The aim of the Convention is to increase legal certainty and efficiency in relation to exclusive choice of court agreements. To do so, the Convention establishes an international regime that ensures the effectiveness of exclusive choice of court agreements between parties to commercial transactions and governs the recognition and enforcement of judgments resulting from proceedings based on such agreements within all contracting States:
<ul>
<li>The scope of application of the Convention is set out in its Chapter 1 (and more specifically Articles 1 and 2). The Convention applies to exclusive choice of court agreements concluded in international civil or commercial matters. Certain matters such as employment, family law, insolvency, antitrust matters etc. are specifically excluded from its scope of application, with contracting States having the possibility to specifically exclude other matters (Article 21). Switzerland has made no such declaration restricting the scope of application of the Convention.</li>
<li>Transitional provisions are found at Article 16 of the Convention which states that the Convention only applies to choice of court agreements concluded after its entry into force for the State of the chosen court and not to proceedings instituted before its entry into force for the State of the court seized. Thus, choice of court agreements designating Swiss courts only fall under the scope of the Convention if they are concluded after January 1, 2025. Likewise, a Swiss court will only apply the Convention to the recognition and enforcement of decisions based on a choice of court agreement designating a contracting State if it is seized after January 1, 2025.</li>
<li>Provisions governing the international jurisdiction of courts are set out at Chapter II of the Convention. Article 5 of the Convention provides that the courts of a State designated in an exclusive choice of court agreement have jurisdiction to adjudicate the dispute. Likewise, as per Article 6, any other court seized of the matter must suspend or dismiss the proceedings.</li>
<li>Provisions on the recognition and enforcement of judgments are found at Chapter III of the Convention, which provides that all contracting States must recognize and declare enforceable a decision rendered by the courts designated in an exclusive choice of court agreement (Article 8), subject only to a limited number of grounds for refusal provided in the Convention itself (Article 9). These include, inter alia, the nullity of the choice of court agreement under the law of the State of the chosen court, the incapacity of the parties to enter into such an agreement under the law of the requested State, improper notification of the proceedings, fraud, incompatibility with the public policy of the requested State or inconsistency of the judgment with a prior judgment in the requested State or another State.Article 22(1) of the Convention permits a State to declare that it will also recognize and enforce judgments rendered by foreign courts based on non-exclusive choice of court agreements. Switzerland has made a corresponding declaration, thus accepting to also recognize and enforce judgments rendered by courts designated in non-exclusive choice of court agreements. However, as per Article 22(2) of the Convention, such judgments may only be recognized under the Convention if both the State of the court of origin as well as the requested State have made a corresponding declaration. Since Switzerland is till date the only State to have made such a declaration, the application of the Convention to the recognition and enforcement of judgments rendered on the basis of non-exclusive choice of court agreements is not effective (yet). Switzerland&#8217;s declaration nonetheless testifies to its commitment to ensure the broadest possible application of the Convention, thus easing the enforcement of foreign judgments in Switzerland.</li>
</ul>
Till date, <a href="https://www.hcch.net/en/instruments/conventions/status-table/?cid=98">35 other States have adhered to the Hague Convention</a>, including the European Union and the United Kingdom of Great Britain and Northern Ireland (UK).
Switzerland&#8217;s adherence to this Convention is a welcome remedy to the gap left by Brexit in the enforcement and recognition of UK court judgments in Switzerland. Indeed, since <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52021DC0222">the EU&#8217;s refusal to endorse the UK&#8217;s adherence to the Lugano Convention in May 2021</a>, there was no international treaty in place between Switzerland and the UK on the recognition and enforcement of court judgments rendered in the two States.
The adoption of the Convention by Switzerland did not require any drastic overhaul of its laws since international choice of court agreements have always been recognized under the Swiss Private International Law Act (PILA). It is to be noted that the requirements for a valid choice of court agreement as per the PILA and the Convention do not differ. However, the Convention will affect the scope of application of Article 5(3) of the PILA that enables the chosen court to decline its jurisdiction in certain cases; the scope of application of such provision will now be even more limited as the Convention overrides Article 5(3) of the PILA.
Moreover, since the Convention (Article 26) provides that international conventions concluded by the contracting States take precedence over the Convention, irrespective of whether such other conventions were concluded before or after the entry into force of the (Hague) Convention, the Lugano Convention, that currently applies between Switzerland and member States of the EU and the European Free Trade Association, will continue to apply.
Overall, Switzerland&#8217;s adhesion to the Convention is a positive step that improves the legal certainty and predictability of jurisdictional and enforcement issues in international disputes based on choice of court agreements. With this adhesion, Switzerland has further reinforced its commitment to effective and speedy dispute resolution, thus reiterating its position as an international business hub.

Homburger_Illu_ZPO_BH_Preview_2020_10 (2)

The Hague Convention on the Choice of Court Agreements Will Enter Into Force for Switzerland

<h3>Achmea and Komstroy are not binding for the Federal Supreme Court</h3>
<h3>I. Introduction</h3>
In a landmark decision dated April 3, 2024 (4A_244/2023<a href="#_ftn1" name="_ftnref1">[1]</a>), the Swiss Federal Supreme Court has decided the question of whether Swiss-seated arbitral tribunals have jurisdiction over intra-EU investment disputes – an issue which has been controversial in recent years, in particular in light of the case law of the Court of Justice of the European Union (CJEU), according to which arbitral tribunals seated in the European Union (EU) lack jurisdiction over such disputes.
The arbitration underlying the Federal Supreme Court&#8217;s decision had been introduced in 2016 by a French electricity company against the Kingdom of Spain (Spain) before an hoc arbitral tribunal on the basis of the Energy Charter Treaty (ECT) against certain tariff changes introduced by Spain in the renewable energy sector. In its award dated April 11, 2023 (Award), the arbitral tribunal held in favor of the French investor and condemned Spain to pay damages for breach of its fair and equitable treatment obligation under the ECT.
Spain raised several grounds of annulment in its request to set aside the Award, none of which withstood the scrutiny of the Federal Supreme Court. Of most interest is the argument raised by Spain concerning the jurisdiction of the arbitral tribunal, and in particular the allegation that the arbitration clause contained in Article 26 of the ECT,<a href="#_ftn2" name="_ftnref2">[2]</a> a multilateral treaty signed inter alia by Spain, France and the EU, was not applicable to so-called intra-EU disputes, i.e., disputes between an EU member state and an investor from another EU member state. On the basis of the case law of the CJEU, Spain argued that the arbitral tribunal lacked jurisdiction to hear such disputes.
In its decision, the Federal Supreme Court rejected Spain&#8217;s arguments and confirmed the jurisdiction of the arbitral tribunal. Applying the rules of interpretation of the <a href="https://legal.un.org/ilc/texts/instruments/english/conventions/1_1_1969.pdf" target="_blank" rel="noopener">Vienna Convention on the Law of Treaties of 1969</a> (Vienna Convention), the Federal Supreme Court held that the ECT did not exclude intra-EU disputes from the scope of the arbitration clause in Article 26 of the ECT and that the arbitral tribunal had thus correctly declared itself competent. It also held – in no unclear terms – that the CJEU&#8217;s rulings on the incompatibility of arbitration clauses in intra-EU disputes were not binding on the Federal Supreme Court and that no particular weight should be attached to them.
Amongst the recent spate of anti-investment arbitration decisions taken by the EU institutions, the Federal Supreme Court&#8217;s decision must be hailed as a bold pro-arbitration stance confirming its unwavering support for arbitration and Switzerland&#8217;s position as a pro-arbitration jurisdiction.
<h3>II. Background of the decision: (No) investor-state dispute settlement in Europe</h3>
Before delving into the details of the decision of the Federal Supreme Court, it is worth summarizing two recent decisions of the CJEU, which significantly limit the jurisdiction of arbitral tribunals seated in the EU in connection with intra-EU investment disputes, on which Spain relied in its request to set aside the Award:
<ul>
<li>The Achmea decision is a landmark case decided by the CJEU on March 6, 2018 (<a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62016CJ0284" target="_blank" rel="noopener">Slovak Republic v. Achmea BV (Case C-284/16</a>). This decision has had profound implications for investment arbitration within the EU, particularly concerning the compatibility of investor-state dispute settlement mechanisms with EU law. The case arose from a dispute between Achmea, a Dutch insurer, and the Slovak Republic. Achmea had made investments in the Slovak health insurance market. However, after the Slovak Republic reversed its liberalization of the health insurance market, Achmea initiated arbitration proceedings under the Netherlands-Slovakia Bilateral Investment Treaty (BIT), claiming that the reversal had harmed its investments. An arbitral tribunal, seated in Germany found in favor of Achmea and awarded it damages. The Slovak Republic challenged the award before the German courts, arguing that the arbitration clause in the BIT was incompatible with EU law. The matter was referred to the CJEU for a preliminary ruling. The CJEU held that the arbitration clause in the Netherlands-Slovakia BIT, i.e., an intra-EU BIT, was indeed incompatible with EU law. The court reasoned that such clauses could prevent disputes involving EU law from being resolved by the courts of the member states and could also affect the autonomy and effectiveness of EU law. The decision effectively meant that arbitration clauses in intra-EU BITs are not enforceable within the legal order of the EU.</li>
<li>On September 2, 2023, the CJEU handed down the Komstroy decision (<a href="https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A62019CJ0741" target="_blank" rel="noopener">Republic of Moldova v. Komstroy LLC (Case C-741/19</a>), which is another significant ruling concerning the compatibility of investment arbitration agreements with EU law. This decision built upon the principles established in the Achmea ruling and further clarified the impact of EU law on investment arbitration clauses. Komstroy, a Ukrainian company, sought to enforce an arbitral award against the Republic of Moldova (en passant, a non-EU member state) under the ECT. The dispute related to an alleged breach of the fair and equitable treatment standard under the ECT. The Paris Court of Appeal referred several questions to the CJEU, including whether the ECT&#8217;s arbitration clause at Article 26 was compatible with EU law when applied to intra-EU disputes. The CJEU concluded that the arbitration clause in the ECT could not be applied to intra-EU disputes. The court emphasized that the arbitration clause, if applied within the EU, could prevent the full effectiveness of EU law by depriving the national courts of the EU member states of their jurisdiction to adjudicate such disputes.</li>
</ul>
Both the Achmea and Komstroy decisions underscore the CJEU&#8217;s stance on the primacy of EU law over international agreements with regard to intra-EU investment disputes. These decisions have led to significant debate and have had a considerable impact on the practice of international investment arbitration within the EU, particularly affecting the enforcement of investment awards and the structuring of investment protection.
<h3>III. The Federal Supreme Court rejects the Achmea and Komstroy decisions and upholds the jurisdiction of an arbitral tribunal seated in Switzerland to hear intra-EU investment disputes</h3>
In its recent decision, the Federal Supreme Court had to decide whether Article 26 ECT was incompatible with EU law, thus depriving Swiss-seated arbitral tribunals of their jurisdiction over intra-EU investment claims.
As a starting point, the Federal Supreme Court recalls in its decision that the present dispute is part of a broader context concerning the very legality of recourse to investment arbitration within the EU for the settlement of intra-EU investment disputes. According to the Federal Supreme Court, for several years now, EU bodies have been crusading against international investment arbitration, in particular through the Achmea and Komstroy decisions. According to the Federal Supreme Court, the decisions handed down by the CJEU, and in particular the Komstroy ruling, are not binding on a state court called upon to rule on an annulment request against an award made by an arbitral tribunal seated in Switzerland. Without mincing its words, the Federal Supreme Court found that it accords no value to these decisions, dismissing them as pro domo positions taken by the supreme European jurisdiction (cons. 6.5).
Accordingly, the Federal Supreme Court held that it would proceed with its own interpretation of Article 26 of the ECT, which, like any other treaty, must be interpreted in good faith, in accordance with the ordinary meaning to be given to the terms of the treaty in their context, its object and purpose, and, although not expressly mentioned in Article 31 of the Vienna Convention, the principle of good faith (cons. 7.7.1). The Federal Supreme held that – interpreted in good faith – the term «unconditional» as contained in Article 26(3) of the ECT means that consent to arbitration is expressed without the slightest reservation and is therefore unrestricted. According to the Federal Supreme Court, there is nothing in the text of Article 26 of the ECT to suggest that the scope of the «unconditional consent» to arbitration is subject to other limits and does not cover disputes of an intra-European nature (cons. 7.7.1). The Federal Supreme Court also recalls that the ECT aims to promote international cooperation and investments in the energy sector – and this, without making any geographical distinction as to the origin of investors – in order to serve the ultimate cause of energy security. According to the Federal Supreme Court, granting investors based in an EU member state the right to initiate arbitration proceedings against another member state undoubtedly helps to achieve this goal (cons. 7.3).
The Federal Supreme Court also dismissed Spain&#8217;s argument relating to the relevance of the <a href="https://finance.ec.europa.eu/publications/declaration-member-states-15-january-2019-legal-consequences-achmea-judgment-and-investment_en" target="_blank" rel="noopener">declaration of 22 EU member states of January 15, 2019 on the legal consequences of the Achmea judgment and on investment protection</a> (Declaration) because it was not formulated by all contracting parties to the ECT, but only by certain (and not even all) EU member states. Thus, according to the Federal Supreme Court, the Declaration could not be regarded as a subsequent agreement between the parties concerning the interpretation of the ECT within the meaning of Article 31 of the Vienna Convention. The Federal Supreme Court also held that a closer look at the Declaration confirms that, in reality, it was not intended to interpret the provisions of the ECT, but only to clarify the legal consequences of the Achmea ruling, which had nothing to do with the ECT (cons. 7.5).
Finally, the Federal Supreme Court was not persuaded by Spain&#8217;s argument that the provisions of EU treaties should take precedence over Article 26 of the ECT in intra-European disputes, based on Article 31(3)(c) of the Vienna Convention. According to Spain, EU treaties, as interpreted by the CJEU, conflict with the ECT and thus invalidate consent to arbitration under the ECT. However, since Spain introduced new legal considerations regarding Articles 30 and 41 of the Vienna Convention only in its rebuttal submission in the set-aside proceedings, these were considered belated and thus inadmissible. Notwithstanding this, the Federal Supreme Court considered that even if they had been admissible, Spain&#8217;s allegations in this regard would not have prospered (cons. 8.1).
Therefore, the Federal Supreme Court rejected the objection of lack of jurisdiction raised by Spain and confirmed the jurisdiction of the arbitral tribunal to adjudicate an intra-EU investment dispute on the basis of Article 26 of the ECT.
<h3>IV. Conclusion</h3>
The decision of the Federal Supreme Court is ground-breaking in so far as it confirms that the anti-investment arbitration position taken by the EU and its various institutions will be confined within the boundaries of the EU and will not spill over, at least not in Switzerland, where arbitration agreements validly concluded, whether in a bilateral or multilateral investment agreement will continue to apply in full force. Thus, for investors contemplating intra-EU investments, dispute resolution by Swiss seated arbitral tribunals remains a safe option.
<h6><a href="#_ftnref1" name="_ftn1">[1]</a>         Link: <a href="https://www.bger.ch/ext/eurospider/live/de/php/aza/http/index.php?highlight_docid=aza://03-04-2024-4A_244-2023&amp;lang=de&amp;zoom=&amp;type=show_document" target="_blank" rel="noopener">4A_244/2023 03.04.2024 &#8211; Schweizerisches Bundesgericht (bger.ch)</a> .</h6>
<h6><a href="#_ftnref2" name="_ftn2">[2]</a>         Art. 26 ECT: «(1) Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably. (2) If such disputes cannot be settled according to the provisions of paragraph (1) within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution: (a) to the courts or administrative tribunals of the Contracting Party party to the dispute; (b) in accordance with any applicable, previously agreed dispute settlement procedure; or (c) in accordance with the following paragraphs of this Article.»</h6>

Homburger_Arbitration_Bulletin_052024_Preview

Switzerland stops the EU's «crusade against investment arbitration»

In the case under review, an arbitral tribunal had awarded the claimant/creditor certain sums of money through an award rendered under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of March 18, 1965 (the ICSID Convention). The claimant/creditor sought to enforce the ICSID Convention award against the foreign state in Switzerland and requested that several assets of the foreign state located in Switzerland, including bank accounts, real estate, trademarks and patents, be seized under a Swiss attachment order pursuant to article 271 of the Swiss Debt Enforcement and Bankruptcy Act (the DEBA).
In this context, the Swiss Federal Supreme Court confirmed that the creditor does not need to obtain a separate exequatur decision prior to seeking an attachment in Switzerland based on an ICSID Convention award and that it is sufficient for the creditor to show on a prima facie basis that the ICSID Convention award will be recognized and enforced. As to the latter, the Swiss Federal Supreme Court noted that article 54(1) ICSID Convention requires each contracting state to recognize as binding any award rendered under the ICSID Convention and enforce in its territory the financial obligations imposed therein as if it were a final judgment of one of its own domestic courts. Pursuant to article 54(2) ICSID Convention, the interested party need only submit a copy of the award certified by the Secretary General of ICSID in order to obtain recognition and enforcement of the award in the territory of a contracting state. The Supreme Court therefore held that under article 54(1) and (2) ICSID Convention, only an examination of the authenticity of the ICSID Convention award can take place prior to enforcement, but no review of the award, not even a public policy review. In order to obtain an attachment based on an ICSID Convention award, it is thus sufficient for the creditor to show on a prima facie basis that the award is an authentic ICSID Convention award.
With regard to the attachment of assets of a foreign state, the Federal Supreme Court reiterated its case law, according to which such attachment requires, firstly, that the foreign state did not act in a sovereign manner («iure imperii») in the legal relationship underlying the attachment claim, but as a holder of private rights («iure gestionis»). Secondly, an enforcement measure against a foreign state, even in cases of private-law actions, presupposes that the legal relationship in question has a sufficient link to Swiss territory. In its decision, the Federal Supreme Court examined in detail whether the requirement of a sufficient link to Swiss territory also applies in the case of an enforcement of ICSID Convention awards which contracting states are obliged to treat as domestic decisions for the purpose of enforcement. The Federal Supreme Court concluded that such requirement applies also in case of ICSID Convention awards. It held that the requirement of a Swiss nexus does not violate article 54 ICSID Convention and referred to doctrine, according to which the requirement of a Swiss nexus is in line with the contracting states&#8216; right to apply their own law on state immunity from execution (article 55 ICSID Convention). According to case law, a Swiss nexus exists in particular if the legal relationship for which the attachment is sought was established in Switzerland or if it is to be fulfilled here or if the foreign state has at least performed certain acts in Switzerland, thus establishing a place of performance in Switzerland. However, it is not sufficient that assets of the foreign state are located in Switzerland or that the claim was awarded by an arbitral tribunal with its seat in Switzerland. The same was found to apply to the fact that Switzerland as signatory of the ICSID Convention is obliged to treat the ICSID award as a Swiss decision for the purpose of enforcement.

 Leading Decision on Enforcement of ICSID Convention Awards

Competition

Regulatory

Arbitration

Allegra-Dilber-Newsmeldung-web-640x140

Homburger News

Homburger

Two new counsel for Homburger

Congratulations to <a href="https://www.homburger.ch/en/team/allegra-arnold/">Allegra Arnold</a> and <a href="https://www.homburger.ch/en/team/dilber-devitre/">Dilber Devitre</a>.

Corporate / M&A

Real Estate

Alpiq_bw

Alpiq and Bouygues Construction initiated <a href="https://www.alpiq.com/alpiq-group/media-relations/media-releases/media-release-detail/bouygues-construction-expands-its-arbitration-claim-against-alpiq" target="_blank" rel="noopener">arbitration proceedings</a> against each other in 2019 to resolve their disputes regarding the post-closing purchase price adjustment and alleged breaches of representations and warranties, with a total amount in dispute of approximately CHF 320 m. The matter was placed before a Swiss arbitral tribunal constituted under the Swiss Rules of International Arbitration comprising Prof. Sébastien Besson (Chairperson), Dr. Roberto Dallafior and Dr. Urs Weber-Stecher. It involved the analysis of complex accounting and valuation issues. On December 22, 2020, Alpiq announced that the parties had reached a <a href="https://www.alpiq.com/alpiq-group/media-relations/media-releases/media-release-detail/arbitration-proceedings-settled" target="_blank" rel="noopener">settlement</a> under which Alpiq agreed to refund CHF 54.5 m to Bouygues Construction.
&nbsp;
Homburger&#8217;s arbitration team was led by partner Mariella Orelli and included counsel Kirstin Dodge, associates Bénédict Thomann, Dilber Devitre, Okan Uzun, Pietro Meineri and junior associate Magdalena Stock (all Arbitration). Homburger&#8217;s arbitration team was assisted by Homburger&#8217;s Corporate M&amp;A partners Hansjürg Appenzeller and Daniel Häusermann and Real Estate partner Stefan Gäumann, as well as expert teams from BDO London led by Nick Andrews and David Mitchell. On the clients&#8216; side the matter was dealt with by Peter Schib, Head Group Legal, and Martin Schindler, Head Corporate M&amp;A and Infrastructure.

Homburger successfully represented Alpiq in arbitration proceedings arising from Alpiq's sale of its Engineering Services Business to Bouygues Construction in 2018

Dilber
Devitre

Bar Registration

Two new counsel for Homburger

Homburger successfully represented Alpiq in arbitration proceedings arising from Alpiq's sale of its Engineering Services Business to Bouygues Construction in 2018

The Hague Convention on the Choice of Court Agreements Will Enter Into Force for Switzerland

Switzerland stops the EU's «crusade against investment arbitration»

Leading Decision on Enforcement of ICSID Convention Awards

Yukos Capital Limited v The Russian Federation: The Swiss Federal Supreme Court Upholds Interim and Final Award in the Yukos Saga.

New Generation Investment Treaties and Environmental Exceptions: A Case Study of Treaty Interpretation in Eco Oro Minerals Corp. v. Colombia

Investment Treaty Arbitration 2022: Switzerland

Join the Team

Dilber Devitre

Career

Languages

Bar Registration

Teams

DilberDevitre

Bar Registration

Two new counsel for Homburger

Homburger successfully represented Alpiq in arbitration proceedings arising from Alpiq's sale of its Engineering Services Business to Bouygues Construction in 2018

The Hague Convention on the Choice of Court Agreements Will Enter Into Force for Switzerland

Switzerland stops the EU's «crusade against investment arbitration»

Leading Decision on Enforcement of ICSID Convention Awards

Yukos Capital Limited v The Russian Federation: The Swiss Federal Supreme Court Upholds Interim and Final Award in the Yukos Saga.

New Generation Investment Treaties and Environmental Exceptions: A Case Study of Treaty Interpretation in Eco Oro Minerals Corp. v. Colombia

Investment Treaty Arbitration 2022: Switzerland

Join the Team

Dilber Devitre

Career

Languages

Bar Registration

Teams

Dilber
Devitre