Swiss substantive law allows a debtor to pay a debt in the national currency of the place of payment even if the debt is actually due in a foreign currency, except in cases where the contract expressly requires the performance of the debt in the ” real money ‘using the term’ real ‘or words to that effect (Article 84 (2) of the Swiss Code of Obligations). A creditor must accept the performance of a monetary debt payable in Switzerland by means of payment in Swiss francs, even if the debt is due in foreign currency. On the other hand, a creditor cannot claim compensation in a currency other than the currency due (see, for example, the judgment of the Federal Tribunal, ATF 134 III 151, recital. 2.2). Thus, a Swiss court cannot grant a claim in the national currency of the place of payment if the compensation is actually due in a foreign currency but must reject this claim (see, the judgment of the Federal Tribunal, ATF 134 III 151, recital. 2.4). Likewise, a Swiss court cannot grant a claim in the due currency if the obligee wrongly requested compensation in a different currency – in doing so, the Swiss court would violate the principle of Swiss procedural law of don’t extra smallwhich prohibits a court from granting “anything other than what has been claimed” as stated in Article 58 (1) of the Swiss Code of Civil Procedure (see, for example, the judgment of the Federal Court, dated October 1, 2015, Case no. 4A_319 / 2015, rec. 3). This blog post will shed light on this issue in the context of international arbitration in the context of a recent decision by the Swiss Federal Supreme Court.
Swiss Lex arbitri: The consecration of the principle of Do Extra Petita
In international arbitration proceedings, the lex arbitri of Switzerland, in accordance with chapter 12 of the Swiss law on private international law (âPILA“), also requires that an arbitral tribunal adhere to the principle of don’t extra small. An arbitration award which disregards this principle may be set aside for the reason provided for in Article 190 (2) (c) LDIP. Section 190 (2) (c) LDIP reads as follows:
An arbitration award can only be set aside:
vs. when the arbitral tribunal has ruled beyond the claims submitted to it, or has not ruled on one of the claims;
An arbitration award can thus be set aside if it grants a party more than it has claimed (ultra small), if it grants a party something other than what it has claimed (extra small), or if it does not rule on one or more complaints (infra small).
In the context of the matter under consideration, the question that must be asked is whether an award can be set aside in which the arbitral tribunal has granted payment of a claim in a currency other than the currency claimed, such as this would be the case under Swiss substantive law and procedural law as described above. In a recent judgment rendered on April 8, 2021 in French, the Federal Tribunal was offered the opportunity to assess this question (Case n Â° 4A_516 / 2020, no English translation yet available at the time of this publication).
What does the Federal Supreme Court say?
The background to the Federal Supreme Court’s decision was an international investment arbitration proceeding under ICC rules. The dispute concerned the investment of several Turkish investors in cement factories in Syria. During the war in Syria in April 2012, the Syrian government lost control of the area where the factories were located. As a result, investors had to abandon their factories. In order to obtain compensation for the value of their investment in the factories, the investors initiated arbitration against Syria and demanded the payment of damages in USD. In its award issued on August 31, 2020, the Arbitral Tribunal granted the investors compensation for their claim in Syrian pounds (SYP) but allowed the investors to request payment in USD at the official exchange rate of the Syrian Central Bank on the day. of payment. However, due to the significant devaluation of the Syrian pound between 2012 (when investors lost control of the factories) and 2020 (when the award was made), the value in USD of the amount awarded in SYP in 2020 was considerably lower. to the value in USD of the amount of damages suffered by investors in 2012.
The Federal Supreme Court ruled that the compensation in SYP was “technically” something other than what the investors had claimed (in the words of the court, a alioud) but nevertheless refused to quash the sentence. On the contrary, the Court considered that the investors had no legitimate interest in the award being canceled (as required by the Article 76 (1) (b) of the Swiss Federal Court Act). According to the Federal Tribunal, it was not certain that an annulment of the award and a referral to the Arbitral Tribunal for a new decision would be more favorable to investors. The Court assumed that the Arbitral Tribunal in such a case would reject the USD investors’ claim. Although investors can initiate new proceedings to claim compensation in a currency other than the US dollar, the Court found that there was no reason to believe that such a solution would be more favorable for investors (Case n Â° 4A_516 / 2020, consid. 5.5).
Ultimately, the Federal Supreme Court left open the question of whether an arbitral tribunal can rule on a claim in a currency different from that claimed by the claimant. Instead, the Court held that the principle of ne ultra / extra petita can be applied with less rigor in a case under international trade law than in a case governed by Swiss law (Case n Â° 4A_516 / 2020, consid. 5.5).
The reasoning of the Federal Supreme Court leaves one unsatisfied
The Court did not answer the question whether an arbitral tribunal may grant payment of a claim in a currency other than the currency claimed, although the Court considered that in the present case the Arbitral Tribunal granted something other than what had been claimed. On the contrary, the Court noted that the principle of not infra small could be applied less strictly in an international trade framework, without defining what this means.
Further, the Federal Supreme Court simply assumed that the arbitral tribunal would dismiss the investor’s USD claim if the case was referred without detailing the basis for that assumption. The Court’s conclusion that investors have no legitimate interest in having the award canceled ignores the fact that the award of an amount in a currency other than that claimed resulted in a material loss for investors in because of the devaluation of this currency.
In any case, this decision confirms the high threshold to be crossed in order to successfully annul a sentence in Switzerland.
Key points to remember
Parties to an international arbitration proceeding sitting in Switzerland and involving different currencies are well advised to assess the correct currency of their claim and, in the event that the claim relates to a currency other than the apparent currency, to show the arbitral tribunal why a different currency is claimed.
In commercial arbitration proceedings, parties should also consider designating in their contract the currency for all claims arising out of or in connection with the contract. In the absence of such a clause, in Swiss substantive law, the contractually agreed currency designates the currency of a request for performance. In the event of a claim for damages, the correct currency is usually the currency of the state where the damages occurred (see, for example, the judgment of the Federal Tribunal, dated February 10, 2017, Case no. 4A_341 / 2016, rec. 2.2).
In investment arbitration proceedings, the bilateral investment treaty may designate a specific currency for claims for compensation, for example the currency of the investor’s state of domicile or the currency of the state where the investment is made. In the present case, the bilateral investment treaty in question did not designate the currency and the Federal Supreme Court held that there was no established international rule determining the indemnity currency in investment arbitrations (Case n Â° 4A_516 / 2020, consid. 4.3.2). In such a case, it is up to the claimant to convince the arbitral tribunal that the currency claimed is the correct one.