In a rare challenge to an investment treaty award, the Swiss Supreme Court rejected the host state's arguments of violation of public policy. The dispute arose under a bilateral investment treaty ("BIT") between the host state and the investors' home state.
In 2004, the investors invested in the host state's low stakes slot machine market. In later years, the host state began increasing the regulation of slot machines and, ultimately, completely banned them, subject to limited exceptions. As a result, the investors had to pull out of the host state. They commenced arbitration proceedings, claiming violations of the fair and equitable treatment (FET) standard under the BIT and the prohibition on unlawful expropriation. Although the tribunal, seated in Geneva, rejected the investors' arguments regarding expropriation, it held that the increased taxation violated the BIT's FET standard.
The host state appealed to the Swiss Supreme Court, arguing that the tribunal wrongly applied the FET standard by, among other things, restricting the host state's sovereignty in fiscal matters and so, violated public policy.
The Supreme Court reiterated that in relation to its power to review challenges against investment treaty awards, the same general rules as in all other types of arbitration apply. The court then held that while it can fully review questions of jurisdiction, including tribunals' legal interpretations, it cannot do so when examining public policy exceptions. Therefore, the court concluded that it could not review the tribunal's application and legal interpretation of the FET standard. Consequently, it dismissed the petition.
In support of its position, the host state also referred to the controversial French decision, dated 21 February 2017 of the Paris Court of Appeal in Valeri Belekon v Republic of Kyrgyzstan (RG No 15/01650) in which the Court of Appeal undertook a de novo review of the factual allegations underlying a public policy violation claim. However, the Swiss Supreme Court held that the French decision constituted inadmissible new evidence. Even if it had been admitted, it is highly unlikely that the Supreme Court would have followed in the French court's footsteps.
Case: Decision 4A_157/2017.