant argued that such lack of independence and impartiality was evidenced (inter alia) by a 12-minute telephone conversation between said arbitrator and the appointing party's counsel, which took place two days after the appointment of the arbitrator and four days prior to the constitution of the tribunal. The appellant argued that the contact and alleged discussion of material aspects of the case raised considerable doubts as to the independence of the arbitral tribunal, even if the arbitral tribunal justified such unilateral contact as an attempt to appoint a chairperson suitable for both parties.
The Swiss Federal Tribunal found that unilateral contacts between the party or its counsel and an arbitrator are not in any event prohibited. The Swiss Federal Tribunal referred to the IBA Guidelines on Party Representation and its own case law and held that it is broadly accepted that the two co-arbitrators may be in contact with the nominating parties with the purpose of selecting an appropriate chairperson. However, after the appointment of a chairperson, unilateral contact is no longer permitted.
Appointment decision of an arbitral organisation is not contestable
The Swiss Federal Tribunal analysed whether a decision rendered in an international arbitration proceeding by which an arbitral institution (in this case the Court of Arbitration for Sport) appointed an arbitrator may be challenged before the Swiss Federal Tribunal. The Swiss Federal Tribunal held that its case law on this issue with regard to domestic arbitration was applicable mutatis mutandis to international arbitration, and found that decisions of an arbitral institution concerning the constitution of an arbitral tribunal are not arbitral awards and as such may not be appealed against before the Swiss Federal Tribunal. The appointment may only be reviewed in the context of an appeal against the first contestable decision of the arbitral tribunal.
Prerequisites of opting out of the CPC for more restrictive grounds of appeal as per the PILA
The Swiss Federal Tribunal was required to decide whether parties to domestic arbitration proceedings are permitted to validly exclude (opt-out) applicability of the CPC (which governs domestic arbitration) in favour of the 12th Chapter of the PILA (which governs international arbitration) which would mean that less grounds for a challenge of the arbitral award before the Swiss Federal Tribunal would be available.
The Swiss Federal Tribunal held that such opting-out is permissible if the following conditions are met:
In addition, the Swiss Federal Tribunal clarified that the parties may agree to an opting out at any time until the arbitral award is rendered, and indicated (but did not expressly state) that after the constitution of the arbitral tribunal such opting-out would require the consent of the arbitral tribunal.