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Marcel Frey

Counsel

Position: Counsel
Practice Areas: Dispute Resolution , Private Clients , White Collar Crimes & Investigations
Field-Display: Dispute Resolution Team , Private Clients Team , White Collar Crimes & Investigations Team

Marcel Frey is a member of the Dispute Resolution and Private Clients Teams. He represents Swiss and foreign clients in court and arbitration proceedings. He also advises private individuals with enforcing civil claims in complex cases of white collar crime. Marcel Frey regularly advises clients in international judicial assistance proceedings and the recovery of illegally acquired assets. In addition, he specializes in the enforcement of Swiss and international decisions in Switzerland.

Marcel Frey is an excellent listener with a quick grasp, risk-aware and extremely meticulous analytically. Thus, he quickly conveys consensus and solutions to his clients. His openness and cosmopolitanism is a strong asset in international proceedings. Clients appreciate Marcel Frey's knowledge and drive, which he also readily contributes to the Vis Moot Court Trials for the promotion of young lawyers.

E-Mail

+41 44 254 55 55

Linkedin

VCard

Admission to the Bar

Admitted in Switzerland (2004)

Practice Areas

  • White Collar Crimes & Investigations
  • Dispute Resolution
  • Private Clients

Education

  • University of Cape Town (LL.M., 2006)
  • University of Zurich (lic. iur., 2001)

Languages

  • German
  • English
  • French
  • Afrikaans

Memberships

  • Zurich and Swiss Bar Association
  • SwissCham Southern Africa

Marcel Frey is dedicated, hard working and an assured and capable advisor. — Legal 500 EMEA 2024

Winner - Mondaq Thought Leadership Awards, Autumn 2023

Counsel Marcel Frey is the key contact in the team for white-collar crime mandates. — Legal 500 EMEA 2023

Very cohesive and supportive team who we have built a strong relationship with over the years. Prompt and timely contributions, they know the law inside out, and they have a good relationship with the courts. — Legal 500 EMEA 2022

Marcel Frey, a key lawyer of the team – a real workhorse – committed, knows the law inside out, drafts well. — Legal 500 EMEA 2022

The availability and attention to details is always amazing. The team is able to quickly design solutions even in complex matters and present them in such a way that these are also understood by the business. — Legal 500 EMEA 2022

They are highly responsive consistently. They offer a speedy analysis of situations and solutions which are measured and tailored to the issue. — Legal 500 EMEA 2022

Publications

Subject: Employment & Pensions
Autor: Urs Feller, Marcel Frey, Reto M. Jenny
Reading time: 3 Min
Paper: Corporate Disputes

Internal investigations – a balancing act for HR and in-house counsel

Urs Feller,  Marcel Frey and Reto M. Jenny analyze a recent Federal Tribunal Decision that clarifies the rights of a suspected person in internal investigations. The decision dealt with the question what types of formal guarantees a person faced with allegations of sexual harassment of colleagues at the work place may expect and which rights do not come into play, contrary to the situation in a criminal investigation.

Investigating Harassment Charges - which rules apply?

In-house legal counsel and human resource department heads invariably have to deal with sexual harassment complaints. Heightened awareness of gender-based violence and related social ills, as well as employee rights have made it challenging to professionally and sensitively manage such occurrences.

A recent Federal Tribunal decision sheds some light on the rules applicable in such internal investigations.

On 29 August 2018, a company’s internal ombudsman for behaviour and ethics received a report of sexual harassment by a male employee at the workplace, whereupon the employer initiated an internal investigation. On 23 October 2018, the employment contract of the accused male employee was terminated in keeping with the normal three months' notice to the end of January 2019.

After an unsuccessful attempt at conciliation, the accused employee filed a lawsuit against the employer with the Zurich Labour Court on 13 July 2020. Apart from an amendment to his work reference letter, he sought compensation for unlawful dismissal.

The Zurich Labour Court dismissed the claim for compensation in its ruling of 26 March 2021. Upon appeal, the Zurich High Court on 23 May 2023 obliged the defendant company to pay the plaintiff a compensation amount of CHF 70,000 (plus default interest of 5 percent). The employer appealed this decision to the Federal Tribunal which had to decide on the lawfulness of the termination.

On 19 January 2024, the Federal Tribunal found that there was no unlawful termination.

Formal requirements for an internal investigation

The Zurich Labour Court had noted that, when determining whether the termination was lawful, it did not matter whether the allegations of sexual harassment were true or not; what mattered was that the company adequately investigated the allegations. The report of the internal investigation showed that the team had carefully analysed both incriminating and alleviating circumstances and had proceeded according to internal company guidelines, reaching the conclusion that the allegation were more likely true than not.

The purported violations concerning internal regulations raised by the plaintiff (e.g., the right to have a person of trust present during the internal hearing) were, in the view of the Labour Court, not severe enough to negate the entire internal investigation. As such, the company had rightfully held a grounded suspicion of sexual harassment which made continuation of the employment contract unbearable.

On appeal, the High Court found that the company’s internal processes had not been followed (thus finding in favour of the plaintiff’s plea for compensation). The employee had criticised the internal investigation as unfair: he had not been afforded the right to have a person of trust accompany him to the internal hearing where he was confronted with the allegation of sexual harassment of which he had also not been informed in advance.

As such, the employee had not had any time to prepare his defence (i.e., checking dates of the alleged actions or seeking out persons to act as witnesses in his favour). He had never been confronted with the identity of the complainant and the description of the incident was vague, thus making it impossible for him to adequately defend himself. The treatment received did not constitute fair proceedings given the seriousness of the accusation (which could have constituted a criminal offence).

The High Court considered the gravity of the allegations and likened these and the internal proceedings to a criminal investigation. As such, the High Court held that the employee was entitled to a complete investigation with similar guarantees and a clear understanding of the allegations levelled against him.

The Federal Tribunal disagreed with the line of argument

The issue of applying criminal procedure guarantees in an internal investigation had not previously been dealt with by the Federal Tribunal. In its decision the highest court clarified that procedural guarantees under the Criminal Procedure Code did not apply to internal investigations and – save for few exceptions – did not extend their scope to relations between private parties. According to the Federal Tribunal, internal investigations followed their own procedure and rules.

In its analysis, the Federal Tribunal pointed out that the legal basis for an internal investigation and a criminal investigation were significantly different. While in private law relations parties are at liberty to conclude or terminate a contract, in criminal proceedings the accused is subject to the full might of the state. In criminal proceedings, the state may impose fines, monetary penalties, as well as custodial sentences or lifelong imprisonment.

On the other hand, in the private law sphere, the worst consequence an employee may face is termination of contract. Private law relations are based on voluntary relationships between individuals. Legal issues are handled based on the individual agreement or the underlying legal framework. This allows for each party to voluntarily terminate a contract within a notice period.

The Federal Tribunal did not turn a blind eye to obviously abusive terminations which could give rise to compensation. A terminating party clearly had to act in good faith. In general, deceitful and contradictory behaviour by the terminating party could render a dismissal abusive. Unlawful termination occurs where an employer accuses an employee without reasonable cause. This underlines the importance of conducting an internal investigation with a focus on safeguarding individual rights.

The lawfulness of a dismissal had to be assessed in each individual case according to its circumstances and underlying reasons. The legality of a termination based on a suspicion may only be determined by the courts.

The Federal Tribunal summarised that after the complaint had been lodged with the internal ombudswoman, the complainant and other persons were questioned. The reported employee’s internal email account was reviewed (in part) to identify any statements about the complainant. Lastly, the reported employee was invited to a hearing and questioned, after which he had the opportunity to review the minutes of the hearing.

According to the Federal Tribunal, the company concluded that the reported employee’s defence was not credible and contradicted the statements of other employees questioned. The report concluded that the alleged behaviour had very likely occurred and recommended initiating a disciplinary procedure. The disciplinary panel issued a formal termination after reviewing the report.

The Federal Tribunal concurred with the appealing company that the fact that the reported employee was not advised as to the charges ahead of the hearing was not detrimental. Requiring such advance notice would be farther-reaching than what the Criminal Procedure Code would require.

The Federal Tribunal further held that the absence of a ‘person of trust’ at the interview did not constitute a grave mistake giving rise to abusive termination. The ‘accusation principle’, a fundamental rule of criminal court procedures, did not apply to internal investigations. Therefore, it was not necessary for the employee to be fully informed about the alleged behaviour in all detail. Doing so would also create an untenable tension between the legitimate self-protection interests of the accused and the complainant: a complainant may remain anonymous and their identity should not be communicated to the reported person.

The Federal Tribunal concluded that the allegations had been sufficiently detailed, and the internal investigation had found no evidence of a conspiracy as alleged as alleged by the reported employee. As terminating an employee based solely on suspicion is not unlawful in Switzerland, even if – after the termination – it comes to light that the suspicion was unfounded, it was obvious that the employer was not obliged to prove the suspicions.

The Federal Tribunal concluded that the termination had not been issued frivolously. Freedom to terminate a contract should not be constrained by overarching principles borrowed from criminal law. It found that there was no abusive termination and no compensation was due.

Conclusion

This decision of the Federal Tribunal provides guidance to internal counsel on organising internal investigations. It clarifies that, while protecting employees’ rights and promoting transparency are key points, procedural guarantees in criminal proceedings do not directly apply in internal company matters.

The judgment specifies the extent to which reported employees can claim procedural guarantees and the level at which employers must regulate internal processes.

HR departments and in-house counsel have discretion when recommending termination, but they should document correspondence and interviews in written form for evidentiary purposes. Termination decisions should be based on reasonable suspicion rather than mere allegations, which may not justify an ordinary termination given the boundaries drawn by abuse.

The ruling grants in-house legal departments more flexibility in managing internal investigations. Not having to adhere to criminal procedure rules limits the risk of unlawful termination claims.

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Subject: Dispute Resolution, White Collar Crimes & Investigations
Autor: Marcel Frey
Reading time: 4 Min

International Business Crime & Fraud – Switzerland

Marcel Frey takes a look a recent trends and challenges facing business crime practitioners in Switzerland and answers questions regarding white-collar crime enforcement and possible reforms to criminal proceedings.

Global Law Experts Practice Area Guide - Business Crime & Fraud Q&A


Please summarise the work your firm does and the ways in which you distinguish yourself in the provision of business crime & fraud legal advice.


At Prager Dreifuss, we are working at the forefront of new developments based on our extensive experience in internal investigations and assisting parties with their criminal and civil claims in criminal proceedings. Our work has spanned fraud investigations in the insurance, banking and mining sectors. We are frequently mandated by companies when suspicions of wrongdoing arise, or are instructed by regulators to perform investigations and issue reports to the authorities.
 

What does your current workflow look like – and what are some of the current business crime issues clients are bringing to your attention?


Currently, we are involved in some high-profile white-collar cases, regularly also involving international aspects. In addition, we are seeing an up-tick in business related to monitoring and managing risks in the area of sanctions, as well as sanctions avoidance and prosecution authorities implementing criminal sanctions against companies taking sanctions too lightly.

Anti-money-laundering and KYC compliance and increasing requirements in client on-boarding, in addition to the prevention of terrorist financing, are issues that clients are also steadily faced with to ever-increasing degrees. Even in smaller companies with limited international exposure, these compliance hurdles, with their related criminal risks, are becoming frequent challenges for clients.
 

What were some professional challenges you faced in the past 12 months – such as global crises or conflicts – and how did you adapt to them?


With Switzerland taking on the European Union’s sanctions against the Russian Federation, we have seen our clients suddenly faced with large-scale compliance risks of a whole new nature and extent. From client identification to product clearance and anti-avoidance measures, the war in the Ukraine has posed, and is still posing, hefty challenges to some of our clients.
 

What have been some recent key trends in white-collar crime enforcement?


In the wake of the recent jurisprudence by Swiss courts to require transparency about kick-backs in the financial sector, the Federal Tribunal decided – in a few instances – to allow damaged persons and companies to reclaim undisclosed kickbacks owed to them. Undisclosed commissions in mandate or employment relationship have come under increased scrutiny by management, and also by state investigators. The evolution of this jurisprudence started in the context of private law proceedings, but has quickly gained momentum and was expanded into other areas of law (administrative law, criminal law).

A further focus in Switzerland for private claimants is a strong push to discover and secure assets during the investigation phase. During the subsequent court proceedings, private claimants will try to demonstrate the paper trail from the initial proceeds of the crime to the final asset seized. In doing so, claimants may – in case of a conviction – profit from direct restitution through the criminal court. In such a scenario, the claimant’s criminal claim has preference compared to other creditors.

In the absence of a clear paper trail, the seized assets can still be applied to party costs of plaintiffs and for the satisfaction of the state's compensation claim, which the plaintiff may request be attributed to it for its damages.
 

If you could implement one reform to the way business crime defence is legislated in your jurisdiction, what would it be?


In Switzerland, as in other jurisdictions, we are seeing a steep increase in the case load of public prosecutors and courts dealing with criminal charges. Especially in the business sector, companies are burdened with growing regulatory requirements and compliance rules. The existence of such rules invariably leads to enforcement actions by regulators, and more often to investigations by the district attorney’s office. These proceedings are regularly complex, cross-border and time-consuming. Add to that the practice of accused parties to demand far-reaching sealing of documents and data, and the longwinded unsealing proceedings in court, and all this has led to longer investigations, longer trials and increasingly thorny accompanying issues, such as lengthy asset seizures.

The long duration of the proceedings has negative impacts on all parties. Prosecutors and courts face criticism, being blamed for delaying justice. Accused parties have to bear drawn-out periods of uncertainty and endure the mental pressures of prosecution and trials. Courts – in their sentencing – consider these long proceeding durations and discount penalties as a certain factor. This could undermine the authority of the prosecution to enforce the state’s prerogative to punish criminals. In an extreme scenario, certain crimes may no longer be prosecuted because of the statute of limitations, which again leads to public criticism and disillusionment with the criminal justice system.

Moves are afoot to mitigate the situation, i.e. by limiting the periods available to (and granted to) parties during the trial and by pushing for more oral hearings. A recent amendment dealing with sealing in the Criminal Procedure Code has aimed at making it more challenging to extend and defend the sealing of documents and data of an accused party. The new provisions set shorter time limits and introduce deemed withdrawals of sealing applications after certain periods of inactivity. Whether an acceleration will actually be achieved is, nonetheless, doubtful, as the circle of parties permitted to request sealing and oppose unsealing applications by the prosecution has been extended.

A further measure strongly advocated in legal practice is the introduction of non-trial resolutions, such as deferred prosecution agreements. To date, Switzerland does not have a similar instrument that could enable companies to make financial amends for past transgressions without incurring criminal conviction. Advocates of non-trial resolutions see this instrument as holding the potential to simplify the otherwise laborious criminal proceedings entities need to go through.
 

What effect has digitalisation had on investigations?


We see that both prosecuting authorities as well as party representatives are making use of digital instruments to assist in their case management, and are sieving through terabytes of data. The sheer amount of material that is available these days (especially in fraud and other financial crimes) does, however, still pose a significant challenge to all parties involved because, even with smart tools available, the final analysis and decision-making is still up to the prosecutors, attorneys and judges involved.
 

How do you ensure a well-informed advisory scope for clients who are based in other jurisdictions, or have operations based overseas?


We are a Swiss-based law firm with offices in Zurich, Bern and Brussels, Belgium. In addition, we maintain a strong network with colleagues in other jurisdictions, with whom we interact on a regular basis.

We periodically interact with our clients and key partner counsel abroad, as the legal landscape evolves and develops in Switzerland. We keep our clients updated by way of our newspaper articles, newsletters and posts on our homepage and LinkedIn platform. Occasionally, we join internal programmes and share insights as well as new developments with in-house legal teams. Meanwhile, digital meetings are also becoming more frequent – as a means of relating pressing updates.

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Subject: Dispute Resolution
Autor: Marcel Frey, Bernhard C. Lauterburg
Reading time: 4 Min

Jurisdictional hurdles in investment disputes in China – a recent judgment of the Swiss Federal Tribunal

Bernhard Lauterburg and Marcel Frey analyse a recently published decision by the Federal Tribunal dealing with the interpretation of jurisdictional clauses in bilateral investment treaties with China and the appeal means available in instances of expropriation or measures of an equivalent intensity.

Jurisdictional hurdles in investment disputes in China – a recent judgment of the Swiss Federal Tribunal

A. Point of departure

On January 11, 2024, the Swiss Federal Tribunal rendered a judgment on the interpretation of the bilateral investment protection agreement between the People's Republic of China and the Republic of Singapore of November 21, 1985 (BIT 85, the treaty lapsed in 2019). The judgement turned on a ruling by an ad hoc arbitral tribunal based in Switzerland (Geneva), which had to rule on a dispute between AsiaPhos Limited and Norwest Chemicals Pte Limited (claimants, registered in Singapore) on the one hand and the People's Republic of China (respondent) on the other (ICSID Case No. ADM/21/1, award of February 16, 2023). Although the facts of the case may seem remote and despite the fact that the relevant BIT is no longer in force, the judgement of the Federal Tribunal is nevertheless of high practical relevance. The Federal Tribunal examined the provisions under the Vienna Convention on the Law of Treaties and the principles of interpretation for international treaties laid down therein, explained that rules derived from commercial arbitration could not be transferred one-to-one to investment arbitration and reiterated the key principles governing the admissibility of new facts in its proceedings.

B. Arbitration proceedings

On August 7, 2020, the claimants had initiated arbitration proceedings against the respondent based on the BIT 85 requesting a finding on various violations of the agreement and compensation for the resulting damages.

The claimants had made investments in three phosphate mines in Sichuan province from 1996 onwards. The three mines were located in an area where the Jiudingshan Nature Reserve (Mianzhu) was later established in 2007 and where a national panda park was to be created subsequently. These developments initially left the phosphate mining unaffected. However, from 2017 onwards, the Sichuan provincial government banned mining in and around the Jiudingshan Nature Reserve and the national panda park, which led to the closure and sealing off of the three mines and the non-renewal of the mining licences held by the claimants (for a detailed overview of the facts claimed see ICSID Case No. ADM/21/1, award of February 16, 2023, section III (available at https://www.italaw.com/cases/10231). On August 7, 2020, the claimants initiated arbitration proceedings administered by the International Centre for Settlement of Investment Disputes (ICSID) on the basis of art. 13 para. 3 BIT 85 and requested a finding of various violations of the BIT 85 and damages.

In law, the claimants argued that the measures taken by Sichuan Province and the People's Republic of China were tantamount to expropriation pursuant to art. 6 BIT 85 and violated the general principles contained in art. 3 para. 2 BIT 85 ensuring fair and equitable treatment and the right to full protection and security (ICSID Case No. ADM/21/1, award of February 16, 2023, para. 36).

Already in the earlier arbitration proceedings it had been disputed whether the arbitration tribunal had jurisdiction at all, which the tribunal itself had denied. Before the Federal Tribunal the People's Republic of China argued that art. 13 para 3 BIT 85 constituted a very narrow arbitration clause. This arbitration clause essentially read as follows:

  1. Any dispute between a national or company of one Contracting Party and the other Contracting Party in connection with an investment in the territory of the other Contracting Party shall, as far as possible, be settled amicably through negotiations between the parties to the dispute.
  2. If the dispute cannot be settled through negotiations within six months, either party to the dispute shall be entitled to submit the dispute to the competent court of the Contracting Party accepting the investment.
  3. If a dispute involving the amount of compensation resulting from expropriation, nationalization, or other measures having effect equivalent to nationalization or expropriation mentioned in Article 6 cannot be settled within six months after resort to negotiation as specified in paragraph (1) of this Article by the national or company concerned, it may be submitted to an international arbitral tribunal established by both parties.

The Respondent held that disputes concerning investments covered by the BIT 85 should primarily be adjudicated by the respective state courts. Only disputes concerning the actual amount of compensation for an expropriation, nationalisation or other measures having an effect equivalent to nationalisation or expropriation within the meaning of art. 6 BIT 85 should be brought before an international arbitral tribunal.

On the other side, the claimants had unsuccessfully argued that the wording of art. 13 para. 3 BIT 85 should be understood comprehensively, thus covering any dispute involving a claim for compensation arising from expropriation or similar. As a back-up argument, they also argued that the arbitration clause should be extended to the claim asserted by them on the basis of the most-favoured-nation clause contained in article 4 BIT 85, which was equally rejected by the arbitral tribunal in its award of February 16, 2023.

The claimants thereafter lodged an appeal with the Federal Tribunal Court, asserting that the arbitration tribunal had wrongly declined its jurisdiction to adjudicate the dispute (art. 190 para. 2 letter b Private International Law Act). The Federal Tribunal dismissed the appeal in its judgment of January 11, 2024.

C. The BIT 85 between Singapore and the People's Republic of China was not singular in appearance – Clauses in Bilateral Investment Treaties with China

According to the Federal Tribunal, the wording of the relevant arbitration clause in the case under its review was considered narrow. More recent investment protection agreements concluded by the People's Republic of China contain broader arbitration clauses, such as the one between Switzerland and the People's Republic of China of January 27, 2009 (BIT CH, SR 0.975.224.9). According to art. 11 para. 2 BIT CH, in the event of disputes arising from a breach of the agreement, the investor may, after a "cooling-off period", bring proceedings either before the national courts or before an arbitration tribunal. The treaty does not contain a restriction comparable to the BIT 85 between Singapore and the People's Republic of China, according to which only certain disputes were considered to be arbitrable. However, the People's Republic of China may require the investor to first lodge a domestic administrative review procedure, which not take longer than three months, before filing an arbitration claim (a similar caveat is also contained in the BIT between the Kingdom of the Netherlands and the People's Republic of China of November 26, 2001, https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/763/download).

In contrast, the previous agreement with the People's Republic of China of November 12, 1986 (AS 1987 589) also contained a restriction, according to which only disputes over the compensation amount owed under art. 7 of this agreement concerning "deprivation of property, compensation" could be submitted to arbitration by the investor, while "disputes over other issues relating to the present agreement" were only arbitrable with the consent of both parties concerned.

While the more recent bilateral investment agreements of the People's Republic of China generally no longer contain such restrictions, it should nevertheless be noted that in many instances the People's Republic of China requires that a domestic review procedure be carried out first. Particular attention should be paid to so-called "fork-in-the-road" or similar provisions. "Fork-in-the-road" provisions state that the dispute resolution route once chosen, i.e. either the state court proceedings or arbitration tribunal, is binding. In contrast, so-called "No-U-turn" provisions allow the foreign investor to initially initiate national proceedings, but then abandon them in favour of arbitration. However, a retrial or the filing of a new appeal before the national courts is then excluded. The BIT CH for instance allows a claim to be withdrawn from the national court and then submitted to arbitration. Other agreements appear to be stricter in this regard, such as the bilateral investment treaty between France and the People's Republic of China (https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/3342/download). The BIT between Germany and the People's Republic of China seems to follow a similar approach to the BIT CH and stipulates that a German investor can only invoke arbitration if it has first submitted the matter to an administrative review procedure under Chinese law and the difference of opinion persists three months after it has initiated the review procedure (as the BIT CH) and, if the matter has been submitted to a Chinese court, it can still be withdrawn by the investor under Chinese law (https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/7217/download). The BIT CH, on the other hand, makes no reference to national procedural law with regard to the withdrawal of the claim before the national courts. Such ambiguities in the phrasing of the individual provisions can potentially lead to considerable uncertainty and, in some cases, to the loss of the right to an arbitral tribunal. It is therefore essential to plan ahead when choosing the legal remedies.

D. The Federal Tribunal Judgment

1. What other arbitration tribunals have held, is inspiration at best

On a general note, the Federal Tribunal recalled that although arbitral awards from other investment disputes and scholarly opinions were accorded great significance, the Federal Tribunal Court in its practice interpreted the provisions of international agreements by itself. In doing so, it could take legal doctrine into account and draw inspiration from arbitral decisions. It held, however, that it should be noted that the awards issued in other arbitration proceedings in the area of international investment protection were neither binding for other arbitration tribunals nor for the Federal Tribunal and as such do not constitute a source of law (Federal Tribunal Decision 4A_172/2023, judgment of January 11, 2024, consid. 4.2.1.).

In the Federal Tribunal's view, the same also applied in the area of international investment disputes. Although no arbitral tribunal is bound by the rulings of other arbitral tribunals, it has nevertheless been observable for some time that arbitral tribunals take their cue from decisions of other arbitral tribunals and engage with such rulings, creating a type of unité de doctrine (see e.g. Jan Paulsson, The Role of Precedent in Investment Treaty Arbitration', in Katia Yannaca-Small (ed), Arbitration Under International Investment Agreements: A Guide to the Key Issues (Second Edition), S. 81-100; Beata Gessel-Kalinowska vel Kalisz, Konrad Czech, The Role of Precedent in Investment Treaty Arbitration, in: Stavros Brekoulakis (ed), Arbitration: The International Journal of Arbitration, Mediation and Dispute Management, Vol. 85, Issue 2, S. 162-168).

2. Jurisdiction of arbitral tribunals only where the parties agree clearly and unambiguously

The appellants in the present case initially relied on the principle that – provided a valid arbitration agreement existed - it must be assumed that the parties' wish had been for the arbitral tribunal to have exclusive jurisdiction. The Federal Tribunal countered that this argument, developed in the area of commercial arbitration, could not be applied in a cases of investment protection agreements which provided for several dispute resolution mechanisms or where the delimitation of state and private jurisdiction regulated in the BIT was disputed. The Federal Tribunal thus reaffirmed its established practice that the jurisdiction of an arbitral tribunal had to be based on the clear and unambiguous consent of the contracting parties (Federal Tribunal Decision 4A_172/2023, judgment of January 11, 2024, consid. 5.1.).

The further considerations of the Federal Tribunal deal with the question of the interpretation of art. 13 para. 3 BIT 85 and confirm the arbitral award, according to which the arbitration clause is to be understood as meaning that an arbitral tribunal can only invoked with regard to the question of the amount of compensation. In contrast, the arbitration clause does not cover the question of whether an expropriation, which can be the subject of compensation to be determined by arbitration, has taken place. The Federal Tribunal did not even address the complainants' objection that the state courts in the People's Republic of China could not determine the existence and legality of a material expropriation. According to the Federal Tribunal, the arbitral tribunal did not have to rule on whether the contracting states had fulfilled their obligation to guarantee sufficient protection against expropriation measures and adequate compensation within the meaning of the ISA in their territory (Federal Tribunal Decision 4A_172/2023, judgment of January 11, 2024, consid. 5.4.2.). Moreover, according to the Federal Tribunal in response to a further objection raised by the appellants, the fact that the limitation of the jurisdiction of the arbitral tribunal to the question of the amount of compensation and the coexistence of state and private jurisdiction may bring with it certain delimitation difficulties and - with regard to certain substantive issues - duplication of jurisdiction, did not lead to the result in a comprehensive jurisdiction of the arbitral tribunal as advocated in the complaint (Federal Tribunal Decision 4A_172/2023, judgment of January 11, 2024, consid. 5.4.1.).

3. Last minute expert testimony may be considered in certain instances

With their appeal, the appellants submitted a new expert opinion to prove their alleged inability to assert their compensation claims before Chinese state courts. With reference to the case law, the Federal Tribunal pointed out that the prohibition of introducing new items in art. 99 para. 1 Federal Tribunal Act only extended to the facts of the case, but not to legal means of attack and defence. Legal opinions therefore do generally not fall under the prohibition new items, provided they are submitted within the appeal period (art. 100 Federal Tribunal Act) and are intended to strengthen the legal argumentation of the appealing party. However, it should be noted that expert opinions on foreign law at least partially have the character of evidence where the parties are held to establishing the foreign law.

In the opinion of the Federal Tribunal, it was not clear from the appellants' submissions whether the alleged impossibility was of a legal nature in the sense of an exclusion of certain legal proceedings or whether there were actual obstacles to the successful completion of such proceedings. Once again, this shows which high demands are placed on the drafting of an appeal to the Federal Tribunal or a legal opinion to be submitted with it (Federal Tribunal Decision 4A_172/2023, judgment of January 11, 2024, consid. 3.).

E. Conclusion

The reviewed judgement again provides exciting insights into the world of international investment protection.

  • When structuring international investments, the possibility of bringing disputes before a neutral arbitration tribunal should be given some thought, otherwise you could find yourself in the position of having to make do with local courts. The requirements for access to an arbitration tribunal should be carefully analysed. The Federal Tribunal regularly places high demands on the existence of an arbitration agreement.
  • Principles that are applicable or recognised in international commercial arbitration cannot be transferred to international investment arbitration one-to-one. The latter follows its own rules.
  • In the case of arbitration proceedings in Switzerland (and probably also elsewhere), possible appeal proceedings before the national courts should already be taken into account when exchanging briefs. The factual allegations likely to be relevant in any appeal proceedings, including the relevant evidence, in particular those relating to the applicable foreign law, should already be submitted in the arbitration proceedings.
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Subject: Employment & Pensions
Autor: Urs Feller, Marcel Frey
Reading time: 5 Min

Internal investigations – a balancing act for HR and in-house counsel

Urs Feller and Marcel Frey analyze a recent Federal Tribunal Decision that clarifies the rights of a suspected person in internal investigations. The decision dealt with the question what types of formal guarantees a person faced with allegations of sexual harassment of colleagues at the work place may expect and which rights do not come into play, contrary to the situation in a criminal investigation.

Internal investigations – The balancing act for HR and in-house counsel between formal guarantees and business pragmatism

1) Backdrop: Federal Tribunal Decision of January 19, 2024

a) Introduction

In-house legal counsel and human resource department heads of most companies invariably have to deal with sexual harassment complaints at least once in their careers. Heightened awareness to issues of GBV and related social ills but also employee rights have made the professional and at the same time sensitive handling of such occurrences a challenging task for the involved parties. A recent Federal Tribunal decision may shed some light on how best to deal with such tasks in internal investigations.

b) Facts of the matter

On the August 29, 2018, a female employee reported cases of sexual harassment by a male employee at the workplace to the company's internal ombud for behaviour and ethics. Based on the report, the employer initiated an internal investigation. On the October 23, 2018, the employment contract of the male employer was terminated in keeping with the normal three months' notice to the end of January 2019. Owing to sickness and accident leave of the employee, the employment relationship was eventually extended until the end of August 2019.

c) Procedural history

After an unsuccessful attempt at conciliation, the male employee filed a lawsuit against the employer with the Zurich Labour Court on July 13, 2020. He sought an amendment to his work reference letter and a compensation amount for unlawful dismissal.

The Zurich Labour Court accepted the employee's plea for an amendment of the reference letter, but dismissed the request for compensation in its ruling of March 26, 2021. The employee appealed the decision on the compensation issue to the High Court of the Canton of Zurich. On May 23, 2023, the High Court repealed the Labour Court's decision and obliged the defendant company to pay to the appellant a compensation amount of CHF 70,000 (plus default interest of 5%). The employer in turn appealed this decision to the Federal Tribunal which had to decide on the lawfulness of the termination.

On the January, 19, 2024 the Federal Tribunal annulled the ruling of the Zurich High Court (confirming the first instance judgment of the Zurich Labour Court) and dismissed the request for compensation, finding that no unlawful termination had been issued.

2) Formal requirements for an internal investigation

a) Analog application of criminal procedure guarantees?

In its appeal to the Federal Tribunal, the company contested the High Court's ruling which had found that its internal processes had not been adhered to (thus entitling the employee to compensation). The employee had criticized the internal investigation as having been unfair: contrary to the internal company policy, he had not been afforded the right to have a person of trust accompany him to the internal hearing where he was confronted with the allegation of sexual harassment. He had also not been informed in advance about the topic of the hearing and had been taken by surprise by the allegations levelled at him. As such, he had not had any time to prepare his defence (i.e. checking dates of the alleged actions, or seeking out persons to act as witnesses in his favour). He had never been confronted with the identity of the person that had brought the complaint and the description of the occurrence had remained vague thus making it impossible for him to defend himself adequately. The employee claimed that, given the seriousness of the accusation (which could have constituted a criminal offence), the treatment received did not constitute fair proceedings.

The Zurich High Court had concurred with this line of argument, noting that the internal investigation bore likeness to a criminal investigation. As such, the employee should have been afforded similar rights and procedural guarantees.

The Federal Tribunal disagreed with the line of argument.

b) Termination Right

At the outset, the Federal Tribunal stressed the right of the employer to end an employment relationship at any time, as long as contractually agreed or statutory notice periods were upheld. It reiterated that an employer need not motivate a termination and did not have to provide any particular reasons to end a labour contract, thus underlining the liberal Swiss concept of termination freedom. At the same time, the Federal Tribunal recalled that in certain instances (referring to art. 336 Code of Obligations), a termination may be considered to be unlawful.

c) Findings of the Zurich Labour Court

The Federal Tribunal recapped the first instance court's findings. The Zurich Labour Court had noted that whether or not the termination had been lawful or not (which would give rise to a claim for compensation), it did not matter, whether the allegations of sexual harassment were true or not. Solely determinant was the question whether the company had adequately investigated the allegations. This investigation had proceeded according to the internal guidelines of the company. The resulting report showed, that the investigating team had carefully gone about its work, analysing both damaging as well as alleviating circumstances. The company eventually came to the conclusion that the allegations were more likely true than not.

The alleged transgressions with the regard to the internal rules (right to have a person of trust present during the internal hearing) were deemed not to have been so severe, as to negate the entire internal investigation. As such, the company had rightfully held a grounded suspicion of sexual harassment which made the continuation of the employment contract no longer bearable.

d) Findings of the High Court of the Canton of Zurich

The Federal Tribunal went on to analyse the findings of the second instance court. The High Court had taken into account the gravity of the allegations and likened the proceedings to a criminal investigation (also quoting an earlier Federal Tribunal decision that had referred to scholarly opinions in this regard, without itself taking an explicit position on the matter though). As such, the employee reported to the internal ombudswoman was – in the view of the High Court – entitled to a complete investigation with similar guarantees and a clear understanding of the allegations levelled against him. The High Court found that the employee had not been afforded the rights outlined in the internal notice on sexual harassment, had been taken by surprise by the hearing and had not been accompanied by a person of trust.

e) No Federal Tribunal jurisprudence requiring analogue application

To date, the Federal Tribunal has not published a decision which confirmed an analogue application of the criminal procedure guarantees in internal investigations. With the present decision the Federal Tribunal clarified that it did not apply nor endorse such an analogy for internal investigation. Internal investigation followed their own procedure and rules. The procedural guarantees of the Criminal Procedure Code simply did not apply to internal investigations. As civil rights they did not – save for few exceptions – extend their scope to relations between private parties.

f) Differences in legal basis

In its analysis, the Federal Tribunal pointed out that the legal basis for an internal investigation and a criminal investigation were vastly different. Whilst in private law relations the parties were at liberty to conclude or terminate a contract, in criminal proceedings the accused was subjected to the might and powers of the state. In criminal proceedings, the state could impose fines, monetary penalties, as well as custodial sentences or a lifelong imprisonment.

On the other hand, in the private law sphere, the worst consequence an employee could face was the termination of the contractual relationship. Private law relations are based on voluntary relationships between individuals. Legal issues are handled based on the individual agreement or the underlying legal framework. This allows for each party to voluntarily terminate a contract within a period of notice.

g) Caveat: Abusive termination

The Federal Tribunal did not turn a blind eye to obviously abusive terminations, which could give rise to rights of compensation, depending on the manner in which the terminating party exercised its right. A terminating party clearly had to act in good faith. This underlines the importance of conducting an internal investigation with a focus on safeguarding individual rights. In general, deceitful and contradictory behaviour of the terminating party could render a dismissal abusive. An unlawful termination occurs where an employer light-heartedly and without reasonable cause accuses the employee.

The lawfulness of a dismissal had to be assessed in each individual case according to the circumstances and the reasons. Unlawfulness and the legality of a termination of a suspicion could only be determined by the courts.

h) The internal investigation

The Federal Tribunal summarized the internal investigation and found that after the complaint lodged by an employee with the internal ombudswoman, the complainant and other persons were questioned. The reported employee's internal e-mail account was reviewed (in part) with a view to any statements about the employee that had lodged the complaint. Lastly, the reported employee was invited to a hearing and questioned, after which he had the opportunity to review the minutes of the hearing.

According to the Federal Tribunal, the company concluded that the defence of the reported employee was not credible and stood in contradiction to the statements of other employees questioned. It concluded that the alleged behaviour had very likely occurred. The recommendation in the report was that a disciplinary procedure should be initiated. The disciplinary panel issued a formal termination after reviewing the report.

i) No overarching internal rules, no unlawful termination, legality of termination on suspicion

The Federal Tribunal concurred with the appealing company that the fact that the reported employee was not advised as to the charges ahead of the hearing was not detrimental. Requiring such advance notice would be farther-reaching than what the Criminal Procedure Code would require.

The Federal Tribunal further held that a deficiency of the investigation process, such as the absence of a "person of trust" at the interview, could not constitute such a grave mistake as to give rise to an abusive termination. The "accusation principle", a fundamental rule of criminal court procedures, was not applicable in internal investigations thus it was not required that the employee be made aware in all detail where and when exactly the alleged behaviour was said to have taken place. Doing so would also create an untenable tension between the legitimate self-protection interests of the reported person and the person lodging the sexual harassment complaint. In unison, scholarly opinion supports that such a person may remain anonymous and such person's identity may not be communicated to the reported person.

On the whole, the Federal Tribunal noted, that the allegations had been sufficiently detailed and that the internal investigation had not brought to the fore the conspiracy alleged by the employee. Contrary to criminal law, terminating an employee solely based on a suspicion was not unlawful in Switzerland, even if – after the termination – it comes to light that the suspicion was unfounded. The Federal Tribunal held that for this reason it was obvious that the employer was not obliged to prove the suspicions.

The Federal Tribunal concluded that the termination had not been issued light-heartedly or without reason. The freedom to terminate may not be overburdened by overarching principles borrowed from criminal law. It found that no abusive termination had been issued and no compensation was due.

3) Conclusion

The Federal Tribunal decision gives some pointers to internal counsel how to best organise internal investigations. While personal rights of employees should be protected and transparency promoted, the procedural guarantees and rights of persons accused by the state in criminal proceedings do not come into play one-to-one in company internal matters.

The judgment by the Federal Tribunal clarifies to some extent the degree to which reported employees can invoke procedural guarantees and to which level employers must regulate their internal processes.

HR departments and in-house counsel are relatively free in ascertaining the reasons upon which to base a recommendation for termination. Nevertheless, correspondences and interviews should be taken in written form, to establish a certain degree of evidence. HR departments (and in-house attorneys) should strive to establish a reasonable suspicion before the employer issues a termination. Mere allegations may not justify an ordinary termination. The freedom of termination exists, yet it is limited by the boundaries drawn by abuse.

It would seem that the jurisprudence by the Federal Tribunal gives in-house legal departments more leeway in their managing of internal investigations with no strict adherence to criminal procedure rules required, thus limiting the risk of damages for unlawful termination on that front.

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Subject: Dispute Resolution
Autor: Marcel Frey, Reto M. Jenny
Paper: Financier Worldwide
Reading time: 4 Min

Commercial Arbitration in Switzerland

Reto Jenny and Marcel Frey discuss the latest Swiss trends in commercial arbitration.
 

… Inter alia, the respondents discuss the proposal to establish a branch for international disputes at the Zurich Commercial Court that would be competent to administer claims lodged in English. Further, the respondents comment on some tactical challenges that have arisen in the recent past when dealing with the enforcement of arbitral awards.

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Subject: Corporate News
Autor: Marcel Frey, Gion Jegher, Bernhard C. Lauterburg
Reading time: 2 Min

Vis Moot Court — The second Trial Run at Prager Dreifuss this year

"We have been conducting these trials for twelve years now, and the standard has risen massively in recent years," said the Arbitral Tribunal. This is particularly true in today's round with the Claimant SensorX plc represented by Nieves Malpeli (procedural issues) and Philipp Bürgi (substantive issues) of the University of Bern. The defendant Visionic Ltd is no less competently represented, namely by Sofia Heim (procedural issues) and Leonie Thommen (substantive issues) of the University of Basel.

The facts are the same: counsel on both sides have a difficult time, with SensorX challenging its counsels with complete organisational chaos, while Visionic is impressing with an extra dose of naivety in dealing with cyber risks. But the representatives of the claimant and the defendant are not fazed by such details. They impressed the arbitral tribunal – compose of the Prager Dreifuss lawyers Marcel Frey (chairman), Gion Jegher and Bernhard Lauterburg – with their confident and self-assured demeanor, which was supported by their solid knowledge of the arbitration file and the applicable legal sources, topped off with several international reference judgments.

Both sides are bursting with attacking spirit, trying to wrap the arbitrators around their fingers en passant: good eye contact, moderately supportive gestures and an eloquent use of the voice, these elements make the winner. Only today there was none, the four fighters neutralised each other and were allowed to split the prize money between them.

Subject: Corporate News
Autor: Marcel Frey, Gion Jegher, Bernhard C. Lauterburg
Reading time: 2 Min

Vis Moot Court — The first Trial Run at Prager Dreifuss in 2024

"While we're here, we might as well resolve two disputes, right?" This is one of the arguments put forward by the Claimant SensorX plc, represented by Marko Savkovic (procedural issues) and Niklas Graefen (substantive issues) of the University of St. Gallen. "To the contrary, the two transactions have nothing to do with each other, the second request is not covered by the arbitration clause!", is the reply of the Respondent, Visionic Ltd, represented by Nathalie Kneisel (procedural issues) and Giovanni Giusti (substantive issues) of the University of Zurich.

And then there's this: a hacker used a spoof e-mail to divert USD 38 million from Visionic, which believed it had paid this to its seller, SensorX. Visionic had ordered sensors for cars in this amount, SensorX had delivered them and was therefore expecting payment. In its defence, Visionic accuses its business partner of being partly to blame for the dilemma, since the hacker was only able to create the detailed fraudulent spoof e-mail after a successful cyber-attack on SensorX. SensorX had kept quiet about the attack, leaving Visionic in the dark and transferring the money to the hacker's account.

The arbitration tribunal – the Prager Dreifuss lawyers Marcel Frey (chairman), Gion Jegher and Bernhard Lauterburg – noted that both parties had not given sufficient attention to the cyber risks. Who will win this dispute? Based on the more convincing oral presentation, the St. Gallen team walked away with a slim lead, with the debate continiuing into the reception that followed.

Subject: Dispute Resolution
Autor: Marcel Frey, Bernhard C. Lauterburg
Reading time: 5 Min

The right to appeal for reasons of recusal – The Federal Tribunal maintains a strict approach

Marcel Frey and Bernhard Lauterburg discuss a recent Federal Tribunal decision on the parties' duty of care in arbitration proceedings. The Federal Supreme Court clarified its case law on the extinguishing of grounds to challenge arbitrators. This is the case if the grounds for challenge could have been discovered in good time by applying due diligence and could have been asserted during the arbitration proceedings. This requires the parties to carry out extensive research of publicly available information on the arbitrators.

The right to appeal for reasons of recusal – The Federal Tribunal maintains a strict approach

A) Introduction

In its decision of September 11, 2023, the highest Swiss court, the Federal Tribunal in Lausanne, rendered a noteworthy decision in an appeal proceeding against an ICC award rendered by an arbitration tribunal seated in Geneva (Federal Tribunal Decision 4A_13/2023 of September 11, 2023). The decision touches an area of arbitration law that currently seems to evolve in step with the increasing exigencies of practitioners' dexterity in researching social media and internet data bases in preparation for and during arbitration proceedings.

Already in its decision of February 28, 2020 the Federal Tribunal had to deal with the question how far a party's duty of curiosity goes with regard to researching the backgrounds of arbitrators (Federal Tribunal Decision 4A_318/2020 of December 22, 2020). In the present decision, the Federal Tribunal had to assess whether an appeal lodged by a Chinese company based on connections between an arbitrator and a party representative was timely or delayed.

B) Facts of case

The appellant in the appeals proceedings before the Federal Tribunal, a Chinese manufacturing company, and its counterpart, an Italian company in the industry of aircraft construction, had entered into a "General Cooperation Agreement" on 9 November 2014. Based on this agreement, which contained an arbitration clause referring disputes to an arbitral tribunal with the UNIDROIT Principles of International Commercial Contract applicable, the parties intended to enter into a cooperation process, pursuant to which the Italian company would license to the Chinese manufacturer certain trademark rights and know-how relating to three of its aircraft models. In addition, in the parties agreed on the sale of ten airplanes to the manufacturer.

After conclusion of the agreement, disputes arose between the parties. On 16 September 2020, the Italian company (hereinafter "Plaintiff") terminated the agreement invoking breaches of contract by the Chinese manufacturer ("Defendant"), which were disputed. In its counterclaim, the Defendant in turn claimed breaches of the contract by the Plaintiff.

On 4 May 2021, the Plaintiff initiated ICC arbitration proceedings. In its prayers for relief, it requested a determination on the validity of the termination of the agreement as well as damages under several heads of argument. The Defendant filed a motion to dismiss the Plaintiffs claim and lodged a counterclaim for damages in exchange.

On 10 August 2021, the ICC Court confirmed the arbitrator nominations in the dispute. The ICC Court also accepted the attorney designated by the Plaintiff to act on its behalf. Jointly, the two arbitrators thereafter appointed the chairperson of the arbitral tribunal, who was in turn confirmed by the ICC Court on 6 September 2021. Between 30 May and 1 June 2022, the hearing in the matter took place. On 20 November 2022, the tribunal rendered its award, finding in favour of the Plaintiff, namely that it had been entitled to terminate the contract and that it was equally entitled to claim damages, inter alia for outstanding licence fees and damages for breaches of minimum sale and royalty obligations. On the other hand, the arbitration tribunal dismissed the Defendant's counterclaims.

The Defendant thereafter lodged an appeal against the award and requested its annulment by the Federal Tribunal for sake of partiality of the Plaintiff's arbitrator paired with a prayer to have the matter sent back to the arbitration tribunal for a new decision by a newly constituted tribunal.

C) Legal analysis by Federal Tribunal

1. Obligation to inquire / duty of curiosity

The Federal Tribunal noted that the Defendant had grounded its request to have the award set aside on art. 190 para. 2 letter a Private International Law Act (PILA), claiming the improper constitution of the arbitral tribunal, one of only five possible grounds to lodge such an appeal.

It held at the outset that based on the principle of good faith, that underlines the entire arbitration proceedings, parties wishing to challenge an arbitrator must assert the corresponding reason without any delay once becoming aware thereof. In addition, the Federal Tribunal held that the principle of good faith not only applied to actual grounds for a challenge but also to such grounds that a party should have been cognisant of if it had paid proper attention to such matters, as was to be expected of it. Depending on the circumstances, a party's frivolous blindness to potential recusal grounds could constitute behaviour not worthy of legal protection, comparable to holding back a motion for recusal despite awareness of such grounds.

In keeping with its jurisprudence that it is not permissible to keep grounds for objection in reserve and to subsequently raise these when faced with an unfavourable arbitration outcome, the Federal Tribunal concurred that invoking an improper composition must be considered forfeited if it is not asserted immediately upon recognition.
In applying these principles to the case at hand, the Federal Tribunal found that similar to a request for revision pursuant to art. 190a para. 1 letter c PILA3, an appeal based on art. 190 para. 2 letter a PILA for alleged bias of an arbitrator could only be brought in relation to a reason for challenge that could not have been discovered by the appellant already during the arbitration proceedings if it had exercised the due diligence required by it under the given circumstances. Parties are required to make enquiries – in particular internet searches – in order to identify any elements that may indicate a possible risk of dependence or partiality of an arbitrator.

The question as to the extent of this duty of enquiry by the parties ("devoir de curiosité ") and the appropriate rigour of investigation incumbent upon a party in making such inquiries depended on the specific circumstances of the individual case. Consequently, where a party invoked a recusal ground after the conclusion of the arbitration process, such party is burdened with the obligation of demonstrating that it would not have been able to discover the recusal ground prior, even if it had applied all due care and proper attention to the issue.

2. Arguments by the appealing Defendant

The Defendant had submitted to the Federal Tribunal that subsequent to receiving the negative award and in preparation for its appeal to the Federal Tribunal, it had become aware of circumstances that suggested a lack of independence and impartiality of the Plaintiff's arbitrator. The Defendant claimed to have found out that this arbitrator and his law firm had several connections to the legal representative of the Plaintiff. Firstly, it was discovered that the arbitrator had offices in Rome and Naples, with the Naples office sharing the same address, telephone and fax number as the lawyer of the Plaintiff.

The Plaintiff's lead counsel appeared in legal search websites ("lawyers.com" and "martindale.com") as a lawyer for the arbitrator's law firm. In addition, a former lawyer of the Plaintiff's offices had worked for the arbitrator for nearly 15 years, whilst newspaper reports even made mention of the arbitrator's connection to the Plaintiff's attorney in connection with the arbitrator's commercial dealings in China.

None of these facts had been volunteered by the arbitrator during the disclosure phase after his nomination and were allegedly only discovered by the Defendant during painstaking research after the rendering of the award. Only because the Defendant had opted to seek Swiss representation for the appeal proceedings before the Federal Tribunal and thanks to their comprehension of Italian were such connections even discovered.

3. Findings of the Federal Tribunal in the case at hand
 

The Federal Tribunal dismissed the appeal by the Defendant in finding that it had not demonstrated that its discoveries made after the award could not have reasonably been made during the arbitration process. Any lack of linguistic skills of a party's legal counsel during the arbitration had to be attributed to the party itself. These days, where international arbitration proceedings are frequently held in English, prudence required parties to consult internet-accessible guides and perform checks on search engines focussing on the legal profession.

The Federal Tribunal found the Defendant's view unconvincing. Parties had a duty to undertake additional inquires and could not settle with the general declaration of the arbitrator's independence. Rather, it was incumbent on each party to ascertain whether an arbitrator provided sufficient guarantees of independence and impartiality. Based on the jurisprudence of the Federal Tribunal, consulting the most important online search engines and other accessible sources that could provide indications of possible bias on the part of an arbitrator, e.g. the websites of the most important arbitration websites of the most important arbitration institutions, the parties, their legal representatives and the law firms in which they in which they work could be expected by the parties. This was no different in the case at hand.

D) Conclusion

The Federal Tribunal's decision shows that these days doing a thorough background check on proposed arbitrators belongs to the standard repertoire of an attorney when faced with nominations in arbitral proceedings. Mindful of the fact that parties may have differing strategic objectives for and during arbitration proceedings, it is important to note that for appeals of awards to the Swiss Federal Tribunal, which already entertains only a limited number of grounds, holding back challenges of a procedural nature may prove very costly, be they on purpose or owing to a lack of professional thoroughness.

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Subject: Dispute Resolution
Autor: Urs Feller, Marcel Frey
Paper: NZZ
Reading time: 3 Min

Globalisation reaches the Zurich Commercial Court

International civil proceedings can soon be conducted in English in Zurich. (PDF in German)

For many years, Switzerland has enjoyed an excellent reputation as a centre for the settlement of international private law disputes. These are often resolved in the form of arbitration proceedings - Geneva and Zurich are popular arbitration centres. However, many mostly medium-sized companies refrain from contractually providing for arbitration proceedings for potential disputes. They are wary of  the severely curtailed appeal possibilities, comparatively high costs, the need to choose arbitrators and also the extensive evidentiary proceedings. At the same time, the excellent framework conditions available in Switzerland would make it a favourable place of jurisdiction. Institutional stability, neutrality, legal expertise and experience in dealing with international clients can be found here.

The recently adopted amendment to the Swiss Code of Civil Procedure (CCP) enables Swiss companies with international trade relations to make use of the favourable Swiss framework conditions  for proceedings before state courts. The corresponding project of an international commercial court, the so-called "Zurich International Commercial Court", is supported by the Zurich Government Council and the judges at the Zurich Commercial Court.

Revision creates flexibility

The revision of the CCP, which adapts the code to practical requirements that have emerged since its inception, is due to come into force on 1 January 2025 after the referendum deadline expired unused. It creates the necessary legal basis for the introduction of state commercial courts with an international focus. Already hitherto, the cantons were able to establish commercial courts. In Zurich, St. Gallen, Bern and Aargau, such commercial courts have existed for many years. The cantons are now authorised to declare the cantonal commercial court competent in other instances. The prerequisites for this are an amount in dispute of over CHF 100,000, at least one party must be domiciled abroad, the business activity of one party must be affected and the parties must agree to the jurisdiction of the commercial court. The commercial court may then not refuse jurisdiction.

Such international civil proceedings are made even more attractive by the prospect of conducting the proceedings in English, which is also made possible by the CCP revision. The judgement itself can also be drafted in English. Many courts already consider it permissible for parties to submit enclosures to court submissions, such as English contracts or party correspondence, to the court without translation, provided that a translation is offered if found necessary. This demonstrates the familiarity of the courts and parties in litigating in English.

In addition, parties to such international disputes will now have the opportunity of lodging an appeal to the Federal Supreme Court in English, which has already been possible for appeals against arbitration decisions for some time. Only the judgement of the Federal Supreme Court in Lausanne will continue to be issued in an official language.

Switzerland is by no means alone in these endeavours. Singapore, Dubai, Amsterdam, Paris and London, for example, have established state courts that specialise in settling international commercial disputes. Switzerland, with its solid reputation and experience, seems predestined to take on a similarly leading role.

In the Canton of Zurich, litigants in commercial disputes have an efficient and professionally staffed specialised court in the Zurich Commercial Court. The specialised judges come from a wide range of professional fields in the production, services and trade sectors. They can therefore also take industry-specific aspects into account when settling disputes.

Faster to judgement

According to the report of the Zurich High Court for the year 2022, to which the Commercial Court is organisationally affiliated, 72% of all cases pending there are settled within less than a year. More than half of the cases, namely 54% are even settled within six months. In addition, when a commercial court judgement is referred to the Federal Supreme Court, these appeal proceedings are decided comparatively quickly: According to the Federal Supreme Court's report for 2022, almost 90% of all cases were decided within one year, 73% even within six months.

For companies based in Zurich, the Zurich Commercial Court already had jurisdiction for legal disputes. The fact that proceedings will be able to be conducted in English significantly expands its scope. In particular, domestic and foreign parties will be able to influence the language in which proceedings are to be conducted by selecting the appropriate court in their contractual agreements. This will further increase the attractiveness of Zurich as a centre of dispute resolution.

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Subject: Dispute Resolution
Autor: Urs Feller, Marcel Frey, Bernhard C. Lauterburg
Paper: Practical Law Country Guide
Reading time: 5 Min

Litigation and Enforcement in Switzerland: Overview

The country-specific Q&A gives a structured overview of the key practical issues concerning dispute resolution in Switzerland, including court procedures; fees and funding; interim remedies (including attachment orders); disclosure; expert evidence; appeals; class actions; enforcement; cross-border issues; the use of ADR; and recent reforms with effect for disputes in Switzerland.

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Subject: Dispute Resolution
Autor: Urs Feller, Marcel Frey, Bernhard C. Lauterburg

Arbitration Procedures and Practices in Switzerland: Overview

The country-specific Q&A guide provides a structured overview of the key practical issues concerning arbitration in this jurisdiction, including any mandatory provisions and default rules applicable under Swiss law, confidentiality, local courts' role to assist arbitration, enforcement of awards and the available remedies, both final and interim, and the new provision giving companies the option of subjecting corporate disputes to arbitral proceedings.

Subject: Health and Medical Law
Autor: Marcel Frey, Christian Schönfeld, Andrea Schütz

Winner - Mondaq Thought Leadership Awards, Autumn 2023

Prager Dreifuss is proud to announce that our colleagues Andrea Schütz, Christian Schönfeld and Marcel Frey have been recognised by Mondaq as thought leaders in the area of Food, Drugs, Healthcare and Life Sciences in Switzerland in its autumn 2023 awards.

The Mondaq award showcases top authors and co-authors based on total readership for the previous six months, showing an overall award winner across a number of countries and separate awards across multiple topic areas. The award is further testament to our pursuit to offer to our clients in the pharmaceutical and health care sector tailor-made solutions of the highest quality.

For more information go to: Medical Devices & Consumer Health Products 2022

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Subject: Banking & Finance
Autor: Urs Feller, Marcel Frey
Paper: IFLR
Reading time: 4 Min

IFLR - Switzerland: updated legislation for internal investigations at banks and financial services providers

Urs Feller and Marcel Frey analyse the implications of a revision to the Swiss Civil Procedure Code with relation to the legal privilege for in-house counsel during internal investigations from a civil and criminal procedure point of view.
 

Urs Feller and Marcel Frey analyse the possible implications of the inclusion of inhouse counsel under the scope of client-attorney privilege and what the Civil Procedure Code amendment could mean for future internal investigations at banks and financial service providers. They discuss under which circumstances internal investigations can be undertaken by the inhouse legal team and the advantages and disadvantages in this regard. The authors address the distinction between typical legal advice and statutory compliance obligations requires by law.

Detailed information is available for download in the PDF.

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Subject: Dispute Resolution
Autor: Marcel Frey
Reading time: 5 Min

The long race of Caster Semenya: European Court for Human Rights chides Swiss Federal Supreme Court

Marcel Frey and Sapphire Graham discuss a recent Federal Supreme Court and an ensuing European Human Rights Court decision on the eligibility to compete of the Olympic middle-distance athlete Caster Semenya.

The Swiss Federal Supreme Court in the summer of 2020 had decided that the award by the Court for Arbitration for Sport on the complaint by the middle distance runner Caster Semenya, whereby it had dismissed her eligibility to compete in certain middle distance races owing to her genetic difference in sex disorder, was not contrary to Swiss public policy. In its decision of July 2023, the European Court on Human Rights however held, that the institutional and procedural safeguards in Switzerland did not allow her to have her complaints examined effectively and that the domestic remedies available to the applicant could not be considered effective in the circumstances of the present case.

Detailed information is available for download in the PDF.

 

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Subject: Banking & Finance, Competition & Regulatory Matters, Corporate & M&A, Dispute Resolution
Autor: Urs Feller, Marcel Frey
Paper: PD Newsletter

Amendment of the Swiss Civil Procedure Code

Urs Feller and Marcel Frey discuss the new provision on the privilege of inhouse counsel that will come into effect with the amendment of the Swiss Civil Procedure Code. In the article, they analyse the prerequisites that need to exist for inhouse counsel to invoke confidentiality and what effects this may have on compliance.

Subject: Corporate News
Autor: Marcel Frey, Gion Jegher, Bernhard C. Lauterburg
Reading time: 1 Min

Vis Moot Court — Second Trial Run at Prager Dreifuss

The second Moot Court practice run this year at Prager Dreifuss! On 17 March 2023, there was another encounter before the arbitral tribunal, the case was the same. The hearing began with the respondent — state-owned Equatoriana Geoscience Ltd — represented by Tsagaanlkham Badamkhand (procedural issues) and Iphigénie Carbonel (substantive issues) from the University of Basel. Respondent presented convincing and well-argued points against the jurisdiction of the tribunal.

The claimant—drone manufacturer Drone Eye plc—was represented by Perla Bachmann (procedural issues) and Anaïs Frischknecht (substantive issues) from the University of Zurich. Counsel for claimant also argued in the very best English, already the briefs submitted by the parties were of the highest standard. The debate turned – inter alia – on the question what qualifies as an aircraft and is therefore excluded from the scope of the applicable treaty on international sales of goods (CISG). The students researched thoroughly the jurisprudence available, assessing decisions on hot air balloons, submarines and used cars.

In the end, the team from the University of Zurich, with its good arguments and convincing presentation, was able to secure a narrow advantage with arbitral tribunal. The arbitration panel consisted of Marcel Frey as chairman and the two party-nominated arbitrators Gion Jegher and Bernhard Lauterburg. We wish both teams every success in the competition!

Subject: Corporate News
Autor: Marcel Frey, Gion Jegher, Bernhard C. Lauterburg
Reading time: 1 Min

Vis Moot Court — Trial Run at Prager Dreifuss

Finally, another student showdown on the 6th floor at Prager Dreifuss! On 8 March 2023, the claimant, drone manufacturer Drone Eye plc, represented by Filippo Börner (procedural issues) and Manuel Constam (substantive issues) from the University of St. Gallen, attended the oral hearing in the arbitral proceedings against respondent, state-owned company Equatoriana Geoscience Ltd, represented by Julia Bischof (procedural issues) and Alex Brückler (substantive issues) from the University of Bern.

In substance, claimant wants to be awarded damages under the purchase and supply agreement for 6 reconnaissance aircraft which it concluded with respondent. However, allegations of corruption, fraud and misrepresentation as well as dubious machinations play an important role alongside questions of jurisdiction and applicable law. The St. Gallen team displayed good file knowledge and communicated well. The students from Bern counterpunched with solid technical details on the purchase objects and valiantly countered the barrage of questions by the tribunal.

Well done! But you can always learn something new. The party representatives were able to take home some valuable input from the arbitrators, who could not come to a unanimous finding and decided to split the prize money equally among both contesting teams.

Subject: Dispute Resolution
Autor: Marcel Frey, Reto M. Jenny

INDEPTH FEATURE: Commercial Arbitration 2023 – Switzerland

Reto M. Jenny and Marcel Frey published the Swiss chapter in the latest edition of "InDepth Feature: Commercial Arbitration". In this chapter, the authors give an overview of the distinctive features of arbitration in Switzerland and of current developments.

Subject: Insolvency & Restructuring
Autor: Marcel Frey

Lawyer Monthly March 2023: Overcoming international debt collection in Switzerland

In this article, Marcel Frey discusses the technicalities and hurdles a creditor may experience when enforcing a claim against a Swiss party or against assets located in Switzerland and how best to deal with them.

Subject: Dispute Resolution, White Collar Crimes & Investigations
Autor: Urs Feller, Marcel Frey
Paper: PD Newsletter
Reading time: 5 Min

Remote Hearing of Swiss Witnesses in International Civil Procedures – Changes on the Legislative Horizon

Urs Feller and Marcel Frey present the recent proposals by the Swiss Federal Office of Justice and Police to introduce in the future the possibility of digital witness interrogations of Swiss resident parties in civil proceedings. Hitherto burdened with the need to obtain administrative consent by means of legal assistance requests, the amendment would do away with the need for prior approval, putting in its place a mere notification requirement, this in the hope of simplifying civil litigation going forward.

The global pandemic has firmly thrust the Swiss litigation scene into the 21st century. In future, if things go according to the government's plans, Swiss resident witnesses will soon be able to partake in international procedures by digital means.

1. Current Situation

Currently, if proceedings held in a jurisdiction outside of Switzerland require the hearing of a witness residing in Switzerland, the latter would have to travel to the locality of the foreign court presiding over the pending matter. Alternatively, two international treaties provide for the hearing of witnesses, which is considered a state competency, by means of formal legal assistance procedures (Hague Convention on Civil Procedure 1954 and the Hague Convention on Taking of Evidence Abroad in Civil or Commercial Matters 1970).

Hitherto, if a foreign court wanted to interrogate a Swiss residing witness, it would be required to direct a request to the competent central authority of the canton in which the witness had its residency. This local authority would then liaise with the Federal Office of Justice which would issue a license for the foreign act on its territory.

2. Background to new proposal

The Federal Civil Procedure Code, which came into force in 2011, is pending revision and one of the items that is heading for a make-over is the method for holding hearings. However, the revision is still in the parliamentary process.

At the same time, the Covid-pandemic energized digital progress in Switzerland and in October 2020 a parliamentary motion mandated the Federal Council (government) to investigate the possibility of making digital hearings of witnesses in international civil proceedings possible. Effectively, the motion required government to amend its reservation to the declaration no. 5 to the 1970 Hague Convention and, in effect, opt for the variant of para. 2 of art. 17 of the 1970 Hague Convention which provides that signatory states can do without this requirement.

If the proposal is finally passed, foreign requests for hearing Swiss witnesses would take on the simpler form of a mere notification to the central authority, no longer making it necessary to obtain prior approval.

Although the new law only amends the Swiss declaration no. 5 to certain articles of the 1970 Hague Convention, the aim is to grant the same liberties also to countries that are not party to this convention.

3. Perceived advantages

The proposal should improve the easier access to justice as it will make performing one's duties as a witness significantly simpler and more time efficient. Making oneself available to join in a telephone call or a visual conference should prove far less time consuming than travelling to a foreign country and being on trial there.

This ease should also promote the willingness of witnesses to take part in overseas proceedings. Further, the financial impact on the parties and the ecological influence on the environment should be lighter. Lastly, still within the framework of certain limitations to free movement, digital hearings will promote the health of vulnerable parties and avoid the unnecessary congregation of parties for mere procedural purposes.

According to Federal Office of Justice and Police's accompanying dispatch, from a Swiss administrative point of view, permitting the holding of digital hearings is seen as a very minimal interference with powers reserved to the state. Whether viewed as a foreign court digitally entering Swiss sovereign space to hear a Swiss witness or whether one conceives the hearing as a digital appearance of the Swiss resident in the overseas court procedure, either way the effect on Swiss sovereignty are limited.

4. Proposed amendments

The proposal would make it possible for an agent of the court to invite Swiss resident witnesses to take part in a telephonic interrogation or video exchange for trial purposes. Also, the court itself could hear parties in this manner. Note that no other evidence measures are included in the new law but the new ease only extends to witness hearings.

Note also, that the proposed change to legislation does not require the requesting party to extend the same benefits and ease of access to witness residing in its own territory.

The new law, which would take the form of an amendment to declaration no. 5 to art. 15 – 17 of the 1970 Hague Convention, would only require the requesting party or court to submit an advance notification to the cantonal central authority informing it about the proposed date and time of the digital hearing, including the information on the trial reference, the competent court, the names of the parties and their representatives as well as the party (witness) concerned. Furthermore, the notification needs to include the names and functions of any other persons taking part and also make clear what the topic of the hearing shall be.

In order to be valid, the notification must include the consent of the witness that is to be heard. This consent may be withdrawn by the witness at any point in time – the participation in the hearing by digital means remains fully voluntary.

Finally, the notification must be made in the official language of the canton where the central authority is located, or be accompanied by a translation into such language. The central authority is entitled to take part in the hearing, this in order to safeguard Swiss sovereignty and the rights of the witness according to the applicable convention.

Note that even if a notification is lodged and no intervention occurs by the cantonal authority, this does not automatically absolve the parties involved from the potential threat of art. 271 Criminal Code. The assessment of whether the criteria for a legitimate interrogation compliant with the requirements of declaration 5 have been upheld, remains the sole competency of the Swiss criminal courts.

5. Time-line

Cantons and interested parties may comment on the draft legislation until the beginning of March 2023. Thereafter, parliament will debate the draft. It is currently not certain when the new law would come into force, but given that the proposal is largely uncontroversial it may be expected to pass through parliament reasonably smoothly.

6. Conclusion

The draft law will significantly simplify international witness proceedings for parties with their residence in Switzerland.

Nevertheless, formulating the notification to the central authorities will still require diligence, as was and still is the case under the current application process.

Given that the effect of the digital interrogation will not be different from a in situ hearing, witnesses are well advised to give the same care and thought to their testimony when they are seated in front of a computer screen, as they would when confronted with a full bench of judges or a jury.

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Subject: Health and Medical Law
Autor: Marcel Frey, Christian Schönfeld, Andrea Schütz
Paper:

Medical Devices & Consumer Health Products 2022: A Chambers Global Practice Guide Publication

After Switzerland's designation as a "third country" by the EU, the Swiss medtech industry faces two existential challenges. On the one hand, it must ensure the sustainable supply of medical devices to the Swiss population. On the other hand, it must maintain the competitiveness and innovative strength of Switzerland in the global medical market. This article illustrates the challenges but also the opportunities for the Swiss and foreign medtech industry related to the "third country" status of Switzerland.

Subject: Corporate News
Autor: Marcel Frey, Gion Jegher, Bernhard C. Lauterburg

Vis Moot Court # 2 — Next Trial Run at Prager Dreifuss

On Wednesday, March 16, 2022, the second trial run hearing within a week took place at the Zurich office of Prager Dreifuss with counsel for claimant from the University of Zurich (Lara Langer and Hadjar Sbaih) and counsel for respondent from the University of Lucerne (Asia Ponti and Andrea Greub), this time “in personal attendance”.

Our attorneys Marcel Frey (chairman), Gion Jegher and Bernhard Lauterburg constituted the arbitration tribunal. They asked parties' counsel many challenging questions. The young law students gave detailed answers showing great command of the facts and the law. The tribunal was deeply impressed by the professional expertise of the four students. Its only advice to the new generation: More passion and less argument is sometimes more. The verdict in the end: a narrow win for Lucerne.

Subject: Corporate News
Autor: Marcel Frey, Gion Jegher, Bernhard C. Lauterburg

Vis Moot Court — Trial Run at Prager Dreifuss

Hybrid hearing with counsel for claimant from the University of St. Gallen (Damian Wyss and Jens Neese) and counsel for respondent from the University of Basel (Roger Reschek and Océane Kessler) on Monday, March 14, 2022, at the Zurich office of Prager Dreifuss:

A sudden withdrawal from an “in person” attendance by the Basel team due to a Covid contact issue challenged us to find an alternate setup for the hearing at short notice. Thanks to our IT hero Patrick Schmidhalter, we were able to prepare a hybrid courtroom with counsel for respondent (Basel) on screen and counsel for claimant (St. Gallen) in person. Our attorneys Marcel Frey (chairman), Gion Jegher and Bernhard Lauterburg formed the arbitral tribunal. They were deeply impressed by the technical language skills and the compelling arguments displayed by the four law students acting as counsel. While the St. Gallen team had a slight advantage in the room, the Basel team was credited with the digital disadvantage. The verdict at the end: a well-deserved draw.

Subject: Dispute Resolution
Autor: Urs Feller, Marcel Frey

Chambers Europe 2021 Overview

In this article, Urs Feller and Marcel Frey describe the ongoing preparations and the advantages of the establishment of one or more international commercial courts in Switzerland. In addition, the authors deal with the conditions, costs, duration of proceedings as well as potentially efficient resolutions of disputes by the new court.

Subject: Dispute Resolution
Autor: Urs Feller, Marcel Frey, Bernhard C. Lauterburg
Paper: Thomson Reuters Practical Law
Reading time: 7 Min

Litigation and enforcement in Switzerland: overview

The country-specific Q&A gives a structured overview of the key practical issues concerning dispute resolution in this jurisdiction, including court procedures; fees and funding; interim remedies (including attachment orders); disclosure; expert evidence; appeals; class actions; enforcement; cross-border issues; the use of ADR; and any reform proposals.

Label: Highlight
Subject: Dispute Resolution
Autor: Marcel Frey, Bernhard C. Lauterburg
Paper: IFLR
Reading time: 5 Min

Sun Yang and Switzerland’s international arbitration rules

Bernhard Lauterburg and Marcel Frey of Prager Dreifuss explain how the Federal Tribunal overturned a CAS decision ordering an eight-year doping ban of the Chinese Olympic swimmer on the discovery of circumstances justifying the removal of an arbitrator.

Subject: Dispute Resolution
Autor: Urs Feller, Marcel Frey, Bernhard C. Lauterburg
Paper: Thomson Reuters Practical Law

A Q&A guide to arbitration law and practice in Switzerland.

The country-specific Q&A guide provides a structured overview of the key practical issues concerning arbitration in this jurisdiction, including any mandatory provisions and default rules applicable under local law, confidentiality, local courts' willingness to assist arbitration, enforcement of awards and the available remedies, both final and interim, and the new provisions governing arbitration in Switzerland that came into effect recently.

Subject: Litigation
Autor: Urs Feller, Marcel Frey, Michaela Kappeler
Paper: PD Newsletter
Reading time: 3 Min

Brexit - enforcement of judgments and jurisdiction clauses from a Swiss perspective

If the United Kingdom (UK) and the European Union (EU) do not reach an agreement on the consequences of the UK's exit from the EU by the end of 2020, a no-deal Brexit becomes a reality. With Switzerland also not being a member of the EU, the present newsletter gives some preliminary guidance on how a no-deal Brexit will affect the enforcement of judgments and treatment of jurisdiction clauses in Switzerland from January 1, 2021, if a no-deal Brexit actually comes to pass in the new year.

1. The role of the Lugano Convention

The Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters of October 30, 2007 applies to issues of jurisdiction, recognition and enforcement of judgments in most private law disputes where involving member states of the EU and, inter alia, Switzerland. Pursuant to its purpose to facilitate the recognition of "European" judgments, authentic instruments and court settlements and introducing an expeditious procedure for securing the enforcement of such judgments, it has become the primary multi-state treaty in the European civil procedure realm since its inception.

Despite the UK's departure from the EU on January 31, 2020, the Lugano Convention is still applicable with respect to the UK during the Brexit transition period. Unless the UK and the EU can put a new agreement in place by the end of the year, there may be some noteworthy repercussions for dispute parties residing in the UK going forward. Though not at the forefront of the minds of affected businesses and individuals concerned about future trade conditions between the EU and the UK, dispute settlement is intrinsically linked to international trade.

There are efforts underfoot on the UK side to join the Lugano Convention as a separate contracting party in its own right. However, even if the UK does become a party to the Lugano Convention, it is very unlikely that such a transition will occur with some temporary interruptions begging the question, what will happen in the interim.

2. Applicable rules in Switzerland after December 31, 2020 in a no-deal scenario

If the Lugano Convention were to become inapplicable (for any amount of time) between the UK and Switzerland, Swiss courts will in all likelihood apply the Swiss Private International Law Act when determining issues of enforcement and jurisdiction. As a result, the enforcement in Switzerland of UK judgements rendered from January 1, 2021 will become more difficult, opening judgements to significant greater degrees of review, than under the present situation under the Lugano regime. Contrary to current practice, for example, foreign ex parte judgments and UK declaratory judgments would not be enforceable under the Swiss Private International Law Act and proof of proper service and foreign jurisdiction must be observed in more detail.

Based on the principles of legal certainty, droits acquis and the common rule that new provision should not have retroactive effect, the Swiss legal and government stance is that the enforcement of UK judgements rendered prior to the exit day or the end of the Brexit transition period, respectively, would still be governed by the Lugano Convention. This was confirmed by a current decision of the Zurich High Court (an appeal to the Swiss Federal Court against this decision is pending).

The situation is however unclear for judgments rendered after exit day or the end of the Brexit transition period, respectively, but based on proceedings instituted prior to exit day or the end of the Brexit transition period, respectively. The Swiss Federal Office of Justice is, based on the principles mentioned above, of the opinion that in such a case the Lugano Convention will continue to apply despite the fact that the UK is no longer bound by or not yet a party to the treaty.

With respect to jurisdiction clauses, the Lugano Convention remains applicable even after a no-deal Brexit as long as one of the parties is domiciled in a state bound by the Lugano Convention and the jurisdiction of a court in a state bound by the Lugano Convention is agreed to. This means that in case of parties domiciled in UK and Switzerland agreeing that a Swiss court is competent, the Lugano Convention still governs the jurisdiction clause. Based on the Swiss understanding, irrespective of the Lugano Convention or the Swiss Private International Law Act being applicable, the territorial jurisdiction of a court remains fixed after a court action is pending. This should leave suits commenced prior to the exit date or the end of the Brexit transition period, respectively, unaffected. Note in this regard, that the Hague Convention on Choice of Court Agreements is not applicable between Switzerland and the UK as Switzerland is not a contracting party to this treaty.

3. Outlook

Entering into new international contracts with Swiss links or battling with enforcing existing foreign verdicts in Switzerland in the present uncertain times may prove challenging. Some degree of mitigation may be secured by considering jurisdiction clauses or, depending on the case, seeking certainty in arbitration. We are happy to assist UK clients (or from elsewhere) in both regards.

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Subject: Loans / Covid 19
Autor: Urs Feller, Marcel Frey, Thierry Steib
Paper: PD Newsletter
Reading time: 5 Min

Corona exceptions in court or not?

With its COVID-19 regulation on judiciary and procedural rules of April 16, 2020, the Federal Council enacted the necessary provisions in civil, debt enforcement and bankruptcy proceedings enabling judicial authorities to effectively deal with civil proceedings during the COVID-19 pandemic.

The regulation had a first term of validity until September 30, 2020. Based on the COVID-19 Act of September 25, 2020, the Federal Council has now extended the validity of this regulation until December 31, 2021.

The October newsletter provides an overview of the current status of the temporarily valid provisions.

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Subject: Dispute Resolution
Autor: Urs Feller, Marcel Frey, Nina Lim
Paper: The Lawyer
Reading time: 5 Min

‘One for all’, or arbitration clauses with effect for unconcluded contracts?

Recent decision in Switzerland should be noted by counsel

Introduction
The highest court of Switzerland recently issued a decision on the contentious topic of how to treat arbitration clauses contained in a multi-contractual party framework.

Facts of the case

The claimant in the arbitration proceedings (and respondent of the appeal proceedings before the Federal Tribunal), a German manufacturer, sought damages from the South Korea-based defendant (and appellant) in connection with a tender offered dby the claimant for the delivery of thin-film mtransistors. After a lengthy negotiation phase, the defendant was awarded the contract. During the negotiations, the claimant and defendant had exchanged various communication papers, including a corporate agreement (CA), the claimant’s general terms of purchase (ToP) and a quality assurance agreement (QAA). 

While the parties eventually reached an agreement and signed the QAA, neither the CA nor the ToP were ever formally signed. All three contracts contained arbitration clauses in favour of ICC arbitration proceedings with the place of arbitration being in Zurich. After several attempts to reach an agreement on the remaining open issues, the defendant informed the claimant that it was abandoning the project and that the claimant would need to look for another supplier. The claimant refused to accept this, commenced the arbitration and filed dfor damages. In its partial award of June 2019, the tribunal  found that (i) it had jurisdiction and (ii) that the defendant was liable in principle.

Proceedings before the Federal Tribunal

The defendant lodged an appeal requesting the Federal Tribunal to set aside the award by the tribunal, arguing that the arbitral tribunal lacked jurisdiction to adjudicate the dispute. The question to be decided by the Federal Tribunal was whether the arbitration clause contained in the concluded QAA also captured disputes which had their origin in other agreements, which had not actually been signed.

Reasoning by the Federal Tribunal – interpretation of QAA clause

The Federal Tribunal held that when interpreting an arbitration clause, the court must take into account its legal nature. In particular, it needs to be considered that the waiver of recourse to state courts everely restricts the parties’ legal remedies. For this reason, such a waiver may not be assumed lightly. In instances of doubt, the courts must favour a restrictive interpretation of the clause. However, where an interpretation established that the parties’ intent was to exclude state jurisdiction, but there existed disagreement regarding the details of the arbitration procedure, the principle of utility needed to be applied; i.e. once it is established that the parties did agree to vest jurisdiction in an arbitral tribunal, there is no reason to interpret an arbitration clause narrowly.

The Federal Tribunal went on to find that the interpretation of an arbitration clause follows the generally applicable principles of interpretation governing private declarations of intent. Firstly, the common and actual intent of the parties had to be ascertained. Where an actual intent could not be ascertained, the arbitration clause had to be interpreted based on the principle of reliance; i.e. the presumed intent of the parties needed to be determined based on what could and should have been understood by the respective declarations in good faith under the prevailing circumstances.

In the case at hand, the arbitration clause in the QAA provided that “contract disputes” had to be submitted to arbitration. According to the Federal Tribunal, the term “contract disputes” did not mean that the parties only wanted to submit disputes arising directly from the QAA to arbitration, but that disputes concerning the actual obligation to deliver the transistors were also included. Even though the parties had also envisaged arbitration clauses in the CA and ToP, this did not mean that the parties intended to introduce separate dispute resolution mechanisms for each separate claim.

On the contrary, the Federal Tribunal found that from an objective point of view, the parties had intended to subject all issues arising out of the delivery relationship to arbitration. The appeal was therefore rejected.

Conclusion

Even if not all contracts within a larger contractual framework are actually signed, counsel should be aware that an arbitral tribunal may well find dthat it has jurisdiction over all disputes arising from the entire business relationship.

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Subject: Loans / Covid 19
Autor: Urs Feller, Marcel Frey, Thierry Steib
Paper: PD Newsletter

Consequences of coronavirus on Swiss civil proceedings

On the basis of its constitutional authority to legislate by issuing direct orders to maintain public order, the Swiss Federal Council on April 16, 2020 enacted a COVID-19 regulation affecting prevailing judiciary and procedural rules. The regulation sets out the possibilities and requirements for Swiss civil courts to make use of audio and video conferencing instead of the ordinary conduct of proceedings in person as ordinarily prescribed by the Swiss Code of Civil Procedure. These provisions came into effect on April 20, 2020 and are meant to stay in force until September 30, 2020.

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Subject: Dispute Resolution
Autor: Urs Feller, Marcel Frey
Paper: The Lawyer
Reading time: 5 Min

Admissible and Inadmissible complaints in Swiss Arbitration

Swiss Supreme Court finds stribunal overstepped the bounds of its competency

Introduction
In its decision 4A_294/2019 and 4A_296/2019 of November 13, 2019, the Swiss Federal Supreme Court, acting as sole court of appeal in arbitration matters, had to examine whether an award rendered by a Swiss arbitral tribunal was to be considered being extra petita. In one of the rare cases of an award being overturned, the court found that the tribunal had partially overstepped the bounds of its competency.

Facts of the matter

A Turkish company (Respondent 2) had undertaken to supply 60 armoured vehicles to a department of the Turkish Interior Ministry. Respondent 2 appointed another Turkish company (Respondent 1) as its subcontractor. The latter in turn commissioned an Israel-based company, (the Claimant) to develop, manufacture and supply these vehicles. 

The agreement between Respondent 1 and the Claimant contained an arbitration clause and a choice of law in favour of Swiss law. Owing to a later amendment agreement, respondent 2 was joined to the contract as a further party. Thereafter, differences sof opinion arose about the performance of the contract and Claimant initiated arbitration proceedings against both Respondents. The Respondents and the Claimant brought the award before the Swiss Supreme Court.

Proceedings before the Supreme Court

The Claimant argued that the arbitral tribunal had made an award extra petita. It claimed that it had requested a declaratory judgment on whether the Respondents were jointly and severally liable for the damages resulting from alleged breaches of contract. Rather than issuing a declaratory award, the Claimant argued that the tribunal had awarded damages in the amount of $1.6m, although this had never been pleaded by the Claimant.

The Supreme Court differentiated dthat a decision was not ultra or extra petita where a tribunal merely assesses differently ythe claim being sued for, so long as the award remains covered by the pleas. At the same time, the arbitral tribunal was bound by a limitation made by a party in its request. A tribunal thus decides extra petita where it orders performance instead of issuing a declaratory award. The Claimant’s appeal was upheld in this regard.

The Claimant had also argued that it had requested a determination of the Respondents’ liability for damages resulting from the use of know-how in breach of the agreement. However, the tribunal had – in the view of the Claimant – gone beyond that plea by examining the existence of damages. The Claimant argued that the tribunal should have ended its examination after having found a breach of contract, since otherwise it would have assessed a claim for damages that had not been submitted.

In this regard, the Supreme Court found that the Claimant’s argument did not hold. It found that the award by the tribunal criticised by the Claimant, “the Tribunal declares that: […] the Respondents are not liable to compensate the Claimant in respect of such infringement of IP Rights and Know How related to the Vehicle”, could 
not be deemed to constitute an unsolicited performance award. Rather, the Supreme Court found that by issuing a negative declaratory decision, a competence not disputed by the Claimant, the tribunal was well within the plea of the Claimant. The court held that the Claimant had only criticized the reasoning of the arbitral award. This, however, did not amount to a violation of the principle “ne eat iudex ultra petita partium”.

Conclusion

Though occurring rarely (less than 10 per cent of the matters brought to the Supreme Court), this case is one of the few instances where the Supreme Court stepped in and set aside certain parts of a Swiss arbitration award. One should note that the grounds for the Supreme Court to intervene in arbitration matters are very limited: (i) incorrect constitution of tribunal, (ii) wrongful acceptance or refusal of jurisdiction, (iii) ruling on an issue not submitted, (iv) violation the principle of equal treatment of the parties, or (v) of international public policy. So once rendered, Swiss arbitration awards are tough to turn over – a certainty sought by many parties resorting to arbitration.
 

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Subject: Dispute Resolution
Autor: Urs Feller, Marcel Frey, Bernhard C. Lauterburg
Paper: Thomson Reuters Practical Law
Reading time: 30 Min

Litigation and enforcement in Switzerland: overview

A Q&A guide to dispute resolution law in Switzerland.

The country-specific Q&A gives a structured overview of the key practical issues concerning dispute resolution in this jurisdiction, including court procedures; fees and funding; interim remedies (including attachment orders); disclosure; expert evidence; appeals; class actions; enforcement; cross-border issues; the use of ADR; and any reform proposals.

To compare answers across multiple jurisdictions visit the Litigation and enforcement Country Q&A tool.

This Q&A is part of the global guide to dispute resolution. For a full list of jurisdictional Q&As visit global.practicallaw.com/dispute-guide.

Main dispute resolution methods

1. What are the main dispute resolution methods used in your jurisdiction to resolve large commercial disputes?

In Switzerland, large commercial disputes are usually brought before the ordinary courts or, particularly in international contexts, settled through arbitration.

Mediation is sought occasionally, however still to a lesser extent (see Question 30). The cantons of Zurich, Berne, Saint Gallen and Aargau have long-established, specialised, efficient and highly regarded commercial courts (Handelsgericht) which attain high settlement rates (see Question 3).

Ordinary proceedings before the Swiss courts are adversarial in nature. The court manages the timeline and the evidence procedure. It forms its opinion based on its free assessment of the evidence taken. As a rule, a claimant will succeed with its claim if it can fully convince the court of all factual requirements of its entitlement.

Before the state courts, there is no availability for online dispute resolution.

Court litigation

Limitation periods

2. What limitation periods apply to bringing a claim and what triggers a limitation period?

Limitation periods are a matter of substantive civil law, most of which are found in the Code of Obligations (CO).

Recently, the Federal Government made proposals to simplify and harmonise the limitation periods. Legislation has been amended accordingly (see also Question 35). The revised CO comes into effect at the beginning of 2020.

The revised CO provides for the following limitation periods:

  • A general statutory limitation period of ten years for all claims (unless federal law prescribes a different limitation period).
  • Five years for claims which by their nature require quick settlement, such as claims:
    • for rent, interest or other periodic payments;
    • by tradesmen, craftsmen and for medical treatment;
    • relating to the sale of foodstuffs and payments for board and lodging;
    • relating to the work of tradesmen and craftsmen but also legal counsel and notaries;
    • of employees.
  • Tort claims will become time-barred after three years calculated from the day on which the injured party has knowledge of the damage and the injuring party. A tort claim will become unenforceable owing to the statute of limitations after ten years from the date of injury. Where a criminal action coincides with the wrongful death and bodily injury, the latest time of assertion for a claim to be made is twenty years after the injury. Where a tort claim is derived from an offence for which the criminal law envisages a longer limitation period, the longer period is also applicable to the tort claim.
  • Claims based on unjust enrichment also become time-barred after three years after the date on which the injured party becomes aware of its claim, but in any event, ten years after the claim first arose.

Court structure

3. In which court are large commercial disputes usually brought? Are certain types of disputes allocated to particular divisions of this court?

The Code on Civil Procedure requires the cantons to provide a double instance system within their judiciary. All cantons must establish a higher court for first (full) appellate review of first instance cantonal judgments. First and second instance courts are usually comprised of a three-member bench. There are no trials by jury. Commercial disputes are usually brought before the commercial court (see below), if such a special court is established in the canton in which the defendant is resident.

The highest court in Switzerland is the Federal Supreme Court (Supreme Court), which can review, in law, final judgments of the cantonal high courts.

Exceptions to the principle of double instance at cantonal level apply in the following circumstances.

Commercial Court

Under the Code on Civil Procedure, the cantons are free to set-up a commercial court with sole jurisdiction for commercial disputes in their territory. Decisions by such commercial courts are appealable only to the Supreme Court. A dispute is deemed commercial if all the following conditions are satisfied:

  • The dispute concerns the commercial activity of at least one of the parties.
  • The decision is appealable to the Supreme Court owing to the amount in dispute, that is at least CHF30,000.
  • The parties are registered in the Swiss commercial register or a similar foreign registry. Where only the defendant is registered in the commercial register, a claimant can choose to lodge its suit either before the commercial court (where the canton has established one) or with the competent ordinary first instance court.

Sole cantonal instance

As a matter of federal law, the cantons must designate within their court system a court of exclusive first instance jurisdiction for disputes relating to certain specialised areas of law, such as:

  • Certain intellectual property rights.
  • Competition law and unfair competition.
  • The use of company names.
  • Claims against the federal government.
  • Claims relating to collective investment schemes.

Patent claims

The federal legislator has also established the Federal Patent Court to serve as a court of exclusive first instance jurisdiction for the whole of Switzerland in relation to patent infringement and patent validity matters.

The answers to the following questions relate to procedures that apply in the ordinary civil courts.

Rights of audience

4. Which types of lawyers have rights of audience to conduct cases in courts where large commercial disputes are usually brought? What requirements must they meet? Can foreign lawyers conduct cases in these courts?

Rights of audience/requirements

In principle, Swiss courts do not require a party to be represented by an attorney. However, owing to the complexity of procedural rules, most parties in commercial disputes seek professional counsel to assist them.

Attorneys registered with one of the cantonal attorney registers can appear before any Swiss court. To register, attorneys must be admitted to the bar in one of the Swiss cantons.

Foreign lawyers

Attorneys from an EU member state or the European Free Trade Association (EFTA), who have registered with an EU or EFTA attorney register, can appear before Swiss courts either:

  • Temporarily, based on the freedom to provide services. The EU or EFTA attorney is free to provide services without registration if done for 90 days per year or less in Switzerland. Professional activities lasting longer than 90 days require the EU or EFTA attorney to co-operate with a registered Swiss attorney.
  • Permanently, if they register with the attorney register at the place where they practise. The EU or EFTA attorney can then practice freely, provided he or she appears before the Swiss court under his or her original EU or EFTA title.
  • An EU or EFTA attorney can also register in one of the cantonal attorney registers and adopt the local title if he or she has practised in Switzerland for three years under his or her original title or has passed a qualification exam.

Fees and funding

5. What legal fee structures can be used? Are fees fixed by law?

Attorneys ' fees can be freely arranged between lawyers and their clients and hourly rates depending on the experience level are the norm. Contingency fees are not permitted. However, conditional fee arrangements providing for a bonus in the case of successful litigation are permitted if the base fee for the attorney provides a reasonable income. Moreover, such an agreement needs to be made at the very beginning of the matter or after the matter is concluded. Party costs and court fees are calculated according to cantonal statutory rules and depend on the value in dispute.

6. How is litigation usually funded? Can third parties fund it? Is insurance available for litigation costs?

Funding

Parties usually finance litigation privately. If successful, a party may recover costs from its opponent. Cost calculations are based on cantonal statutory tariffs and may not fully cover actual expenses.

A party can apply to the court to waive its court fees and to have a state-funded attorney assist it if it does not have sufficient funds to cover proceedings in addition to its basic needs, and the court does not view the matter as futile. A new application must be submitted for appeals proceedings.

There are a few third-party funding providers in Switzerland and their services are becoming increasingly popular. Their services usually involve handing over a share of the claimed amount in successful proceedings. Such services are permitted as long as the attorney remains independent and free from influence in the execution of his/her mandate. Furthermore, the lawyer is not allowed to participate in the funding. The Supreme Court has found that informing a client about the options of third-party funding can form part of the diligent performance of their mandate.

Insurance

Legal insurance is increasingly popular. Several large, and some specialised, insurance companies offer insurance for litigation costs.

Court proceedings

Confidentiality

7. Are court proceedings confidential or public? If public, are the proceedings or any information kept confidential in certain circumstances?

The Code on Civil Procedure requires civil law court proceedings and the delivery of judgments to be public. However, public interest in commercial cases is usually limited. Copies of judgments of the second instance courts and the Federal Tribunal can be requested by anyone and are frequently published online (in anonymised form). Briefs and documents filed by the parties and the court 's deliberations are kept confidential. The court is authorised to partially or entirely exclude the public from certain proceedings (such as family matters) if this is in the public interest or, on application by a party, in the protected interest of a concerned person (for example, trade secrets). Pre-trial conciliation hearings and judicial settlement hearings are not open to the public.

Pre-action conduct

8. Does the court impose any rules on the parties in relation to pre-action conduct? If yes, are there penalties for failing to comply?

There are no specific pre-action conduct rules, except that the parties must personally attend the conciliation hearing before the conciliation authority if both:

  • A conciliation hearing is required by statute.
  • Their place of residency or incorporation is in the same canton as the place where the conciliation hearing takes place.

Failure of the defendant to attend the conciliation hearing has no direct consequences but merely entitles the claimant to receive the authorisation to proceed and to bring its claim before the court. A party failing to institute compulsory conciliation proceedings will not be admitted by the court with its claim.

Main stages

9. What are the main stages of typical court proceedings?

Starting proceedings

Court proceedings normally start with a request for a conciliation hearing before the conciliation authority, causing lis pendens (suit pending). Whilst request by e-mail submission are possible using a specialised software by the post, most requests for conciliation are still submitted in hard copy.

A claimant must file the lawsuit directly with the competent court without first requesting a conciliation hearing, among other things, in cases where:

  • The dispute must be brought before a sole cantonal instance (see Question 3, Sole cantonal instance).
  • Divorce proceedings are at stake.
  • Proceedings concern certain actions filed under the Federal Debt Enforcement and Bankruptcy Act or in summary proceedings (applications for provisional measures such as the seizure of property and freezing of bank accounts).
  • A court has ordered a claim to be filed within a certain time period.

A claimant can also forego the conciliation proceedings if the defendant has a foreign domicile.

The conciliation request must include the name of the defendant, the remedy sought and a general description of the matter in dispute. If the parties fail to agree on a settlement, the conciliation authority will issue the authorisation to proceed permitting the claimant to bring the dispute before the competent district court within three months. Failure to submit the statement of claim within three months has no res judicata consequence. However, a claimant would have to go through the conciliation procedure again before he can take the matter to court.

Notice to the defendant and defence

Once the claimant has submitted the statement of claim, the court sends a copy of the statement to the defendant and usually orders the claimant to advance the court fees. After payment, the court orders the defendant to file a statement of defence within 20 days. Filing periods can be extended twice on reasoned application for further periods of 20 days depending on the complexity of the matter. Occasionally, the court will set one single long (unextendible) deadline.

If the defendant fails to submit a statement of defence in time, the court will either:

  • Grant a short extension to the defendant and, in the case of a repeated failure to submit a statement of defence, proceed to the main hearing.
  • If the matter is ready for decision, render its judgment.

Subsequent stages

The subsequent stages of proceedings normally take place by exchange of written, non-electronic filings as hard copy records are required by the courts.

A claimant has the right to reply to a statement of defence. The timing of reply and the method of presenting it depend on how the court intends to proceed in the matter. If the court deems it necessary, it can do one of the following:

  • Order the parties to file a written reply and rejoinder respectively.
  • Schedule a preparatory hearing where the parties submit their reply and rejoinder orally.
  • Directly proceed to the main hearing with the parties submitting their reply and rejoinder orally.

The parties can introduce new facts and evidence with their reply and rejoinder.

Litigants should be aware that pleading new facts and introducing additional evidence at the main hearing is only permitted under very limited circumstances if a second exchange of briefs or a preparatory hearing with oral reply and rejoinder preceded the main hearing.

In relation to contentious facts, the court allocates the burden of proof according to substantive law and specifies which means of evidence will be permitted (for example, party statements, documents, witness testimony and expert opinions). On closing of the evidence hearing, the parties submit their closing arguments including a single rebuttal, following which the court renders its decision. At any stage of the proceedings, the court can propose the parties to hold settlement talks. The Commercial Court of the Canton of Zurich has a standing practice of holding intense settlement talks after the first exchange of briefs and manages to settle about two-thirds of all cases coming before it.

Interim remedies

10. What steps can a party take for a case to be dismissed before a full trial? On what grounds can such applications be brought? What is the applicable procedure?

Conditions for trial

A court will only hear a dispute if it enjoys jurisdiction (both in relation to the subject matter and locality), which it examines ex officio. The court also examines at the outset whether the suit has been properly lodged (that is, following conciliation hearings) and whether the correct type of proceeding (ordinary, summary or simplified proceeding) has been chosen. If any of these conditions are not satisfied, the claimant is normally granted a short period of time to rectify any remediable mistakes and to re-file the claim. Otherwise, the case is not admitted.

Preliminary questions

The court can, on application and at its discretion, render a judgment on a contested preliminary question (for example, jurisdiction or the standing of a party) if this may result in substantive cost and time savings. Typically, such preliminary issues will turn on jurisdiction or prescription matters. These judgments must be appealed immediately.

11. Can a defendant apply for an order for the claimant to provide security for its costs? If yes, on what grounds?

Unless an applicable treaty provides otherwise, the defendant can apply to the court to order the claimant to provide security for its costs if one of the following applies:

  • The claimant has no domicile or registered office in Switzerland.
  • The claimant appears insolvent.
  • The claimant still owes court or party costs from a previous trial.
  • Other reasons exist indicating that defendant 's costs may be at risk.

International treaties may prohibit Swiss courts from requiring a claimant to secure costs. For example, the Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters 2007 does not permit the court to order security for the defendant 's costs if the claimant has no domicile or registered office in Switzerland.

12. What are the rules concerning interim injunctions granted before a full trial?

Availability and grounds

Interim relief can be sought before proceedings begin or at any later stage during the proceedings. If interim relief is sought before lis pendens, the court sets a deadline for the petitioner to file suit (no conciliation proceedings required). Swiss law distinguishes between interim relief measures aimed at securing monetary claims and measures dealing with non-monetary matters.

Claims for money may be secured by applying for an attachment order under the Federal Debt Enforcement and Bankruptcy Act (see Question 13, Availability and grounds). All other interim measures are governed by the Code on Civil Procedure. For the latter, the applicant must credibly show, but not prove, both that:

  • There is a realistic and imminent threat of, or actual injury, causing irreparable harm unless the injunction is granted.
  • The underlying cause of action is likely to prevail on the merits.

The court can order the applicant to post security.

Interim relief can take the form of mandatory or prohibitory interim injunctions, such as:

  • A cease and desist order.
  • An order to perform an action or rectify a situation.
  • An order prohibiting a person from disposing of certain items.
  • An order that certain entries be taken on record in a public registry.
  • An order to a bank that certain bank accounts be frozen.

Prior notice/same-day

Normally, a request for interim relief is followed by a hearing at which the court renders its decision. In urgent cases, interim relief may be ordered by the court in ex parte proceedings, usually within 24 hours. If such order is granted, it is followed by an oral hearing at a short notice.

Mandatory injunctions

Mandatory interim injunctions are available in addition to prohibitory interim injunctions (see above, Availability and grounds).

Right to vary or discharge order and appeals

Interim orders by a first instance court are subject to appeal to the cantonal high court. The defendant can request the discharge or modification of the order. A high court decision can be further appealed to the Federal Tribunal if either:

  • The appellant was otherwise to suffer harm, which would be difficult to rectify if the appeal was not granted.
  • The decision by the Federal Tribunal can immediately lead to a final decision, thereby avoiding long and costly evidence proceedings.

13. What are the rules relating to interim attachment orders to preserve assets pending judgment or a final order (or equivalent)?

Availability and grounds

To secure monetary claims before a trial or in debt enforcement proceedings, creditors can apply for the attachment of a debtor 's assets for the whole territory of Switzerland. Creditors must show to the court:

  • That they have outstanding debts against the debtor.
  • The existence of a statutory ground for attachment.
  • The existence of assets and their location.

There are six grounds on which attachment of assets can be sought:

  • The debtor has no permanent residence in Switzerland.
  • The debtor is attempting to conceal assets or is planning to leave Switzerland to evade the fulfilment of its obligations.
  • The debtor is travelling through Switzerland or conducts business on trade fairs, if the claim must be settled immediately.
  • The debtor does not reside in Switzerland and no other ground for attachment is available, if the claim has sufficient connection with Switzerland or is based on recognition of debt.
  • The creditor holds a provisional or definitive certificate of shortfall against the debtor.
  • The creditor holds a definitive enforceable title permitting him to have any objection by the debtor set aside (definitiver Rechtsöffnungstitel).

Unless the creditor has already commenced debt enforcement proceedings (Betreibung) or filed an action to obtain an enforceable title, he must do so within ten days of service of the copy of the attachment order. If the debtor objects to the summons to pay, the creditor must, within ten days of service of the objection, request the court to have the objection set aside or pursue his claim in ordinary court proceedings.

Prior notice/same-day

Attachment orders are granted by the court without notice to the other party. The other party must file an objection within ten days of learning of the attachment.

Main proceedings

In the main enforcement proceedings (Rechtsöffnungsverfahren), the applicant must demonstrate that their title, based on which they are seeking enforcement of their claim, is valid. The debtor 's challenges are limited to arguments that the claim has in the meantime been discharged, deferred or has lapsed.

If attachment is sought based on a decision rendered by a competent court of a Lugano Convention signatory state, the Swiss court seized with the request for attachment will in the same proceeding also render a decision on the enforceability of the foreign judgment without hearing the other party. The other party can then file an objection against:

  • The declaration of enforceability within 30 days (if resident in Switzerland) or 60 days (if resident in another Lugano Convention signatory state).
  • The attachment within ten days of learning of it.

Preferential right or lien

An applicant who has secured the attachment of assets does not enjoy preferential rights or lien in relation to the attached property. An applicant must follow the ordinary debt enforcement process like any other creditor. However, if another creditor demands seizure of the assets before the applicant is in a position to do so, the applicant automatically and provisionally takes part in the seizure of property.

Damages as a result

An applicant is liable for damages incurred by the debtor as a result of an unjust attachment order.

Security

The court can demand that the applicant post security.

14. Are any other interim remedies commonly available and obtained?

In principle, only those interim remedies described in Question 12 and Question 13 are available. In certain areas of law (for example, family law, trust and estates), further remedies are available.

Final remedies

15. What remedies are available at the full trial stage? Are damages only compensatory or can they also be punitive?

The final decision of the court can order the defendant to either:

  • Pay damages.
  • Perform specific actions or desist from certain actions.

A declaratory judgment is also possible.

The amount of damages awarded to a claimant must compensate his or her loss (including interest) and cannot be punitive in nature. However, the court can, under certain circumstances, award reparations that do not correspond to the actual damage suffered. These remedies are limited to disputes involving bodily harm and emotional distress.

The standard of proof for damages does not differ from the standard of proof applied in other areas of law. A claimant will need to demonstrate to the full conviction of the court the damages suffered in actual monetary terms. The court must be convinced, based on objective reasons, that the damages occurred in the claimed amount, and any doubts in this regard must be insignificant. In limited cases, where the damages cannot be quantified, the claimant may request the court to estimate the value of the loss or damage at its discretion. The court will estimate damages in such instances in the light of the normal course of events and the steps taken by the injured party.

Evidence

Document disclosure

16. What documents must the parties disclose to the other parties and/or the court? Are there any detailed rules governing this procedure?

Parties to the trial and third parties must assist the court with the discovery of the facts of the dispute. Legal entities are subject to the same rules applicable to individuals.

Evidence is produced either with a legal brief or on order by the court. Before initiating proceedings, the court may order a precautionary taking of evidence if the applicant shows prima facie evidence of an interest worthy of protection or has a statutory right to evidence. However, the applicant must pay for the court fees involved with the taking of evidence. There is no US style pre-trial discovery in Switzerland.

During trial, a party can request the court to order the other party or a third party to disclose certain specifically identified documents (written documents, drawings, plans, photographs) or electronic data in its possession. There is no distinction between documents held electronically or otherwise.

The court will grant such a request if it decides that the evidence is necessary to establish legally relevant facts of the case and will prescribe a deadline for the production of the requested evidence. General requests for document production are not permitted (no "fishing expeditions"). The burden of proof as to the concerned document 's authenticity lies with the party wishing to draw a legal conclusion from the facts alleged in the document.

Trial parties, third parties and witnesses do not need to testify and are entitled to withhold documents if they can invoke a statutory privilege (for example, attorney-client confidentiality (see Privileged documents)) or have a particularly close personal relationship to a party (for example, being directly related or married). A party refusing to disclose documents without justification cannot be sanctioned but may bear the consequences of adverse consideration of the evidence. Failure by a third party to co-operate with the court may be punishable by a fine.

Documents are normally submitted in hard copy and are sometimes supplemented by a set of electronic documents.

Privileged documents

17. Are any documents privileged? If privilege is not recognised, are there any other rules allowing a party not to disclose a document?

Privileged documents

Lawyer-client privilege only extends to lawyers registered in the cantonal lawyers register. There is no privilege for in-house counsel. However, all correspondence relating to, and prepared in the course of, a specific mandate to or from external professional counsel (including patent attorneys) is protected by privilege, irrespective of its location. This also applies to proceedings before the competition authorities and the Swiss Financial Supervisory Authority.

The notion of "without prejudice" is not a matter of statutory privilege, but a principle generally recognised by the courts when communication made in the context of genuine settlement negotiations is at issue (see below, Other non-disclosure situations).

Other non-disclosure situations

A party may be entitled to withhold documents if it has a particularly close relationship to the party to the proceedings (see Question 16).

During settlement discussions, parties frequently circulate proposals which they do not want to be used in subsequent court proceedings (without prejudice). Parties can maintain and need to indicate clearly that these documents are without prejudice to their position in later court proceedings if settlement negotiations fail. Courts respect the parties ' agreement, provided their intention is clearly expressed in their earlier correspondence.

Examination of witnesses

18. Do witnesses of fact give oral evidence or do they only submit written evidence? Is there a right to cross-examine witnesses of fact?

Oral evidence

Witnesses give oral evidence under the threat of criminal punishment if they give false testimony. If the witness fails to appear, he may be summoned or sanctioned with a fine. Witness statements are not common in Switzerland; however, in exceptional cases the court may admit a signed witness statement as a physical record. The court can obtain information in writing from a private person if it does not consider it necessary to examine this person as a witness.

Right to cross-examine

There is no specific right to cross-examine. However, following the initial interrogation by the judge, each party can put additional questions to the witness either:

  • Through the judge.
  • Directly to the witness, with authorisation by the judge.

However, these additional questions must not go beyond the issues on which the court heard testimony, and therefore solely serve to clarify the issues on which the court heard testimony. Questions that go beyond these issues, or repeat questions already asked by the judge, are not permitted.

The Code on Civil Procedure also allows a court to put witnesses against each other and against the parties.

Third party experts

19. What are the rules in relation to third-party experts?

Appointment procedure

Where the court concludes that expert knowledge or a technical assessment of factual evidence is required, it can appoint one or several experts, if requested to do so by a party or of its own accord. The parties can express their opinion on the court 's choice of an expert and make their own suggestions before the appointment, if requested to do so by the court. Any evidence, including where a party wants to rely on an expert witness, must be disclosed at the evidence stage at the latest.

Role of experts

Court-appointed experts act on behalf of the court and are subject to the same rules on conflicts of interest as judges. Specialist opinions given by experts at the request of the parties are considered by the court as party explanations and have no added weight.

Right of reply

The parties can comment on the questions posed to the expert and request other or further questions to be posed to the expert. The parties are entitled to comment on the expert 's conclusion and can under certain circumstances request the appointment of a new expert.

Fees

Costs for expert fees must be advanced by the party requesting the expert opinion. If both parties request an expert opinion, the advance may be split equally among the parties. The court takes into consideration the burden of proof when deciding which party must advance the costs. Expert fees are added to the court fees at the end of proceedings and are borne by the unsuccessful party (see Question 22). Alternatively, they can be split proportionally among the parties, reflecting the parties ' varying degrees of success.

Appeals

20. What are the rules concerning appeals of first instance judgments in large commercial disputes?

Which courts

Judgments rendered by a district court can be appealed to the higher cantonal court with the possibility of a further appeal to the Supreme Court if either:

  • The amount in dispute is at least CHF30,000.
  • A legal issue of major importance is at stake.

Judgments rendered by a commercial court (for the cantons that have established commercial court, see Question 1) can only be appealed to the Supreme Court.

Other than these requirements, there are no further conditions for bringing an appeal. In particular, the appellant does not need permission to bring an appeal.

Grounds for appeal

The higher cantonal court has full review competence on questions of law and of fact. The Supreme Court 's review is in general limited to breaches of federal law (see also Question 3).

Time limit

Judgments of district courts must be appealed within 30 days. Judgments of the higher cantonal courts and those of the commercial courts must also be brought before the Supreme Court within 30 days. In summary proceedings, the time limit for bringing an appeal is only ten days.

Class actions

21. Are there any mechanisms available for collective redress or class actions?

Typical class actions are not possible under Swiss law. Claims must be brought by individual claimants. An exception exists for associations and other organisations of national or regional importance that are authorised by their articles of association to protect the interests of a certain group of individuals (for example, certain organisations whose mandate is to protect nature and heritage, or consumer interests). These bring a group action (Verbandsklage) in their own name for a violation of the personal rights of the members of such group.

Where an injury to these interests is alleged, the association can request that either:

  • The damage be prevented or removed.
  • The court acknowledges that the harm has occurred.

However, note that the group action (Verbandsklage) is not a widely used instrument and the Federal Supreme Court only recently dismissed a group action launched by a consumer association for lack of standing. Currently, discussions in Parliament are underway to revise and improve group action (Verbandsklage) (see Question 35).

Several claimants can file a suit against a single defendant. Depending on whether the claimants are required by law to proceed together or not, the Code on Civil Procedure contains differing provisions in relation to the effect of each claimant 's submissions on other claimants.

In addition, several claimants basing their claims on the same set of material facts can bring their suits before the court individually and request a stay in all but one of the proceedings until a lead judgment is rendered by the court.

Costs

22. Does the unsuccessful party have to pay the successful party 's costs and how does the court usually calculate any costs award? What factors does the court consider when awarding costs?

The losing party is ordered to compensate the successful party for the costs of representation. If a party is successful in part, a proportionate payment is ordered. Procedural costs include:

  • The court 's costs.
  • The winning party 's costs. This includes the necessary outlays (for example, travel expenses and, in some cases, expert reports), the costs for professional representation and, in justified cases, reasonable compensation for personal efforts if a party is not professionally represented.

Under the Code on Civil Procedure, the cantons have kept their competence to set the tariffs by which the cantonal courts calculate the court and party compensation fees. Therefore, court fees and party compensation fees may differ among the cantons. Litigants should be aware that the cantonal fee schedules:

  • May not necessarily be in line with lawyer 's fees.
  • Give courts a wide discretion in setting their own fees and awarding compensation for costs.

Therefore, in practice, successful litigants will often only be compensated partially.

The Code on Civil Procedure only contains a few general rules on the matter. It authorises courts to request advance payment of the expected court fees of a claim before starting proceedings. Additionally, the Code on Civil Procedure provides that the claimant may be ordered to post security (either in cash or in the form of a guarantee from a bank with a branch in Switzerland or from an insurance company authorised to operate in Switzerland) for the respondent 's party costs. This is particularly where the claimant has no residence or registered office in Switzerland, or a possible payment of compensation for the respondent 's party costs is at risk.

Accordingly, foreign claimants need to be aware that litigating in Switzerland normally requires payment of an advance of the expected court fees and posting of a security for the respondent 's party costs at the outset, provided there is no treaty in place between the place of residence of the claimant and Switzerland (for example, the 1954 or 1980 Hague Conventions on Civil Procedure or International Access to Justice, or a bilateral agreement, excluding such requirement by reason of their not being domiciled in Switzerland).

In relation to appeals proceedings before the Supreme Court, the cost award is calculated according to a regulation issued by the court itself. The following factors, among others, are considered in deciding the final cost award:

  • The claim amount.
  • The complexity of the matter.
  • The duration and stages of the proceedings (pleadings, hearings, evidence and settlement negotiations).

The courts rarely take pre-trial offers into account.

23. Is interest awarded on costs? If yes, how is it calculated?

If the unsuccessful party is ordered to pay a certain amount, the interest on that amount that has accrued up to that date is included in the cost order. From the date of the judgment, the successful party can also demand payment of interest at the statutory rate of 5% per year.

Enforcement of a local judgment

24. What are the procedures to enforce a judgment given by the courts in your jurisdiction in the local courts?

Enforcement procedures depend on whether a party has been ordered to pay damages or perform a specific act. Judgments ordering the payment of damages are enforced under the Federal Debt Enforcement and Bankruptcy Act. The party with the judgment in its favour can start summary enforcement proceedings by requesting the court to set aside the opposition the defendant raised against the payment summons and to order the continuation of enforcement through the attachment of goods (for natural persons) or bankruptcy proceedings (for legal persons).

Judgments for specific performance are enforced under the Code on Civil Procedure and must also be requested in summary proceedings with the enforcement court at the place of residency (for natural persons) or at the place of registered office (for legal persons). Enforcement requests can also be brought at the place where these measures are to be executed or where the original judgment was rendered.

The claimant must submit the documents showing that his claim is enforceable. The judge then orders the obliged party to effect performance under threat of penal consequences and payment of a fine if performance is refused. The judge can also authorise the requesting party to retain a third party to substitute performance. The claimant is entitled to have his claim for specific performance changed into a claim for damages if the defendant continues to resist enforcement.

Cross-border litigation

25. Do local courts respect the choice of governing law in a contract? If yes, are there any national laws or rules that may modify or restrict the application of the law chosen by the parties in their contract? What are the rules for determining what law will apply to non-contractual claims?

Contractual choice of law

In all commercial disputes, the parties can choose a foreign governing law. However, certain matters are excluded from this principle:

  • Contracts over immovable property, in relation to which Swiss courts always apply the law applicable at the property 's location.
  • Matters relating to consumers, employees and intellectual property rights are only subject to laws that have a connection to certain objective criteria (for example, the place of residency of the consumer, the place of employment, or the place of registration of the intellectual property rights).

A choice of law provision in a contract on the international sale of goods providing for Swiss law to apply may result in the application of the UN Convention on Contracts for the International Sale of Goods 1980 or similar treaties, unless those treaties have been specifically excluded by the parties.

No choice of law and non-contractual claims

Absent a choice of law, the law applicable to the contractual dispute is the law of the state with which it is most closely connected (the closest connection test).

With respect to non-contractual claims, the parties may choose any time after the event causing the damage that the law of the forum, that is Swiss law, shall apply. Absent a choice of law by the parties, the Swiss Private International Law Act determines the applicable law. Note that, in this context, if a tort violates an existing legal relationship between the tortfeasor and the injured party, the tort claim will be governed by the law applicable to the existing legal relationship.

26. Do local courts respect the choice of jurisdiction in a contract? Do local courts claim jurisdiction over a dispute in some circumstances, despite the choice of jurisdiction?

The courts generally respect the choice of forum clauses within the scope of the relevant statutes and treaties. These clauses must be in writing and can relate to an existing or future dispute. However, there are also certain specific rules, for example:

  • Disputes concerning consumers must generally be filed with the competent court at the consumer 's domicile, unless the consumer agrees for a specific judicial proceeding to a different jurisdiction (only after the dispute arose).
  • Disputes concerning employees are heard by the competent court at the employee 's domicile or at the place of employment; agreements on jurisdiction can only be entered into after the dispute arose.
  • Disputes concerning the rent of immovable property must be filed with the competent court at the place of the property in question.

International treaties take precedence over the statutory rules. The most important international treaty on jurisdiction is the Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters 2007. Under the Lugano Convention, the parties can either:

  • Conclude a jurisdiction agreement.
  • Include a jurisdiction clause in their contractual arrangements.

The local courts respect this practice, unless statutory law provides for a mandatory forum or declares it unlawful to waive the statutory forum before the dispute has arisen.

27. If a party wishes to serve foreign proceedings on a party in your jurisdiction, what is the procedure to effect service in your jurisdiction? Is your jurisdiction a party to any international agreements affecting this process?

International agreements

When serving foreign procedural notices to parties in Switzerland, a foreign party must comply with international treaties governing international civil procedure matters and must use the means of judicial assistance. Switzerland is party to two major multilateral treaties:

  • HCCH Convention on Civil Procedure 1954 (Hague Civil Procedure Convention).
  • HCCH Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters 1965 (Hague Service Convention).

A number of bilateral agreements authorise direct contact between judicial authorities. There are also bilateral agreements that serve to complement the Hague Conventions. Where there is no international agreement, Switzerland automatically applies the Hague Civil Procedure Convention to the foreign requests that it receives.

Serving process

The Hague Civil Procedure Convention requires the requesting party or the locally competent authority to use the consular channels to send the documents to be served to the consular representation in Switzerland, which then approaches the Swiss Federal Office of Justice to effect service on the party resident in Switzerland.

The Hague Service Convention requires parties to request their local authorities to forward requests for service according to a model request to the competent central authority in Switzerland. Each canton has its own central authority, which serves process on persons domiciled in its territory. The central authority approaches the competent court, which then serves documents by qualified postal delivery. As far as the law applicable in the country of the party requesting service permits lawyers to serve documents, these persons are recognised as judicial officers and can also approach the central authority directly. As it can prove difficult for the requesting state to know which of the 26 central cantonal authorities has jurisdiction, the Federal Office of Justice is also designated to be a central authority and passes foreign requests to the competent cantonal authorities.

Switzerland declared that it is opposed to the use in its territory of direct service through diplomatic or consular agents and any other direct form of service; accordingly, any judicial document must be served through the competent central authority.

28. What is the procedure to take evidence from a witness in your jurisdiction for use in proceedings in another jurisdiction? Is your jurisdiction party to an international convention on this issue?

International agreements

To take evidence from a Swiss-domiciled witness, the rules of the multilateral treaties to which Switzerland is a member must be complied with, for example:

  • The HCCH Convention on the Taking of Evidence Abroad in Civil and Commercial Matters 1970 (Hague Evidence Convention).
  • The HCCH Convention on Civil Procedure 1954 (Hague Civil Procedure Convention).

A number of bilateral agreements authorise direct contact between judicial authorities. There are also bilateral agreements that serve to complement the Hague Conventions. Where there is no international agreement, Switzerland applies the Hague Civil Procedure Convention to the foreign requests that it receives.

Procedure

Under the Hague Evidence Convention, the procedure is as follows:

  • The competent judicial authority of the requesting state transmits its letter of request to the Federal Office of Justice or directly to the competent cantonal authority.
  • The competent cantonal authority then takes evidence at the witness 's place of domicile.

Under the Hague Civil Procedure Convention, the following procedure applies:

  • The competent authority of the state in which the request is made must transmit its request to its diplomatic representation in Switzerland.
  • The diplomatic representative of the requesting state in Switzerland then transmits the request to the Swiss Federal Office of Justice.
  • The Swiss Federal Office of Justice transmits the request to the competent local judicial authority in the canton where the witness is domiciled, which then takes the evidence.

The Hague Evidence Convention replaces Articles 8 to 16 of the Hague Civil Procedure Convention (Article 29, Hague Evidence Convention). Therefore, if a signatory state has concluded both treaties, the Hague Evidence Convention takes precedence.

Notably, the surrender of evidence located in Switzerland to foreign authorities or parties in violation of the applicable international conventions to which Switzerland is a party may constitute a violation of Articles 271 (prohibited acts for a foreign state) and 273 (economic intelligence service) of the Swiss Criminal Code or other special statutory provisions (such as banking regulation and data protection regulation). Switzerland made a reservation under the Hague Evidence Convention in relation to letters of request issued for the purpose of obtaining pre-trial discovery of documents as known in common law countries. Therefore, requests that are formulated in general terms and require the opposing party to indicate the documents in their possession with the aim of obtaining information that bears no relation to the case or in an attempt to discover evidence to substantiate a claim ("fishing expeditions") are rejected.

Switzerland also made a reservation with respect to the taking of evidence by diplomatic officers, consular agents and commissioners. This is only possible on authorisation by the Federal Government (but a lawyer does not require an authorisation when collecting evidence in Switzerland during ordinary case preparation).

Enforcement of a foreign judgment

29. What are the procedures to enforce a foreign judgment in your jurisdiction?

If the judgment was rendered by a court of a Lugano Convention signatory state, an enforcement application must be filed with the competent Swiss court, along with a copy of the judgment satisfying the conditions necessary to establish its authenticity and a certificate issued by the court that rendered the judgment (Annex V, Lugano Convention). The court must decide on such application in ex parte summary proceedings and declare the judgment enforceable immediately on satisfaction of the formalities under Annex V, without reviewing whether there are grounds to deny recognition and enforcement. The party against whom the enforcement is sought is not heard until the appeal stage.

If the judgment was rendered by a court of a state not party to Lugano Convention, the enforcing party must file with the competent court:

  • A complete and authenticated copy of the decision.
  • A confirmation that no ordinary appeal can be lodged against the decision or that the appeal is final.
  • For judgments rendered by default, an official document establishing that the defaulting party was duly summoned and that it had the opportunity to enter a defence.

The other party is entitled to a hearing and to introduce evidence. The competent court dealing with the matter may, on a party 's request, order protective measures without hearing the other party. The court will deny recognition if:

  • It violates Swiss public policy.
  • Procedural guarantees considered to be fundamental in Switzerland were not adhered to in the foreign proceeding.

A judgment rendered in a state not party to the Lugano Convention is considered a final judgment within the meaning of the Federal Debt Enforcement and Bankruptcy Act. A local court can grant exequatur on a summary review of the matter.

Alternative dispute resolution

30. What are the main alternative dispute resolution (ADR) methods used in your jurisdiction to settle large commercial disputes? Is ADR used more in certain industries? What proportion of large commercial disputes is settled through ADR?

Large commercial disputes are usually settled through litigation or arbitration. Other ADR methods play a limited role, although mediation appears to have become more popular recently, as illustrated by an increasing number of organisations offering mediation services and training, or the adoption of the Swiss Rules on Commercial Mediation by the Swiss Chambers of Commerce and Industry in 2019 (www.swissarbitration.org/sm/en/rules.php).

Arbitration (but not necessarily other forms of ADR) is more common in international commercial disputes than in domestic disputes.

In contentious court proceedings, the court can recommend mediation to the parties at any time (see also Question 31). On joint application of the parties, the court may confirm a settlement reached through mediation during proceedings (Code on Civil Procedure). Such confirmation makes the mediation settlement equal to a court judgment. Settlements reached through mediation outside of court proceedings cannot be confirmed by the court.

31. Does ADR form part of court procedures or does it only apply if the parties agree? Can courts compel the use of ADR?

Apart from cases where conciliation proceedings are mandatory, ADR is not part of court procedures. Swiss courts cannot compel the use of ADR. However, courts are free to facilitate a settlement during court proceedings or to encourage parties to resort to mediation.

Where a conciliation hearing is mandatory under statutory provisions, the parties can jointly elect to use mediation instead. If a settlement cannot be reached, the conciliation authority will issue a writ permitting the claimant to proceed to the competent district court (see Question 9).

At all times during the court proceedings, parties can jointly elect to resort to mediation, thereby staying court proceedings.

To be enforceable in court, a multi-tier dispute resolution clause providing for pre-trial arbitration or conciliation or mediation should clearly set out the conditions (including time limits) for the arbitration or mediation proceedings. Non-compliance with pre-arbitral mediation under a multi-tier dispute resolution clause may result in an annulment of the arbitral award.

32. How is evidence given in ADR? Can documents produced or admissions made during (or for the purposes of) the ADR later be protected from disclosure by privilege? Is ADR confidential?

In mediation proceedings, the mediation agreement governs the procedural rules. The parties are free to choose any rules to govern the mediation process. In the absence of a provision relating to evidence, the mediator conducts the proceedings as he or she considers appropriate.

Mediation must be confidential, and statements and admissions of the parties cannot be used in court. The same applies in relation to evidence obtained during mediation. Mediators are entitled to refuse to testify on matters relating to the mediation proceedings.

In domestic arbitration, subject to the rules of the Code on Civil Procedure and international arbitration, the parties are free to agree on the procedural rules within the mandatory procedural limits (guarantees) prescribed by law.

33. How are costs dealt with in ADR?

Costs are borne by the parties, subject to their mediation agreement or the equivalent, or agreed on arbitration procedural rules (as applicable). For example, the Swiss Rules on International Arbitration, which can also be chosen for domestic arbitration, provide that the costs of the arbitration must in principle be borne by the unsuccessful party.

34. What are the main bodies that offer ADR services in your jurisdiction?

The following organisations, among others, offer ADR services in Switzerland:

  • Swiss Chambers ' Arbitration Institution, which adopted the Swiss Rules on Commercial Mediation in 2019 (see www.swissarbitration.org/Mediation/Mediation-rules) and the Swiss Rules on International Arbitration in 2004 (as revised in 2012; see www.swissarbitration.org/Arbitration/Arbitration-Rules-and-Laws), the latter of which can also be chosen for domestic arbitration.
  • WIPO Arbitration and Mediation Center, a branch of the World Intellectual Property Organization established in 1994. This centre offers institutional mediation services for private parties (see www.wipo.int/amc/en).

Proposals for reform

35. Are there any proposals for dispute resolution reform? If yes, when are they likely to come into force?

The Swiss Parliament adopted amendments to the Code of Obligations on 15 June 2018 concerning limitation periods (see Question 2).

The core elements of the revision are:

  • The extension of the limitation period from one year to three years in tort and enrichment matters. In future, aggrieved persons will therefore have three years from the time when they become aware of the damage and the person liable for compensation to assert their claim.
  • A new twenty-year absolute limitation period will apply to personal injuries.

The amended provisions will enter into force on 1 January 2020. Where the amended law provides for a longer statutory period than the previous law, the longer statutory period will apply to existing circumstances, provided that the limitation period did not expire at the time the amended law came into force. Accordingly, if a one year limitation period were to expire (according to the previous law) on 1 January 2020, potential litigants will have an additional two years to bring claims, subject to the absolute limitation period of 10 years.

The Swiss Parliament has referred a motion to the Federal Government to revise the current system of collective redress and to introduce class actions. The Federal Council then proposed to introduce a proceeding which allows for companies to find a collective solution for mass claims with effect for all damaged parties. The Federal Council also proposes to allow group actions not only for violation of personal rights (see above) but also for financial claims. These proposals were recently open for the public to give their opinion. Following the public consultation phase, the federal administration is currently analysing the comments.

Additionally, the Swiss Private International Law Act is currently undergoing a revision with respect to arbitration. Generally, the reform aims to amend the Act to reflect current practice of the Supreme Court (for example, with respect to the revision of arbitral awards). It also proposes to relax the formal requirements governing arbitration clauses. Finally, the reform allows appeals to the Supreme Court against an award to be filed in English (although the decision will still be handed down in one of the official languages). The Federal Council submitted its dispatch and the draft law on 24 October 2018 to the Parliament for discussion. The proposal is currently pending at committee level.

 

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Subject: Dispute Resolution
Autor: Urs Feller, Marcel Frey, Bernhard C. Lauterburg
Paper: Thomson Reuters Practical Law
Reading time: 30 Min

Arbitration procedures and practice in Switzerland: overview

A Q&A guide to arbitration law and practice in Switzerland.

The country-specific Q&A guide provides a structured overview of the key practical issues concerning arbitration in this jurisdiction, including any mandatory provisions and default rules applicable under local law, confidentiality, local courts' willingness to assist arbitration, enforcement of awards and the available remedies, both final and interim.

To compare answers across multiple jurisdictions visit the Arbitration procedures and practice Country Q&A tool.

This Q&A is part of the multi-jurisdictional guide to arbitration. For a full list of jurisdictional Q&As visit global.practicallaw.com/arbitration-guide.

Use of arbitration and recent trends

1. How is commercial arbitration used and what are the recent trends?

Use of commercial arbitration and recent trends

Arbitration is widely used to resolve commercial disputes in both domestic and international matters. From an international perspective, Switzerland is among the most preferred seats for arbitration, as was revealed in the 2018 arbitration survey by Queen Mary University and White & Case (2018 survey) (http://www.arbitration.qmul.ac.uk/media/arbitration/docs/2018-International-Arbitration-Survey---The-Evolution-of-International-Arbitration-(2).PDF). According to the International Chamber of Commerce (ICC) Dispute Resolution Statistics 2018, 10% of ICC arbitral proceedings are seated in Switzerland, which makes Switzerland the third most chosen seat for ICC arbitration. The Swiss Chambers' Arbitration Institution (SCAI) received 83 new cases in 2018, of which the great majority were international cases. In addition, there are ad hoc arbitral proceedings, including investment arbitrations (for which statistics are difficult to find) and a high number of sports arbitrations.

To maintain its attractiveness for international arbitration, the Swiss federal government dispatched on 24 October 2018 to the Swiss Parliament a proposal for a reform of the 12th chapter of the Swiss Private International Law Act (PILA) containing Switzerland's legislative framework for international arbitration. The proposal aims at putting into law core aspects of the Federal Supreme Court's jurisprudence, making clarifications as well as enhancing usability, for example, by introducing the possibility to have appeals against arbitral awards filed in the English language.

Advantages/disadvantages

Although Switzerland has strong democratic structures and a well-equipped, reliable state court system to handle large and complex commercial cases in a reasonable time at reasonable costs, along with a reliable practice in recognising judgments handed down by foreign state courts, parties regularly chose arbitration for various reasons. According to the 2018 survey, users mention the enforceability of arbitral awards and the avoidance of specific legal systems/national courts as the most valuable characteristics of arbitration, followed by flexibility and the ability of the parties to select arbitrators.

As regards flexibility, there are no restrictions for attorneys not registered in Switzerland to act as party representatives in arbitral proceedings as opposed to state court proceedings. Also, the entire proceedings (excluding appeals) can be held in English or any other foreign language. Appeals to the Federal Supreme Court (which on average take about six months) can be fully or partially waived in express agreements by foreign parties.

Legislative framework

Applicable legislation

2. What legislation applies to arbitration? To what extent has your jurisdiction adopted the UNCITRAL Model Law on International Commercial Arbitration 1985 (UNCITRAL Model Law)?

The principal legislation applicable to international arbitration is the 12th chapter of the federal Private International Law Act (PILA). By election, the parties to an international dispute can also chose the third part of the Swiss Code on Civil Procedure (CCP) governing domestic arbitration to apply. In this article, we will limit our comments to the PILA, unless specific reference to the CCP is necessary for the full understanding of the Swiss provisions.

The 12th chapter of the PILA is not based on the UNCITRAL Model Law, however, there are no fundamental differences in substance between the two laws. The main difference between the PILA and the UNCITRAL Model Law is the degree of regulation. While the UNCITRAL Model Law contains a comprehensive set of provisions, the PILA only contains a few fundamental rules and instead largely leaves the set-up of the proceedings in the hands of the parties and the arbitral tribunal.

Mandatory legislative provisions

3. Are there any mandatory legislative provisions? What is their effect?

If the parties to an international arbitration seated in Switzerland do not chose to exclude the application of the PILA in favour of the CCP, the following provisions in the PILA must be observed:

  • Articles 177(1) and (2): arbitrability/restrictions on state entities to invoke national law to contest arbitrability or capacity to be subject to arbitration.
  • Articles 178(1) and (2): form and validity of the arbitration agreement.
  • Articles 180(1)(c) and 180(2): challenge of arbitrators on grounds of justifiable grounds on independence and restrictions on challenges of arbitrators by the nominating/appointing party.
  • Article 181: lis pendens.
  • Article 182(2): mandatory procedural rules (equal treatment to the parties and their right to be heard).
  • Article 185: further assistance by the state court.
  • Article 186(1): kompetenz-kompetenz to the extent that the parties cannot exclude it, however, they may enhance it, for example, by excluding appeals (to the extent permitted).
  • Article 190(2): grounds for setting aside an arbitral award, to the extent that the grounds for setting aside are exhaustive, although qualifying parties can waive an appeal on all or one or more of these grounds.

4. Does the law prohibit any types of dispute from being resolved through arbitration?

Any dispute of financial interest can be subject to arbitration (Article 177(1), PILA). The broad scope of arbitrability is limited only by substantive provisions considered mandatory as a matter of public policy which reserve jurisdiction exclusively to state courts (for example, certain claims under the Debt Enforcement and Bankruptcy Act (attachment proceedings) and family law status matters (in particular marriage, paternity, adoption, divorce, separation), although the financial consequences are arbitrable).

Limitation

5. Does the law of limitation apply to arbitration proceedings?

Under Swiss law, the statute of limitations is a matter of substantive law. Accordingly, if the law applicable to the matter in dispute is Swiss substantive law, the relevant limitation periods apply.

The Swiss Code of Obligations (as of 1 January 2020) provides for the following limitation periods:

  • A general statutory limitation period of ten years for all claims (unless federal law prescribes a different limitation period).
  • Five years for claims which by their nature require quick settlement, such as claims:
    • for rent, interest or other periodic payments;
    • by tradesmen, craftsmen and for medical treatment;
    • relating to the sale of foodstuffs and payments for board and lodging;
    • relating to the work of tradesmen and craftsmen but also legal counsel and notaries;
    • of employees.
  • Tort claims will become time-barred after three years from the day on which the injured party has knowledge of the damage and the injuring party. A tort claim will become unenforceable owing to the statute of limitations after ten years from the date of injury. Where a criminal action coincides with the wrongful death and bodily injuries, the latest time of assertion will be 20 years after the injury. Where a tort claim is derived from an offence for which the criminal law envisages a longer limitation period, the longer period is also applicable to tort claims.
  • Claims based on unjust enrichment also become time-barred three years after the date on which the injured party becomes aware of its claim, but in any event, ten years after the claim first arose.

Arbitration institutions

6. Which arbitration institutions are commonly used to resolve large commercial disputes?

The main arbitration institutions used in Switzerland are the:

  • ICC International Court of Arbitration.
  • Swiss Chambers' Arbitration Institution.
  • WIPO Arbitration and Mediation Center.
  • Court of Arbitration for Sport (600 cases in 2016).

Jurisdictional issues

7. What remedies are available where one party denies that the tribunal has jurisdiction to determine the dispute(s)? Does your jurisdiction recognise the concept of kompetenz-kompetenz? Does the tribunal or the local court determine issues of jurisdiction?

The arbitral tribunal must rule on its own jurisdiction (see Question 3), which it either does in the form of an interim award on jurisdiction or in the final award. Decisions by the arbitral tribunal on its jurisdiction are subject to an appeal to the Federal Supreme Court, provided that eligible parties did not waive such an appeal (see Question 1, Question 3 and Question 28). An interim award on jurisdiction must be separately appealed and an appeal together with the final award would be untimely. The concept of kompetenz-kompetenz is governed by PILA.

Arbitration agreements

Validity requirements

8. What are the requirements for an arbitration agreement to be enforceable?

Substantive/formal requirements

An arbitration agreement is valid if it is made in writing, by telegram, telex, telecopier, or any other means of communication which permits it to be evidenced by a text (Article 178(1), PILA). PILA does not require the arbitration agreement to be signed by all the parties. For example, the Federal Supreme Court upheld an arbitration clause that was never signed by the parties but remained unchanged throughout the exchange of several drafts of a framework contract.

Also, arbitration agreements by reference, such as in the bye-laws of a corporate body or in general terms and conditions, are generally valid. However, in relation to sport arbitration, the Federal Supreme Court drew a line and considered arbitration agreements by reference invalid if the content and scope thereof need not be reasonably expected under the given circumstances.

With respect to the substance, the arbitration agreement is valid if it conforms to the law chosen by the parties, the law governing the subject matter of the contract or Swiss law (Article 178(2), PILA).

Generally, to be valid on substance, the exclusion of state jurisdiction (and therefore the consensus to arbitrate) must be crystal clear under the law governing the conclusion and construction of contracts (strict approach by the Federal Supreme Court). Once this exclusion is clear, the construction of the content and scope of the arbitration clause follows a less restrictive approach.

Further possible reasons for an arbitration agreement to be invalid are:

  • Lack of legal capacity.
  • Lack of capacity to act.
  • Agency without authority.
  • A plea of defect in consent.

Separate arbitration agreement

Under Swiss law, a separate arbitration agreement is not necessary and it suffices that the arbitration clause is contained in the main contract. As stated above, arbitration agreements by reference are generally considered valid, save for very limited exceptions.

Unilateral or optional clauses

9. Are unilateral or optional clauses, where one party has the right to choose arbitration, enforceable?

Yes, such clauses are enforceable.

Third parties

10. In what circumstances can a party that is not a party to an arbitration agreement be joined to the arbitration proceedings?

Unlike in the CCP governing domestic arbitration, there is no statutory rule in the PILA for joining third parties to arbitration proceedings. However, the parties to an arbitration agreement are free to agree on such rules which they typically do when choosing institutional arbitration (for example, ICC or SCAI arbitration). The arbitration rules of many arbitral institutions contain rules on joining third parties, for example, Article 7 of the ICC Arbitration Rules or Article 4(2) of the Swiss Rules of International Arbitration.

Contractual obligations generally only bind the contracting parties. It is, however, recognised that an arbitration agreement can, under certain circumstances, also bind third parties, for example where:

  • Claims were assigned.
  • A third party assumed a contractual obligation.
  • A contract was transferred to a third party.
  • The parties entered into a contract in favour of a third party.

In some cases, the arbitration agreement can be extended to third parties. This may be the case, for example, if a third party intervened in the conclusion of or performs work under a contract in a manner creating legitimate grounds to assume that the third party intends to be bound by the contract and the arbitration agreement.

Whether an arbitration clause also extends to a third party is a matter of substance and must be determined in accordance with Article 178(2) of the PILA.

Also, in some cases, the corporate veil can be pierced and the separate legal status of a company disregarded in favour of the underlying economic realities, for example, under an alter ego theory where the court finds a corporation lacks a separate identity from an individual or corporate shareholder.

11. In what circumstances can a party that is not a party to an arbitration agreement compel a party to the arbitration agreement to arbitrate disputes under the arbitration agreement?

There is no statutory rule in the PILA providing that a third party can compel a party to an arbitration agreement to arbitrate a dispute under that arbitration agreement. Whether a third party can have such a right is a matter to be determined by the arbitral tribunal or the competent courts.

Separability

12. Does the applicable law recognise the separability of arbitration agreements?

Yes. Article 178(3) of the PILA expressly provides that the validity of an arbitration agreement cannot be contested on the grounds that the principal contract is invalid.

Breach of an arbitration agreement

13. What remedies are available where a party starts court proceedings in breach of an arbitration agreement or initiates arbitration in breach of a valid jurisdiction clause?

Court proceedings in breach of an arbitration agreement

A Swiss court must decline jurisdiction, unless the:

  • Defendant proceeded to the merits or the matter without objecting to the state court's jurisdictions.
  • State court finds that the arbitration agreement is null and void, inoperative or incapable of being performed.
  • Arbitral tribunal cannot be constituted for reasons for which the defendant is manifestly responsible.

(Article 7, PILA.)

Conversely, if arbitration is initiated in breach of a valid jurisdiction clause, the arbitral tribunal, deciding on its own jurisdiction (Article 186(1), PILA) (see Question 7) and must decline jurisdiction.

Arbitration in breach of a valid jurisdiction clause

14. Will the local courts grant an injunction to restrain proceedings started overseas in breach of an arbitration agreement?

No, Swiss courts would deny motions for an anti-suit injunction. Moreover, anti-suit injunctions would be contrary to the concept of kompetenz-kompetenz, which Swiss law recognises (see Question 7).

Arbitrators

Number and qualifications/characteristics

15. Are there any legal requirements relating to the number, qualifications and characteristics of arbitrators? Must an arbitrator be a national of, or licensed to practice in your jurisdiction to serve as an arbitrator there?

There is no rule in the PILA about the number, qualifications or characteristics of arbitrators apart from the requirements that the arbitral tribunal must be appointed in accordance with the arbitration agreement (Article 179(1), PILA) and the independence and impartiality of each arbitrator. Subject to this, any person with full legal capacity whom a party considers suitable to resolve a dispute can be appointed as arbitrator. Arbitrators need not be licensed to practice as attorneys in Switzerland (or elsewhere).

The Federal Supreme Court considers the IBA Guidelines on Conflict of Interest (although without any statutory value) a valuable instrument capable of harmonising and unifying international arbitration standards to dispose of conflict of interests that should not fail to influence the practice of arbitral institutions and tribunals (Supreme Court Decision No. 4A_506/2007, consid. 3.3.2.2).

Independence/impartiality

16. Are there any requirements relating to arbitrators' independence and/or impartiality?

Yes, see Question 15.

Appointment/removal

17. Does the law contain default provisions relating to the appointment and/or removal of arbitrators?

If there is no agreement by the parties on the appointment of arbitrators, the matter can be brought before the court at the seat of the arbitral tribunal. That court must apply by analogy the provisions in the CCP (Article 179(2), PILA) and in accordance with Article 360(1) of the CCP appoint a three-member arbitral tribunal. However, neither the PILA nor the CCP contain provisions for the basis of this appointment.

The PILA does not contain a rule on the removal of arbitrators, apart from Article 180(1) which sets out grounds on which an arbitrator can be challenged. Such rules typically emerge from the parties' arbitration agreement (for example, as a matter of reference to institutional rules, such as Article 12 of the Swiss Rules of International Arbitration or Article 15 of the ICC Arbitration Rules).

An arbitrator can be challenged:

  • If he/she does not possess the qualification agreed upon by the parties.
  • On the grounds for challenge in the rules of arbitration adopted by the parties.
  • If the circumstances permit legitimate doubt about his/her independence.

(Article 180(1), PILA.)

Where there is no agreed procedure by the parties on the removal of arbitrators, the court at the seat of the arbitral tribunal must rule on the removal. The court will apply Article 180(1) of the PILA and its procedural law.

Procedure

Commencement of arbitral proceedings

18. Does the law provide default rules governing the commencement of arbitral proceedings?

No, such rules typically emerge from the parties' agreement to apply certain arbitration rules. The PILA only defines when lis pendens occurs, that is, at the moment one of the parties files a claim before the sole arbitrator of the arbitrators designated in the arbitration agreement or, in the absence of such designation, if one of the parties institutes the procedure for the appointment of the arbitral tribunal (Article 181, PILA).

Applicable rules and powers

19. What procedural rules are arbitrators bound by? Can the parties determine the procedural rules that apply? Does the law provide any default rules governing procedure?

Applicable procedural rules

Chapter 12 of the PILA is premised on the principle of party autonomy. The parties can, in the arbitration agreement or by reference to a set of institutional arbitration rules, determine the arbitral procedure applicable to their dispute (Article 182(1), PILA). They can also submit the arbitral procedure to a procedural law of their choice.

Only if the parties have failed do so, the arbitral tribunal has to determine it to the extent necessary, either directly or by reference to a law or to arbitration rules (Article 182(2), PILA).

In Switzerland, regardless of the procedural rules chosen, the arbitral tribunal must ensure the equal treatment of the parties and the right of the parties to be heard in adversarial proceedings (Article 182(3), PILA) (see also Question 3).

Evidence and disclosure

20. If there is no express agreement, can the arbitrator order disclosure of documents and attendance of witnesses (factual or expert)?

The rules on the taking of evidence form part of the arbitral procedure, which is normally determined by the parties. In the absence of an agreement between the parties on issues of evidence, the arbitral tribunal must determine the procedure to the extent necessary (Article 182(2), PILA).

In any event, the arbitral tribunal has the duty to conduct the taking of evidence (Article 184(1), PILA). If the arbitral tribunal orders measures of evidence which are not complied with by the burdened party, the question of enforcement arises. Unlike state courts, arbitral tribunals themselves have no sovereign powers and cannot order coercive measures against parties not complying with evidentiary orders. Thus, in instances where a party refuses to cooperate with the tribunal, the assistance of Swiss state judicial authorities can be sought. Assistance can be requested from the state court at the seat of the arbitral tribunal. The Swiss court then applies its own domestic (Swiss) procedural law, that is, the CCP (Article 184(2), PILA).

The practical significance of state judicial assistance in the taking of evidence is limited, since where a party refuses to comply with an arbitral order, the tribunal can draw negative inferences from such behaviour.

Evidence

21. What documents must the parties disclose to the other parties and/or the arbitrator? How, in practice, does the scope of disclosure in arbitrations compare with disclosure in domestic court litigation? Can the parties set the rules on disclosure by agreement?

Scope of disclosure

The procedure on the taking of evidence such as disclosure of documents forms part of the arbitral procedure, which is determined by the parties or, in the absence of an agreement, by the arbitral tribunal (Article 182(2), PILA). The admissibility of evidence is therefore assessed in accordance with the applicable procedural law. If agreed by the parties, arbitrators in Switzerland frequently seek guidance from the IBA Rules on the Taking of Evidence.

When compared to common law discovery proceedings, Swiss arbitrators frequently opt for more limited disclosure. Communication that can be considered legally privileged (trade secrets, correspondence with attorneys) will be exempt from production.

Despite this, requests for other documents that are deemed relevant for the determination of the dispute will normally be admitted by the tribunal. Arbitrators frequently manage document production by means of a "Redfern Schedule" (a collaborative document prepared by the parties and the tribunal containing the requests for disclosure, the arguments for the requests and the tribunal's decisions on each).

Compared to disclosure obligations under Swiss domestic proceedings, the latter are more limited, with more stringent rules on identification and demonstrating necessity of production.

Validity of parties' agreement as to rules of disclosure

As noted, the parties can enter into special agreements concerning the taking of evidence such as production of documents.

Confidentiality

22. Is arbitration confidential? If so, what is the scope of that confidentiality and who is subject to the obligation (parties, arbitrators, institutions and so on)?

In principle, the parties are free to agree that the fact of their dispute, the resorting to arbitration and the proceedings and outcome will remain confidential. There are no statutory rules in Swiss law that provide for confidentiality, though the Supreme Court has confirmed that Swiss arbitral proceedings are, as a rule, not open to the public, thus giving an indication that it considers such proceedings to be of a confidential nature.

However, confidentiality can only be deemed applicable for the actual arbitration proceedings themselves and not in any related state proceedings regarding injunctive relief sought by the parties (Article 54(1), CCP). Equally, appeal proceedings to the Supreme Court are generally open to the public (Article 59(1), Supreme Court Act).

However, scholarly opinions diverge on the issue of whether the parties themselves are bound by confidentiality in the absence of an express obligation to that effect.

Courts and arbitration

23. Will the local courts intervene to assist arbitration proceedings seated in their jurisdiction?

As noted in Question 20, Swiss state courts may be involved in arbitration proceedings to the extent that sovereign power is needed to compel parties in matters of evidence or with regard to interim measures not complied with by parties.

Swiss law is also supportive of arbitration proceedings to the extent that Article 179(2) of the PILA provides that where an arbitration agreement is mute on the nomination and election of arbitrators, a party can approach the local state court judge at the agreed seat of the arbitration requesting the appointment of arbitrators (see Question 17). The Swiss court is required to refer to the CCP on the appointment of arbitrators in domestic arbitration proceedings when doing so (Article 361 et seq, CCP).

24. What is the risk of a local court intervening to frustrate an arbitration seated in its jurisdiction? Can a party delay proceedings by frequent court applications?

Risk of court intervention

In principle, a Swiss court will not intervene or frustrate validly commenced arbitration proceedings located in Switzerland from itself, as long as the dispute matter can validly be subjected to arbitration. Even then, a party will need to invoke the existence of an arbitration agreement.

Delaying proceedings

As noted in Question 20, parties to arbitration proceedings seated in Switzerland have recourse to state courts for interim measures not complied with or for other coercive orders.

Further, a party may try to delay the outcome of the arbitration by challenging the appointment of arbitrators or the jurisdiction of the tribunal itself.

The final arbitral award itself can be brought before the state Supreme Court in limited cases with an appeal. Invoking such measures may have a delaying effect on proceedings.

Insolvency

25. What is the effect on the arbitration of pending insolvency of one or more of the parties to the arbitration?

According to Swiss jurisprudence, the commencement of bankruptcy proceedings does not automatically lead to a transfer of rights and obligations of the debtor to the bankruptcy estate. However, previously concluded arbitration agreements remain binding on the bankruptcy estate, whether the estate is a claimant or a defending party.

Remedies

26. What interim remedies are available from the tribunal?

Interim remedies

Unless the parties have agreed otherwise, the arbitral tribunal can, on application by a party, order interim measures (Article 183(1), PILA). Generally, three types of interim measures are commonly encountered, though this list is not exhaustive:

  • Safeguarding measures: aiming to secure the subsequent enforcement of the disputed claim, maintaining or restoring the status quo for the duration of the proceedings.
  • Regulatory measures: serving to regulate and/or stabilise provisionally the relationship between the parties.
  • Executory measures: characterised by the fact that they include a temporary enforcement of the alleged claim.

Ex parte/without notice applications

The arbitral tribunal has, in accordance with the prevailing opinion, the power to grant interim remedies without notice to the other party provided that both:

  • There is a particular urgency or that a hearing of the opposing party would impair the effectiveness of the measure.
  • The arbitral tribunal reviews its decision promptly after issuing the measure and after hearing both parties.

Security

Chapter 12 of the PILA contains no rules on the posting of security. As far as the applicable arbitration rules allow such a provision, Swiss arbitrators will regularly make such an order. The Swiss Rules on International Arbitration authorise arbitrators to require such a payment.

Swiss domestic arbitration rules also have provision on the awarding of security if the claimant appears to be insolvent (Article 379, CCP). In addition, the defendant must establish that its future costs claim, if any, would be frustrated or significantly jeopardised by the appearance of the claimant's insolvency if not immediately secured.

27. What final remedies are available from the tribunal?

The type of final remedy issued by a Swiss based tribunal will be determined by the material law applicable to the dispute and available to the parties under that governing law. As a rule, for arbitrations taking place in Switzerland a final award can order a party to:

  • Pay damages.
  • Perform specific actions or desist from certain actions.

Awards that would be considered to be contrary to the Swiss understanding of ordre public (such as awarding high punitive damages) will face the risk of unenforceability in Switzerland and a party can appeal such an award to the Supreme Court for transgression of public policy (Article 190(2)(e), PILA). Further, as noted in Question 3, Question 4 and Question 24), areas of law that are considered out of the scope of arbitration cannot be enforced in Switzerland (certain family law matters) as they are not considered to subject to arbitration.

Appeals

28. Can arbitration proceedings and awards be appealed or challenged in the local courts? What are the grounds and procedure? Can the parties waive any rights of appeal or challenge to an award by agreement before the dispute arises (such as in the arbitral clause itself)?

Rights of appeal/challenge

In matters of international arbitration, an appeal can only be brought to the Swiss Supreme Court (Article 191, PILA).

Grounds and procedure

There are very limited grounds for appeal which are if the:

  • Sole arbitrator was not properly appointed or if the arbitral tribunal was not properly constituted.
  • Arbitral tribunal wrongly accepted or declined jurisdiction.
  • Arbitral tribunal's decision went beyond the claims submitted to it or failed to decide one of the items of the claim.
  • Principle of equal treatment of the parties or the right of the parties to be heard was violated.
  • Award is incompatible with public policy.

(Article 190(2), PILA.)

A party considering bringing an appeal against a Swiss arbitration award must lodge its appeal within 30 days from receipt of the award and must invoke one of the setting aside reasons of Article 190(2) of the PILA.

Though not technically an appeal, it has been standing practice by the Supreme Court to admit applications for the revision of an international arbitration award. Such applications have been accepted where it becomes apparent after the rendering of the award that such decision was made as a consequence of criminal activity influencing its outcome or where significant facts or decisive evidence become available only at a later stage and which were not accessible to the party bringing the revision during the actual arbitration phase (Supreme Court Decision No. 4A 662/2018).

The currently debated revision of Chapter 12 of the PILA includes a specific statutory provision that would codify this jurisprudence.

Waiving rights of appeal

If none of the parties has their domicile, habitual residence or a business establishment in Switzerland, they can, by an express statement in the arbitration agreement or by a subsequent written agreement, waive fully their entitlement to bring an appeal against the award (Article 192, PILA). At the same time, they are also free to bilaterally limit the reasons for an appeal to one or several of the grounds listed in Article 190(2).

29. What is the limitation period applicable to actions to vacate or challenge an international arbitration award rendered inside your jurisdiction?

As mentioned in Question 28, setting aside proceedings before the Swiss Supreme Court must be brought within the appeal period of 30 days since the proceedings are governed by Article 77 of the Supreme Court Act, which provides that (all) appeals to the highest Swiss court are subject to a 30-day deadline (Article 100(1), Supreme Court Act). The limitation period begins with the notification of the award to the parties and is not extendable.

Costs

30. What legal fee structures can be used? Are fees fixed by law?

Attorneys' fees can be freely arranged between lawyers and their clients and hourly rates depending on the experience level are the norm. Contingency fees are not permitted. However, conditional fee arrangements providing for a bonus in the case of successful litigation are permitted if the base fee for the attorney provides a reasonable income. Moreover, such an agreement needs to be made at the start of the matter or after the matter is concluded. Party costs and court fees are calculated according to cantonal statutory rules and depend on the value in dispute.

Parties usually finance litigation privately. If successful, a party can recover costs from its opponent. Cost calculations are based on cantonal statutory tariffs and may not fully cover actual expenses.

There are a few third-party funding providers in Switzerland and their services are becoming increasingly popular. Their services usually involve handing over a share of the claimed amount in successful proceedings. Such services are permitted as long as the attorney remains independent and free from influence in the execution of his/her mandate. Further, the lawyer is not allowed to participate in the funding. The Supreme Court has found that informing a client about the options of third-party funding can form part of the diligent performance of their mandate.

31. Does the unsuccessful party have to pay the successful party's costs? How does the tribunal usually calculate any costs award and what factors does it consider?

Cost allocation

Since the parties are free to choose a set of arbitration rules to govern the resolution of their conflict, typically the arbitration rules will contain rules on the allocation of costs. The Swiss Rules for instance provide that the costs of the arbitration shall in principle be borne by the unsuccessful party. However, the arbitral tribunal can apportion any of the costs of the arbitration among the parties if it determines that such apportionment is reasonable, taking into account the circumstances of the case (Article 40(1), Swiss Rules).

Under the Swiss Rules, the costs for a party's legal counsel will be reimbursed in the final award to the extent such costs were claimed during the arbitral proceedings, and to the degree the arbitral tribunal deems the amount to be reasonable

Cost calculation and factors considered

Tribunals will frequently take into account the claim amount, the complexity of the matter and the duration and stages of the proceedings (submissions, hearings, evidence procedure) when determining costs.

Enforcement of an award

Domestic awards

32. To what extent is an arbitration award made in your jurisdiction enforceable in the local courts?

Arbitral awards rendered by tribunals seated in Switzerland are enforced in the same way as judgments of Swiss state courts, meaning that they are automatically enforced and no additional exequatur (recognition procedure) is necessary.

Foreign awards

33. Is your jurisdiction party to international treaties relating to recognition and enforcement of foreign arbitration awards, such as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention)?

Foreign arbitral awards rendered by arbitral tribunals not seated in Switzerland will be recognised pursuant to the rules of the New York Convention (Article 194, PILA) or by another applicable treaty if that treaty is more favourable than the New York Convention (favor recognitionis). One such treaty is the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID).

34. To what extent is a foreign arbitration award enforceable?

In principle, all foreign arbitration awards are enforceable in Switzerland as long as their content is not contrary to public policy and the other safeguarding provisions of the New York Convention (Article V, New York Convention) have been adhered to.

The enforcement procedure is governed by the CCP and summary in nature, adjudged by the court at the place of residence or incorporation of the defendant, the place where the award shall be enforced or where it was issued, which would not be applicable in instances of foreign awards.

35. What is the limitation period applicable to actions to enforce international arbitration awards rendered outside your jurisdiction?

How long a party can wait with lodging its enforcement application in Switzerland is primarily an issue of the substantive law applicable to the dispute and the validity that such law gives to an arbitral award. Under Swiss law, an arbitration award is considered equivalent to a state court judgment. As such, Swiss law provides that obligations cast in a court judgment maintain their validity for ten years from their rendering.

Length of enforcement proceedings

36. How long do enforcement proceedings in the local court take, from the date of filing the application to the date when the first instance court makes its final order? Is there an expedited procedure?

As noted, enforcement proceedings are reasonably quick and uniform. Once seized with an application request for enforcement, the court will notify the counterparty about the pending request and set the respondent a short deadline to lodge a submission on the admissibility.

The arguments that the counterparty can bring against the enforcement are limited to reasons that can halt the enforcement such as payment, an agreed deferment of enforcement, lapsing of the obligation owing the statute of limitations or forfeiture of the right to due performance. Deferment and statute of limitation arguments must be supported by documentary evidence.

Reform

37. Are any changes to the law currently under consideration or being proposed?

Draft proposals for the additions to Chapter 12 of the PILA (see Question 2) primarily aim to codify existing Swiss jurisprudence in international arbitration and to make the regime even more arbitration-friendly while maintaining the main rules and leaving most of the content to the parties discretion.

The proposal includes the following features:

  • The option for parties to approach the state court directly for the granting of interim measures, without needing to approach the tribunal first.
  • Permitting appeals to be formulated in English.
  • An obligation by the arbitrators to make transparent any reasons that might question their objectivity and independence.
  • A formal requirement on parties to invoke breaches of the arbitration rules immediately on becoming aware of such transgressions (and not saving them for later). The deadline for an appeal will be included in an express provision, thus avoiding the need for foreign parties to consult other domestic sources of law for this information.
  • The inclusion of an instrument of revision of an arbitral award. The additions will also include the right of a party to request a revision if it comes across circumstances at a later stage that give rise to valid reasons to decline an arbitrator that acted in the arbitration.
  • More detailed provisions on the procedure applicable to the challenges and removals of arbitrators.
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