In a decision dated September 7, 2018 (case no. 5A_942/2017, selected for publication), the Swiss Federal Supreme Court issued a landmark decision on the enforcement of arbitral awards against state-owned assets located in Switzerland. The case revolved around a UNCITRAL award issued by an arbitral tribunal with its seat in Paris against a central Asian state. Based on this award, enforcement proceedings were initiated against real estate owned by the central Asian state in Switzerland.
The main issue in the Swiss enforcement proceedings was whether or not the state was protected by state immunity. According to previous Swiss Federal Supreme Court decisions, the enforceability of claims against sovereign debtors depends first of all on whether or not the state acted in a sovereign manner (so-called acta iure imperii) or like a private individual (so-called acta iure gestionis). Whereas state sovereignty applies without limitation to sovereign acts, states can in principle not rely on state sovereignty when they act like a private individual. However, in prior Swiss Federal Supreme Court practice, the Court has consistently also declined to enforce claims in connection with private acts of state actors (acta iure gestionis) where the underlying claim lacked a substantial link to Switzerland. The question before the Federal Supreme Court was thus whether or not this practice could also be applied under the ambit of the New York Arbitration Convention of 1958 (“New York Convention”), which regulates the enforcement of arbitral awards.
In its appeal, the claimant had argued that the New York Convention, which is applicable in Switzerland, contains an exhaustive list of grounds for refusal of enforcement which do not include state sovereignty. Therefore, the claimant concluded that Swiss courts could not invoke state sovereignty to deny the enforceability of the award. The Swiss Federal Supreme Court, however, disagreed, finding that the issue of state sovereignty is a procedural question which is not addressed in the New York Convention and which therefore can be freely regulated by national law. Consequently, the Court concluded that the New York Convention does not prevent Swiss law from setting out restrictions on the jurisdiction of Swiss courts over state actors, in particular the requirement of a link to Switzerland for the enforcement of claims against sovereign debtors. Accordingly, the Swiss Federal Supreme Court applied its previous case law and held that awards against states are only enforceable in Switzerland if (a) they pertain to non-sovereign acts (acta iure gestionis), and (b) they show a relevant link to Switzerland, e.g. because the underlying claims were established in Switzerland or if there was a place of performance in Switzerland. In contrast, the mere fact that the claim was decided by an arbitral tribunal with its seat in Switzerland will, according to the Court, not be sufficient to create a relevant nexus to Switzerland. Applying these principles to the case at hand, the Swiss Federal Supreme Court found that the claims for which enforcement was being sought did not have a sufficient link to Switzerland and that there could therefore be no enforcement against the state-owned asset for which the enforcement proceedings had been initiated.
The Swiss Federal Supreme Court’s decision dated September 7, 2018 has for the first time confirmed that Swiss courts will not enforce arbitral awards against sovereign debtors if the underlying claim lacks a sufficient link to Switzerland. As an exception from this rule, however, previous Swiss court practice has explicitly recognized the possibility to conclude immunity waiver clauses, in which the sovereign actor explicitly waives the immunity defense in connection with a particular subject matter. The newest decision of the Swiss Federal Supreme Court underlines the importance of such immunity waiver clauses when negotiating contractual arrangements with state actors.