## Facts

- A group of telecom-related entities, including Vivendi S.A., pursued claims arising from a complex shareholding structure involving a Polish mobile operator.
- The parties negotiated a settlement agreement dated March 29, 2006, but it remained unsigned.
- The draft settlement contained an ICC arbitration clause providing for a three-member tribunal, English as the language, and Geneva, Switzerland as the seat.
- In April 2006, the claimants commenced ICC arbitration seeking to enforce the alleged settlement against Deutsche Telekom and other respondents, including Elektrim S.A.
- Respondents contested jurisdiction, including on the ground that no settlement agreement had been executed; the ICC Court nevertheless found prima facie jurisdiction and constituted the tribunal.
- On August 21, 2007, a Polish court declared Elektrim S.A. bankrupt.
- Under an agreed English translation of Polish Bankruptcy and Reorganisation Act (PBRA) Article 142, arbitration clauses concluded by a bankrupt “lose legal effect” upon bankruptcy and “pending arbitration proceedings shall be discontinued.”
- Elektrim requested that the tribunal terminate the arbitration as to it based on PBRA Article 142.
- In an interim jurisdictional award, the tribunal applied Polish law (as Elektrim’s law of incorporation), held it lacked jurisdiction over Elektrim, and discontinued the arbitration only as to Elektrim while allowing claims against other respondents to proceed.
- The claimants filed a setting-aside petition in the Swiss Federal Supreme Court challenging the interim award insofar as it removed Elektrim from the arbitration.

## Issues

1. Whether a corporate party’s capacity to be a party in an arbitration seated in Switzerland is governed by Swiss law (law of the seat) or by the law of the party’s incorporation and bankruptcy.
2. If the law of incorporation/bankruptcy applies, whether PBRA Article 142 deprives a bankrupt Polish company of capacity to arbitrate and requires discontinuance of a pending Swiss-seated arbitration as to that company.
3. Whether giving effect to PBRA Article 142 in a Swiss-seated arbitration violates Swiss international public policy.

## Decision

- The Swiss Federal Supreme Court dismissed the setting-aside petition and upheld the interim award.
- The court treated the effect of Elektrim’s bankruptcy on its participation in arbitration as a question of party capacity (subjective arbitrability), not merely a procedural question of the lex arbitri.
- Applying Swiss conflict-of-laws rules on legal persons, the court held Elektrim’s capacity was governed by Polish law as the law of incorporation.
- Under Polish law, PBRA Article 142 rendered Elektrim’s arbitration clause ineffective and required discontinuance of the pending arbitration as to Elektrim, divesting the tribunal of jurisdiction over it.
- The court found no violation of Swiss international public policy in recognizing the effects of PBRA Article 142.
- Two judges dissented, reasoning Swiss law as the law of the seat should govern and would have allowed the arbitration to continue against Elektrim.

## Legal Principles

- In a Swiss-seated international arbitration, a legal person’s capacity to be a party is determined by the law governing the entity’s legal status under Swiss private international law (law of incorporation).
- Bankruptcy may affect a party’s capacity to arbitrate when the applicable incorporation/bankruptcy law provides that arbitration clauses become ineffective upon a bankruptcy declaration and that pending arbitrations must be discontinued.
- In jurisdictional set-aside proceedings, the Swiss Federal Supreme Court conducts full review of legal questions, including preliminary questions on which jurisdiction depends, even when foreign law governs those questions.
- Giving effect to a foreign bankruptcy rule that neutralizes arbitration clauses is not, by itself, contrary to Swiss international public policy.

## Conclusion

The court confirmed that, for a bankrupt company incorporated abroad, capacity to participate in a Swiss-seated arbitration is governed by the incorporation/bankruptcy law; because Polish law voided Elektrim’s arbitration clause upon bankruptcy, the tribunal properly discontinued the arbitration as to Elektrim and lacked jurisdiction over it.


Vivendi S.A. v. Deutsche Telekom AG, Case No. 4A_428/2008 (Switz. 2009)