Switzerland has revised its international arbitration law during summer 2020. The revised provisions of the 12th Chapter of the Private International Law Act (“PILA”) entered into force on January 1, 2021. The article at hand offers a handy overview on the revised Art. 178 PILA governing the form requirements from a thoroughly practical approach, focusing on its key changes and developments in international arbitration.
Written form requirements for an arbitration clause: Key changes and developments
According to previous Art. 178(1) PILA, an arbitration clause is deemed formally valid if made in writing, by telegram, telex, fax or any other means of communication which permits it to be evidenced by a text. Pursuant to the case law of the Swiss Federal Supreme Court (“SFSC”), this written form requirement does not request the signature on the arbitration clause to satisfy formal validity (see e.g. Decision of the SFSC 121 III 38 (45)). However, the means of communication used for the arbitration clause have to generate a written text that may be kept and reproduced. When it comes to the debated question whether all parties must adhere to the formal requirements, there is yet no ruling by the SFSC. However, pursuant to the prevailing doctrine, a party receiving a written proposal for arbitration must ideally also confirm consent in writing. Orally expressed consent carries an inherent risk regarding potential issues with proof of (formal) validity of the arbitration clause.
The list of means of communication in the previous provision was and accordingly still is not exclusive. Telegram and telex for instance were mentioned explicitly to reflect the customs of international business at that time; this wording has meanwhile become obsolete. In essence, any written document that may be used as evidence can constitute a written arbitration agreement; hence e-mails, articles of incorporation, meeting minutes or general conditions may be used as valid communication form to satisfy the written form requirement.
After long parliamentary discussions, the newly-revised Art. 178(1) PILA now uses a shorter and more modern provision without mentioning the various forms of communication: “The arbitration agreement must be done in writing or in any other form allowing it to be evidenced by text (unofficial translation).” This is also congruent with the definition of the form requirements in Art. 358 of the Swiss Civil Procedure Code for domestic arbitration.
Further, the revised Art. 178(4) PILA now expressly provides that an arbitration clause may also be validly inserted in unilateral acts, such as a will, a founding charter, a trust deed or in in articles of incorporation. This new provision takes into account the elementary principle of party autonomy in arbitration proceedings: where the substantive law allows a relationship to be governed by party autonomy, the parties shall also have the possibility to submit such dispute to resolution by arbitration. This is a significant progress especially in corporate arbitration.
Simplification and modernization renders form requirements more user-friendly
The Swiss international arbitration law hasn’t been subject to major changes over the last 30 years. This is because the 12th Chapter of the Private International Law Act (“PILA”) proved to be a success in international arbitration practice. Therefore, no major changes were needed and more importantly, were not made. Punctual changes and modernization introduced in the latest revision of the PILA bring a simplification and render form requirements in particular more user-friendly. However, legal certainty can only be achieved if the arbitration clause is well drafted in all aspects. Ambiguous or incomplete arbitration clauses may sooner or later lead to disputes between the parties. Consequently, it is highly recommended to consult an experienced legal practitioner to draft such arbitration clause.
As a closing remark, the authors highlight the newly-introduced legal basis in Art. 178(4) PILA for arbitration clauses in articles of incorporation, which brings more legal certainty to corporate arbitration in Switzerland. To get a more comprehensive overview on this topic see our contribution of August 31, 2020.