States and state enterprises are frequent users of international arbitration. Their involvement is by no means restricted to arbitration under public international law. Indeed, as the ICC Commission on Arbitration and ADR reported in 2017, approximately 10% of ICC arbitrations involve a state or a state entity. That being said, and regardless of the nature of the proceedings (commercial or treaty-based arbitration), an award creditor seeking to enforce an award against a state holding assets in Switzerland will be subject to requirements different than those applicable if its debtor was a private entity. This is because, under Swiss law, foreign states benefit from immunity which protects them and their assets.
Switzerland ratified the European Convention on State Immunity of 16 May 1972. This convention therefore applies in relation to the seven other states that ratified it (that is, Austria, Belgium, Cyprus, Germany, Luxemburg, the Netherlands and the United Kingdom). The Swiss Supreme Court has called for the greatest caution with regard to the application, as customary law, of this convention to non-signatories.
Switzerland also ratified the UN Convention on Jurisdictional Immunities of States and Their Property (which shall enter into force after the 30th ratification). So far, only 22 states are parties to it. The Swiss Supreme Court considers that this convention codifies customary international law in relation to state immunity. Switzerland has not adopted any specific statute governing state immunity. However, since 1918, the Swiss Supreme Court has been developing its jurisprudence on the basis of a restrictive interpretation of state immunity, by virtue of which state immunity is not absolute.
In line with customary international law, the Swiss Supreme Court makes a distinction between a state’s immunity from jurisdiction (that is, the requirements according to which a foreign state can be summoned before a Swiss court) and its immunity from execution (that is, the requirements according to which Swiss authorities are entitled to take enforcement measures against a foreign state). The Swiss Supreme Court has also adopted the distinction between the acts of a foreign state performed in the exercise of its sovereign authority (acta iure imperii) and those it performs in its private capacity (acta iure gestionis).
On that basis, the Swiss Supreme Court has held that the following three requirements must be met in order for an award debtor to obtain enforcement against a foreign state in Switzerland:
- First, the claim to be enforced must arise from an acta iure gestionis. Acta iure imperii are in any event covered by immunity. The relevant criterion to distinguish between the two categories is the intrinsic nature of the act (and not its purpose). In other words, it must be examined whether the act on which the claim is based relates to the exercise of sovereign powers or whether it could have been carried out by any private individual.
- Second, the assets in relation to which enforcement measures are requested must not relate to, or be intended for, sovereign activities of the state against which enforcement is sought. For instance, this means that enforcement measures cannot be obtained in relation to assets used to carry out diplomatic activities.
- Finally, there must be a sufficiently close connection between the legal relationship underlying the claim and Switzerland (so-called “Binnenbeziehung” in the German language). For instance, the Swiss Supreme Court considers that there is a sufficiently close connection when the claim originated or had to be performed in Switzerland, or when the debtor performed certain acts in Switzerland. However, the mere fact that assets are located in Switzerland is insufficient. In addition, the fact that the arbitral tribunal was seated in Switzerland does not create such a close connection to Switzerland.
The legality of this third requirement is controversial among Swiss commentators. In particular, some of them consider that this last requirement represents an unwarranted restriction to the enforcement of arbitral awards, which is not contained in the New York Convention.
However, in a decision from 2018, the Swiss Supreme Court maintained this requirement. It noted that this requirement derives from Swiss domestic law (which is applicable to the enforcement of arbitral awards in Switzerland) and not from international arbitration law. The Swiss Supreme Court also held that this requirement is a matter of admissibility (and does not pertain to the merits of the case). In this regard, it held that the grounds set out in Article V of the New York Convention can only be examined by a court if the action is admissible. The Swiss Supreme Court recalled that the New York Convention left it to states to define the applicable procedure for the recognition and enforcement of awards. More specifically, it referred to Article III of the Convention, which provides that awards are to be enforced “in accordance with the rules of procedure of the territory where the award is relied upon.” As the requirement of a sufficient link to Switzerland pertains to the admissibility of the action, it is therefore, according to the Swiss Supreme Court, not contrary to the New York Convention.
Regardless of whether this last requirement is justified or compliant with the New York Convention, its practical effect is to restrict significantly the possibility for award creditors to enforce their claims against sovereign assets in Switzerland. In particular, by holding that the fact that Switzerland was designated as the seat of arbitration does not create a sufficient link to Switzerland for enforcement purposes, the Swiss Supreme Court set clear limits to the enforcement of arbitral awards against foreign states.
This last contribution concludes the authors’ series dedicated to the enforcement of arbitral awards in Switzerland. As we saw in those five publications, Swiss law provides a clear legal framework that is (overall) favourable to the enforcement of arbitral awards, despite a rather strict regime on state immunity.