International arbitration proceedings seated in Switzerland are governed by Chapter 12 of the Private International Law Act of 18 December 1987 (hereinafter "Chapter 12" or "PILA"). Switzerland's arbitration law is internationally known for its wide scope of party autonomy, its clarity, and arbitration-friendliness. Comprising (so far) only nineteen articles, it remains to this day one of the world’s most concise arbitration legislations. On 19 June 2020, Switzerland’s parliament approved the bill to revise Chapter 12. The bill maintains all the key features that have made arbitration in Switzerland successful and attractive to international parties and achieves incremental improvements in selected areas.
The key features of the revision are:
- Possibility to make English language submissions to the Swiss Federal Supreme Court;
- Parties can directly seek assistance from Swiss state courts in relation to arbitral proceedings (e.g., the taking of evidence in Switzerland), even where the arbitration agreement does not specify the seat of the arbitration;
- Parties have a duty to immediately object to procedural errors, otherwise waiving their right to do so at a later stage.
The new law will further strengthen Switzerland’s role as one of the world’s leading centers for international arbitration. It will enter into force on 1 January 2021.
English Language Submissions to the Federal Supreme Court
Arbitral awards rendered in Switzerland can only be challenged on limited grounds and challenges are submitted directly to Switzerland’s highest court, the Federal Supreme Court. Decisions can be expected within six to nine months. A key innovation of the new law is that the parties will be able to make submissions to the Federal Supreme Court not only in the official Swiss languages (German, French, Italian, and Romansh) but also in English. This new option is a significant improvement particularly in cases where otherwise much time would be spent on translating draft submissions from the official Swiss languages to English or vice versa. Considering that the time limit to file challenges against arbitral awards is only thirty days, the possibility to make English language submissions may, in many instances, prove to be an important time-saver. It bears noting, however, that the new English language option applies only to submissions in connection with challenges of an arbitral award. The Federal Supreme Court will still issue its decisions in one of the official Swiss languages.
The key takeaway for in-house counsel is to know about the available options: Swiss courts will accept submissions relating to arbitral awards in five languages, including English.
Clarification of the Scope of Chapter 12
The new law clarifies the requirements under which Chapter 12 will apply. Article 176(1) PILA provides that Chapter 12 will apply if at least one of the parties has its domicile abroad. According to a controversial decision by the Federal Supreme Court from 2002 (Decision 4P.54/2002 of 24 July 2002) whether Chapter 12 applies depends not on the domicile of the parties to the arbitration agreement but on the parties to the arbitration. If for example, three parties conclude an arbitration agreement and later only the two Swiss parties arbitrate but not the foreign third party, the arbitration will be qualified as domestic. Most commentators have considered the opposite solution to be more appropriate, arguing that the domicile of the parties to the arbitration agreement should be decisive, irrespective of whether they are all parties to the arbitration. This ensures that the applicable lex arbitri is fixed at the time of contracting and does not change merely because some parties to the arbitration agreement are not involved in the arbitration. The new law adopts this solution and reverses the Court's case law on this issue, providing parties with more legal certainty.
The new law maintains the possibility for parties to opt out of the applicability of Chapter 12 PILA in favor of the provisions of the Swiss Code of Civil Procedure (Article 176(2) PILA). Likewise, parties to domestic arbitration – i.e. both parties having their legal seat in Switzerland – can opt into the applicability of Chapter 12 PILA (Article 353(2) Swiss Code of Civil Procedure).
Court Assistance More Broadly Available
Chapter 12 in its current form grants arbitral tribunals seated in Switzerland (but not the parties) the right to seek assistance from a Swiss state court if the parties do not comply with the arbitrators' decisions on interim measures or evidence-taking orders. Under the new law, the parties, too, will have that possibility. In addition, the new Article 185a PILA allows arbitral tribunals seated abroad and parties to directly request support from Swiss courts for their proceedings in connection with interim measures or evidentiary matters, avoiding the cumbersome route via international legal assistance, thus making arbitration in Switzerland even more attractive and effective. The request is to be addressed to the Swiss court where the measure is to be enforced.
Swiss Courts Can Appoint Arbitrators Even Without a Specified Seat
Under the existing law, it is doubtful whether a Swiss court could be requested to appoint an arbitrator where the underlying arbitration clause merely referred to "arbitration in Switzerland" or arbitration without a defined seat. Many believed that the failure to specify a Swiss city in the arbitration clause meant that, for lack of a specified seat, no Swiss court had jurisdiction to make the appointment. The new law clarifies that a specified seat is not needed and any Swiss court has jurisdiction to appoint arbitrators, increasing the enforceability of dispute resolution clauses providing for arbitration in Switzerland. Once the arbitral tribunal is constituted, it can determine the seat of the arbitration (Article 176(3) PILA).
Specifying a seat in advance is nevertheless highly recommended because the seat connects the arbitration with a particular jurisdiction. Parties should make sure it is a jurisdiction whose courts will support the arbitration and intervene only when necessary.
The key takeaway is that, under Swiss law, arbitration agreements need not necessarily be perfect to be enforceable as long as the parties clearly express their intent to arbitrate.
Correction, Explanation, or Completion of Awards
The new law expressly provides that parties may submit to arbitral tribunals requests for correction, explanation, or completion of awards. The Federal Supreme Court already acknowledged these remedies under the current law.
The revised Chapter 12 now reflects these remedies in its text. Correction will serve only to rectify typographical and calculation errors in the award. Thus, it will not allow the arbitrators to review the substance of the award.
Explanation will be limited to the operative part of the award. Thus, it will not apply to the tribunal's reasoning, however ambiguous or unclear it may be. Examples of explanations envisaged by the drafters are the correct identification of the parties, or the correct indication of the currency of an amount awarded.
Completion is a remedy that will allow the parties to request an additional award on claims that had been asserted in the course of the arbitration but that the tribunal erroneously left undecided. This rule is intended to avoid infra petita challenges – that is challenges of arbitral awards on the basis that the tribunal failed to address some of the parties' claims (Article 190(1)(c) PILA).
Correction, explanation, or completion must be requested within 30 days from the award's notification. Such a request has no impact on the time limit for challenging an award. The arbitral tribunal may correct, explain, or complete its award on its own motion within the same time limit. In all cases in which an award is corrected, explained, or completed, a new time limit for challenging the affected parts of the award starts from the notification thereof.
Revision of Awards
Under the Federal Supreme Court's case law, a party can request the reopening of arbitral proceedings under certain circumstances: the discovery of new material evidence, which existed before the award was rendered but of which the respective party had no knowledge, and the discovery that the award was influenced by a crime. The Federal Supreme Court created this extraordinary remedy through case law as the PILA was silent on the issue. The new Chapter 12 contains provisions addressing the possibility of a revision of awards, thereby codifying the Court's case law. In addition to the above two grounds, a request for revision can also be submitted if grounds are discovered that call into question the independence or impartiality of an arbitrator and other remedies are no longer available.
Requests for revision must be submitted to the Federal Supreme Court within 90 days from the discovery of the ground for revision and no later than ten years after the award became final and binding (Article 190a(2) PILA). Where a criminal proceeding has established that the award was influenced by fraud or other criminal conduct, the ten-year limitation period does not apply.
Waiver of Procedural Objections
One of the most important aspects of the Federal Supreme Court's case law is the parties' duty to object immediately to procedural errors. Failing to do so in a timely manner will result in a waiver of the right to assert this error later in the arbitration or any challenge of the award. The duty to timely object is now expressly included in Article 182(4) PILA.
The new and modernized Chapter 12 of the PILA will likely enter into force on 1 January 2021. It maintains all key features that have made Swiss arbitration law a worldwide success and favored dispute resolution mechanism for international parties, while making incremental improvements that increase certainty of the law, party autonomy, and overall user-friendliness. The key takeaway for in-house counsel and particularly contract drafters is, whenever they consider arbitration, Switzerland should be at the very top of their list.