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Cautious approach to corruption and "surprise effect" of application of Swiss law principles on non-Swiss counsel

20 December 2016

Authors: Nathalie Voser; Philip Wimalasena

In a French-l­anguage decision of 3 November 2016 which was published on 23 November 2016, the Swiss Supreme Court refused to set aside an arbitral award rendered under Swiss law by an International Chamber of Commerce (ICC) tribunal seated in Geneva.

In the arbitral proceedings, the claimant requested outstanding commission payments under consultancy agreements entered into with the defendants who justified their refusal to pay on the basis of:

  • On­-going criminal investigations by US and UK authorities and the risk of serious criminal sanctions in case of payment.
  • The claimant's alleged involvement in corrupt practices.
  • The claimant's breach of contractual obligations and internal compliance rules.
The arbitral tribunal dismissed these objections and ordered the defendants to pay approximately EUR 1.5 million.

The defendants initiated set aside proceedings arguing a violation of public policy and of their right to be heard.

The Supreme Court held that allegations of corrupt practices must be supported by concrete evidence by the party making such claims. A mere violation of internal compliance rules does not per se constitute a public policy violation, as otherwise the content of public policy would effectively be determined by private parties.

Further, under Swiss law, it is permissible for the tribunal to consider the parties' conduct subsequent to conclusion of the contract in order to determine the parties' intentions. The tribunal's interpretive approach did not constitute a "surprise decision", and thus did not violate the parties' right to be heard. The defendants' had failed to retain Swiss counsel at their own risk.

This decision is in line with previous decisions. It reflects the Supreme Court's twofold concern that, while corruption does present significant challenges to the arbitral process and must be appropriately addressed, allegations of corruption may also be used in bad faith by recalcitrant parties aiming to derail arbitral proceedings. (Decision 4A_136/2016.)

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Published in Practical Law Arbitration


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