SWITZERLAND: An Introduction to Arbitration

History and Tradition

Switzerland has a long tradition of international dispute settlement and ADR. This tradition dates back to at least 1815, when the Congress of Vienna officially recognised the country’s neutrality in international conflicts.

In 1866, the first modern commercial arbitration was conducted by the Geneva Chamber of Commerce, Industry, and Services. Seven years later, the first commercial arbitration rules were published by the Basel Chamber of Commerce.

In 1872, Switzerland hosted the most significant arbitration in history, forming a landmark in the evolution of international peace. The case concerned the so-called “Alabama claims”. It was about damages claims brought by the United States against the United Kingdom for losses caused in the Civil War by British-built Confederate ships, particularly the cruiser Alabama, which captured or destroyed 66 US ships before itself being sunk in June 1864. The two nations agreed to resolve their dispute by arbitration in Geneva, Switzerland. The tribunal – which held its sessions in the Hôtel de Ville in Geneva, in a room that is still named the “Alabama room” – decided that Britain was liable for losses caused by the Alabama and other ships. The Alabama arbitration is regarded as the birth of modern international dispute settlement.

When private commercial arbitration became more and more popular internationally in the 1920s, Switzerland was again at the frontier. The Geneva Protocol on Arbitration Clauses of 1923, and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1928 were predecessors of the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards. The latter has today 172 signatories and has been described as the most important and successful United Nations treaty in the area of international trade.

Switzerland is today widely recognised as a leading place for international arbitration. According to the ICC Dispute Resolution Statistics for 2023, Switzerland was the third-most selected place of arbitration (behind only France and the United Kingdom), and Geneva the third-most selected city (behind only Paris and London). Swiss law was the second-most selected law (behind only English law). Swiss arbitrators were the third-most often selected (behind only arbitrators from the United Kingdom and France) and, when counting only appointments as sole arbitrator, the most selected.

International Arbitration in Switzerland

Switzerland distinguishes international arbitration from domestic arbitration and provides two separate legal frameworks. International arbitration is governed by Chapter 12 of the 1987 Swiss Private International Law Act (PILA). Domestic arbitration is governed by Title 3 of the 2008 Civil Procedure Code (CPC).

Arbitration qualifies as “international” if at least one of the parties was domiciled outside of Switzerland when they agreed to arbitrate. Even though Chapter 12 is not based on the UNCITRAL Model Law, in arbitral practice it does not lead to materially different results. Chapter 12 consists of only about two dozen articles.

The cornerstones of international arbitration in Switzerland are party autonomy and flexibility. Arbitrability is defined broadly and covers every dispute concerning an economic interest (Article 177, PILA). The parties can choose their arbitrators, the applicable law and the procedure. They can create a bespoke procedure or adopt the arbitration rules of an arbitral institution (Article 182(1), PILA). Where the parties have not agreed on the procedure, the arbitral tribunal has wide discretion to adopt a procedure it considers appropriate (Article 182(2), PILA). The only limitation is the mandatory rule that the arbitral tribunal must ensure equal treatment of the parties and the right of both parties to be heard in adversarial proceedings (Article 182(3), PILA). A party that continues with the arbitration proceedings without immediately objecting to procedural irregularity of which it is aware or which it would have been aware had it exercised due diligence cannot rely on it later in the proceedings (Article 182(4), PILA).

Article 190(2) of the PILA provides an exhaustive list of the grounds for annulment:

• the arbitrator was not properly appointed or the arbitral tribunal was not properly constituted;
• the arbitral tribunal wrongly accepted or declined jurisdiction;
• the arbitral tribunal’s decision went beyond the claims submitted to it, or failed to decide one of the items of the claims;
• the principle of equal treatment of the parties or the right of the parties to be heard was violated; and
• the award is incompatible with public policy.

Annulment applications are filed directly with the Swiss Federal Court, Switzerland’s highest court. The Court typically decides within six to nine months, with occasional outliers in either direction. The chances of a successful annulment differ for each ground for annulment and range from below 1% for incompatibility with public policy and about 12% for incorrect award on jurisdiction.

Domestic Arbitration in Switzerland

An arbitration qualifies as domestic if both parties had their domicile in Switzerland when they agreed to arbitrate. Domestic arbitration defines arbitrability differently. It covers all claims of which the parties may freely dispose. A domestic award can be annulled not only if it offends public policy, but already if it is arbitrary because its findings are contrary to the facts on record, or because it constitutes an obvious violation of law or equity.

Investment Arbitration

Switzerland has signed over 110 bilateral investment treaties or BITs and several multilateral investment treaties. According to the United Nations Conference on Trade and Development, Switzerland has the world’s third largest network of such agreements, after Germany and China. The purpose of such treaties is to provide international law protection from non-commercial risks associated with investments, such as discrimination against foreign investors in favour of local ones, or unlawful expropriation. Switzerland has also ratified the 1960 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention).

As a neutral country with a long-standing arbitration tradition and an arbitration-friendly legal regime, Switzerland is often chosen as the seat of arbitration in investment treaty cases. Investment treaty awards are also increasingly brought to the Swiss Federal Court for review. The Court has issued some groundbreaking decisions in recent years.

In 2018, for example, it rejected two appeals by Russia contesting the jurisdiction of a Geneva-based arbitrator in a case brought by Ukrainian companies. Russia argued that the 1998 Russia-Ukraine BIT did not apply to investments which were not cross-border at the time they were made. However, the judges at the Swiss Federal Court dismissed the argument by a majority of four to one.

In April 2024, in a headline-making decision, the Swiss Federal Court – contradicting the European Court of Justice – decided that Swiss-seated arbitral tribunals have jurisdiction over intra-EU disputes.

Recent Reforms and Innovations

Revision of Chapter 12 of the PILA (international arbitration)

In January 2021, the revised Chapter 12 of the PILA entered into force. It modernised Swiss arbitration, while keeping all the key features that have made it an international success. The most notable changes relate to the parties’ ability to make set-aside applications in English, rather than in one of the four official national languages (German, French, Italian, Romansh). This is a significant improvement particularly in cases where otherwise much time would be spent on translating draft submissions from the official Swiss languages to English or vice versa. Considering that the time limit to file challenges against arbitral awards is only thirty days, the possibility to make English language submissions may, in many instances, prove to be an important time-saver. It bears noting, however, that the new English language option applies only to submissions in connection with challenges of an arbitral award. The Federal Supreme Court will still issue its decisions in one of the official Swiss languages.

Further changes relate to more broadly available court assistance; the ability of courts to appoint arbitrators even where the arbitration agreement does not specify a seat, a legal basis for the remedies of correction, explanation, or completion of awards; an express legal basis for reopening arbitral proceedings based on new evidence or a criminal conviction; and an express legal basis that failure to object immediately to procedural irregularities will result in a waiver.

New Swiss Rules (2021)

In January 2021, the revised Swiss Rules of International Arbitration entered into effect. The key changes relate to multi-party and multi-contract proceedings as well as amendments aiming to streamline arbitration proceedings through paperless filings and remote hearings. The new rules also address data protection and cybersecurity.

New arbitration toolbox (2021)

In addition, the Swiss Arbitration Centre endorsed the arbitration toolbox, developed by the Swiss Arbitration Association. The toolbox is an innovative website that guides users through the entire arbitration process by way of a questionnaire, offering tools and solutions to questions that may arise in arbitration proceedings.

New law and rules for corporate disputes (2023)

In January 2023, the Code of Obligations was amended by adding Article 697n, which provides that the articles of association of a Swiss corporation may include an agreement to arbitrate disputes under company law in Switzerland. Unless the articles of association provide otherwise, the arbitration clause is binding on the company, the corporate bodies of the company, the members the corporate bodies and the shareholders.

Around the same time, the Swiss Arbitration Centre issued “Supplemental Swiss Rules for Corporate Law Disputes”. Their purpose is to supplement the Swiss Rules when administering and conducting arbitration proceedings in relation to corporate law disputes as provided for under the revised Swiss Code of Obligations. The Supplement provides, among other things, for a “Model Statutory Arbitration Clause”, rules regarding the commencement and termination of arbitration proceedings, rules regarding the appointment of the arbitral tribunal, and the participation of third parties.

Issues du Jour

Crypto arbitration

Switzerland is one of the leading locations in the area of distributed ledger technology (DLT) and blockchain. Well over a thousand companies are active in Switzerland in the fintech and blockchain sector alone. Ethereum, the most popular crypto platform, which hosts hundreds of billions of dollars’ worth of cryptocurrency transactions, NFT collections, and DeFi protocols, was created in Switzerland. Switzerland identified the high potential of blockchain technology early on and created a favourable regulatory environment. In August 2021, Switzerland became one of the first countries in the world to enact legal regulations for blockchain technology.

Most crypto platforms include arbitration clauses in their general terms and conditions. This has led to a number of controversies and certain notable judgments, particularly in the United Kingdom and the US, on whether crypto platform users are consumers, and whether the requirement to arbitrate could be an unfair term. There has also been a significant uptick in crypto-related arbitration in Switzerland in recent years.

International commercial courts as competition?

In 2025, a new law will enter into effect in Switzerland that will allow the cantons to establish international commercial courts and to use English as the language of the proceeding. This is intended to make Swiss dispute resolution services more broadly accessible to parties who may prefer state courts over private arbitration but want to profit from the skills and expertise of experienced commercial court judges and appreciate the option to conduct the proceedings in English. It remains to be seen whether this will lead to an overall increase demand for Swiss dispute resolution.

Swiss Federal Court disagrees with the ECJ’s Achmea decision

The European Court of Justice (ECJ) famously held in Slovak Republic v Achmea, in 2018, that arbitration clauses in intra-EU investment treaties were incompatible with EU law and thus invalid.

In September 2023, in Republic of Moldova v Komstroy, the EJC held that the arbitration clause in the Energy Charter Treaty was incompatible with EU law and therefore invalid.

In April 2024, the Swiss Federal Court faced the question of whether Swiss-seated arbitral tribunals have jurisdiction over intra-EU disputes. Since it was not bound by the ECJ decisions, it proceeded to its own analysis of the issues. It eventually rejected the Achmea and Konstroy decisions and confirmed the jurisdiction of Swiss-seated tribunals over such disputes.