THE LAW APPLICABLE TO THE ARBITRATION AGREEMENT
| Author | Pierre A Karrer Dr iur (Zürich), LLM (Yale); FCI Arb; Honorary President, Swiss Arbitration Association. “Arbitration is comparative law in action.”[1] |
| Date | 01 December 2014 |
| Published date | 01 December 2014 |
A Civilian Discusses Switzerland's Arbitration Law and Glances Across the Channel
Both In Switzerland And In England Arbitration Law Is Largely Statutory, But With Some Material Differences, Different Interpretation And Different Gap-filling. In Switzerland, In The Absence Of A Clear Choice Of The Law Applicable To The Arbitration Agreement, The Law At The Seat Of The Arbitration Is Applied, While In England One Then Seeks By Contract Interpretation To Find And Follow The Implied Will Of The Parties. “in General” This Is The Law At The Seat. Well, When Is It Not So? This Leads To An Uncertainty Of The Law That The Author Hopes Will Soon Be Overcome.
1 Switzerland is a federal state, and until 1989 each member state, called a canton, had its own arbitration law, its own lex arbitri. For a civil lawyer, in any arbitration the starting point is the lex arbitri at the seat of the arbitration.
2 Originally, all of arbitration was a matter for the cantons. However, in 1989 the federal state for the first time legislated in the field of international arbitration. By contrast, at that time domestic arbitration remained with the cantons.
3 Switzerland's federal lex arbitri is found in about 20 paragraphs of Switzerland's Federal Statute on Private International Law (“PIL Statute”) (Arts 176–194). Article 176 provides that any international arbitration (and it defines what that is) having its seat in Switzerland is governed by this particular chapter of the PIL Statute.
4 Obviously, having for the first time a federal statute, and a new federal statute limited to international arbitration, meant a new start, all the more so as at the time the cantonal arbitration laws were old-fashioned, while the new private international statute was innovative.
5 This meant that previous law could in practice be mostly disregarded, and any lacunae in the new statute had to be filled on the basis of the new statute's policies, having due regard to the structure of the new statute and its genesis. A clean new start.
6 But, as we will see, some lacunae existed and exist to this day. The Swiss PIL Statute does not answer in so many words our question which law applies to the interpretation and scope of an arbitration agreement. What the Swiss statute does is to say when an arbitration agreement is valid in the first place.
7 One may wonder how it is possible to know where the seat of an arbitration is, hence which lex arbitri applies, before one even knows whether there is a valid arbitration agreement. This sounds circuitous. It is the effect of a two-step process. In the first step, a prima facie decision is made that there is a purported arbitration agreement that may be valid and that provides for arbitration at a particular seat. This prima facie decision is often rendered not by the arbitral tribunal itself, but by an arbitral institution that sets the arbitration in motion and gathers the arbitral tribunal (at the International Chamber of Commerce (“ICC”), not applying any particular law). The final decision must still be rendered by the arbitral tribunal itself within the framework of its competence-competence, and applying some law.
8 Such an apparently circuitous beginning may be observed in state court litigation also. When a state court must decide whether it has jurisdiction, it will have jurisdiction to decide on whether it has jurisdiction. In other words, it will have, in arbitration parlance, competence-competence as any arbitral tribunal. Historically, it is rather the other way around, since the competence-competence of the state courts has always existed, while that of arbitral tribunals is a more recent achievement.
9 Yet another such apparently circuitous beginning may be observed in the conflict of laws when parties exercise a choice of law, as they often do to determine the lex contractus which primarily is the law that they choose themselves, their lex voluntatis. Whether that choice of law is valid is determined by the law so chosen.
A. Kompetenz-kompetenz
10 In sum, the decision on the validity of the arbitration agreement is for the arbitral tribunal to make. In other words, Swiss international arbitral tribunals have kompetenz-kompetenz: Art 186(1) of the PIL Statute.
11 The arbitral agreement is separable: see the first part of Art 178(3) of the PIL Statute. In other words, a contract that lives a life of its own.
12 So far, the Swiss international arbitration law is not unusual, but now the special aspects start.
13 What the Swiss international arbitration law says about the validity of an arbitration agreement providing for arbitration in Switzerland is special. It distinguishes two aspects of validity, formal and intrinsic. This is not in itself unusual, but on both aspects the Swiss international arbitration law is special.
14 First, formal validity. Must an arbitration agreement be in writing? Earlier law required this, and the arbitration law of many jurisdictions does to this day. The Swiss PIL Statute, however, provides in Art 178 for a special text form requirement as follows:
1 The arbitration agreement must be made in writing, by telegram, telex, telecopier or any other means of communication which permits it to be evidenced by a text.
This is an autonomous substantive provision not taking a conflict of laws approach.
15 It is incidentally still in dispute amongst Swiss international arbitration specialists whether this text form requirement unique to Switzerland applies only to the offer to make the arbitration agreement, or must also be fulfilled by the acceptance.
16 Those who argue that only the offer must fulfil the requirement (and the author is of that view) say that all this provision is designed to ensure is that there be a text that may possibly require interpretation, first prima facie, then by the arbitral tribunal itself. They say that this way there is a recognisable text basis on which to decide whether there is an intrinsically valid arbitration agreement in the first place.
17 France since 2011 goes even further than Switzerland and says the following in Art 1507 of the Code de Procédure Civile:
An arbitration agreement shall not be subject to any requirements as to its form.
Those who claim that in Switzerland the acceptance should also fulfil the text requirement argue that both parties entering into an arbitration agreement should be protected against their own folly by having to fulfil a form requirement, though just a relaxed form requirement.
18 Still on the validity of an arbitration agreement, but now its intrinsic validity, Arts 178(2) and 178(3) of the Swiss PIL Statute add the following, also unique:
2 Furthermore, an arbitration agreement is valid if it conforms either to the law chosen by the parties, or to the law governing the subject-matter of the dispute, in particular the main contract, or to Swiss law.
3 The arbitration agreement cannot be contested on the grounds that the main contract is not valid or that the arbitration agreement concerns a dispute which had not as yet arisen.
For the intrinsic validity of an arbitration agreement, as one can see, Art 178(2) takes an unusual conflict of laws approach. Three laws are declared applicable, in favorem validitatis of the arbitration agreement. If only one of these three laws makes the arbitration agreement, once formally valid as text, valid also intrinsically, there is a fully valid arbitration agreement, and the Swiss arbitral tribunal has jurisdiction based on that clause.
19 In practice, one will often test intrinsic validity first under the third-mentioned law, Swiss substantive law. Swiss law, in all international arbitrations under the PIL Statute is necessarily the law of the chosen seat, the lex arbitri, or rather the private law of the lex arbitri. This law is easily accessible, and Swiss substantive law in itself favours validity. If the arbitration agreement is formally valid, and also intrinsically valid under Swiss substantive law, the arbitral tribunal need look no further: The arbitration clause is valid, and the arbitral tribunal has jurisdiction.
20 Applying the Swiss law of the seat of the arbitration has the additional advantage that the Swiss state court, that in setting aside proceedings has full cognition over the arbitral tribunal's decision to accept or decline jurisdiction, can apply its own law.
21 Only if under Swiss substantive law, the arbitration agreement is not intrinsically valid, in practice the analysis continues under the two other laws, but let us pause here for some side-looks that will help us understand Art 178(2) of the PIL Statute in its further aspects.2
22 The Swiss PIL Statute has a special conflict of laws provision just for international arbitration. Articles 187(1) and 187(2) in the international arbitration chapter read as follows:
1 The Arbitral Tribunal shall decide the case according to the rules of law chosen by the parties or, in the absence thereof, according to the rules of law with which the case has the closest connection.
2 The parties may authorise the Arbitral Tribunal to decide the case ex aequo et bono.
This was, when the Swiss introduced this provision in their international arbitration law, influenced by the then nouveau Code de Procédure Civile of France, in the meantime replaced by Arts 1511 and 1512 of the Code de Procédure Civile which read as follows:
Article 1511
The arbitral tribunal shall decide the dispute in accordance with the rules of law chosen by the parties or, where no...
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