This Part II of the 2022 Year in Review: Switzerland post focuses on decisions of the SFSC providing useful guidance on the remedy of revision (as in force since January 2021) and on the concept of “treaty shopping”. In addition, Part II briefly summarizes the main developments in Swiss legislation and arbitration rules (Supplemental Swiss Rules and CAS Code).
Remedy of Revision
a) A Waiver of Appeal Can Include a Waiver of Remedy of Revision
In decision 4A_69/2022 (23.09.2022), the SFSC dealt with the issue of scope of a standard waiver of appeal contained in an arbitration clause (with the following wording: “Awards rendered in any arbitration hereunder shall be final and conclusive […]. There shall be no appeal to any court from awards rendered hereunder”).
The underlying dispute concerned the transfer of de facto control of the energy company INA by the Croatian state to the Hungarian oil and gas company MOL (‘MOL’) based on the shareholders agreement (‘SHA’), the GAS Master Agreement (‘GMA’) and the First Amendment to the Shareholders Agreement (‘FASHA’). In 2014, Croatia initiated UNCITRAL arbitration (PCA No. 2014-15) against MOL claiming that the FASHA and GMA were void ab initio due to the bribery of Croatia’s Prime Minister in the amount of EUR 10 million.
By award of 23 December 2016, Croatia’s claim was dismissed. In February 2017, Croatia filed an appeal against the award with an alternative request for revision. In its decision 4A_53/2017 / 143 III 589, the SFSC declared the appeal and the request for revision inadmissible holding that the above mentioned arbitration clause constituted a valid waiver of appeal within the meaning of article 192 PILA, but leaving open the question of whether the waiver was applicable to the remedy of revision.
Following the final conviction of Croatia’s Prime Minister of bribery in July 2022, on 8 February 2022 Croatia filed a request for revision of the award on the basis of article 190a(1)(a) PILA (new material evidence) and article 190a(1)(b) PILA (award influenced by a criminal act).
The SFSC first clarified that the new provisions of PILA also apply to arbitration agreements concluded before 1 January 2021 and that a waiver of legal remedies in an arbitration agreement concluded before 1 January 2021 can also exclude the right to apply for revision of an award, within the limits of the revised article 192 PILA. The SFSC noted that it is a matter of interpretation whether the waiver clause constitutes a waiver of the right to appeal alone or whether it also covers the application for revision. It held that in the present case the parties used the word “appeal” in its generic sense that encompassed diverse remedies (Berufung, Beschwerde, Revision, etc.) and that they intended to exclude any appeal against possible future awards. It concluded that the waiver clause at issue also precluded revision in so far as it was based on the ground provided for in article 190a(1)(a) PILA and that the revision based on article 190a(1)(a) PILA was not admissible.
As to the limits of the revised article 192(1) PILA (as in force since 1 January 2021), it allows for mandatory revision on the basis of article 190a(1)(b) PILA (award influenced by a criminal act) even if the parties have waived the right to appeal in the arbitration agreement. As this new legal situation also applies to arbitration clauses or arbitral awards of an older date, the SFSC dealt with Croatia’s second complaint. The SFSC highlighted that it was irrelevant whether the criminal offence was committed by a party to arbitration or a third party, but that it was essential that there was a causal link between the offence committed and the terms of the award whose revision was sought. The offence must have had an actual influence on the award to the detriment of the party seeking revision. The SFSC emphasized that the arbitral tribunal was not bound by a criminal judgment rendered in the same set of facts and could arrive to a different solution than the decision of the criminal authority. The SFSC dismissed the request for revision on the basis of article 190a(1)(b) PILA holding that that the now enforceable conviction of Croatia’s Prime Minister was not sufficient in itself to prove that the outcome of the challenged arbitral award had been influenced by a criminal act.
b) Requirements for Revision on the Basis of New Material Evidence
In decision 4A_464/2021 (31.01.2023), the SFSC dealt with an appeal for annulment of an award on the basis of article 190(2)(e) PILA (incompatible with public policy) submitted together with an alternative request for revision on the basis of article 190a(1)(a) PILA (new material evidence). The SFSC held that, where simultaneously submitted, an appeal takes precedence over a request for revision. After it dismissed the appeal, it dealt with the request for revision. The SFSC recalled the requirements for a successful request for revision on the basis of article 190a(1)(a) PILA (1. the applicant invokes new facts; 2. these facts are relevant to the outcome of the award; 3. these facts existed when the award was rendered; 4. these facts were discovered after the award was rendered; 5. the applicant was unable, despite its diligence, to invoke these facts during the arbitration), but dismissed the request concluding that the appellant failed to demonstrate that it was unable to discover the facts on which it based its request for revision already during the arbitration.
In decision 4A_398/2021 / 148 III 330 (20.05.2022), the SFSC dealt with the appeal of the Republic of Venezuela (‘Venezuela’) based on article 190(2)(b) PILA against the award of 17 June 2021. In the UNCITRAL arbitration PCA No. 2015-30, Clorox Spain S.L. (‘C.S.’) sought payment of damages from Venezuela for breach of various provisions of the Spain-Venezuela BIT.
By award of 20 May 2019, the tribunal declared that it lacked jurisdiction to rule on the claim. By decision 4A_306/2019 / 146 III 142 (25.03.2020), the SFSC annulled the award and referred the case back to the tribunal. By award of 17 June 2021, the tribunal declared itself competent to hear the merits of the dispute. In its appeal of 18 August 2021 against the award of 17 June 2021, Venezuela criticized C.S. for having carried out an inadmissible restructuring of its investment for the sole purpose of obtaining BIT protection at a time when a dispute with the host State (i.e. Venezuela) was foreseeable, which constituted an abuse of rights.
C.S. was founded in Spain by the US-American C. and provided with 100% of all shares of the Venezuelan company D. by means of a contribution in kind. This happened at the time when Hugo Chavez announced the creation of a price control authority in Venezuela. While C.S. could be seen as the object of treaty shopping by C., which wanted to achieve the best possible legal protection for the investments made, the SFSC reasoned that treaty shopping involved drawing a line between legitimate planning to acquire a nationality and treaty abuse. While there are legitimate reasons for structuring an investment in such a way that it benefits from the best possible protection, such structuring constitutes an abuse of a treaty when it is carried out at a time when a dispute with the host State is foreseeable. The criterion of foreseeability must meet high standards, whereby the objective standard of a “reasonable investor” must be applied. If, according to this standard, a dispute is foreseeable with a very high probability at the time of structuring an investment, there is a presumption of treaty abuse. The SFSC held that the Venezuela failed to show that the restructuring was carried out with a view to a specific dispute at a time when that dispute was foreseeable. The SFSC rejected Venezuela’s argument that C.S. was guilty of an abuse of the treaty and dismissed the appeal.
New Law and Amended Rules
a) Arbitration of Corporate Disputes
On 1 January 2023, article 697n of the Swiss Code of Obligations (‘CO’) entered into force, allowing companies incorporated under Swiss law (corporations, by reference also partnerships limited by shares and limited liability companies) to provide for arbitration clauses for corporate disputes in their articles of association. Such arbitration clauses are binding on the company, its governing bodies and its members, as well as the company’s shareholders, irrespective of whether the consent was given thereto. Arbitrations based on such arbitrations clauses are subject to the provisions on domestic arbitration (articles 353 et seq. Swiss Civil Procedure Code) and must be seated in Switzerland. The new Article 697n CO is part of a larger reform of Swiss corporate law, adopted in 2020 and enacted in several steps. The reform modernized Swiss corporate law and covered, i.a., share capital, corporate governance, shareholder rights, executive compensation, financial distress and gender representation.
As a supplement to article 697n CO, the Swiss Arbitration Centre issued new Supplemental Swiss Rules for Corporate Law Disputes (Supplemental Swiss Rules) to supplement the Swiss Rules for the purpose of administering and conducting arbitration proceedings in relation to corporate law disputes.
b) Amendments to CAS Code
On 1 November 2022, the amended CAS Code for Sports Arbitration, which applies to proceedings before the Court of Arbitration for Sport (CAS), entered into force. The amendments are not substantial and include, i.a., an increase in the number of arbitrators on the CAS list from 150 to 300, amended provisions on the Appeal Arbitration Procedure, and the fact that the President of the Appeal Arbitration Division must now take into account the criterion of diversity in addition to the criteria of expertise, availability, equality and turnover when selecting sole arbitrators and presidents of panels.
Concluding Remarks on the 2022 Developments
In 2022, in addition to the welcome clarifications on the revised provisions of PILA, the SFSC has confirmed its established case law, namely that: (i) the revised article 178(1) PILA does not require that an arbitration agreement be signed (formal validity) and that the parties’ intention to conclude an arbitration agreement is subject to the rules of contract interpretation (substantive validity of an arbitration agreement) (decision 4A_460/2021 (03.01.2022)), (ii) any violations of procedural rights must be complained about by the parties without delay (decision 4A_332/2021 (06.05.2022)), (iii) the objection of lack of jurisdiction of the arbitral tribunal – also when raised with respect to the relief sought by way of counterclaim – must be raised before entering into the merits of the case (Article 186(2) and Article 190(2)(b) PILA)(decision 4A_214/2022 (26.10.2022)). In the decision 4A_406/2021 (14.02.2022), the SFSC confirmed that, if the appeal to the CAS is not filed within the time limit, it is not the jurisdiction (ratione temporis) of the arbitral tribunal that is at issue, but the (in)admissibility of the appeal.