KMU Magazin No. 4/5, April/May 2023 Statutory arbitration clauses as an opportunity for SMEs
As of January 1, 2023, the Swiss Code of Obligations (CO) provides that AGs, GmbHs and limited partnerships can have disputes under company law decided by a court of arbitration based in Switzerland in their articles of association. This option is particularly interesting for SMEs that have a manageable shareholder structure.
Swiss SMEs are confronted with arbitration clauses in numerous contracts, sometimes without being aware of them. Especially in international business transactions arbitration clauses are widespread, whether in contracts with suppliers or with business customers. This ensures that, in the event of a dispute, neither party has the advantage of having to litigate before the courts of its "own" country. An arbitration court is chosen by the parties themselves and takes the place of the national courts. This means that an arbitration decision binds the parties in the same way as a decision by a national court.
New legal certainty
What is widely used in contracts is currently rarely found in the articles of association of Swiss corporations. This is due to legal uncertainties about the validity and effect of an arbitration clause in the articles of incorporation that prevailed before January 1, 2023. These legal uncertainties have been eliminated with the new Article 697n CO. The Articles of Association provide for disputes under company law to be decided by an arbitration court with its seat in Switzerland.
The law provides that a statutory arbitration clause binds the company, the organs of the company, the members of the organs and the shareholders. Article 697n of the Swiss Code of Obligations (OR) also applies to limited liability companies (Art. 797a CO) and limited partnerships (Art. 764 para. 2 CO).
Advantages and disadvantages
Disputes under corporate law include, for example, actions to challenge resolutions of the General Meeting of Shareholders or actions for the nullity of resolutions of the General Meeting of Shareholders or the Board of Directors. Such lawsuits can place a heavy burden on a company, as the legal fate of resolutions remains in limbo for a long time. In addition to the aforementioned neutrality, the advantages of arbitration lie above all in the fact that an arbitration court can often reach a decision more quickly than a national court. If the amount in dispute is less than CHF 1 million, for example, the procedural rules of the Swiss Arbitration Centre, the so-called "arbitration rules", provide for a quicker decision. The arbitral decision must be rendered within six months of the transfer of the file to the arbitral tribunal. In addition, the arbitration decision is usually final, as the possibilities for appeal are limited. The only option is to appeal to the Federal Supreme Court, whereby the grounds for appeal are very limited. This avoids the need for a lengthy appeal process.
In addition, the parties benefit from the fact that arbitration proceedings, unlike national proceedings, are not public. An arbitration clause in the articles of association can thus prevent disputes within the stock corporation or between shareholders and corporate bodies from ending up in the daily press. There are many examples of this. One example is the publicly announced conflict between the shareholders of Football Club Lucerne. This kind of reporting ties up a lot of resources and often has a negative impact on the company's reputation.
With all these advantages, however, it should be noted that an arbitration court has no national power. It cannot enforce any enforcement measures and cannot, for example, give binding instructions to the commercial register.
Statutory model clause
In order to facilitate the implementation of Article 697n CO by companies, the Swiss Arbitration Centre provides a statutory model arbitration clause as well as supplementary arbitration rules (siehe www.swissarbitration.org/centre/arbitration/arbitration-rules/ ). This ensures that arbitration proceedings based on a statutory arbitration clause comply with the new legal provisions. The recommended content of the model arbitration clause is as follows (see www.swissarbitration.org/centre/arbitration/arbitration-rules/ ):
"(1) All disputes under company law, excluding matters subject to summary proceedings under Article 250 lit. c of the Swiss Code of Civil Procedure [ZPO], shall be settled by arbitration in accordance with the Swiss International Arbitration Rules of the Swiss Arbitration Centre. (Editor's note: The addition "and excluding actions for the declaration of invalidity of the remaining equity securities under the Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading" has been omitted here, as it is only relevant for a small number of SMEs). The version of the Arbitration Rules in force at the time of filing the Notice of Arbitration shall apply.
(2) The seat of arbitration is ... (registered office of the company/other city in Switzerland).
(3) The language of the arbitration shall be ... (insert desired language)."
The reservation of the proceedings according to Article 250 lit. c CCP excludes those disputes which are often connected with enforcement measures. This reservation is not mandatory, but recommended due to the lack of enforcement power of the arbitral tribunal.
The statutory arbitration clause can also be supplemented with further provisions. Conceivable are provisions on the number of arbitrators and their appointment. Such an additional clause is to be welcomed in order to avoid delays, since in particular in corporate disputes more than two parties are often involved in or affected by the proceedings. For example, shareholders who are affected by the validity or invalidity of a corporate resolution, even if they do not actively participate in it, should be considered.
According to Article 697n para. 3 CO, the articles of association must ensure that persons who may be directly affected by the legal effects of the arbitration decision may participate in the appointment of the arbitral tribunal. It is assumed that the appointment of the arbitral tribunal by a neutral body, for example by the arbitral tribunal of the Swiss Arbitration Centre, satisfies the requirements of Article 697n para. 3 CO.
Depending on the company, the proposal of the Swiss Arbitration Centre to charge the costs of the arbitration proceedings to the company may also be interesting. This is possible if the complaining party is a shareholder, had a justifiable reason for bringing the action and there are no overriding interests of the company to the contrary. In addition, in view of the composition of the company and of the shareholders or partners, a separate provision may be necessary regarding the notifications to be made to the shareholders or partners by the arbitral tribunal.
Amendment to the Articles of Association
The introduction of the statutory arbitration clause is one of the most important resolutions of the General Meeting of Shareholders. Pursuant to Article 704 para. 1 item 14 of the Swiss Code of Obligations, this requires at least two-thirds of the votes represented and a majority of the par value of the shares represented. In the case of a limited liability company, in addition to at least two-thirds of the votes represented, an absolute majority of the total share capital to which an exercisable voting right is attached is required (Art. 808b para. 1 no. 10bis CO).
If these requirements are met, the arbitration clause also applies to shareholders and partners who have not given their consent. In addition, the amendment to the articles of association must be publicly certified and entered in the commercial register.
Conclusion
The possibility of providing for statutory arbitration clauses represents an opportunity for SMEs. The Swiss Arbitration Centre offers a valuable implementation aid for SMEs in the form of the statutory model arbitration clause and the supplementary arbitration rules for corporate disputes. However, the concrete design of the statutory arbitration clause should be examined individually for each company. Our experts will be happy to support you at it.
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