In a decision published on 1st March 2021, the Swiss Federal Supreme Court (“SFSC”) ruled on the arbitrability of a claim and the corresponding enforceability of an international arbitral award in the light of bankruptcy proceedings filed against the respondent in Switzerland (case no. 5A_910/2019 (in German)).

Factual background

The dispute at stake originated from an arbitral award of the London Court of International Arbitration (“LCIA”). Therein, the claimant (and subsequently defendant before the SFSC) was granted financial compensation from the respondent, a Swiss company.

The latter had gone into bankruptcy in Switzerland while arbitration proceedings were still pending. As a consequence, the competent bankruptcy office in Switzerland assigned and authorized the right to continue the arbitration proceedings to a former director of the Swiss company (subsequently the appellant before the SFSC).

Upon issuance of the arbitral tribunal’s award, the claimant turned to the competent Swiss authorities in order to recognize the arbitral award and enforce the compensation claim against the director of the Swiss company accordingly. After a first objection and proceedings with the High Court of Zurich (case no. RT190049-O/U (in German)), the director filed an appeal with the SFSC.

Enforceability of a foreign award against a bankrupt Swiss party

In its appeal, the appellant claimed that given the opening of bankruptcy proceedings against the respondent, the arbitral award eventually issued concerned a non-arbitrable subject-matter from a Swiss point of view, pursuant to art. 177(1) of the Swiss Private International Law Act (“PILA”) as well as art. 194 PILA in connection with art. V(2)(a) and (b) of the New York Convention.

The SFSC dismissed the appellant’s arguments. In its considerations, the SFSC reminded that Art. 177(1) PILA, which deals with the notion of arbitrability and also applies in recognition and enforcement proceedings, provides that ‘any dispute involving an economic interest may be the subject of an arbitration‘. According to the reasoning of the SFSC, claims against a Swiss party which goes into bankruptcy during the arbitration proceedings do not lose their (objective) arbitrability, provided that the arbitration proceedings were initiated prior to the opening of the bankruptcy proceedings. Consequently, an award against such party may still be recognized and subsequently enforced in Switzerland.

Remarks regarding vis attractiva concursus

The Swiss legislator deliberately omitted to clarify the scope of the Swiss concept of vis attractiva concursus for foreign proceedings that are already pending at the time when bankruptcy proceedings are intiated, but have not been concluded yet. In order to grant the necessary dynamic for a differentiated development of the case law, it has refrained from introducing a rigid legal regulation.

Nevertheless, the concept remains of practical importance whenever – like in the case at dispute – a Swiss party to an international arbitration goes into bankruptcy. According to the principle of vis attractiva concursus, all legal questions affecting the bankruptcy proceedings are to be decided by the competent bankruptcy authorities (cf. decision of the SFSC 135 III 127 (134)). Initiation of bankruptcy proceedings also establishes jurisdiction of the competent authorities. These authorities not only have general competence to deal with the bankruptcy proceedings, but have also (exclusive) competence over all decisions and proceedings rendered in this connection (cf. decision of the SFSC 141 III 382 (390) in fine).

Swiss authorities have no duty to consider decisions or awards regarding bankruptcy claims already pending abroad at the time of the opening of bankruptcy proceedings in Switzerland in the collocation plan. Swiss law requires Swiss authorities and courts to render a decision in bankruptcy proceedings according to Swiss law, namely the relevant provisions in the Swiss Debt Enforcement and Bankruptcy Law. In the case at stake, the arbitration did not affect the bankruptcy proceedings; the vis attractiva concursus does neither preclude a preliminary recognition nor a declaration of enforceability of the arbitral award. The main matter in the arbitration is an ordinary claim, with no relation to any collocation, which is, as previously stated, without further ado an arbitrable matter within the meaning of art. 177(1) PILA.