Will a Zurich International Commercial Court cannibalize Zurich as a seat for international commercial arbitrations?

Will a Zurich International Commercial Court cannibalize Zurich as a seat for international commercial arbitrations?

As has been described by, for instance, Ioana Knoll-Tudor in an article of 6 March 2019 on the Kluwer Arbitration Blog, a number of countries have launched initiatives in recent years to create special courts for international commercial litigations. Known examples of these initiatives are, for instance, the International Chamber of the Paris Court of Appeal, the Netherlands Commercial Court and the Chamber for International Commercial Disputes at the Landgericht Frankfurt am Main. All these special chambers or special courts have the goal to, as is well put in the protocol relating to procedural rules applicable to the mentioned International Chamber of the Court of Appeal of Paris, “meet the expectations of economic actors who wish to benefit from an attractive judicial system“.

Not surprisingly in light of the above-mentioned trend, Zurich is currently also engaged in the project to create a special chamber at the Commercial Court of the Canton of Zurich (the ZH Commercial Court) for international commercial disputes to be heard and decided in the English language (the Zurich International Commercial Court or ZICC). This project has recently been discussed by Lorenz Raess in an article published in the Neue Zürcher Zeitung.

Given that Switzerland, including Zurich, is historically and still today a successful seat for international commercial arbitrations, the project to create a Zurich International Commercial Court raises the question whether or not such a court would compete with Zurich as a seat for international commercial arbitrations. In other words, is it to be expected that a ZICC would attract commercial disputes that would otherwise, in the absence of such a special state court for international commercial disputes, have opted for arbitral proceedings before a Zurich-seated arbitral tribunal?

In my opinion, such a cannibalization of Zurich as a seat for international commercial arbitrations is not to be expected, for the reasons set forth below.

International commercial arbitrations and commercial disputes before state courts, particularly the ZH Commercial Court, are two very distinct “animals”. There are parallels, of course, but the differences are still stark, namely with regard to state courts in civil law countries, such as Switzerland. Such important differences will, in my opinion, not be reduced in a significant manner with the creation of a ZICC, despite the special features of such a court, including the introduction of the possibility to conduct proceedings in the English language.

These are some of the significant differences between, on the one hand, international commercial arbitral proceedings and, on the other hand, state court proceedings before the possible ZICC:

(i) One of the key rights of parties to international commercial arbitrations is to be involved in the selection of the arbitrator(s). The exact procedural rules that would apply to the ZICC have not been determined yet, but it is not to be expected that the parties to proceedings before such a court would have any say in the composition of the court’s bench. For parties who wish to have an influence on the appointment of the person(s) who shall decide the dispute, being limited to the judges at the ZH Commercial Court, regardless how experienced, qualified and professional they are, and without having any influence on the composition of the bench, will not be attractive.

(ii) International commercial arbitrations are, in principle, confidential, whereas proceedings before Swiss state courts are, in general, public. For parties that wish to keep a potential or already materialized commercial dispute out of the eyes of the public, arbitral proceedings will be preferable to state court proceedings.

(iii) The procedural rules governing proceedings before the ZH Commercial Court are strict, significantly stricter than the procedural rules usually applying to international commercial arbitrations. For example, the Swiss Civil Procedure Code allows the introduction of factual assertions and means of evidence into the proceedings in principle only up to and including the second exchange of written submissions. In other words, the claimant must, subject to certain exceptions, submit all the factual assertions and evidence upon which his or her case is based with, at the latest, his or her rejoinder (Replik), and the defendant must do so with, at the latest, his or her surrejoinder (Duplik). After these submissions, the parties in proceedings before the ZH Commercial Court are, in principle, barred from introducing any additional factual assertion or means of evidence into the proceedings. Differently, the procedural rules agreed upon in international commercial arbitrations usually allow the parties to introduce factual assertions and means of evidence significantly later into the proceedings than up to the second exchange of written submissions. Parties who do not wish to submit themselves to a very strict procedural regimen to have their commercial dispute settled will prefer the leeway granted in international commercial arbitrations.

(iv) The taking of evidence before the ZH Commercial Court is very different from how this important procedural step is usually carried out in international commercial arbitrations. Two important aspects in this regard concern, first, the production of documents and, second, the hearing of witnesses. As far as document production is concerned, the ZH Commercial Court, as are other civil courts in Switzerland, is very restrictive in this regard, at least significantly more restrictive than what is usually an accepted level of document production in international commercial arbitrations. The same reserve applies in relation to witness hearings. Before Swiss civil courts, witnesses are primarily interrogated by the judge, not by the parties’ counsel, and outright cross-examinations, which are standard in international commercial arbitrations, are completely unknown. In light of these two aspects, it is to be assumed that parties from a common law background will generally find the Swiss state court system of evidence taking too restrictive.

(v) Proceedings before a possible ZICC would also be less flexible in another regard, namely where hearings could take place. As is well known, in international commercial arbitrations hearings can be held anywhere in the world, irrespective of the legal seat of the arbitral tribunal. Consequently, an arbitral tribunal with its seat in Zurich can hold hearings in Paris, for instance, while a ZICC would not have this kind of flexibility. Hence, parties who wish to have full flexibility concerning the physical places where hearings or meetings can be conducted will find the prospect of being limited to Zurich not appealing.

(vi) As is well known, awards rendered by Swiss arbitral tribunals can only be challenged before the Swiss Federal Supreme Court (SFSC) on very narrow grounds, and the chances of success of setting aside requests filed with the SFSC are slim, percentage-wise below 10%. To many users of arbitration as a dispute settlement mechanism, this is a clear advantage of arbitrations, because it gives them a significant level of comfort that arbitral awards are, generally, final and binding. Regarding judgments rendered by a ZICC, the SFSC’s competence to review such judgments would be more important, unless certain changes are made to the relevant Swiss statutes to narrow the SFSC’s competence in question, which is not to be expected in my opinion.

(vii) One key feature of international commercial arbitrations is the existence of the New York Arbitration Convention, which ensures that arbitral awards are, as a matter of principle, recognizable and enforceable in more or less every state in the world. To date, there is no comparable convention with regard to commercial judgments issued by state courts. In other words, judgments rendered by a ZICC would not benefit from a quasi-worldwide acceptance and enforceability. This aspect should, obviously, not be an issue in situations where a ZICC judgment would have to be “exported” to a member state of the Lugano Convention, but in situations outside the realm of this convention, the higher hurdles of enforcing state court judgments can, depending on the circumstances, clearly speak in favor of arbitral proceedings.

(viii) Where a ZICC could have a clear advantage over arbitral proceedings in Zurich is the cost factor. Although not cheap, disputes before the ZH Commercial Court are generally less expensive than international commercial arbitrations. Actually, the costs triggered by international commercial arbitrations are regularly so important that it generally makes no sense from a purely financial viewpoint to arbitrate claims that are not important enough. It remains to be determined what kind of court costs would be charged by a ZICC, but it would appear to be unlikely that such costs would exceed the costs involved in international commercial arbitrations. Consequently, a ZICC might be an interesting alternative to arbitration for smaller claims.

In summary, as has been briefly shown above, there are indeed pronounced differences between proceedings before, on the one hand, arbitral tribunals seated in Zurich and, on the other hand, a ZICC, and because of such differences, it would appear to be fair to state that these two dispute resolution options, assuming that the ZICC would be put in place, would cater to different users and, therefore, not or only rarely be in direct competition with each other. In my opinion, this circumstance is another reason that speaks in favor of supporting the effort to create a Zurich International Commercial Court. Not only would it appear that Zurich as a seat for international commercial arbitrations and a ZICC could coexist peacefully. Additionally, it could be hoped that a successful ZICC would further promote Switzerland as a successful dispute resolution center and Swiss law as an attractive law to international commercial actors, which might also have a positive effect on the reputation and appeal of Zurich as a seat for international commercial arbitrations.

Please note that on 14 December 2020, I have published an extended and improved version of this article in Jusletter (see: https://jusletter.weblaw.ch/juslissues/2020/1049/thoughts-on-a-zurich_6da0b3e9a6.html__ONCE&login=false).

PHH, Zurich, as per 7 November 2020 (www.haberbeck.ch)

The information contained in this article is for general informational purposes only and is not intended to constitute legal advice. Readers of this article should not take any actions or decisions without seeking specific legal advice. Any mandate is subject to the full execution of an engagement letter.




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