Arbitration Newsletter (October 2009)

Facts In April 2003, Swedish citizen A, residing in Italy and BVI registered Corporation Y entered into a sale and transfer agreement pertaining to the company X (the "Sale Agreement"). Swedish citizen B, residing in Italy and majority shareholder of Corporation Y acted in the name and on behalf of Corporation Y throughout the transaction discussions. The Sale Agreement provided for arbitration pursuant to the ICC Rules in Switzerland, and a choice of law provision in favor of Swedish law.

In March 2007, A initiated an arbitration proceeding in Sweden against Corporation Y for the payment of the outstanding purchase price agreed in the Sale Agreement. Both Corporation Y and B failed to "accept" (entgegennehmen) the Notice of Arbitration, resulting in the immediate termination of the Swedish arbitration proceeding. Corporation Y was liquidated without A's knowledge at an unspecified time prior to the filing for arbitration.

Thereafter, B filed a negative declaratory action before the judicial authorities in Sweden for the acknowledgement of the non-binding character of the Sale Agreement on B.

Following the extinction of the arbitration proceeding in Sweden, A initiated judicial proceedings in Switzerland against B for the payment of the outstanding purchase price as per the Sale Agreement. A contended that B had purportedly induced Corporation Y's economic disintegration in order to foil any arbitration proceeding brought against this company. Hence, A further contended that B should be held liable for Corporation Y's outstanding liabilities under the Sale Agreement. B objected the jurisdiction of the Swiss judicial authorities relying on the arbitration clause contained in the Sale Agreement.

The cantonal courts sustained B's jurisdictional objection. In a nutshell, they found that although not a signatory of the Sale Agreement, B was bound therewith based on the principle of piercing the corporate veil. Thus, the courts denied jurisdiction.

A sought the annulment of the cantonal decisions before the Swiss Supreme Court.

Decision The Supreme Court, and previously the cantonal courts, addressed the jurisdictional objection exclusively from the perspective of the Swiss Private International Law Act ("PILA") Article 7. In so doing, the courts followed the well established albeit not undisputed principle whereby a positive conflict of jurisdiction between a judicial authority and an arbitral jurisdiction based, respectively seated in the same...

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