An article highlighting the key arbitration-related developments in Switzerland in 2012.
Top developments of 2012
2012 saw the Swiss Supreme Court continue its very active international arbitration jurisprudence, new Swiss arbitration rules and the commencement of a process for the revision of the Swiss Private International Law Act.
Case law developments in 2012
Successful challenges
In 2012, the Swiss Supreme Court allowed four challenges to arbitral awards, out of a total of 46 challenges (setting aside petitions against international and domestic arbitral awards combined). With a ratio of 8.7%, this is higher than the long term ratio, which is below 7%. However, (unless repeated in subsequent years) this should not be considered as a trend at this stage.
In a landmark ruling of 27 March 2012, the Supreme Court, for the first time, set aside an arbitral award for violation of substantive public policy (see decision 4A_558/2011, discussed in Legal update, Landmark ruling of Swiss Supreme Court setting aside CAS award for violation of substantive public policy). The court found that an open-ended playing ban that could be triggered at the sole discretion of a former employer severely infringed a football player's personal rights. It was not an adequate and proportionate measure for enforcing a €12 million payment awarded in a previous arbitration.
On 8 March 2012, the Supreme Court confirmed its jurisprudence on a third party beneficiary's entitlement to rely on an arbitration clause. The court allowed a petition to set aside a preliminary award in which an arbitral tribunal of the Court of Arbitration for Sports (CAS) had affirmed its jurisdiction over a dispute between a third party beneficiary of a contract and one of the parties to the contract. The Supreme Court found that the contract did not entitle the third party beneficiary to claim performance under the contract in its own right and that, therefore, it could not rely on the arbitration clause contained in the contract (see decision 4A_627 2011, discussed in Legal update, No entitlement to rely on arbitration clause for third party beneficiary of contract with no right to claim performance in its own right).
The court confirmed that the Swiss lex arbitri applies to the issue of subjective arbitrability, and that the law applicable to a non-state entity's legal capacity is determined by general conflict of laws principles. Here, Portuguese law applied, as the law of the insolvent company's place of incorporation. The Supreme Court found that the Portuguese company continued to have legal capacity notwithstanding a provision in the Portuguese Insolvency Code purporting to suspend the efficacy of arbitration agreements to which the insolvent entity was a party.
The court made clear that Vivendi does not stand for the general proposition that insolvency, or a foreign law provision purporting to render ineffective arbitration agreements entered into by an insolvent party, renders an entity incapable of being a party in arbitration proceedings in Switzerland. The court thus limited Vivendi to its specific facts.
The decision indicates that Switzerland is not out of step with other European countries on the effect of foreign insolvency on international arbitration. As long as the foreign entity retains legal personality and some "residual" legal capacity under the foreign law of incorporation, that entity will be considered capable of being a party to an arbitration in Switzerland.
Remanding to the original arbitral tribunal
In two decisions, the Supreme Court examined issues following a successful challenge to an arbitral award.
In May 2012, the court confirmed that the arbitral tribunal that rendered the original award remained competent to conduct the second arbitration, except where the basis for setting aside the original award was lack of jurisdiction or improper constitution. This constitutes an exception to the principle that an arbitral tribunal becomes functus officio upon rendering a final award (see decision 4A_14/2012, discussed in Legal update, Swiss Supreme Court: arbitral tribunal competent to make new award after original award annulled).
In June 2012, the court addressed the independence of arbitrators who must re-examine a case and the scope of re-examination. It confirmed that in the second arbitration, the arbitral tribunal may only re-examine the issues which led to the setting aside of the first award and is bound by the rest of its previous findings (see decision 4A_54/2012, discussed in Legal update, Remanding a case to original arbitrators: impartiality and scope of re-examination).
Continued strict approach on timely objections
The Supreme Court also confirmed its strict approach on a party's duty to raise procedural objections in a timely manner. Because of one party's failure to raise its objections in time, the Supreme Court dismissed an action for setting aside an arbitral award for lack of independence and impartiality of an arbitrator. In that case the arbitrator had been appointed by the opposing party in seven previous arbitrations, without having made any disclosures in this regard (see decision 4A_110/2012I, discussed in Legal update, Swiss Supreme Court confirms rigorous approach on formal criteria for challenging arbitrators).
The trend towards an ever greater divide between the jurisprudence regarding sports and commercial arbitration was further confirmed this year (for background see Article, Switzerland: arbitration round-up 2011/2012).
2012 saw the entry into force of the revised Swiss Rules of International Arbitration (Swiss Rules) on 1 June 2012 (see Legal update, Revised Swiss Rules of International Arbitration). The revisions were aimed at reflecting existing practice, rather than introducing major changes. As was the case with the revised ICC Arbitration Rules that came into force on 1 January 2012, special emphasis was given to increasing the efficiency of the arbitration proceedings. Under the revised Swiss Rules, the arbitral tribunal and the parties now have a formal obligation to conduct the arbitration in an expeditious and cost-effective manner (article 15(7)). While the explicit statement of this duty has already proved very useful, practical experience with other new provisions, such as emergency relief (article 43) or the revised consolidation, joinder and multiple party/contract provisions (article 4) is still relatively scarce.
Revision of Chapter 12 PILA
As anticipated last year (see Article, Switzerland: arbitration round-up 2011/2012), in 2012 Switzerland formally embarked on revising the Swiss lex arbitri, Chapter 12 of the Private International Law Act (PILA). On 27 September 2012, the Swiss Parliament requested the Department of Justice to review and draft proposed amendments to the Swiss arbitration law (see Legal update, Swiss National Council launches revision of Swiss arbitration law). The consensus view at a conference on this issue organised by the Swiss Arbitration Association (ASA) in September 2012, was that the review is expected to result in a "light" revision of Swiss international arbitration law, rather than in a fundamental change in the legal framework (see Legal update, ASA conference on revision of Swiss arbitration law). The ASA has established a task force to monitor and provide input during the revision process, which will likely take up to several years.