An (exhausted) award creditor, who prevailed in the arbitration and in any subsequent (Swiss or foreign) setting aside proceedings and who initiated enforcement proceedings in Switzerland, may not be over its troubles just yet.
In our previous post, we mentioned that, during enforcement proceedings in Switzerland, a reluctant award debtor will have an opportunity to object to the enforcement of the award. In this context, the available defences will vary depending on whether the award has been issued by a tribunal seated in or outside of Switzerland (Swiss or foreign arbitral awards).
In case the award was made in Switzerland, the award debtor had the opportunity to apply to set aside the award before the Swiss Supreme Court based on Article 190(2) of the Swiss Private International Law Act (PILA) or Article 393 of the Swiss Code of Civil Procedure (CPC). Accordingly, at the enforcement stage, the award debtor cannot raise any of the grounds for annulment set out in those provisions. Furthermore, and as explained in our first post, the New York Convention only applies to the recognition and enforcement of foreign awards.
The award debtor seeking to resist enforcement of a Swiss award will have only limited defences at its disposal. In particular, the award debtor will not be entitled to argue that the arbitral tribunal has not been validly constituted (Article 190(2)(a) PILA or Article 393(a) CPC), or to challenge the arbitral tribunal’s decision on jurisdiction (see Article 190(2)(b) PILA or Article 393(b) CPC). Generally, the award debtor will only be able to challenge the enforceability of the award (that is, the fact that the “award” constitutes an enforceable decision) or argue that the award cannot be enforced as a result of facts that occurred after its notification.
To list just a few examples of such possible defences:
- The award does not exist, or it is not final and binding.
- The decision does not constitute an arbitral award or has not been rendered by an arbitral tribunal (for example, because it must be characterised as an expert determination).
- The decision only constitutes an interim award or a procedural order, that is, a decision that has no res judicata effect and is not capable of enforcement.
- The “dispositif” of the award is insufficiently specific and therefore incapable of being enforced.
- The creditor’s claim was extinguished following notification of the award (for example, through payment, mutual agreement or set-off).
As a general rule, the enforcement court will examine ex officio the enforceability of the award. However, it will limit its review to the issues which emerge from the file. The court will therefore not examine every conceivable enforcement-related issue regarding the award. Furthermore, should the award debtor seek to challenge the substance of the claims based on facts occurring after the notification of the award, it will have to invoke and substantiate its objections. It will bear the burden of proof in this regard.
The situation is markedly different in case of a foreign arbitral award.
In this case, the award debtor can only rely on the exclusive grounds for refusing recognition and enforcement set out in the New York Convention. The grounds listed in Article V(1) of the New York Convention will only be reviewed by the enforcement court at the request of the award debtor, while the court will examine ex officio whether the grounds set out in Article V(2) of the New York Convention are met.
In short, the following grounds will be examined at the request of the award debtor:
- The arbitration agreement is invalid (Article V(1)(a)).
- The award violates due process (Article V(1)(b)).
- The tribunal decided on issues for which it lacked jurisdiction (extra potestatem) or awarded a party more (ultra petita) or something else (extra petita) than it had asked for (Article V(1)(c)).
- The tribunal failed to comply with the applicable arbitral procedure (Article V(1)(d)).
- The arbitral award is not yet binding, has been set aside or has been suspended (Article V(1)(e)).
For its part, the enforcement court must examine the following grounds ex officio:
- The dispute is not capable of settlement by arbitration (Article V(2)(a)).
- The recognition or enforcement of the award would be incompatible with (Swiss) public policy (Article V(2)(b)).
The award debtor does not have to show that it has exhausted all possible legal remedies against the award in the state of origin in order to resist enforcement on the grounds mentioned in Article V of the New York Convention.
Given that the New York Convention aims to facilitate the recognition and enforcement of foreign arbitral awards, Swiss courts will generally interpret the grounds set out in Article V of the New York Convention restrictively. In particular, Swiss courts adopt a very restrictive interpretation of the notion of public policy (as set out in Article V(1)(b)).
Accordingly, and considering the limited defences available before Swiss enforcement courts, the award creditor can generally be confident that the award debtor’s objections will be denied and that its claim will be satisfied. That is, if the debtor still holds enough assets to satisfy the award creditor’s claim. This leads us to the topic of our next post: how can the award creditor ensure that the award debtor will not evade its obligations prior to the completion of the enforcement proceedings?
