International Arbitration International Arbitration and Related ...

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Switzerland, a neutral and stable country situated in the heart of Europe, ... the Swiss Private International Law Act (“PILA”) constitutes the arbitration law of ...

International Arbitration

APRIL 2011

BEIJING CHARLOTTE CHICAGO GENEVA HONG KONG HOUSTON LONDON LOS ANGELES MOSCOW NEW YORK NEWARK PARIS SAN FRANCISCO SHANGHAI WASHINGTON, D.C.

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International Arbitration and Related Proceedings in Switzerland Switzerland, a neutral and stable country situated in the heart of Europe, is frequently chosen by parties to cross-border transactions as the place of international arbitration for disputes arising from such transactions. This briefing highlights several reasons why Switzerland is regularly selected as a place of international arbitration, and why international arbitrations held in Switzerland are cost-effective and efficient.

1. Arbitration Friendly Legislation Switzerland has a longstanding tradition of arbitration-friendly laws and courts. Chapter 12 of the Swiss Private International Law Act (“PILA”) constitutes the arbitration law of Switzerland for international arbitrations. Chapter 12 of the PILA, which consists of Articles 176 to 194, applies to all arbitrations seated in Switzerland as long as one or more of the parties was not domiciled in Switzerland at the time the arbitration agreement was concluded. True to Switzerland’s policy of favoring international arbitration, the PILA applies lenient criteria for upholding the validity of an arbitration agreement. The formal requirements are minimal. Article 178.1 of the PILA simply requires that an arbitration agreement be in writing. As a matter of substance, per Article 178.2, an arbitration agreement is deemed valid as long as it complies with either the law chosen by the parties, the law applicable to the subject matter of the dispute, or Swiss law. PILA also provides rules for the constitution of the tribunal, the applicable procedure and the choice of law. Finally, awards rendered in Switzerland are subject to challenge on the following very narrow procedural and policy grounds, pursuant to Article 190 of the PILA: (a) irregular constitution of the arbitral tribunal; (b) lack of jurisdiction of the arbitral tribunal; (c) rulings where the arbitral tribunal ruled beyond the claims submitted to it, or failed to decide one of the claims; (d) violation of due process; and (e) violation of public policy. Moreover, another significant feature of Swiss arbitral law is that if a party wishes to challenge an arbitral award it has only one level of judicial review, the Swiss Supreme Court. In fact, parties may waive the right to file a challenge with the Swiss Supreme Court if neither is domiciled in Switzerland.

2. Proceedings Before the Swiss Supreme Court The party who wishes to challenge an arbitral award has only 30 days after receipt of the award to file the challenge with the Swiss Supreme Court. The challenge itself has to be filed in one of the three official languages of Switzerland (German, French, Italian). However, the exhibits, including the challenged award, may be presented to the Swiss Supreme Court in English, which can lead to cost savings for those parties involved in English language arbitral proceedings. Once the Court has received the challenge it will issue an invoice to the party initiating the challenge to pay the court’s costs. The invoice indicates the date on which the amount must be deposited into the Court’s account. Should the payment not arrive in the account on time, the challenge will be dismissed.

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The court will invite the opposing party to respond. It will usually also invite the tribunal to comment upon the challenge. A second exchange of briefs is almost never ordered, which helps ensure expeditious treatment of the challenge. The Swiss Supreme Court is extremely efficient in its deliberations, usually taking only between four to six months to render its decision on a challenge. Given the narrow grounds on which a challenge can be brought, the Court rarely invalidates an award. Statistics show that less than 5% of all awards challenged before the Swiss Supreme Court are set aside. Such statistics are publicly known and help dissuade parties from filing frivolous challenges. Furthermore, in Switzerland, an arbitral award is effective upon issuance, even if a challenge against the award is pending. Thus, the prevailing party need not await the outcome of a challenge to commence enforcement proceedings in whatever foreign jurisdiction the losing party holds assets.

3. Enforcement of Awards in Switzerland Switzerland is also often chosen by parties as the place to enforce arbitral awards rendered outside of Switzerland. Enforcement of awards in Switzerland is governed by Article 194 of the PILA and the New York Convention. Swiss courts will take into account not only Swiss court decisions, but also foreign judicial decisions when applying the Convention. The foreign award is given the same effect in Switzerland as in the country where it was rendered. The foreign award, therefore, has res judicata effect in Switzerland and Swiss courts cannot relitigate the matter. Debt collection or other enforcement proceedings can be commenced based on the award and carried out in Switzerland. For collections of money awards, Switzerland’s Debt Collection and Bankruptcy Statute is applicable. For non-monetary awards, for instance injunctions, the Federal Civil Code of Switzerland applies.

4. Bi-Lateral Treaty Protection for Your Foreign Investments Switzerland also holds the distinction of being one of the countries with the most bi-lateral investment treaties (“BITs”). At last count, Switzerland had 109 BITs in force with other countries. As a general matter, BITs protect the investments made by a company or individual in a foreign country against mistreatment by the foreign (i.e., “host”) government. Naturally, however, to benefit from such protection, the investor’s home country must have a BIT in effect with the host country in which the investment is made. The advantage of being able to invoke a BIT is that the investor may seek relief against a foreign government or subdivision thereof

for damage caused to its investment before a panel of neutral international arbitrators, without having to resort to the judicial or administrative courts of the host country. If your home State does not have a BIT with the foreign country in which you have made or will make an investment, you may wish to restructure the manner in which you hold such investments. For example, the U.S. has no BITs with most Asian countries, including China. A U.S. corporation may prefer, therefore, to hold such investments through a Swiss subsidiary as Switzerland does have a BIT with China. In other words, a U.S. company which holds its Chinese investments through a Swiss subsidiary may invoke — assuming it fulfills the requirements of the Swiss-China BIT — the protections afforded to its investments pursuant to the Swiss-China BIT.

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If you have any questions regarding any matters discussed in this briefing, please contact any of the Winston & Strawn attorneys listed below or your usual Winston & Strawn contact.

Geneva



Ricardo E. Ugarte

[email protected]

41 (0)22 317 7576



Laurence Burger

[email protected]

41 (0)22 317 7517

These materials have been prepared by Winston & Strawn LLP for informational purposes only. These materials do not constitute legal advice and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code. Receipt of this information does not create an attorney-client relationship. No reproduction or redistribution without written permission of Winston & Strawn LLP. © 2011 Winston & Strawn LLP

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