Swiss Arbitration Centre issues new set of rules to administer Swiss corporate law disputes
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The Swiss Arbitration Centre is innovative with the issuance of new rules dedicated to Swiss corporate law disputes, which may be submitted to arbitration as a result of a revision of the Swiss Code of Obligations, which will enter into force on 1 January 2023. The Supplemental Swiss Rules will accompany Swiss companies who decide to arbitrate their corporate law disputes in an efficient fashion.
Revised Swiss Code of Obligations
New amendments to the Swiss Code of Obligations ("CO") will enter into force on 1 January 2023, introducing inter alia the possibility for Swiss companies to stipulate in their articles of associations an arbitration clause. Swiss Companies Limited by Shares (sociétés anonymes) will be able to decide, under Article 697n of the Swiss Code of Obligations, to settle their disputes by an arbitral tribunal seated in Switzerland. Unless the articles of association provide otherwise, the statutory arbitration clause shall bind not only the company but also the company’s governing bodies, their members and the shareholders:
"The articles of association may provide that disputes arising under company law are to be decided by an arbitration tribunal in Switzerland. Unless otherwise provided in the articles of association, the company, its organs, the members of the organs and the shareholders are bound by the arbitration clause."1
The possibility to arbitrate corporate law disputes is extended to Swiss Partnerships Limited by Shares (sociétés en commandite par actions)2 and Swiss Limited Liability Companies (sociétés à responsabilité limitée).3
Corporate law disputes may include: (1) challenges against resolutions of the general meeting; (2) declaratory actions regarding the nullity of resolutions of the general meeting or of the board of directors; (3) liability actions against members of the governing bodies of the company; (4) actions for the return of benefits unduly distributed to shareholders, members of the board of directors and persons involved in the management of the company; (5) actions for inappropriate compensation payment following a restructuring; or (6) actions for the dissolution of the company.
Swiss companies may refer to institutional rules to organise in more detail the arbitration proceedings (Art. 697n (3) CO). Two specific conditions shall apply to the arbitration of Swiss corporate law disputes, as set out in Article 697n (2 and 3) CO:
- Every person concerned by the articles of association and who may directly be affected by the legal effects of the arbitral award ("Affected Persons") should be informed about the commencement and the termination of the proceedings and should be given the possibility to participate in the arbitration proceedings4; and
- The arbitration must be seated in Switzerland and must be governed by the domestic arbitration chapter of the Swiss Code of Civil Procedure. Chapter 12 of the Swiss Private International Law Act that regulates international arbitration proceedings is expressly excluded.5 Incidentally, the parties cannot exclude all appeals against arbitral awards, which is otherwise possible under Chapter 12 of the PILA when none of the parties have their domicile, habitual residence or seat in Switzerland.
Supplemental Swiss Rules for Corporate Law Disputes
In response to the revised company law in Switzerland, and in order to administer efficiently future corporate law disputes submitted to arbitration proceedings, the Swiss Arbitration Centre issued its "Supplemental Swiss Rules for Corporate Law Disputes" ("Supplemental Rules").
The Supplemental Rules will apply to any arbitration initiated after 1 January 2023 pursuant to a statutory arbitration clause contained in the articles of association of a Swiss corporate entity (Swiss Companies limited by Shares, Swiss Partnerships Limited by Shares and Swiss Limited Liability Companies).6
The Supplemental Rules are additional rules to the Swiss Arbitration Centre's arbitration rules and do not need explicit reference to apply as long as the arbitration clause refers to the "Swiss Rules of International Arbitration".7
The Explanatory Note of the Swiss Arbitration Centre (the "Explanatory Note") adds that the Supplemental Rules may also apply to other entities. Associations or Cooperatives may choose to expressly state in their statutory arbitration clause that the Supplemental Swiss Rules will apply in case of disputes.8 This shows the intention of the Swiss Arbitration Centre to encompass disputes from Swiss corporate entities independently of their incorporation.
The new Supplemental Rules set out six articles:
- Article 1 fixes the scope of application of the rules;
- Article 2 provides a procedure for notifications of the commencement and termination of the arbitration in compliance with Article 697n of the Swiss Code of Obligations;
- Article 3 allows prima facie Affected Persons to comment on the appointment of the arbitral tribunal;
- Article 4 addresses the participation and intervention of third persons during the arbitration proceedings;
- Article 5 requires the Secretariat to communicate upon request to prima facie Affected Persons the names of the members of the arbitral tribunal and requires that the arbitral tribunal inform upon request the Affected Persons of the course of the arbitration proceedings, and, in its discretion, grant access to parts of the file; and finally,
- Article 6 foresees the possibility for the arbitral tribunal to let a judicial authority decide on interim and emergency reliefs should the arbitral tribunal consider it to be more efficient and appropriate in the instance of a parallel request pending before this judicial authority or even if the request before the judicial authority is made after.
Model Statutory Arbitration Clause
The Supplemental Rules also suggests a model statutory arbitration clause, which reflects the specificities of Swiss law and notably the requirement of new Article 697n CO to inform Affected Persons about the commencement of the arbitration and the issuance of the award, and allow interveners in the proceedings.
By incorporating this model statutory arbitration clause in their articles of association, Swiss companies will ensure that their arbitration clause is fully compatible with the new amendments of Swiss law. The arbitration clause would start as follows:
Any corporate law dispute, excluding matters subject to summary proceedings pursuant to Article 250(c) of the Swiss Civil Procedure Code [and excluding actions for cancellation of outstanding equity shares according to the Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading], shall be resolved by arbitration in accordance with the Swiss Rules of International Arbitration of the Swiss Arbitration Centre in force on the date on which the Notice of Arbitration is submitted in accordance with those Rules.
The seat of the arbitration shall be [insert name of the company seat/other city in Switzerland].
The arbitration proceedings shall be conducted in [insert desired language).
Notification towards persons who may be directly affected by the legal effects of the arbitral award (Affected Persons), or notification to the Company itself when it is not party to arbitration, is fundamental in corporate law disputes arbitration. Whereas arbitral awards do not have, as a matter of principle, legal effect towards others than Claimant and Respondent, corporate law disputes awards may directly affect third parties. This is the case for example if the arbitration procedure deals with the question of the existence of the company or its dissolution, if the arbitral tribunal needs to determine the legality and validity of resolutions taken by governing bodies, or if the arbitral tribunal orders compensation payment following a restructuring.9
Swiss law requires that the articles of association (or the arbitration rules to which they refer) shall ensure that the Affected Persons are informed of the commencement of the arbitration proceedings, enabling them to participate if they wish.10 The Supplemental Rules provide key provisions to ensure this.
Under Article 2 of the Supplemental Rules, the company must notify within five days of the commencement of an arbitration all the shareholders or other Affected Persons of the existence of the proceedings. This is assuming that the company is party to the arbitration. If the company is not party to the arbitration, it will have to notify the Affected Persons quickly after it becomes aware of its existence11 (noting that the Swiss Arbitration Centre's Secretariat has an obligation to notify the request for arbitration to the company).12 Claimant may also alleviate this company's obligation by naming the Affected Persons directly in the request for arbitration.
Article 2.6 of the Supplemental Rules also requires notification of the termination of the arbitration proceedings, whether this is to summarise an arbitral award or to inform the Affected Persons of a settlement agreement.
The admission of Affected Persons as additional parties is governed by Article 6(1) of the Swiss Rules (respectively Article 7(1) in case of a consolidation of parallel arbitration proceedings).
Finally, Affected Persons have the possibility, at any time, to request to the arbitral tribunal their participation to the proceedings as non-party interveners—not as an additional party.13 As non-party interveners, they generally do not have procedural rights but may comment, upon request of the tribunal, on certain acts of the procedure. The Explanatory Note suggests that in order to maintain an efficient and expeditious conduct of the proceedings, the arbitral tribunal may ask the interveners, in cases they are numerous, to form groups and appoint a common representative.14
Appointment of the Arbitral Tribunal
The involvement of Affected Persons in the arbitral proceedings may complicate the process of appointing arbitrators at the outset of the arbitration. If the parties are to designate the arbitrators composing the tribunal, the Affected Persons will have the right to comment and raise objections.
A simple and faster solution will be to provide for the appointment of the arbitral tribunal by the Swiss Arbitration Court. In that case, the Parties and the Affected Persons are simply not involved in the tribunal's appointment. The Explanatory Note leaves a possibility for the Court to accept, in exceptional circumstances and at its discretion, comments from Affected Persons and the Parties.
Lastly, the Supplemental Rules provide a specific mechanism for interim and emergency relief given that the urgent reliefs sought may be different in the context of corporate law disputes. If the interim measure presumes enforcement measures from local authorities or if the measures target a third person not bound by the statutory arbitration clause (e.g. a commercial registry), it may be more efficient to seek relief to local courts directly.
Article 6 of the Supplemental Rules gives arbitrators broad discretion in dealing with requests for interim or emergency relief; they may defer the question or reject it when judicial authorities are seized with the same interim questions. The Supplemental Rules suggest that even when the request before judicial authorities is made after the request to the arbitral tribunal, the latter can decide to leave the question to a judge if it deems more appropriate.
1 R.O 2020-4005, Amendment of 19 June 2020 of the Swiss Code of Obligations, Article 697n (1) (unofficial translation).
2 Article 764 (2) CO: "Unless otherwise provided, the provisions governing companies limited by shares apply to partnerships limited by shares".
3 New Article 797a CO: "The provisions of companies limited by shares regarding the arbitral tribunal shall apply mutatis mutandis [to limited liability companies]" (unofficial translation).
4 RO 2020-4005, Amendment of 19 June 2020 of the Swiss Code of Obligations, Article 697n (3) (unofficial translation).
5 RO 2020-4005, Amendment of 19 June 2020 of the Swiss Code of Obligations, Article 697n (2) (unofficial translation).
6 Swiss Arbitration Centre, Supplemental Swiss Rules for Corporate Law Disputes, Article 1.
7 Swiss Arbitration Centre, Supplemental Swiss Rules for Corporate Law Disputes, Article 1.
8 Swiss Arbitration Centre, Explanatory Note of the Supplemental Swiss Rules for Corporate Law Disputes, p. 6.
9 Swiss Arbitration Centre, Explanatory Note of the Supplemental Swiss Rules for Corporate Law Disputes, p. 7.
10 New Article 697n (3) CO.
11 Swiss Arbitration Centre, Explanatory Note of the Supplemental Swiss Rules for Corporate Law Disputes, p. 7.
12 Swiss Arbitration Centre, Supplemental Swiss Rules for Corporate Law Disputes, Article 2.3.
13 New Article 697n (3) CO.
14 Swiss Arbitration Centre, Explanatory Note of the Supplemental Swiss Rules for Corporate Law Disputes, p. 11.
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