A. LEGISLATION AND RULES

A.1       Legislation

International arbitration in Switzerland continues to be governed by Chapter 12 of the Swiss Private International Law Act (PILA). On 1 January 2021, a partial revision was enacted to eliminate some ambiguities and to modernize the law, reflecting also the case law of the Swiss Supreme Court of recent years. [1]

A.2       Institutions, rules and infrastructure

Per June 1, 2021, the Swiss Chambers’ Arbitration Institution (SCAI) became the Swiss Arbitration Centre, a Swiss stock corporation. On the same date, the revised Swiss Rules of International Arbitration (“Swiss Rules 2021“) entered into force, which mainly aim to streamline arbitration proceedings. The Swiss Rules 2021 apply to all proceedings for which the notice of arbitration was filed on or after June 1, 2021. In particular, they facilitate the online management of proceedings, reinforce the role of the institution, optimize provisions on multiparty arbitration and add new provisions on cross-claims and the joinder of third parties. These changes will undoubtedly further enhance Switzerland’s position as a major arbitration hub.

B. CASES

B.1 Challenge of CAS arbitrator and duty of curiosity: BGer 4A_318/2020 dated 22 December 2019

In September 2018, the International Swimming Federation (FINA) ordered out-of-competition doping control be done on Chinese elite swimmer Sun Yang (“Athlete“). Although the Athlete initially cooperated by providing blood samples, he eventually refused to release the samples considering that the testing staff had not provided documents and credentials that met the requirements to conduct such testing. Following these events, the Athlete was denounced for an anti-doping violation but was eventually cleared by the anti-doping panel of the FINA in January 2019.

However, the World Anti-Doping Agency appealed this decision before the Court of Arbitration for Sport. In its award, issued on 28 February 2020, the arbitral tribunal found that the Athlete violated the FINA Doping Control Rules and suspended the Athlete for a period of eight years.

On 15 June 2020, the Athlete lodged a request for revision before the Swiss Supreme Court (“Supreme Court“), seeking the annulment of the award and the disqualification of the president of the panel. The Athlete based his request on information he received on 15 May 2020 – a press article –  that the president of the panel had, on several occasions between 2018 and 2019, posted tweets that included comments against Chinese nationals, thus raising questions as to their independence and impartiality.

The Supreme Court recalled its well-established case law, according to which parties to an arbitration have a so-called “duty of curiosity” – i.e., a duty to investigate – as to the existence of possible grounds for a challenge that may impact the composition of the arbitral tribunal. Consequently, one cannot limit themselves to the general declaration of independence made by each arbitrator, but rather must investigate to ensure that the arbitrator offers sufficient guarantees of independence and impartiality.

The Supreme Court, however, underlined that the duty of curiosity is not all-encompassing and has limits. While it can be expected that a party will use primary computer search engines to check sources provided for anything that could reveal a possible risk of bias (e.g., the websites of the main arbitration institutions, of the parties, of their counsel and the law firms, and, in the field of sports arbitration, those of the respondent foundation and the sports institutions concerned), it cannot be expected that they undertake a systematic and thorough search of all sources relating to a given arbitrator.

In this case, the Supreme Court found that, although the Twitter account of the president was freely accessible, it could not be expected that the Athlete would carry out research introducing keywords such as “China,” as this would be tantamount to admitting that the Athlete should have speculated from the outset about a possible lack of impartiality from the chairperson.

The Supreme Court also assessed whether it could have been expected that the Athlete would browse the “main social networks” of the arbitrators. It found that, while a party could be expected to go through social networks under certain circumstances, one cannot be too demanding, especially where there are no “alarming signs” of bias. In any event, one cannot be expected to continue to search the internet — let alone scrutinize the social media postings of the arbitrators — throughout the arbitration proceedings.

The Supreme Court thus ruled that, in the case at hand, the Athlete had complied with his duty of curiosity.

After analyzing whether the social media statements made by the chairperson justified so, the Supreme Court found that the ground for challenging the president was well-founded. The request for revision was therefore admitted and, as a consequence, the award was annulled and the president disqualified.

B.2 Repetition of procedural acts following resignation of an arbitrator: BGer 4A_332/2020 of 1 April 2021

This case involved three heirs who initiated an arbitration against three companies with the SCAI. Following the merit hearing and closing of the proceedings, the three companies challenged the arbitrator appointed by the three heirs because of alleged partiality. Although the arbitrator refuted these allegations, they eventually resigned. Following the appointment of a replacing arbitrator, the three companies requested that the proceedings be repeated. The arbitral tribunal refused, based on article 14 of the Swiss Rules. It eventually rendered its award, admitting the heirs’ request. The three companies then challenged the award based on three grounds.

Firstly, the three companies alleged that the arbitral tribunal’s refusal to repeat procedural acts infringed their right to a properly constituted arbitral tribunal (article 190 al. 2 lit. a PILA). According to the three companies, the newly constituted arbitral tribunal should have repeated the proceedings because of the partiality of the arbitrator who resigned. The Supreme Court, however, dismissed this argument, emphasizing that the contested arbitral tribunal within the meaning of this provision can only be the one that actually rendered the award. This was not the case in the present situation, as the three companies only contested the partiality of the arbitrator who resigned and not the partiality of the newly composed arbitral tribunal.

Secondly, the three companies argued that the arbitral tribunal infringed their right to be heard (article 190 al. 2 lit. d PILA) by refusing to repeat certain procedural acts, including the examination of a certain witness. The Supreme Court rejected this argument as well. The three companies’ right to be heard had not been breached as they were given the opportunity to provide their determinations on this issue before the award was rendered. In addition, the newly appointed arbitrator had had the opportunity to form their opinion by relying on the transcripts of the hearing. Finally, this was not also a case where the direct perception of the tribunal was central (e.g., where the credibility of a witness is assessed).

Lastly, the three companies argued that not repeating procedural acts was incompatible with procedural public policy and thus infringed article 190 al. 2 let. e PILA. Referring to article 38 of the Supreme Court Act and article 51 of the Swiss Civil Code Procedure, they argued that it is a fundamental principle of Swiss law that procedural acts ordered by someone who has to resign must be set aside and repeated. The Supreme Court stresses that this principle and these provisions solely apply to proceedings before state courts. By contrast, in international arbitration, there is no generally accepted rule or principle providing that, in the case of resignation of an arbitrator, all procedural acts in which they participated shall be repeated. The Supreme Court, therefore, dismissed the ground and rejected the challenge.

B.3 Violation of public policy and principle of extra petita: BGer 4A_516/2020 of 8 April 2021

In the mid-2000s, Turkish investors (“Investors“) set up manufacturing plants in Syria which, in 2012, following armed conflicts, were taken over by Kurdish organizations. After losing the use and control of their factories, the Investors filed a request for arbitration against Syria with the International Chamber of Commerce, seeking compensation for the value of their stakes in the factories. Although the Investors’ request was formulated in US dollars (USD), the arbitral tribunal eventually ordered payment in Syrian lira (SYP), while allowing the Investors to obtain payment in USD at the official exchange rate on the day of payment. The Investors then lodged a request to set aside the award with the Supreme Court, seeking the annulment of the compensation order.

According to the Investors, the arbitral tribunal wrongly awarded damages in SYP instead of USD, making them unduly bear the “dizzying” devaluation of the Syrian currency since 2012. The Investors were awarded a mere 4.6% of the loss suffered in 2012, which was incompatible with public policy (article 190 al. 2 lit. e PILA). The Supreme Court dismissed this argument in light of the overall assessment of the facts at hand, which ultimately “makes it possible to affirm that the compensation awarded does not shockingly offend the most essential principles of public policy.”

Firstly, the Investors chose to invest in Syria and to be remunerated in SYP. They therefore knew and accepted the “inherent risks” that came along with their investment.

Secondly, in the present case, the host state did not bear responsibility for any wrongful act and was therefore not under the obligation to make reparation as extensive as when the state is liable for a wrongful act or a contractual violation committed by one of its agents.

Lastly, given Syria’s extremely difficult situation following years of conflict, paying a significant compensation to the Investors would have created a considerable impact on its public finances and its population, thus justifying waiving an integral reparation.

The Investors also argued that the arbitral tribunal decided extra petita by ordering compensation in SYP – convertible into dollars at the exchange rate of the Syrian Central Bank on the day of payment – while their monetary claim was formulated in USD (article 190 al. 2 lit. c PILA). While the Supreme Court “conceded” that “technically” ordering compensation in SYP instead of USD constituted an “aliud,” it did not analyze whether, in this case, the award infringed article 190 al. 2 lit. c PILA. Instead, it held that the Investors lacked a legitimate interest in annulling the award since they had not sufficiently demonstrated that, should it be annulled, they would obtain a more favorable decision.

This decision confirms the high threshold one must meet to set aside an award based on article 190 al. 2 lit. c LDIP. It, however, leaves the issue open as to whether arbitral tribunals are free to award compensation in the currency of their choice without infringing the principles of ultra petita.

B.4 Validity of an arbitration clause: BGer 4A_174/2021 of 19 July 2021

This case related to the sale of 12 helicopters by a Canadian company to a buyer on the basis of a contract containing an arbitration clause. In November 2011, the parties met to sign their agreement. While the Canadian company signed the agreement on the spot,  the buyer chose to sign it later. The buyer, however, never returned a signed copy of the agreement. In spite of this, both parties performed the contract until 2012, when the helicopters were ready to be delivered by the Canadian company to the buyer, who then refused to accept the helicopters and eventually withdrew from the contract. The Canadian company thus initiated an arbitration and produced the contract not signed by the buyer. Settlement talks started, in the context of which the buyer showed the Canadian company’s counsel a contract signed by both parties. However, as soon as the arbitration resumed, the buyer argued that no such signed contract ever existed or was shown during the settlement discussions. Before the Supreme Court, the buyer argued that the sole arbitrator was not competent to decide on the case.

By award on jurisdiction, the sole arbitrator considered that they were competent to decide on the case. The buyer, therefore, lodged a request with the Supreme Court to set aside the award, based on the alleged incompetence of the arbitrator, pursuant to article 190 al. 2 lit. b PILA. Inter alia, the buyer argued that it never signed the agreement and that for that agreement to be valid as a matter of Swiss law, each party should not only have expressed their intent in writing in the agreement, but they should also have handed it over to one another.

The Supreme Court started by recalling that an arbitrator is competent to decide over a dispute where the arbitration agreement is valid both as a matter of form and substance, pursuant to article 178 PILA. From a formal point of view, article 178 al. 1 PILA states that an arbitration agreement shall be valid if made in writing or in any other manner that can be evidenced by text. The Supreme Court emphasized that while the required written form aims at avoiding any uncertainty, a so-called “simplified” written form is sufficient. In other words, unlike article 13 of the Swiss Code of Obligations (CO), which applies to contracts for which the law requires to be in writing, article 178 al. 1 PILA does not require that the arbitration agreement be signed by the parties. Thus, an arbitration clause concluded by email would be valid as a matter of form. In addition, the Supreme Court recalls that the text of the arbitration clause itself must contain the essential elements of the arbitration agreement, i.e., the identity of the parties, their clear intent to arbitrate their dispute, and the subject matter of the arbitration proceedings.

As regards substance, the arbitration agreement shall be valid if it conforms to the law chosen by the parties, or to the law applicable to the dispute, in particular the law governing the main contract, or to Swiss law (article 178 al. 2 PILA). Under Swiss law, the interpretation of an arbitration agreement is governed by the general rules of interpretation of contracts, i.e., article 18 CO. Pursuant to this provision, the real and common intent of the parties shall be sought first, empirically, by the judge or arbitrator (so-called subjective interpretation). Where no such real and common intent can be found, the judge or arbitrator proceeds with the objective interpretation, pursuant to the principle of trust, seeking the meaning that the parties could and should give, according to the rules of good faith, to their mutual expressions of intent, in light of all the circumstances.

In the present case, the Supreme Court found that the agreement between the parties was valid as a matter of form. Indeed, article 178 al. 1 PILA does not require that the contract be signed by the buyer and then returned. Neither does it require that the parties mutually send each other a written document. It is only required that the arbitration agreement is in writing or in any other way that can be evidenced by text, which was undoubtedly the case in this instance. As a matter of substance, the Supreme Court recalled that in cases where the arbitral tribunal has established the real and common intent of the parties (i.e., subjective interpretation), this is binding on the Supreme Court.

The Supreme Court, therefore, rejected the challenge.

This decision thus gives a clear and complete overview of the conditions for the validity of an arbitration clause, in terms of both form and substance, confirming its past case law in light of the recent rewording of article 178 PILA.

[1] International Arbitration Yearbook 2020/2021 – Switzerland, A.1.

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