Switzerland’s dispute resolution market is in rude health. LB talks to the key players about recent headline cases and what the implementation of new arbitration rules in 2012 will mean
The volume of Swiss M&A and capital markets may have flattened out in Switzerland but the global downturn has produced a raft of investor claims against banks and investor management disputes. ‘In tough economic times, people are much more prepared to take their case to court and less willing to settle,’ says Patrick Sommer, partner at CMS von Erlach Henrici (CMS). Consequently, Switzerland has become a major battlefield for asset recovery and enforcement of foreign judgments.
According to Charles Adams, head of Akin Gump Strauss Hauer & Feld’s Geneva office: ‘The international markets are very litigious right now, but the focus has shifted to financing transactions that went wrong and hedge funds going belly-up.’ This has been especially pronounced in Switzerland because of the importance of its finance industry.
Not only is Switzerland’s litigation market in robust form as a result of the continued global downturn and other significant international events, but following a revamp of the country’s civil procedure code (see box, ‘National unity’, page 100) Swiss litigators are looking forward to the day when conducting cases in any of the country’s 26 cantons will be a uniform experience. Furthermore, new rules have come in that can only benefit Switzerland’s already excellent reputation as an arbitration venue.
Tough times
As in other jurisdictions, investor claims against banks that failed to carry out proper due diligence are keeping Swiss litigators especially busy. Nater Dallafior is one firm that has picked up some of the work. ‘We are independent and can act both for the banks and for banking customers,’ says Zürich-based partner, Mathis Berger.
Pestalozzi partner Christophe Emonet is leading a team advising Bank Cantonale de Genève in a major case against Ernst & Young (E&Y) over alleged violations of its duties while auditing the financial statements of the bank between 1990 and 2000. Submissions are still being prepared and the value in dispute is confidential for now, but it is expected to be a significant claim. Benoît Chappuis leads Swiss firm Lenz & Staehelin in its advice to E&Y.
The financial fallout means that Swiss litigators are also enjoying a surge in regulatory investigations and white-collar crime. ‘At any one time, these practice areas can keep ten to 20 of our professionals busy in an area that was virtually non-existent ten years ago,’ says Zürich-based Daniel Daeniker, a partner at Homburger.
One headline corruption case recently closed. In November 2011, Switzerland’s prosecutor fined Alstom Network Schweiz – a subsidiary of French engineering company Alstom – approximately Ä2m, and ordered it to pay compensation of Ä29.5m for negligence in failing to prevent the bribery of foreign officials in Latvia, Tunisia and Malaysia. The case marks a landmark decision on the criminal liability of corporations. LHA Avocats’ partner Maurice Harari in Geneva, and Bern-based partner Jürg Wernli of Luginbühl Wernli + Partner, represented Alstom.
International pressure on the Swiss banking sector over its secrecy rules has also resulted in increased numbers of tax-related legal battles. ‘The proliferation of double taxation agreements and the Withholding Tax Act envisaged by the Swiss government have left foreign clients in need of close legal guidance,’ says Domitille Baizeau, a Geneva-based partner at Lalive.
Such guidance is particularly important when dealing with the US. At Prager Dreifuss, co-litigation and arbitration head Urs Feller tells LB that its litigation department has been very active in such matters since the start of 2012. Led by Feller, the litigation team acts for several clients on the US Internal Revenue Service’s requests for administrative assistance concerning accounts held with Credit Suisse and its subsidiaries.
Poledna Boss Kurer partner Walter Boss confirms his firm’s representation, alongside US advisers, of large numbers of US clients who are being urged to disclose information to the IRS.
Switzerland’s role as a battlefield for asset recovery and enforcement of foreign judgments was further prompted by international events that have nothing to do with the global economic crisis. Baizeau says that this was particularly evident following the Arab Spring, with many claims arising over the confiscation and release of assets belonging to certain nationals from North Africa and the Middle East. Again led by Feller, Prager Dreifuss represented an Arab state in the recovery of illicit gains obtained by its former head of state, his family members and close friends.
The Arab Spring has also generated contentious mandates – particularly regarding the release of frozen assets – for André Gruber and Didier de Montmollin, two of the founding partners at Swiss legal practice DGE, who have been instructed by several prominent individuals from North Africa and the Middle East, who hold financial interests in Switzerland.
At Vischer, Zürich-based partner Daniele Favalli is seeing new types of litigants arriving from other parts of the world, including CEE, Russia, India and China, as well as more insurance-related matters ending up in litigation, with the practice often called into other jurisdictions as coverage counsel.
The overall increase in disputes also means that Swiss dispute resolution departments are especially active in state court litigation right now. Walder Wyss’ litigation and arbitration partner Dieter Hofmann tells LB that his firm is handling several complex cases involving interim relief against parties from different courts. One matter involves an international shareholder dispute over a biopharmaceutical company where new procedural techniques under the new Swiss Civil Procedure Code proved successful.
Forum for excellence
Switzerland is globally renowned for the quality of its international arbitration offering. The combined presence of the World Trade Organisation (WTO) and the World Intellectual Property Organisation (WIPO) in Geneva; international football body FIFA in Zürich; and the Union of European Football Associations (UEFA) in Nyon, provide a constant source of work to the country’s domestic and international law firms.
‘Switzerland is indeed doing well as a setting for international arbitration,’ says Thomas Legler, a Geneva-based partner at Python & Peter. Consequently, several Swiss law firms continue to invest heavily in the practice area.
The investments have paid off. With nine dedicated arbitration partners, Geneva-based Lalive now has the largest arbitration portfolio it has ever had. It is currently acting in over 100 arbitrations, either as counsel or arbitrator, with an aggregate value of over $16bn. In 2011 Python & Peter handled around 25 cases as counsel, with the total value in dispute around $4.6bn.
’Regulatory investigations can keep professionals busy in an area that was non-existent ten years ago.’ Daniel Daeniker, Homburger
US legal practices in Switzerland are also active in Swiss-related international arbitration. At Akin Gump, Adams reports his practice as having its best year in a decade in terms of volume and interest of cases, while fellow partner Michael Stepek has similarly continued to see workflow increase exponentially. Recently, the firm was instructed to act for Adams’ longstanding client, Alstom Power. The general contractor found itself embroiled in an International Chamber of Commerce (ICC) arbitration in Lausanne with sub-contractor Endel – an affiliate of French multinational energy company GDF Suez – over $120m in claims and counterclaims related to a New Caledonia coal-fired power station. Elliott & Kearney’s Paris-based Derek Elliott led for Endel.
The Alstom case serves to show the importance of international arbitration to Switzerland as a cottage industry. Any one arbitration contributes greatly to the overall spend into the Swiss economy, when taking into consideration legal fees, arbitrator costs, institutional administrative fees, court reporters, air fares, logistical support, accommodation, and restaurants. ‘Look at the Alstom case,’ says Adams, which took up three weeks of hearing time just on the case’s merits alone at the Lausanne Palace Hotel last summer. ‘The value of so many witnesses, dozens of lawyers, and arbitrators to the local economy is immense,’ he says. ‘That whole arbitration must have cost around Ä8m.’
In recent times, the industries feeding arbitration in Switzerland have broadened out. ‘It used to be the case that construction disputes represented around 50% of international arbitration cases in Switzerland,’ says Adams. The global crisis has meant that over the last five years there have been fewer construction projects to argue over; and with less M&A around to provoke M&A-related arbitration many firms are increasingly handling disputes over financing transactions that have gone sour, hedge fund claims, and IP-related arbitrations.
Pestalozzi acts for clients in arbitration from several industries, including financial services, pharmaceuticals, and construction. And with the commodities business generating disputes over delays and the quality of materials, the firm often finds itself enforcing, through arbitration, the contractual rights of longstanding client Glencore International, the Switzerland-based international commodities trader.
The energy sector has also generated several high-profile arbitrations for law firms. Lalive has acted on several multibillion-dollar gas pricing disputes, led by founding partner Michael Schneider and partner Veijo Heiskanen, as well as investment treaty disputes worth hundreds of millions of dollars, and a $700m construction arbitration in the Gulf. Akin Gump’s Stepek led a team representing a power-generation equipment manufacturer in a dispute with a Japanese licensee over royalties arising from the use of licensed technology in the operation of power plants in Japan.
With UEFA headquartered in western Switzerland, sports-related arbitration is frequently heard before Lausanne’s Court of Arbitration for Sport (CAS). In December 2011, UEFA was successfully assisted by Bär & Karrer’s Geneva litigation and arbitration head Saverio Lembo and Ivan Cherpillod, a partner at Lausanne firm BMP Associés, in a CAS arbitration. The CAS upheld a decision by football’s European ruling body UEFA to refuse FC Sion re-entry to the Europa League after the Swiss club breached player recruitment rules.
Arbitration proceedings had been initiated by UEFA, the dispute between the parties arising after FC Sion was sanctioned with forfeit defeats for having fielded non-eligible players in the play-off games of the UEFA Europa League’s 2011/12 season. It is those forfeit decisions that were upheld by CAS. Lembo tells LB that the UEFA case is significant because it could set a precedent relationship between CAS and the state courts.
Playing away
Swiss-related international arbitration does not always remain within the country’s borders. When international arbitration under Swiss law ends up in venues such as Singapore – perhaps because one party is Swiss and insisted on Swiss law, but the other party was Chinese and demanded a seat in Asia by way of compromise – Switzerland’s local economy loses out, but its legal market still gains. Swiss arbitration counsel may represent both sides, and there may be one or more Swiss arbitrators on the tribunal.
It would therefore be a mistake to limit the local benefits of international arbitration to Swiss-cited or Swiss law disputes, given that international arbitration counsel are not limited geographically to the place of arbitration. At Akin Gump, a substantial portion of Stepek’s practice is representing Russian clients. For example, he has acted for Renova Holdings in a series of English law, Stockholm-based arbitrations with BP, its joint venture partner in TNK-BP, Russia’s third-biggest oil company.
Arbitration in Switzerland received a further boost in 2012 via the introduction of updated rules. A revised version of the UNCITRAL-based Swiss Rules of International Arbitration was adopted by the Swiss Chambers of Commerce (SCC) in January 2012 and is expected to be in force in June.
‘The original 2004 rules had some teething problems and the new rules are intended to smooth those out,’ says Vischer’s Favalli. In light of recent revisions to both the UNCITRAL and ICC Arbitration Rules in 2010 and 2012 respectively, Froriep Renggli’s arbitration partner, Jean Marguerat, believes that the timing could not have been better.
Most observers agree that the new rules make international arbitration in Switzerland even more user-friendly. ‘Without doubt, these welcome amendments will further boost the role of Switzerland as a leading seat for arbitration,’ says Walder Wyss’ litigation and arbitration partner, Philipp Habegger.
’The value of so many witnesses, dozens of lawyers, and arbitrators to the local economy is immense.’ Charles Adams, Akin Gump
The changes introduced include a duty, for both arbitrators and parties, to conduct the arbitration in an expeditious and cost-effective manner, having regard to the complexity and value of the dispute. ‘That duty, as an ongoing task throughout the proceedings, will encourage the arbitral tribunal to become familiar with the facts and the legal issues from the outset of the case,’ says Python’s Legler.
Such an obligation could influence the arbitral tribunal when making decisions as to costs, taking into account the extent to which each party has conducted the arbitration quickly and efficiently. Additionally, the new rules compel parties to use case management conferences, which are intended to ensure that the whole process is conducted more efficiently. In practice, such conferences are already frequent. Now they will be mandatory.
Emergency arbitrator proceedings are now formally in place. Also brought in by the ICC in January 2012, these allow the parties to obtain urgent interim relief before the arbitral tribunal is set up. Up until now, the parties had to resort to state courts to obtain interim relief.
Building on success
Akin Gump’s Adams says that although the new rules have excited hyper-technical analysts, they are not a game-changer. Because it takes, on average, around five years for the filing of an international arbitration from the time that the international arbitration clause is put into a contract, the tweaking of the rules have not yet had any practical impact. In any event, the old rules are already very popular among users. ‘They offer more flexibility, less interference and administration of proceedings by the arbitral institution than most other institutional arbitration rules,’ says Habegger.
Nonetheless, the new rules help arbitration practice in Switzerland keep up with developments in civil law litigation and civil law trends around the world. ‘They are likely to make Switzerland even more attractive as an arbitration venue,’ says Vincent Jeanneret, the Geneva-based managing partner at Swiss law firm Schellenberg Wittmer. Some expect the new rules’ adoption to be accompanied by a marketing push on the part of the SCC, with an increase, in due course, in the number of cases utilising the Swiss rules and a larger number of Swiss-seated arbitrations.
‘Switzerland is the country with the largest pool of ICC arbitrators and, with Geneva and Zürich combined, it is the second most common seat for ICC arbitrations after Paris,’ says Lalive’s Baizeau. ‘There is no reason why this should stop.’
Vischer’s Favalli confirms this general mood of optimism among Swiss disputes lawyers. ‘The Swiss dispute resolution market is booming and we see no sign of this changing,’ he says. LB
julian.matteucci@legalease.co.uk
National unity
Designed to bring Switzerland’s legal system in line with international practice, the new Unified Civil Procedure Code (see ‘On the rise’, LB212, page 12) came into force at the start of 2011. Previously, each canton had its own rules, meaning there were 26 different civil procedure codes.
The code was a significant milestone for Switzerland and had been a long time coming. One year on, and Walder Wyss dispute resolution partner Dieter Hofmann believes that the Code has proven its value; while according to Domitille Baizeau, a partner at Lalive, things are easier with the same set of rules applying across the country.
Although some benefits are being felt, it’s still early days. Mathis Berger, a partner at Nater Dallafior, believes that the courts remain unsure about how to apply the code. Uncertainty is, therefore, present in the market as to its practical use. ‘There’s still a tendency for each canton’s court to apply the old customs and habits to the new code,’ says Schellenberg Wittmer’s managing partner Vincent Jeanneret.
Swiss litigators are also careful about how they approach the code. ‘This is natural,’ says Bär & Karrer’s Zürich-based litigation head, Matthew Reiter. ‘A year is not a very long time.’
What the conduct of dispute resolution in Switzerland needs to achieve real uniformity is a few leading decisions from the Swiss Federal Supreme Court. The courts of first and second instance have issued a few judgments, but until a body of Supreme Court case law is built up, it is difficult to make a comparative study with a view to achieving a truly uniform procedure. ‘It’s an ongoing process and this will take a few years yet,’ says Reiter. Meanwhile Daniele Favalli, a Zürich-based partner at Vischer, expects some Federal Court decisions on procedural issues in 2012.
The unified set of rules was also intended to increase competition among Swiss law firms by enabling dispute resolution practices to spread their litigation capabilities out of the cities in which they are based. Pestalozzi was already litigating in all of the cantons, but many Zürich law firms have not seen the code translate into increased work. ‘If we have a case in a city other than Zürich, we would still refer it to a local law firm there,’ says Patrick Sommer, a Zürich-based partner at CMS von Erlach Henrici. Many Zürich practitioners would be reluctant to litigate in certain cantons because of local customs, such as the difference in language, the look and feel of writs, the court management of the proceedings, and because they would not necessarily be made to feel welcome.
Thomas Legler, a Geneva-based partner at Python & Peter, believes that the Zürich litigators are correct, and that the same is true for Geneva practitioners moving in the other direction. In Legler’s opinion, the most significant barrier is language. ‘One may overcome local customs and similar issues but you will never feel comfortable pleading in a language that you do not control perfectly,’ he says.