DOES CLAIM AGAINST BANKRUPT SWISS PARTIES LOSE THEIR ARBITRABILITY
Switzerland is one of the main venues for international arbitration. Many factors account for this reputation, especially neutrality, a secure and predictable legal framework. On 1st March 2021, in case no. 5A 910/ 2019, which was a Dispute, is about the arbitration award delivered by the London Court of international arbitration (LCIA) on 3rd September 2018. during this case, the Swiss Federal Supreme Court (SFSC) Ruled on the arbitrability of the claim against the bankrupt Swiss party and, therefore, the enforcement of that arbitral award following the bankruptcy proceedings.
SFSC and Switzerland agreed to litigation financing. Under the said agreement, Switzerland provided funds for arbitration proceedings between SFSC and some party that Switzerland was providing funds for arbitration reciprocally for 50% of the claim amount that respondent would receive. However, on 14 May 2014, SFSC terminated that financing agreement. Later the arbitration proceedings were executed between SFSC and respondent at the London Court of international arbitration (where the claimant was Switzerland, i.e., SFSC). While these proceedings were going on, the defendant was declared bankrupt in Switzerland on May 3rd 2016. As a consequence of which 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 SFSC wasn't valid and the respondent is entitled to a compensation claim. After the declaration of the arbitral award, the claimant approached Swiss authorities to acknowledge the arbitral award and perform the compensation claim against the Swiss companies’ directors.
The issued arbitral award was on the non-arbitrable material consistent with article 177(1), article 194 of Swiss Private international law Act (PILA) concerning articles V (2) (a) and (b) of the New York Convention according to Swiss view- claim made by SFSC. However, the Swiss Federal Supreme Court dismissed the petitioner's arguments, stating that article 177 (1) of PILA provides “any dispute involving an economic interest could also be the topic of an arbitration” it describes the thought of arbitrability with the context of recognition and enforcement proceedings. Further, the court stated the initiation of arbitral proceedings happened before the bankruptcy proceedings. Therefore the arbitral award against such bankruptcy party is going to be recognised and enforceable in Switzerland. Hence, if a Swiss party gets into bankruptcy during arbitral proceedings, a claim against such a party doesn't lose its arbitrability.
In Conclusion, according to the reasoning of the SFSC, claims against a Swiss party that fits into bankruptcy during the arbitration proceedings don't lose their arbitrability, as long as the arbitration proceedings were initiated before the opening of the bankruptcy proceedings. Consequently, an award against such a party should be recognised and subsequently enforced in Switzerland.
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