SWITZERLAND: ARBITRAL AWARD AGAINST BANKRUPTCY PARTY WILL BE RECOGNISED AND ENFORCEABLE
On March 1st, 2021, in case no. 5A 910/ 2019 The Swiss Federal Supreme Court (SFSC) Ruled on the arbitrability of the claim against the bankrupt Swiss party and the enforcement of that arbitral award following the bankruptcy proceedings. Let’s take the appellant to SFSC as A and Respondent as B (only for understanding). The Dispute is about the arbitration award delivered by the London Court of international arbitration (LCIA) on 3rd September 2018.
FACTS OF THE CASE
- A and B agreed to litigation financing. Under the said agreement, B was providing funds for arbitration proceedings between A and C (means A had a dispute with some party C in that dispute B was providing funds to A for arbitration) in return for 50% of the claim amount that B would receive. However, on 14 May 2014, A terminated that financing agreement.
- Later the arbitration proceedings were executed between A and B at the London Court of international arbitration (where the claimant was B, i.e., the respondent in SFSC). Unfortunately, during these proceedings, the defendant was declared bankrupt on 3rd May 2016 in Switzerland. As a result, the bankruptcy office in Switzerland assigned to continue the arbitral proceedings to the Swiss company former director (appellant before SFSC), and later the arbitral tribunal in its award delivered that termination of the financing agreement by A was not valid and B is entitled to the 50% share as per agreement.
- After the declaration of the arbitral award B (the claimant) approached Swiss authorities to recognize the arbitral award and carry out the compensation claim against B (Swiss companies director). The director appealed at SFSC after the proceedings with the High court of Zurich.
The issued arbitral award was on the non-arbitrable subject matter according to article 177(1), article 194 of the Swiss Private International Law Act (PILA) concerning articles V (2) (a) and (b) of the New York convention as per Swiss view- claim made by A. However the Swiss Federal Supreme Court dismissed the arguments of A stating that article 177 (1) of PILA provides “any dispute involving an economic interest may be the subject of an arbitration” it describes the idea of arbitrability with the context of recognition and enforcement proceedings. Further, the court stated the initiation of arbitral proceedings took place before the bankruptcy proceedings, so the arbitral award against such bankruptcy party will be recognized and enforceable in Switzerland, hence if a Swiss party gets into bankruptcy during arbitral proceedings, then claim against such party do not lose its arbitrability.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts made to ensure the accuracy and correctness of the information published, White Code VIA Mediation and Arbitration Centre shall not be responsible for any errors caused due to human error or otherwise.