By Dr. Valentina Hirsiger-Meier & Victoria Brammer
In a decision published on the 19th of July 2022, the Swiss Federal Supreme Court (“SFSC”) denied the enforceability of an arbitral award that ordered the two claimants to pay the respondent a party compensation, but did not provide for a joint and several liability of the two debtors (case no. 5A_335/2021[1]). The SFSC clarified that it is not the duty of the enforcement court to interpret the award submitted as an enforcement title. Rather, it needs only to examine whether the award clearly yields a payment obligation.
Factual background
The dispute at stake originated from an arbitral award rendered in an investment arbitration between two investors and the Czech Republic before the Permanent Court of Arbitration (“PCA”). In this award, the two investors were ordered to pay a party compensation to the Czech Republic. Concretely, the relevant paragraph 466 of the award stated that “The Claimants shall pay to the Respondent within 28 days of delivery of this award the sum of US $ 1.75 million and GBP 178,125.50.”
The Czech Republic in the sequel successfully conducted various attachment proceedings in Switzerland against both investors. The district courts in the various attachment and enforcement proceedings affirmed the enforceability of said paragraph 466 of the arbitral award. Upon appeal by one of the investors, the court of appeal by contrast denied enforceability of the same (proceedings BR.2020.40, BR.2020.3 and BR.2020.43).
The Czech Republic then filed a complaint against the investor before the SFSC.
Analysis of the rules of procedure with regard to joint liability
The SFSC thus had to decide whether the award of the PCA constituted a sufficient enforcement title against the investor in the pending debt collection proceedings. This, among others, requires that the award obliges the debtor to pay a specific, i.e. quantifiable, sum.
In the case at stake, the arbitral award did not include the usual wording of joint liability (“jointly and severally”) of the two debtors. Nor did the wording of the ruling or the considerations of the arbitral award regarding the consequences of costs and compensation show whether the party compensation was to be jointly imposed on the investors.
In its considerations, the SFSC further held that neither the UNCITRAL Arbitration Rules 1976 nor the 12th chapter of the Federal Act on Private International Law (“PILA”) contained any provisions on the joint liability of the losing parties for the compensation of the other party. Other procedural rules, such as Art. 66 para. 5 and Art. 68 para. 4 of the Federal Court Act, which expressly provides for joint liability for jointly imposed costs, by contrast, did not apply. Thus, the SFSC found that neither the arbitral award, the UNCITRAL Arbitration Rules, nor the aforementioned procedural rules could serve as a basis for the investors’ joint liability.
Limited competence of the Court of Judicial Vitiation
In its appeal, the Czech Republic in essence claimed that the joint liability of the investors could be derived from the principle of good faith. According to its reasoning, the arbitral award – in the light of its wording, the requests for relief, the conduct, and the history of the proceedings – could be understood in any other way than that a joint and several liabilities of the plaintiffs was established.
The SFSC however clarified that the enforcement court is not obliged to interpret the award submitted as an enforcement title or to supplement it in accordance with an alleged practice. Rather, the enforcement court only has to examine whether the debtor’s obligation to pay clearly derives from the submitted award. The argument of the Czech Republic that it would be factually impossible to enforce the arbitral award if no joint liability of the investors was assumed did not change this finding. As the SFSC highlighted, it is not the task of the enforcement court to help the creditor obtain an enforcement title, but merely to verify whether such a title exists. If the arbitral award does not prove to be enforceable, it is up to the arbitral tribunal to provide clarification in this regard.
