With decision dated 17 October 2017 (4A_53/2017), the Swiss Federal Supreme Court considered for the first time whether Swiss arbitral awards remain subject to revision proceedings despite the parties having waived their right to bring an action for annulment.
The Swiss arbitration law allows parties to waive the statutory right to challenge an award in setting-aside proceedings, if none of them has its domicile, habitual residence or place of business in Switzerland. However, such setting-aside proceedings are not the only form of judicial relief available to parties, as they can, subject to certain conditions, also request the revision of an award if new relevant facts are discovered after the end of the arbitration, or if it appears that the outcome of the arbitration was influenced by criminal conduct. In the decision now rendered, the Swiss Federal Supreme Court clarified that a waiver to bring an action for annulment will, at least in certain circumstances, also extend to this extraordinary revision remedy, thus barring any form of judicial review at the seat of the arbitration.
I.The Background: Allegations of Bribery and Undisclosed Conflicts of Interest
This question arose against the background of a heavily fought UNCITRAL arbitration between Croatia and MOL Hungarian Oil and Gas Company Plc (“MOL”) over the privatization of the Croatian energy company INA Industrija Nafte (“INA”). Croatia had initiated the arbitration in 2014, alleging that two agreements made in 2009 granting MOL a controlling stake in INA had only been obtained as a result of bribes paid to Croatia’s former prime minister, Ivo Sanader. In December 2016, these allegations and Croatia’s requests were dismissed in their entirety by an arbitral tribunal seated in Geneva, on the basis that there was no evidence for the alleged bribes.
Then, Croatia filed an action for annulment with the Swiss Federal Supreme Court and, simultaneously, a request for revision of the award. Both applications were based on the grounds that in mid-January 2017, Croatia had, within the deadline for an action for annulment, learned that its arbitrator had failed to disclose an alleged conflict of interest. In response, MOL requested the Swiss Federal Supreme Court to declare Croatia’s applications inadmissible without considering them on the merits, due to the following contractual waiver in the underlying agreements: “Awards rendered in any arbitration hereunder shall be final and conclusive and judgment thereon may be entered into any court having jurisdiction for enforcement thereof. There shall be no appeal to any court from awards rendered hereunder.” With respect to Croatia’s setting-aside application, this argument was accepted without much discussion, while at the same triggering a leading decision with respect to the request for revision.
II. Scope of a Waiver of Judicial review
The possibility to waive the limited judicial control that the Swiss Federal Supreme Court exercises over arbitral awards in setting-aside proceedings is limited to strict conditions. Such a waiver is only possible if none of the parties has a connection to Switzerland through its domicile, habitual residence or place of business, and if both parties expressly and unequivocally agreed to it. A mere statement that an award is to be “final” is not sufficient; rather, the parties are expected to expressly refer to the possibility of judicial review, even though they are not required to mention the relevant statutory provisions (Articles 190 and 192 PILA) in their waiver.
However, where such a waiver has been agreed, it extends, as has now been clarified, not only to all annulment grounds foreseen in Article 190 PILA, but also to potential requests for revision relating to irregularities in the proceedings which can be challenged with an annulment action. Consequently, the Swiss Federal Supreme Court held that Croatia and MOL not only validly waived their right to an action for annulment according to Article 192(1) PILA, but also the possibility to request the revision of the award on the basis of alleged irregularities in the composition of the tribunal, declaring both applications inadmissible.
While appreciating that the request for revision constitutes an extraordinary legal remedy, the Swiss Federal Supreme Court considered that it would be difficult, particularly given its subsidiary nature, to accept that a party that expressly waived its right to challenge the proper constitution of the arbitral tribunal pursuant to Article 190 (2)(a) PILA could request the revision of the award based on this very same reason. To raise a revision request with respect to facts that would normally allow an annulment pursuant to Article 190 PILA, and which were additionally known prior to the expiry of the 30-day deadline for an annulment application, would, according to the Swiss Federal Supreme Court, entirely void the possibility to waive annulment proceedings of its purpose and also amount to a violation of the requirement to conduct proceedings in good faith.
This case illustrates the risks associated with a waiver of annulment proceedings. While Swiss law allows for such a possibility in cases where none of the parties has a presence in Switzerland, such a waiver means that the parties essentially lose any possibility to complain of procedural irregularities to a court at the seat of the arbitration. The Swiss Federal Supreme Court rightly held that such a waiver cannot be circumvented by a request for revision brought to raise challenges that would otherwise be admissible in annulment proceedings, while implicitly reserving the possibility that revision requests on other grounds may still be possible.
At a more general level, the question remains why parties would wish to waive their right to a potential annulment action prior to the commencement of arbitration proceedings at all. Not only are the grounds for annulment defined and interpreted very restrictively under Swiss law, but the Swiss Federal Supreme Court also has an excellent track record in handling annulment actions in a timely and efficient manner. Trying to void even this very limited judicial control can lead to negative surprises, as illustrated by this case.