In its decision published 2 November 2020, the Swiss Federal Supreme Court (“SFSC”) upheld an arbitral award referring to the widely recognized principle in international arbitration of ‘kompetenz-kompetenz‘ (case no. 4A_461/2019 (in German)).
The reported dispute originates from a construction agreement between the State of Lybia and a Turkish company. The Turkish company attempted to obtain payment of the outstanding invoices by the State of Lybia. Subsequent to numerous disagreements, the parties entered into a settlement agreement in 2013. In this agreement, the state of Lybia undertook to pay the outstanding invoices for the construction payments as well as damages.
After the state of Lybia had failed to abide by its undertakings under the settlement agreement, the Turkish company, in 2016, filed a request for arbitration with the International Chamber of Commerce in Paris on the basis of a bilateral investment treaty, the Turkish-Libyan Investment Protection Agreement. The parties agreed on Geneva as the seat of the arbitration. The arbitral tribunal confirmed that this dispute falls within the scope of the Investment Protection Agreement. The arbitral tribunal issued an award confirming the validity of the settlement agreement and awarded the Turkish company approx. USD 22 Mio. including interest from the date of the notification of this award.
Parallel to the pending arbitration proceedings, the state of Lybia, in 2018, initiated proceedings before the court in Tripoli (Lybia) to challenge the validity of the settlement agreement. After the court in Tripoli ruled that the latter is invalid and void, the state of Lybia filed an appeal against the arbitral award with the SFSC.
The arbitral tribunal has the power to decide upon its own jurisdiction
In its appeal, the state of Lybia, among others, claimed that the arbitral tribunal had wrongly applied the principle of ‘kompetenz-kompetenz‘ by not considering the decision of the courts in Tripoli. The principle of ‘kompetenz-kompetenz‘ means that the arbitral tribunal decides on its own jurisdiction, principle which is also recognized under art. 186(1) under the Swiss Private International Law Act (“PILA”).
The SFSC dismissed the appellant’s arguments. In the case at stake, the arbitral proceedings were initiated prior to the state proceedings in Tripoli. Thus, the arbitral tribunal – due to the chronological priority of the arbitral proceedings – did not even have to resort to Art. 186(1) PILA to establish its competence. The SFSC also reminded that the challenging of the validity or existence of an agreement on arbitration does not prevent the arbitral tribunal from arbitration proceedings and issuing an award. Rather, the principle of ‘kompetenz-kompetenz‘ allows the arbitral tribunal to come to a decision on their own jurisdiction before any state court has rendered its decision in that regard.
With its affirmation of the ‘kompetenz-kompetenz‘ principle, the SFSC again confirmed that a party cannot torpedo ongoing arbitration proceedings seated in Switzerland by initiating foreign proceedings.