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In recent years, corporate arbitration has played only a minor role in Switzerland. One of the main reasons for this is the legal uncertainty that has prevailed with regard to the admissibility and binding effect of arbitration clauses contained in articles of incorporation.

This is now likely to change: On June 19 and 26, 2020, the Swiss parliament approved a new statutory framework for the arbitration of corporate law disputes based on arbitration clauses set forth in companies’ articles of incorporation. These revised rules, which affect both the Swiss arbitration laws (the Private International Law Act (“PILA”) and the Code of Civil Procedure (“CPC”) as well as the Swiss Code of Obligations (“CO”) will presumably come into effect in 2021 or early 2022.

  1. Key features of the revised rules

Pursuant to the new art. 697n CO, a company’s “articles of incorporation may provide that corporate law disputes shall be settled by an arbitral tribunal with seat in Switzerland”. Accordingly, the new art. 358 para. 2 CPC and 178 para. 4 PILA stipulate that the rules on domestic and international arbitration, respectively, shall also apply to arbitration clauses contained in a company’s articles of incorporation.

With these amendments, the Swiss legislator on the one hand clarifies that arbitration clauses in articles of incorporation of a Swiss corporation (“Aktiengesellschaft“) or limited liability company (“Gesellschaft mit beschränkter Haftung“) are permissible from a corporate law perspective – an issue which has long been debated among Swiss scholars. On the other hand, the new rules spell out that arbitration clauses, which are duly incorporated in a company’s articles of incorporation, also satisfy all procedural requirements and thus create a binding effect equivalent to that of a contractual arbitration clause.

  1. Scope of applicability

The newly introduced art. 697n CO applies to stock corporations or limited liability companies with seat in Switzerland, which provide or intend to provide in their articles of incorporation for the settlement of disputes under corporate law an arbitral tribunal with seat in Switzerland. By contrast, the new regulation contains no statement on the admissibility and legal effectiveness of arbitration clauses in the articles of incorporation of foreign companies, even if such a company provides for an arbitration tribunal with seat in Switzerland. Likewise, it does not address the case in which the articles of incorporation of a Swiss corporation provides for an arbitral tribunal with seat abroad. To the extent that Swiss law is, in such cases, at all relevant under the applicable lex arbitri, the admissibility and the legal effects of such arbitration clauses must thus in principle be assessed without regard to Art. 697n CO.

In terms of the subject-matter, Art. 697n CO provides that all disputes arising out of corporate law can be submitted to arbitration. Such disputes may include claims by and between the company, its shareholders and / or its directors and executive officers, such as, for instance, direct or derivative actions against members of the corporation’s directors and executive officers for breach of fiduciary duties or for the restitution of company funds, actions to set aside resolutions passed by the corporation’s shareholders’ meeting, actions for the enforcement of the shareholders’ or the directors’ rights of information, or actions for the dissolution of the corporation. By contrast, the arbitration clause may not extend to disputes between shareholders that do not derive from corporate law but other (contractual) basis such as a shareholders’ agreement.

Unless the arbitration clause provides otherwise, an arbitration clause in the company’s articles of incorporation will become binding on all present and future shareholders, as well as all members of the company’s governing bodies from the time they acquire shares or assume their office, respectively. This applies irrespective of whether the arbitration clause is included already in the founding articles of incorporation or introduced only later by a majority vote (which will require two-thirds of the votes as well as the majority of the nominal value of the shares represented). By contrast, third parties such as namely the company’s creditors cannot be bound by an arbitration clause in a corporation’s articles of incorporation.

  1. Arbitral procedure

Arbitration procedures based on an arbitration clause pursuant to the new Art. 697n CO are subject to the general provisions on domestic arbitration stipulated in the third chapter of the CPC. The articles of incorporation may set out the details of the arbitral procedure, such as namely the number and appointment of the arbitrators, the place and language of the arbitral proceedings as well as cost related provisions, either directly or indirectly by reference to procedural rules, such as for instance the procedural rules of an arbitration institution. The Swiss Chambers’ Arbitration Institution (“SCAI”) is currently preparing a supplement to the Swiss Rules of International Arbitration specifically designed for corporate disputes which is expected to be published in 2021.

In any event, the arbitration clause will have to ensure that persons who may be directly affected by the legal effects of the arbitral award are informed about the commencement and termination of the arbitral proceedings and are given the opportunity to participate in the appointment of the arbitral tribunal and / or join the proceedings as a party. With these statutory minimum requirements, the Swiss legislator intended to ensure that such arbitral proceedings meet the requirements of the Federal Constitution and the European Convention on Human Rights (“ECHR””) in terms of safeguarding the guarantees of a constitutional procedure.

It remains to be seen whether and to what extent arbitration clauses in the articles of incorporation of Swiss corporations will be acknowledged and enforced under the New York Convention (“NYC”). In the light of recent developments, however, the favor recognitionis principle that underlies the NYC would certainly speak in its favor.