Cross Border Insolvency Chapter 6 PDF

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Chapter 6: Specific Effects of a Commencement of an
Publication Insolvency on International Arbitration
International Arbitration and 299 This part of the book discusses the most common effects of an insolvency on
Cross-Border Insolvency: international arbitration once the existence of the insolvency is recognized. Of particular
Comparative Perspectives interest are the insolvency’s effects on arbitration agreements, the capacity of the parties,
and the suspension of arbitral proceedings. Addressed in the following not only are the
effects, but also the corresponding conflict-of-law questions that arise under the different
Bibliographic reference legal regimes. Thereby the conflict-of-law approaches developed in Chapter 5 of this book
are analyzed in connection with each individual effect.
'Chapter 6: Specific Effects of
a Commencement of an
Insolvency on International §6.01 EFFECTS OF INSOLVENCY ON ARBITRATION AGREEMENTS
Arbitration', in Simon 300 Jurisdiction of arbitral tribunals is based on an agreement between the parties. (1) The
Vorburger , International doctrine of separability determines that the agreement to arbitrate is a separate contract,
Arbitration and Cross-Border independent and distinct from the main contract. (2) Thus, even where the main contract is
Insolvency: Comparative considered to be invalid, the arbitration agreement is generally not affected.
Perspectives, International Nevertheless, an arbitration agreement itself could be rendered invalid or ineffective by
Arbitration Law Library, the commencement of an insolvency.
Volume 31 (© Kluwer Law
International; Kluwer Law 301 In particular, insolvency law can target an arbitration agreement’s validity per se where
International 2014) pp. 97 - one of the parties becomes subject to insolvency proceedings. Further, even where the
200 arbitration agreement remains valid, it might no longer bind the trustee. With reference to
the fact that an arbitration agreement was concluded by the debtor, the trustee could
P 97 refuse to arbitrate a dispute. The trustee could also use his right to reject certain contracts
P 98 – which is conferred upon him by certain insolvency laws – to reject the arbitration
agreement. Or, finally the scope of a preexisting arbitration agreement might no longer
cover certain actions arising under insolvency law.
[A] Distinction between Validity and Scope of an Arbitration Agreement

302 Validity, scope ratione materiae and scope ratione personae of arbitration agreements
need to be distinguished. All three aspects build part of the jurisdiction of an arbitral
tribunal. (3) The validity of the arbitration agreement concerns the continued validity and
existence of arbitration agreements after one of the parties became subject to insolvency
proceedings. Questions of scope relate only to arbitration agreements that remain valid.
The scope ratione materiae answers the question as to whether the arbitration agreement
covers certain types of claims or issues. (4) The scope ratione personae of the arbitration
agreement determines the parties that are bound by the arbitration agreement. (5) An
insolvency proceeding involving a party subject to arbitration can impact all these aspects
of the arbitration agreement. (6)
303 It is important to note that the terminology with regard to the validity and scope of
arbitration agreements varies considerably. Particularly in the U.S., many of these issues
are discussed under the title of “arbitrability.” (7) Arbitrability, however, refers in the rest of
the world to the types of claims that are of a subject-matter that can be submitted to
arbitration. (8) In order to allow an effective comparison of the different legal systems, this
book follows the majority approach. When referring to the U.S. approach, it will
characterize the elements of “U.S. arbitrability” in the terminology used for its
counterparts in the rest of the world.
[B] Validity of Arbitration Agreement

304 The per se validity of an existing arbitration agreement might be jeopardized by the
commencement of an insolvency proceeding. Certain insolvency laws seek to render a
valid arbitration agreement null and void or invalid at the time a party becomes subject to
insolvency proceedings.
P 98
P 99
[1] Comparative View
305 German, (9) French, (10) and English (11) insolvency laws do not per se invalidate
arbitration agreements of the debtor that were concluded prior to the commencement of
the insolvency. U.S. case law does not indicate that the commencement of an insolvency
would render an arbitration agreement per se invalid or unenforceable. (12) It is rather for
the U.S. bankruptcy court to determine whether in certain subject-matters (e.g. core
bankruptcy proceedings) the arbitration agreement should be enforced. (13) But this is a
question of subject-matter arbitrability and not of validity of arbitration agreements.
306 When looking into legal systems beyond the scope of this book, one can indeed
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encounter provisions affecting the validity of arbitration agreements. This is for instance
true for Polish (14) and Latvian (15) insolvency law. Until recently, furthermore, Spanish
insolvency law stipulated that arbitration agreements entered into by the debtor would
become invalid after the commencement of an insolvency. (16) Beside these rather
unusual provisions it is – at least to the authors’ knowledge – rarely the case that
insolvency laws render preexisting arbitration agreements per se invalid.
P 99
P 100
[2] Switzerland
307 Under Swiss law, the commencement of an insolvency does not affect the validity of
preexisting arbitration agreements. This was explicitly confirmed by the Swiss Federal
Supreme Court. (17)
308 This, however, does not restrict the parties in their right to set conditions to the
validity of the arbitration agreement. Namely, parties are free to agree on the condition
that the arbitration agreement should be deemed invalid in case of an insolvency. (18)
[3] Interim Summary
309 Insolvency law provisions that invalidate preexisting arbitration agreements of the
debtor are only found in rare cases. Arbitration agreements under U.S., English, French,
German, and Swiss law remain valid.
[C] Scope of Arbitration Agreement ratione personae

310 The arbitration agreement’s scope ratione personae determines the parties which are
bound by a valid arbitration agreement. (19) Where a party to an international arbitration
becomes subject to insolvency proceedings, this aspect often gives rise to complex
questions. It is often controversial whether a trustee, transferee or debtor-in-possession
remains bound by the arbitration agreement that was agreed upon by the debtor prior to
the insolvency.
[1] Binding Effect of Arbitration Agreements Upon Commencement of Insolvency
[a] United States
311 In the U.S., the question of the scope of the arbitration agreement is part of the U.S.
bankruptcy court’s exclusive jurisdiction when enforcing arbitration agreements of an
insolvent party. The case law is vast and not always consistent. However, certain patterns
P 100 can be identified. U.S. bankruptcy courts generally engage in a two-step analysis when
P 101 asked to enforce arbitration agreements. (20) In a first step, the courts inquire whether
the parties did agree to arbitrate the claim at issue. (21) In a second step, the courts
determine the subject-matter arbitrability of the claim, which is left – with certain limits –
to the U.S. bankruptcy court’s discretion. (22) The first step, i.e. the question on whether the
parties agreed to arbitrate a dispute, includes the question of scope ratione personae of
the arbitration agreement. (23)
312 It is a long-established practice that the debtor-in-possession in a Chapter 11
reorganization case is bound by arbitration agreements he concluded before the
commencement of insolvency proceedings. (24) Until 1989, it was unclear, however,
whether the same was true for the trustee. In the landmark decision Hays v. Merill, the 3d
Circuit held that the “trustee stands in the shoes of the debtor and can only assert those
causes of action possessed by the debtor. [Conversely,] [t]he trustee is, of course, subject to
the same defenses as could have been asserted by the defendant had the action been
instituted by the debtor.” (25) The court added that the trustee was, according to U.S.
Bankruptcy Code § 541, the successor of the debtor and, therefore, bound to arbitrate all of
its claims that are derived from the rights of the debtor under this provision. (26) The 3d
Circuit also referred to the established practice regarding the debtor-in-possession and
reasoned that it could “see no reason why the trustee should be treated any differently.”
(27)
[b] Germany
313 German courts consider the trustee generally to be bound by preexisting arbitration
P 101 agreements. (28) This is also the prevailing view in German scholarship. (29) This is justified
P 102 based on the argument that with the commencement of insolvency proceedings, the
trustee takes up the legal position as it stands. (30) A German scholar pictured the trustee
as “remaining stuck” to the arbitration agreement concluded by the debtor. (31) There is
not much opposition to this position with exception to Häsemeyer, who points at the
debtor’s liability that is altered by insolvency law. (32) Häsemeyer concludes that the
trustee has to continue an arbitral proceeding where it was already ongoing at the time of
the insolvency. (33) On the other hand, Häsemeyer argues that the debtor is not bound by
arbitration agreements when insolvency proceedings were commenced prior to invoking
the arbitral tribunal. (34)
[c] England
314 Under English law, the various types of insolvency proceedings available for corporate
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insolvencies (35) must be distinguished, namely compulsory liquidation, (36) administration,
(37) and administrative receivership. (38) The English trustee (which, depending on the type
of proceeding, is either a liquidator, an administrator, or an administrative receiver) is the
agent of the company and is the person who acts in arbitration on behalf of the debtor. The
administrator and administrative receiver do have the power to bring arbitration proceedings
on their own. (39) The liquidator needs in order to conduct arbitral proceedings the prior
permission of the court. (40)
315 A party (e.g. a creditor) seeking arbitration against a company in compulsory liquidation
has to apply to the court. (41) The court will then decide whether it is right and fair under
the circumstances that the dispute is going to be resolved by arbitration or whether it is
P 102 for a national court to decide. (42) A party bringing arbitral proceedings against a debtor
P 103 under administration might either do so with the consent of the administrator or, failing
that, with permission of the court. (43) In administrative receivership, there are no
limitations in commencing arbitral proceedings against a company. (44) Hence, the
administrative receiver is fully bound by the preexisting arbitration agreement.
316 The English Court of Appeal held that the assignee of all the assets of a company in
liquidation would not automatically become subject to an arbitration agreement
previously concluded by the liquidated party. (45) Once the liquidation is completed the
arbitration agreement might become a nullity, since the corporate person no longer exists.
(46)
[d] France
317 In France, the trustee and assignees of assets of the insolvency estate are bound by
preexisting arbitration agreements of the debtor. This is regular French court practice (47)
and supported by French commentators. (48) This approach is based on the observation
that the dispute concerns a contract that was concluded before the insolvency and would
have been executed outside insolvency proceedings. (49) Equally important, where the
trustee chooses to execute such contract he has to do so by complying with all the
contractual obligations associated with it, including the arbitration clause. (50)
[e] Switzerland
[i] Case Law
318 Courts have repeatedly addressed the question whether a trustee is bound by
preexisting arbitration agreements of the debtor. The Swiss Federal Supreme Court held in
an early decision in 1907 that the insolvency estate was not the legal successor of the
P 103 insolvent party. (51) Assuming that an arbitration agreement was of a substantive nature,
P 104 the court went on to say that the arbitration agreement was rendered obsolete since it
would not transfer to the insolvency estate. (52) The trustee, as the insolvency estate’s
representative, was no longer able to invoke the preexisting arbitration agreement. (53)
However, in a later decision, the Swiss Federal Supreme Court found arbitration
agreements to be of procedural and not substantive nature. (54) This decision changed the
parameters of the court’s 1907 decision.
319 Jolidon points to an unpublished decision by the Swiss Federal Supreme Court of 1961
where the court concluded that jurisdiction of the arbitral tribunal was not compromised
by the commencement of a Swiss insolvency proceeding. (55) Eventually in another
decision, the Swiss Federal Supreme Court implied that the arbitration agreement was
indeed transferred to the insolvency estate. (56) In a decision dating from 2009, the Swiss
Federal Supreme Court mentioned in a side note that Swiss legal doctrine unanimously
favors the idea that preexisting arbitration agreements bind the insolvency estate’s
assignees in terms of Article 260 SchKG. (57) At the same time, the court pointed to its 1907
decision, which denied such binding effects. (58) Nevertheless, it expressly refused to
elaborate on the significance of its earlier decision since it was not relevant for the
question before it. (59)
320 In 2012, the Swiss Federal Supreme Court – referring to its decision from 2009 –
explicitly held that an insolvency does not affect the validity of arbitration agreements
P 104 under Swiss law. (60) However, the court refrained from specifying its understanding of
P 105 such validity. The context of this holding implies that the court did not restrict its
reference to the validity per se, (61) but also to the binding effect of the agreement on the
trustee.
321 Cantonal courts in Switzerland have continuously rejected the 1907 Swiss Federal
Supreme Court decision. (62) They argue that the trustee representing the insolvency
estate undoubtedly acts in place of the debtor and needs to comply with all obligations to
which the debtor had agreed. (63) Certain cantonal courts point to the reasonable
expectations of creditors that would be frustrated if an arbitration agreement was
rendered invalid just because either party becomes insolvent. (64)
[ii] Literature
322 There is consensus amongst Swiss commentators that an insolvency estate represented
by a trustee as well as assignees of assets or rights of the estate remain bound by
preexisting arbitration agreements. (65) Slight differentiations can be identified in the
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reasoning. Most authors base their view on the fact that commencing an insolvency does
not entail a legal succession. Accordingly, the insolvency estate represented by the trustee
would remain bound by the arbitration agreement. (66) Another author argues that despite
the absence of a legal succession, the insolvency estate would remain bound by the
arbitration agreement. (67)
[iii] Analysis
P 105 323 The point of departure of an analysis as to the binding effects of a preexisting
P 106 arbitration agreement is the qualification of the transfer an insolvency entails. Once the
nature of the transfer of rights from the debtor to the trustee or assignee is identified, it
can be compared with similar legal situations.
(1) Nature of the Transfer of Rights from the Debtor to a Trustee or Assignee
324 In a Swiss insolvency providing for liquidation (Konkurs / faillite, Articles 197 et seqq.
SchKG) the nature of the transfers to the various actors is complex. Even though the debtor
remains the formal proprietary of his assets, he loses the capacity to dispose
(Verfügungsbefugnis) of the latter as well as his right to conduct legal proceedings
(Prozessführungsbefugnis). (68) These rights are transferred ex lege to the insolvency estate
(Konkursmasse), which now holds a derivative right of action (Prozessstandschaft). (69) This
derivative right entitles the insolvency estate to bring an action in its own name involving
the debtors’ rights. (70) The trustee is a mere representative of the insolvency estate, acting
in the name of the insolvency estate and not in his own name. (71) In turn, assignees of
certain rights of the insolvency estate, according to Article 260 SchKG or Article 325 SchKG,
become holder of the derivative right of action. (72) As a result, neither the transfer to the
insolvency estate nor the position of the trustee or assignee constitute cases of legal
succession.
325 In debt restructuring moratoriums (Nachlassstundung / sursis concordataire, Articles
293 et seqq. SchKG) and in ordinary debt restructuring agreement proceedings,
(Ordentlicher Nachlassvertrag / concordat ordinaire, Articles 314 et seqq. SchKG) the debtor
usually keeps possession of the assets and the legal right to dispose of the estate. (73) But
the debtor is subject to the supervision of the trustee, and certain actions require approval
of the trustee or judge. (74) Also in these cases, no legal succession is taking place.
326 Swiss law distinguishes two types of debt restructuring agreements with assignment of
P 106 assets (Nachlassvertrag mit Vermögensabtretung / concordat par abandon d’actif, Article
P 107 319 SchKG). The first type offers creditors the right to dispose of the assets through the
trustee. (75) The trustee’s position is identical to the one in liquidation proceedings
according to Article 197 SchKG. (76) Accordingly, the trustee represents the insolvency
estate, which, for its part, holds the derivative right of action (Prozessstandschaft) of the
debtor. (77) The second type consists in entirely or partially assigning the assets to a third
party, who is entitled to continue using the debtor’s company. (78) In this case, all property
rights and preexisting rights of the debtor are assigned. (79) Hence, it constitutes a case of
legal succession. (80)
327 Summing up, with the exception of the second type of a debt restructuring agreement
with assignment of assets, none of the insolvency forms entail a case of legal succession
from the debtor to either the insolvency estate represented by the trustee or to the
transferee.
(2) Consequences for the Binding Effect of Preexisting Arbitration Agreements
328 In the case in which insolvency proceedings (81) do not entail a legal succession, the
insolvency estate or assignees have derivative rights of action (Prozessstandsschaft)
regarding the debtor’s original claim. On the other hand, the trustee has no independent
rights regarding the assets and rights of the insolvency estate; he merely represents the
insolvency estate. The holder of a derivative right of action takes up the legal situation as
the debtor originally left it – with all its rights and duties. (82) That the trustee, at the same
time, also represents the interests of all creditors does not change this fact. (83)
Consequentially, the holder of such right not only becomes subject to all substantive rights
and substantive ancillary rights but is also committed by agreements regarding the
procedural treatment of these rights. (84) This includes the obligation to respect a
preexisting arbitration agreement.
329 In the case in which a Swiss insolvency proceeding entails a legal succession, (85) it is
P 107 appropriate to apply the principle governing other cases of universal successions. (86) It is
P 108 generally recognized that arbitration agreements are transferred in cases of universal
succession. This includes the transfer of arbitration agreements to the heirs (87) or cases of
universal succession under corporate law, such as mergers, acquisitions, transfers of assets
and spin-offs, where assets and liabilities transfer to the successor. (88) Finally, also upon
restructurings of state-owned enterprises, the new entity is bound by preexisting
arbitration agreements. (89)
(3) Conclusion
330 The above analysis shows that the fact of whether the type of insolvency proceeding
does or does not entail a case of legal succession does not make a difference in the
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outcome. In both cases, the party entitled to conduct legal proceedings is bound by the
preexisting arbitration agreements. This result also seems to be justified considering the
effective dissimilarities between a derivative right of claim and a legal succession, which
appear – at least from the procedural perspective – only minor. (90)
331 Beside these technical arguments, policy considerations also support the idea that
preexisting arbitration agreements bind insolvency estates (represented by a trustee) or
assignees. Parties originally agreed and relied on resolving potential disputes by
arbitration. From a policy standpoint, it is hard to defend why one party should be able to
unilaterally – through the commencement of an insolvency – elude arbitration and compel
the other party to proceedings before a national court. (91) Such drastic consequences
would frustrate reasonable expectations of the parties and undermine foreseeability and
legal certainty, which are amongst the main objectives of arbitration. (92) Finally, the
comparison with other jurisdictions shows that in all legal systems included in this book, a
preexisting arbitration agreement – at least as a general rule – remains binding after the
commencement of an insolvency proceeding. (93) Swiss law is no exception to this trend.
[f] Interim Summary
332 In the U.S., Germany, and France, the trustee is bound by preexisting arbitration
P 108 agreements, since the trustee takes up the legal position as it stands. In England, the
P 109 solutions vary under the various types of insolvency proceedings. Generally, the trustee
continues to be bound by arbitration agreements. In certain cases, however, the trustee or
creditors seeking arbitration need prior permission of the court.
333 In Switzerland, the trustees or assignees are bound by preexisting arbitration
agreements. This view is not only predominant in legal scholarship but seems today also
be shared by the Swiss Federal Supreme Court. Such binding effect does not vary based on
whether a certain type of Swiss insolvency proceeding entails a case of legal succession or
not. Finally, this result is also justified under policy considerations seeking to avoid the
frustration of reasonable expectations and enhancing foreseeability in international
arbitration.
[2] Executory Contracts as Means to Opt Out of Arbitration Agreements
334 Many insolvency laws contain provisions allowing the trustee (or debtor-in-possession)
to reject or assume contracts that have not been fully performed by either side at the time of
the commencement of an insolvency (executory contracts). Where executory contracts are
assumed – meaning the debtor agrees to perform the outstanding duty under the contract
– the creditor is generally held to fulfill his part in full. Conversely, the rejection of an
executory contract could leave room for the trustee to opt out of an arbitration agreement
contained in such contract. The trustee could even try to characterize the arbitration
agreement itself as executory contract. Both ways would put the trustee in a position to
avoid arbitration by simply rejecting the executory contract. (94) The definition of executory
contracts and the consequences of their rejection depend on the applicable insolvency
law.
335 In the following, the various notions of executory contracts in the countries within the
scope of this book are briefly described – as far as they exist at all. Thereafter, the book
will analyze to what extent a rejection of executory contracts may also extend to
arbitration agreements included therein.
[a] Executory Contract Provisions
[i] Comparative View
336 In the U.S., courts consider contracts executory that neither party has fully performed
at the time of a commencement of an insolvency. (95) With the permission of the U.S.
P 109 bankruptcy court, the trustee (or debtor-in-possession) has three choices. First, the
P 110 executory contract can be assumed, which entails the consequence that it has to be fully
performed and enjoys the highest priority as an administrative expense. (96) The second
option is the rejection of the contract, which is treated similarly to a breach of contract
that occurred before the commencement of the insolvency. (97) Accordingly, the claim gets
no preferential treatment. (98) Finally, the executory contract can also be assigned to a
third-party, who will be held to perform the contract in full. (99)
337 German law entitles the trustee to either insist on the performance of the contract or
reject the entire contract in cases where both parties have not fully performed. (100) This
general rule has been complemented with special rules for certain types of contracts and
refined with a large body of case law. (101)
338 In English law, only the case of a corporate liquidation (102) provides for the possibility
of rejecting certain contracts. The liquidator has the power to disclaim any “onerous
property,” which includes “unprofitable contracts” (103) that are unsalable, not readily
salable, or may give rise to further liabilities or onerous acts. (104)
339 Also, French law provides the trustee (or debtor-in-possession) with a “droit d’option” to
terminate contracts that were not entirely or at least mainly performed at the time of the
commencement of an insolvency. (105) Depending on the situation, certain executory
contracts terminate automatically or on request of the trustee. (106)
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[ii] Switzerland
340 Under Swiss law, the trustee (or debtor-in-possession) might assume, subject to certain
limitations, a contract that has not been fully performed by either party. (107) This does
not mean that an executory contract that is not assumed is terminated. (108) It rather
entitles the counterparty to file a claim against the estate for non-performance of the
contract under Article 211(1) SchKG, which provides for a conversion of non-monetary
P 110 claims into monetary claims. (109) An explicit right to reject an executory contract did not
P 111 exist under former Swiss insolvency law. Such a right was, however, introduced with the
2014 amendment to the SchKG for continuing obligations where the company is subject to
debt restructuring moratoriums (Nachlassstundung / sursis concordataire, Articles 293 et
seqq. SchKG) or ordinary debt restructuring agreements (Ordentlicher Nachlassvertrag /
concordat ordinaire, Articles 314 et seqq. SchKG). (110) Here, the amendment provides for a
right of immediate termination of the contract by the debtor-in-possession with the
consent of the trustee. (111)
[b] Effect of Rejection of Executory Contracts on Arbitration Agreements
341 The effect of a rejection of executory contracts on arbitration agreements needs to be
assessed separately for each national insolvency law. Nevertheless, with a view to the
doctrine of separability, it seems unlikely that a rejection of the main contract would also
extend to the arbitration agreement contained therein. (112) The principle of separability
strives to keep the faith of the main contract apart from the one of the arbitration
agreement. Accordingly, the invalidity or termination of the main contract usually does not
affect the arbitration agreement contained therein. (113) But where the option of a
rejection is also available to individually target both the main contract and the arbitration
agreement, the doctrine of separability does not help any longer.
[i] Comparative View
342 U.S. doctrine seems to agree that the rejection of a contract is an “all-or-nothing
proposition.” (114) Accordingly, the trustee (or debtor-in-possession) is not allowed to reject
the unfavorable parts and assume the favorable ones. In other words, where executory
contracts are assumed, this also includes an arbitration agreement contained therein. (115)
P 111 343 The rejection of an executory contract under U.S. law generally does not have the effect
P 112 that the executory contract is terminated, rescinded, or revoked. (116) The significance
attributed to the “all-or-nothing proposition” in this context is, however, unclear. One court
seemed to see in the “all-or-nothing proposition” a potential obstacle to relying on the
arbitration agreement contained in the main contract. (117) Nevertheless, the court saved
the arbitration agreement by referring to the doctrine of separability. The court noted that
the arbitration agreement contained in the executory contract was not affected by the “all-
or-nothing proposition” since it was separate. (118) Another court based its decision on the
argument that a rejection would not terminate the executory contract. (119) Accordingly, it
would not alter the substantive rights of the parties and the arbitration agreement would
survive the rejection. (120) For the arbitration agreement to remain binding, a reference to
the doctrine of separability was no longer necessary.
344 The majority of German commentators deny the trustee’s right under § 103 InsO to
directly reject an arbitration agreement. (121) It is argued that an arbitration agreement,
despite falling under the definition of an executory contract, is no synallagmatic contract
(gegenseitiger Vertrag) as required for a rejection under § 103 InsO. (122)
345 French doctrine refers to the doctrine of separability according to which a rejection of
an executory contract would not affect the arbitration agreement contained therein. (123)
The possibility of a direct rejection of the arbitration agreement is also denied, since the
rejection of executory contracts only applies to substantive contracts and not to
procedural agreements such as an arbitration agreement. (124)
346 The situation under English law is not very clear. Even though a liquidator has the
power to reject an “unprofitable contract,” (125) the initiation of arbitral proceedings by the
liquidator against creditors and vice versa remain subject to court permission. (126) It is
suggested that the liquidator is able to disclaim an arbitration agreement as an
“unprofitable contract,” subject to the permission of the court. (127)
P 112
P 113
[ii] Switzerland
347 Under former Swiss law, the non-assumption of a contract by the trustee or the debtor-
in-possession was generally not a termination. (128) Accordingly, issues with the arbitration
agreement contained therein did not arise. An immediate termination right for certain
cases of continued obligations was introduced with new Article 297a SchKG. (129) But due to
the separability of the arbitration agreement, also a termination of the main contract
under this new termination right does not affect the arbitration agreement.
348 A direct rejection of the arbitration agreement itself is not available under Swiss law.
The procedural nature of the arbitration agreement (130) does not match the nature of the
continuous obligation as provided for under Article 297a SchKG, which relates only to
contracts of substantive nature. (131) As a result, the arbitration agreement remains
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binding for the debtor-in-possession or the trustee, respectively. (132)
[c] Interim Summary
349 Executory contracts are contracts that have not been fully performed by either side at
the time of the commencement of an insolvency. All, U.S., German, English, and French
insolvency regimes allow the trustee (or debtor-in-possession) to reject or assume such
executory contracts. Current Swiss law provides for an immediate termination right for
certain cases of continued obligations.
350 Because of the doctrine of separability, the rejection of an executory contract does
generally not affect an arbitration agreement that is contained therein. A direct rejection of
the arbitration agreement as an executory contract is not permissible. This is true, with
different justifications, for all jurisdictions with the exception of England where the legal
situation is unclear. Also, under the recent Swiss amendment of Article 297a SchKG, a direct
rejection of an arbitration agreement is not allowed. The procedural nature of arbitration
agreements does not meet the definition of a continuous obligation as stipulated in new
Article 297a SchKG.
P 113
P 114
[D] Scope of Arbitration Agreement ratione materiae
351 The scope of arbitration agreements ratione materiae determines the types of disputes
the parties intended to submit to arbitration. (133) In other words, the scope of the
arbitration agreement as agreed upon by the parties delimits the arbitral tribunal’s
jurisdiction. (134)
352 The scope ratione materiae has to be kept apart from objective arbitrability, which
deals with subject-matters that can or cannot be submitted to arbitration. (135) For
instance, a certain action in an insolvency proceeding might no longer be covered by the
scope of an arbitration agreement. At the same time, the action might still be considered
objectively arbitrable; i.e. the parties could still agree to arbitrate this insolvency law
action. Conversely, the scope ratione materiae of an arbitration agreement might very well
cover a specific insolvency law action, but the limits of objective arbitrability render its
submission to arbitration ineffective.
[1] Difficulties in the Insolvency Law Context
353 Where a party to an arbitration agreement becomes subject to insolvency proceedings,
issues of scope ratione materiae become crucial. An insolvency has the consequence that
all contractual obligations become part of the debtor’s estate. In particular, insolvency law
modifies the nature of the legal relationship between the debtor and its counterparts. The
right of creditors to bring an individual lawsuit is – in the first place – substituted by the
right to file a claim with the trustee. Lawsuits involving the insolvency estate are only
possible within the insolvency law framework. Namely, it provides for a set of legal actions
that are more related to the substantive claims of pre-insolvency rights and others that
originate in insolvency law’s regulatory functions.
354 Whether an insolvency law action falls within the scope of an arbitration agreement in
any given case depends also on the interpretation of the arbitration agreement.
Arbitration agreements are unlikely to ever make a reference to insolvency. Model clauses
P 114 of leading arbitration institutions recommend a broad wording stipulating to submit to
P 115 arbitration “all disputes” (136) / “any dispute” (137) / “any dispute, controversy or claim”
(138) “arising out of or in connection with” (139) / “arising out of or in relation to” (140) the
contract. (141)
355 Considering the broad scope of these model clauses, one can assume that insolvency
law claims that demonstrate at least a certain relation to the preexisting legal relationship
between the parties will fall within the scope of such a clause. The breadth of the scope
however finds its limits where parties were not in the position to agree to arbitrate a
certain action. It is, for instance, questionable as to what extent actions originating in the
person of the trustee or the insolvency estate might previously have been at disposal of
the contracting parties. Further, a bilateral legal relationship between the debtor and the
contracting partner might be converted, through insolvency law, into an action in which a
third party holds direct rights. This newly added party’s interests cannot just be overridden
by a bilateral agreement, and, accordingly, the scope of the arbitration agreement might
no longer cover it.
[2] Determination of Scope ratione materiae in the Insolvency Context
356 This book cannot provide clear-cut answers to the above problem since solutions
depend on a case-by-case interpretation of the arbitration agreement and the concrete
insolvency law action involved. However, an analysis of certain patterns provides guidance
on how to address this question in an individual case.
[a] United States
357 Issues of the scope ratione materiae of arbitration agreements involving a party subject
to insolvency proceedings fall within the U.S. bankruptcy court’s exclusive jurisdiction.
7
(142) As described earlier, U.S. bankruptcy courts generally engage in a two-step analysis
P 115 when asked to enforce arbitration agreements. (143) The first step addresses whether the
P 116 parties agreed to arbitrate. (144) The element of the scope ratione materiae completes
the first step together with the elements of validity of the arbitration agreement and its
scope ratione personae. (145)
358 U.S. bankruptcy courts approach issues of scope ratione materiae from two
perspectives. On the one hand, they assess the wording of the arbitration agreement, and
on the other hand, they consider the nature of the claim intended to submit to arbitration.
(146) A review of U.S. case law shows that U.S. bankruptcy courts limit the scope ratione
materiae of arbitration agreements even where their ambit was drafted in the broadest
way possible. There are certain boundaries that no preexisting arbitration agreement
seems to be able to overcome.
359 In the landmark decision Hays & Co. v. Merrill Lynch, the 3d Circuit held that the trustee
or debtor-in-possession was generally bound to the same extent as the debtor by the
debtor’s preexisting arbitration agreements. (147) It found that “it [was] the parties to an
arbitration agreement who are bound by it and whose intentions must be carried out.”
(148) In turn, this means that arbitration agreements cannot confer more rights and duties
on the trustee than the debtor had. (149) Consequentially, U.S. courts tend to limit the
scope of arbitration agreements to claims that are derived from the original parties of the
arbitration agreement, that is, the debtor and its counterparty. (150)
360 Conversely, claims that are created by the U.S. Bankruptcy Code (151) cannot be
covered by the scope of preexisting arbitration agreements since at the time of their
creation the “trustee was not standing in the shoes of the debtor.” (152) As a result, Hays &
Co. v. Merrill Lynch limits the potential scope of even broadly drafted arbitration
agreements to merely debtor-derived claims excluding code-created claims. This
approach has been widely adopted by other U.S. courts. (153)
361 The interpretation of the individual drafting of arbitration agreements remains subject
to a case-by-case assessment. Depending on the breadth of the scope of the arbitration
P 116 agreement, all or only certain of the debtor-derived claims are submitted to arbitration.
P 117 Certain guidance on the interpretation of the breadth of scope might be provided by the
language of the arbitration agreement in Prima Paint. In this case, the U.S. Supreme Court
acknowledged that the formula using “arising out of or related to” sweeps broadly in scope.
(154) Such wording will most likely cover all debtor-derived claims.
362 It would be wrong to assume that all debtor-derived claims are automatically
considered objectively arbitrable. U.S. bankruptcy courts continue with a second step of
their arbitration agreement enforcement proceeding and subject the debtor-derived
claims to the objective arbitrability test. The subject-matter arbitrability of insolvency law
actions is discussed earlier in this book. (155)
[b] Germany
363 The approach of the German Supreme Court is similar to the one in the U.S. The court
held that the scope of preexisting arbitration agreements only extends to actions that
derive from the agreement underlying the arbitration agreement. (156) Actions originating in
the person of the trustee are consequentially not covered by preexisting arbitration
agreements. (157) Actions deriving from the debtor’s agreement are, for instance, actions
regarding substantive rights on the assets (Prozesse um Massegegenstände) (158) or actions
seeking a declaratory judgment regarding the existence or non-existence of a claim that
was filed with the trustee (Feststellungsstreit). (159) In contrast, a trustee’s action
challenging unfair preferences (Anfechtungsklage) (160) is not covered by the scope of pre-
petition agreements since it originates in the person of the trustee. (161) The same is true
for the trustee’s right to elect non-performance of the contract containing the arbitration
clause (Wahlrecht des Insolvenzverwalters). (162)
[c] England
P 117 364 English doctrine and courts addressed the binding effects of preexisting arbitration
P 118 agreements on trustees, but the question of their scope ratione materiae has not been
discussed much. (163) Some guidance might be provided by a decision of the English
House of Lords. (164) Lord Hoffmann suggested that the interpretation of an arbitration
clause should depart from the assumption that the parties acted as rational businessmen.
Accordingly, they would have intended to submit any possible dispute arising under their
relationship to arbitration. (165) Hence, English courts seem to interpret arbitration
agreements in a broad manner. The way such a broad interpretation would apply in detail
in the insolvency context remains to be determined.
[d] France
365 French literature and case law follow a similar approach to the one that applies in the
U.S. and Germany. French law distinguishes between claims deriving from the parties’
underlying contract and those originating from insolvency law. (166) Mourre notes that
making such distinctions is not always easy and suggests that certain actions of corporate
responsibility do not derive from the underlying contractual relationship. (167) As
examples, he mentions the French action en comblement de passif (168) or claims for
8
damages related to mismanagement, which have their origin in tort or insolvency law. (169)
Mourre argues, however, that, in such cases, the scope ratione materiae should be handled
flexibly. (170)
The French Court de cassation decided that preexisting arbitration agreements would only
bind a trustee in cases where the trustee was exercising rights and remedies of the debtor
according to the modalities of insolvency law. (171) Conversely, the arbitration agreement
would not bind the trustee for claims that were brought in the name and in the collective
interest of the creditors. (172)
P 118
P 119
[e] Switzerland
[i] Case Law
366 Swiss courts have occasionally been confronted with issues of the scope ratione
materiae of arbitration agreements in the insolvency context. A case before the Swiss
Federal Supreme Court concerned a corporate liability action (Article 757 OR) that arose in
the course of an insolvency proceeding. (173) The action had previously been assigned to a
single shareholder under the terms of Article 260 SchKG. (174) The articles of incorporation
contained an arbitration agreement submitting all disputes between the corporation and
its shareholders or their successors to arbitration. (175) The court had to decide whether
the arbitration agreement remained binding on the shareholder after the commencement
of an insolvency. The court pointed to the peculiar nature corporate liability actions during
insolvency proceedings (Article 757 OR). It noted that in an insolvency the circle of
beneficiaries of corporate liability actions expands. Namely, not only do shareholders but
also creditors hold an interest in corporate responsibility actions. The creditors had,
however, no influence on the implementation of the arbitration agreement in the articles
of incorporation. (176) The scope of the arbitration agreement could, accordingly, not cover
the nature of this particular claim.
367 A Cantonal Supreme Court touched upon the scope of a preexisting arbitration
agreement in connection with an action challenging unfair preferences (actio pauliana /
action révocatoire, Article 289 SchKG). (177) The broadly drafted arbitration agreement was
contained in a supply agreement. (178) The court was asked whether the actio pauliana
against the creditor had to be submitted to arbitration. (179) The court denied this, arguing
that an actio pauliana was not objectively arbitrable. (180) More importantly, the court
went on to say that even had it found the actio pauliana to be objectively arbitrable, the
scope of the arbitration agreement would not have covered such action. (181) This was
based on the nature of the actio pauliana originating in insolvency law and deriving from
creditor’s interests and rights (represented by the trustee). (182) As a result, the debtor was
not able to dispose of this action at the time of the conclusion of the arbitration
agreement. (183)
P 119
P 120
[ii] Literature
368 Swiss literature on these issues is scant. Commentators note that the scope of
preexisting arbitration agreements might only cover claims deriving from the debtor’s
contractual obligation but not claims originating from insolvency law. (184) Some authors
suggest that the scope of a preexisting arbitration agreement could cover an actio pauliana
(Anfechtungsklage / action révocatoire, Article 289 SchKG). (185) This would require that the
transaction entered into by the debtor provided for arbitration, and the chosen arbitration
agreement was worded broadly enough, for example, including “all disputes arising out of
and in connection with this agreement.” (186)
[iii] Analysis
369 The scope ratione materiae of preexisting arbitration agreements with regard to
insolvency depends on two factors: first, on the way the arbitration agreement is construed,
and, on the other hand, on the nature of the insolvency law action to be submitted to
arbitration.
(1) Construction of the Arbitration Agreement
370 The scope of each arbitration agreement can only be determined on a case-by-case
basis. Internationally, courts have adopted an increasingly arbitration-friendly manner of
interpretation. (187) U.S. courts even recognize an assumption in favor of arbitration. (188)
In Switzerland, it is first assessed whether an arbitration agreement exists. (189) Once the
existence of an arbitration agreement has been established, it is assumed that the parties,
unless determined otherwise, had agreed on a wide-ranging jurisdiction of the arbitral
tribunal. (190)
P 120
P 121
(2) Nature of Insolvency Law Actions
371 Most arbitration agreements are implemented in the form of an arbitration clause in a
main contract. Hence, their scope is predominantly concerned with disputes in connection
9
with contractual relationships. (191) Insolvency law actions of substantive nature deriving
directly from this contractual relationship are, accordingly, covered by the scope of the
arbitration agreement. (192)
372 It gets more complex with respect to actions having their origin partly in insolvency law
and partly in the contractual relationship. As starting point, it proves helpful to draw
parallels to principles applied to other types of extra-contractual claims. A broadly
construed arbitration agreement can cover a variety of extra-contractual actions that arise
in connection with the contractual relationship. (193) This is, for instance, true for claims
originating from tort, unjust enrichment, infringement of personal rights, unfair
competition, or anti-trust law. (194) Consequentially, preexisting arbitration agreements
can, in principle, also cover insolvency law claims – irrespective of their nature – that
relate to the contractual relationship between the debtor and its counterparty. With
reference to the U.S. doctrine, one could speak of debtor-derived insolvency law claims.
373 But the debtor’s ability to dispose of the procedural treatment of his legal relationship
with its counterparty finds its limits where rights of third parties are involved: i.e., the rights
that were never available for disposal by the debtor. Certain insolvency law actions belong
exclusively to creditors (represented by the trustee) or to the trustee. (195) Other actions,
prior to an insolvency, though belonging exclusively to the debtor, get a direct creditors’
right added upon the commencement of an insolvency. (196) Where the insolvency action
involves such direct third-party rights, the scope of a preexisting arbitration agreement
cannot cover it. The debtor, thus, is never capable of disposing of these rights.
P 121 374 It is important to distinguish direct rights of creditors or a trustee to bring a certain
P 122 insolvency action from the rights of creditors regarding the insolvency estate – for
instance, the creditors’ right to participate in the distribution of proceeds or decide about
the continuance of certain actions. Any action involving the insolvency estate affects, to a
certain extent, its value. Therefore, it may impair creditor interests. But only the direct
right of creditors or the trustee to bring their or his own action deprives the debtor of his
right to dispose of the procedural treatment of such an action. (197) As a result, a mere
creditor right regarding the insolvency estate does not limit the scope of a preexisting
arbitration agreement.
(3) Swiss Insolvency Law Actions
375 In the following, it is suggested how these principles regarding the scope of preexisting
arbitration agreements can apply to selected Swiss insolvency law actions.
376 Insolvency law actions directly deriving from the contractual relationship between the
debtor and its counterparty are covered by the scope of most arbitration agreements. (198)
For instance, the scope of a preexisting arbitration agreement covers actions regarding the
validation of an asset freezing order (Arrestprosequierungsklage / validation de séquestre,
Article 279 SchKG) (199) and actions concerning the recognition or denial of the existence of a
debt (Anerkennungsklage / action en reconnaissance de dette, Article 79 SchKG or
Aberkennungsklage / action en liberation de dette, Article 83(2) SchKG). (200)
377 The scope of preexisting arbitration agreements could also include actions challenging
the schedule of claims (Kollokationsklage / action en contestation de l’état de collocation,
Article 250 SchKG) (201) and actions seeking to include or exclude assets from the estate
based on rights in rem (Aussonderungs und Admassierungsklage / Revendications de tiers et
de la masse, Article 242 SchKG), (202) even though they formally originate in insolvency law.
P 122 The outcome of such actions directly depends on the existence and the modalities of the
P 123 underlying contractual relationship between the debtor and its counterparty.
Accordingly, these insolvency law claims are in such close connection to the underlying
contractual relationship that they remain to be covered by the scope of the arbitration
agreement. (203) Such a conclusion also corresponds to the counterparty’s reasonable
expectations of a resolution by arbitration of all disputes in connection with a certain
contract.
378 The situation is different for actions challenging unfair preferences (actio pauliana /
actions révocatoires, Articles 285 et seqq. SchKG). (204) These actions, at no time, arise in
the person of the debtor. The actio pauliana comes into being as a right exclusively
belonging to the creditors (represented by the trustee). (205) Consequentially, the debtor
was at no point in time capable of submitting this claim to arbitration. (206) The scope of
preexisting arbitration agreements can, accordingly, never extend to such an action.
[3] Interim Summary
379 The scope ratione materiae of preexisting arbitration agreements with regard to
insolvency depends on two factors: first, on the way the arbitration agreement is construed,
and second, on the nature of the insolvency law action intended to be submitted to
arbitration.
380 A tendency to interpret the construction of arbitration agreements broadly can be
identified amongst all jurisdictions. The U.S. even follows an assumption in favor of
arbitration.
381 In general, the comparative analysis suggests that preexisting arbitration agreements
can also apply to insolvency law actions where their nature is closely related to the
10
contractual relationship between the debtor and its counterparty (debtor-derived actions).
These actions are distinguished from actions that have their origin in the person of the
trustee or creditors. The U.S. doctrine refers, in such cases, to (bankruptcy) code-created
actions. Since the debtor was never capable of disposing of these actions, the scope of a
preexisting arbitration agreement cannot cover them. This distinction between debtor-
derived actions and actions involving direct rights of creditors or the trustee also applies
in Switzerland.
P 123
P 124
[E] Applicable Law
382 The comparative view showed that the effects of a commencement of an insolvency on
the validity and scope of arbitration agreements vary considerably, depending on the
applicable law. Accordingly, the determination of the law governing these issues is critical.
383 It should be noted that in most countries, questions regarding the objective
arbitrability and legal capacity of parties – despite the fact that these factors are closely
related to the arbitration agreement – are subject to different conflict-of-law rules. (207)
Accordingly, they are addressed separately in this book. (208)
[1] Possible Conflict-of-Law Approaches in Connection with the Validity and Scope of an
Arbitration Agreement
384 The effects of an insolvency on the validity and the scope of an arbitration agreement
can either be defined according to the traditional conflict-of-law approach, the insolvency-
specific conflict-of-law approach, or by the application of the lex fori concursus rules as
mandatory rules. (209)
[a] Traditional Conflict-of-Law Approach
385 Under the traditional conflict-of-law approach, the conflict-of-law regime determining
the law applicable to the effects of an insolvency on arbitration is no different than if there
was no insolvency proceeding at all. (210) This requires a characterization of the effects of
an insolvency within the traditional conflict-of-law concepts. (211) A characterization of the
effects of an insolvency on the arbitration agreement may point to issues of validity, scope
ratione materiae, and scope ratione personae.
386 It is, for instance, controversial how the transfer of the arbitration agreement from the
debtor to the trustee is characterized. One opinion qualifies this transfer as an issue of the
P 124 arbitration agreement’s scope ratione personae, which should be governed by the law
P 125 applicable to the substantive validity (212) of the arbitration agreement. (213) Other
commentators characterize the issue of whether the arbitration agreement binds the
trustee as a question of transfer of the arbitration agreement, which is exempted from the
applicable law to the substantive validity of the arbitration agreement. (214) They argue
that this transfer is governed by the lex causae as the law governing the assignment of
claims and rights under the contract. (215) Some authors submit this transfer to the lex fori
concursus. (216)
387 The substantive validity of arbitration agreements is usually governed by the law
chosen by the parties or, in absence of such determination, by the law applicable at the
place of arbitration. (217) Frequently, a choice of the law applicable to the merits is
presumed to extend also to arbitration agreements. (218) Certain legal orders provide for
an in favorem validitatis rule and uphold the validity when the arbitration agreement
complies with one of the laws provided for. (219) The voi direct approach avoids a conflict-
of-law analysis and directly determines the applicable law. (220) For instance, French
courts apply rules that are detached from national law, subjecting the substantive validity
of the arbitration agreement only to the common intention of the parties, under
reservation of mandatory provisions of French law and international public policy. (221)
[b] Insolvency-Specific Conflict-of-Law Approach
388 An arbitral tribunal might also refer to the conflict-of-law rules of the cross-border
insolvency regime at the seat. As a result, the validity and scope of the arbitration
agreement will, in most cases, either depend on the lex fori of the seat of the arbitral
P 125 tribunal or on the lex fori concursus. The lex fori of the seat would, for instance, apply where
P 126 the arbitral tribunal applies the conflict-of-law rules of the UN-InsModLaw or the
autonomous Swiss cross-border insolvency law rules. (222) Both these regimes contain a
unilateral reference to the lex fori of the seat of the arbitral tribunal. (223)
389 Where the arbitral tribunal refers to the conflict-of-law rules of the EuInsReg, the law
governing the validity and scope of the arbitration agreement varies with the stage of the
proceeding. Where the arbitral tribunal is already seized at the time of the commencement
of an insolvency proceeding, all procedural questions are governed by the law of the state
where the arbitration is pending. (224) This definition alone could also be understood as
reference to the law applicable to the arbitration, which does not necessarily have to be
the same as the law of the seat. (225) However, in the past, arbitral tribunals (226) and
courts (227) saw in this provision a reference to the law of the seat of the arbitration since it
“is natural and understandable that it should be the law of that [...] [s]tate where the legal
action has begun or the reference to arbitration is taking place which should determine
11
whether that action or that reference should be continued or discontinued.” (228) Lord
Justice Langmore argued in the Elektrim/Vivendi case that such an approach would strive to
protect “legitimate expectations and certainty of transactions,” which are “apt to include
the expectation of businessmen that lawsuits (in which considerable sums of money may
have been invested) should come to an appropriate conclusion.” (229)
390 For cases where the international arbitration is not pending at the time of the
commencement of the insolvency proceeding, it is suggested that the lex fori concursus
governs. (230) But critics qualify this view as flawed since it was hard to justify how an
arbitral tribunal, whose jurisdiction is based on a valid arbitration agreement, was able to
uphold its proceeding in cases where the lex fori concursus voids the arbitration
agreement. (231)
P 126
P 127
[c] Lex fori concursus as Mandatory Rules
391 The lex fori concursus can also directly apply as a mandatory rule. The rationale behind
such a solution refers to the lex fori concursus as the only legitimate legal order to
determine the effects of an insolvency on existing legal relations, even though under
international private law, the issue would be governed by a different law. (232)
[2] Approaches Under Cross-Border Insolvency Regimes
392 Where a party becomes subject to insolvency proceedings, it is not always clear which
conflict-of-law approach an arbitral tribunal will follow in connection with the arbitration
agreement’s validity and scope. Some answers might be given when comparing the
approaches that were taken in countries following similar cross-border insolvency regimes.
This book groups the countries according to their cross-border insolvency law system and
seeks to identify common patterns within these groups. The groups will be divided into
countries following (a) the EuInsReg, (b) the UN-InsModLaw, and (c) Switzerland’s
autonomous cross-border insolvency regime.
[a] EuInsReg
393 Arbitral tribunals seated in Member States of the EuInsReg (233) are likely to follow the
approach taken by English courts in the Vivendi/Elektrim cases. The courts implicitly
assumed that the EuInsReg not only applies to national courts but also to arbitral
tribunals. (234) This view is broadly supported in the legal literature. (235) It is even argued
that an arbitral tribunal ignoring these rules could risk the annulment of the award. (236)
394 The analysis in the Vivendi/Elektrim cases focused on Article 15 and Article 4(2)(e)
P 127 EuInsReg. Both the LCIA tribunal and the English courts took the position that these
P 128 provisions cover the law applicable to the effects of an insolvency on arbitration. (237)
This includes the law governing the validity and scope of the arbitration agreement of
parties subject to insolvencies.
[i] Pending Arbitration at the Time of Commencement of Insolvency
(1) Applicable EuInsReg Provisions
395 Article 4(2)(e) EuInsReg states that the effects of an insolvency on “current contracts”
are determined by the lex fori concursus. (238) The English courts also qualified the
arbitration agreement as such a contract. (239)
396 On the other hand, Article 15 EuInsReg concerns the law applicable to the effects of an
insolvency on a “lawsuit pending.” It is unclear whether the term “lawsuit pending” also
refers to arbitrations. A literal interpretation of the English wording suggests it is limited to
court proceedings only. (240) But versions of the EuInsReg in other languages are
ambiguous. (241) English courts and the standard literature on the EuInsReg support the
view that “lawsuit pending” also includes arbitral proceedings. (242) Article 15 EUInsReg
refers to the “law of the state where the lawsuit is pending.” In the international arbitration
context, such a law could either refer to the lex fori of the Member State at the seat or to
the lex arbitri as the law governing the arbitration, since arbitral tribunals do not possess a
proper lex fori. (243)
P 128
P 129
(2) Scope of Applicable EuInsReg-Provisions
397 As shown above, arbitration agreements of a pending arbitration are governed by two
provisions, which – at least on first sight – seem to conflict. Setting out the scope of each
provision can be approached in different ways:
398 In the Vivendi/Elektrim case, the arbitral tribunal and the High Court held that both
Article 4(2)(e) EuInsReg and Article 15 EuInsReg apply to pending arbitrations. (244) The
conflict was resolved by declaring that Article 15 EuInsReg was lex specialis and would
trump Article 4(2)(e) EuInsReg. By contrast, the English Court of Appeal saw no such conflict
between Article. 4(2)(e) EuInsReg and Article 15 EuInsReg. It found that an arbitration
agreement falls either within one or the other provision, but not within both. (245) When
following this rationale, the effects of an insolvency on pending arbitrations are governed
12
in their entirety by Article 15 EuInsReg. (246) It includes all effects of the insolvency on the
validity and scope of an arbitration agreement. (247)
399 Both these rationales lead to the same outcome. If the arbitration is already pending at
the time of an insolvency, the effects of the insolvency on arbitration are determined by
the lex fori processus (Article 15 EuInsReg). (248) Conversely, where no arbitral proceeding is
pending at the time of an insolvency, the effects of the insolvency are governed by the lex
fori concursus (Article 4(2)(e) EUInsReg). Such a distinction also has been adopted by
commentators. (249)
400 Another option to eliminate the conflict between Article 15 and Article 4(2)(e) EuInsReg
is to narrow the scope of Article 15 EuInsReg. Article 15 EuInsReg can be read as merely
P 129 referring to procedural questions, such as the suspension of the proceeding and other
P 130 procedural modifications. (250) Following this approach, Article 15 EuInsReg no longer
covers the substantive validity of the arbitration agreement. (251) Thus, Article 4(2)(e)
EuInsReg determines the law applicable to validity and scope of the arbitration
agreement. To put it differently, the lex fori concursus governs the validity and scope of the
arbitration agreement irrespective of whether the arbitration is already pending at the
time of the commencement of the insolvency. This leads to a legal situation where the lex
fori concursus has the power to potentially invalidate any arbitration agreement whenever a
tribunal is seated within a EuInsReg Member State. (252)
(3) Conclusion
401 A narrow reading of Article 15 EuInsReg, limited to purely procedural questions is not
convincing. It does not provide clear enough answers as to what is considered a procedural
question. From an arbitration perspective, the arbitration agreement as basis of the
tribunal’s jurisdiction might well be qualified as a procedural question or, at the same
time, with regard to its contractual character as a substantive issue. Ambiguities could also
arise in connection with other elements, for instance, as to whether the capacity of a party
in arbitration is to be qualified as a procedural or substantive issue. A narrow reading of
Article 15 EuInsReg could also lead to odd results in the context of national court
proceedings. For instance, where parties agreed on a choice-of-forum agreement, the
jurisdiction would be assessed according to the lex fori concursus. (253) On the other hand,
the statutory jurisdiction of parties without such an agreement would be determined
according to the lex fori processus. (254)
402 The English courts’ solution should be preferred, allowing Article 15 EuInsReg to
supersede Article 4(2)(e) EuInsReg in cases where an arbitration is pending. (255) It provides
for consistent criteria and predictable solutions and leads to the application of the law
with the closest connection to the dispute. However, a reference to this approach implies
P 130 the willingness to accept that neither of the approaches taken by the High Court or the
P 131 Court of Appeal fully dispels the dogmatic weaknesses. It will, namely, create the
unusual consequence that, in cases where the lex fori concursus invalidates the arbitration
agreement, the arbitration agreement continues to exist and will be enforceable for
certain purposes but not for others. (256) In other words, within the same country, the same
arbitration agreement provides for jurisdiction for one arbitral tribunal while not for
another. However, such division in jurisdictional questions is not entirely uncommon.
Parallels might be drawn to the principle of perpetuatio fori, allowing a court to maintain a
once established jurisdiction despite the fact that it would no longer have such
jurisdiction.
[ii] No Pending Arbitration at the Time of Commencement of Insolvency
403 Where no arbitration is pending at the time of the commencement of an insolvency, the
conflict between Article 15 and Article 4(2) EuInsReg no longer arises. In this situation only
Article 4(2) EuInsReg applies. For the outcome, it is no longer relevant whether an
arbitration is qualified under sub-section (e) as “current contracts” (257) or under sub-
section (f) as “proceedings.” (258) Both approaches lead to the application of the lex fori
concursus. (259) In short, the lex fori concursus governs the effects of insolvency where no
arbitration or court proceedings are pending. (260)
[b] UN-InsModLaw
404 Past decisions of courts and arbitral tribunals seated in UN-InsModLaw jurisdictions
indicate that the conflict-of-law rules of the UN-InsModLaw also play a role in arbitration
proceedings. (261) Contrary to the EuInsReg, the UN-InsModLaw system does not contain
sophisticated conflict-of-law provisions and is not based on the principle of universality. It
rather refers most effects of a foreign insolvency unilaterally to the local insolvency law at
P 131 the seat of the arbitral tribunal. (262) The author is not aware of case law that directly
P 132 addresses the law applicable to the validity and scope of an arbitration agreement
under the UN-InsModLaw. However, some conclusions can be drawn from the available
case law in related questions.
405 U.S. case law suggests that – once the foreign insolvency is recognized – the question of
validity and scope of the arbitration agreement is determined according to U.S. law. (263)
It has to be kept in mind that arbitral tribunals seated in the U.S. are not allowed to
recognize a foreign insolvency – not even as a preliminary question. (264) Such questions
always need to be referred to the U.S. bankruptcy courts. (265) Also, the question of
13
enforcement of an arbitration agreement against a party subject to insolvency proceedings
lies within the U.S. bankruptcy court’s exclusive competence. (266) Therefore, the court will
subject the validity and scope of the arbitration agreement to the requirements of U.S. law.
406 The situation in England leads to similar conclusions for cases where the UN-
InsModLaw regime applies. (267) The Cosco case provides some guidance as to how English
courts address the effect of an insolvency on arbitration agreements. (268) One of the
parties to arbitration in London became subject to insolvency proceedings in Switzerland.
The High Court had to decide whether the dispute had to be resolved by arbitration in
England or (as the Swiss trustee claimed) in the Swiss court competent to handle the
insolvency proceeding. The High Court found that, upon recognition of the Swiss insolvency,
Article 20 of the UN-InsModLaw leads to the application of English law to the effects of the
insolvency. (269) Under English law, courts have, in certain cases, discretion to decide
whether to submit a dispute involving a party subject to insolvency to arbitration or to
P 132 court proceedings. (270) The High Court submitted the dispute to arbitration in application
P 133 of its discretion about what is right and fair according to the circumstances of this case.
(271) To conclude, English courts might well refer to the conflict-of-law rules of the UN-
InsModLaw in order to determine the law applicable to the validity and scope of an
arbitration agreement in case of an insolvency.
[c] Switzerland
[i] Conflict-of-Law Approach in Connection with Insolvency
407 The starting point of an analysis of the applicable law to the question of validity and
scope of an arbitration agreement in Switzerland is the determination of the conflict-of-
law approach. To put it differently, it has to be established whether the governing law is
determined according to the traditional conflict-of-law approach, an approach referring to
the cross-border insolvency rules or the approach applying the lex fori concursus as
mandatory rules. (272)
408 Swiss case law and legal doctrine generally recognize that arbitral tribunals are only
bound by conflict-of-law rules contained in Chapter 12 IPRG. (273) However, where Chapter
12 IPRG does not encompass an explicit conflict-of-law rule, reference can be made to
conflict-of-law rules and general principles originating from other legal sources. (274)
Accordingly, there is only a place for a reference to cross-border insolvency conflict-of-law
rules where Chapter 12 contains no explicit rule. The traditional conflict-of-law rule of
Article 178(2) IPRG contains a precise and exhaustive solution for the substantive validity
and scope of arbitration agreements for arbitral tribunals seated in Switzerland. This makes
any reference to the cross-border insolvency conflict-of-law rules impermissible.
409 On the other hand, the application of the traditional conflict-of-law approach does not
per se exclude an application of certain rules of the lex fori concursus as mandatory
provisions. Mandatory provision of the lex fori concursus might still supersede the
traditional rules in certain cases. (275)
410 The discussion below first analyzes the law applicable to the validity, scope ratione
P 133 materiae, and ratione personae in the insolvency context under the traditional conflict-of-
P 134 law approach. Potential alterations of the traditional approach by mandatory rules (for
instance, provisions of the lex fori concursus) are demonstrated in a separate part. The
discussion will focus on the case of an arbitration agreement providing for arbitration in
Switzerland. However, it will also briefly elaborate on the differences that arise where
arbitration is compelled outside of Switzerland.
[ii] Arbitration Agreement Providing for Arbitration in Switzerland
411 Both Swiss national courts and arbitral tribunals can get confronted with the effects of
an insolvency on the validity and scope of an arbitration agreement. Before Swiss courts,
such an issue most likely arises in the course of a court action where a party files a motion
to stay judicial proceedings and refer parties to arbitration.
412 Whether a court or an arbitral tribunal is invoked first does not change the applicable
legal regime to validity and scope of the arbitration agreement. (276) As long as the seat of
the arbitration is located in Switzerland, both options lead to the application of Chapter 12
IPRG. (277)
(1) Literature
413 Commentators point to the in favorem validitatis rule of Article 178(2) IPRG for the
determination of the effects of an insolvency on the validity of arbitration agreements.
(278) Such reference to Article 178(2) IPRG includes issues of scope ratione materiae of the
arbitration agreement. (279) This is in line with the doctrine outside of the insolvency
context, where Swiss commentators unanimously agree that the validity and scope ratione
materiae are exclusively governed by Article 178(2) IPRG. (280)
P 134 414 Different opinions exist in scholarship regarding the law applicable to the arbitration
P 135 agreement’s scope ratione personae. Some commentators suggest that the lex fori
concursus should decide whether the trustee remains bound by the arbitration agreement.
(281) Another group of authors points out that the ambit of Article 178(2) IPRG would not
only include questions of validity and scope ratione materiae but also scope ratione
14
personae. (282) In particular, as these authorities put it, Article 178(2) IPRG generally also
governs the legal successions of arbitration agreements. (283) Consequentially, Article
178(2) IPRG should also apply to the issue whether the trustee remains bound by
arbitration agreements, since the transfer of the agreement from the debtor to the trustee
was a case of legal succession or at least comparable to a case of legal succession. (284) In
turn, critics argue that this position is based on the errant assumption that insolvency
constitutes a case of legal succession, which is not accurate for certain jurisdictions. (285)
(2) Case Law
415 The Swiss Federal Supreme Court was first confronted with the question of Article 178(2)
IPRG in connection with a party subject to insolvency proceedings in the Vivendi/Elektrim
case. (286) The court’s minority argued that Article 178(2) IPRG also encompasses the
substantive validity of arbitration agreements in cases of an insolvency of one of the
parties. (287) But since the majority of the court characterized the issue as one of the
capacity of the parties, the minority’s approach was voted down. (288) Conversely, in BGE
138 III 714, the issue of whether an insolvency estate remained bound by an arbitration
agreement of the debtor was characterized as an issue of the substantive validity of an
arbitration agreement. (289) Hence, the Swiss Federal Supreme Court applied Article 178(2)
P 135 IPRG. (290) This decision is in line with the Swiss Federal Supreme Court’s previous case
P 136 law referring to Article 178(2) IPRG for issues of substantive validity, scope ratione personae,
and ratione materiae. (291)
(3) Analysis
416 The question of the effects of an insolvency on arbitration agreements is multilayered.
An insolvency potentially affects an arbitration agreement in its substantive validity as
well as its scope ratione personae and ratione materiae. (292) As established earlier, Swiss
law does not follow the cross-border insolvency conflict-of-law approach in connection
with the impact of an insolvency on validity and scope of arbitration agreements. (293)
Contrary to many other jurisdictions, these matters are determined with reference to the
traditional conflict-of-law approach. (294)
(a) Law Applicable to the Validity and Scope ratione materiae of Arbitration Agreements
417 Under the traditional conflict-of-law approach, Article 178(2) IPRG governs the
substantive validity of the arbitration agreement. (295) Despite the provision’s narrow
wording, it is widely recognized that it also applies to questions of an arbitration
agreement’s scope ratione materiae. (296) As a result, the in favorem validitatis provision of
Article 178(2) IPRG also governs the validity and scope ratione materiae of arbitration
agreements in the insolvency context.
418 On the other hand, certain aspects of the substantive validity of the arbitration
agreement are carved out from the scope of Article 178(2) IPRG. Namely, issues in
P 136 connection with a party’s legal capacity (297) and authority to enter into arbitration
P 137 agreements (298) may be subjected to separate conflict-of-law rules. In these cases, a
distinct connecting factor is considered to be more appropriate for the identification of
the applicable law. (299) This is no different in the context of an insolvency.
(b) Law Applicable to the Scope ratione personae of Arbitration Agreements
419 The law applicable to the scope ratione personae, in other words, the question as to
whether the trustee or the debtor-in-possession remains bound by the arbitration
agreement after the commencement of an insolvency, is complex and controversial. (300)
420 As a starting point, the nature of the transfer or extension of an arbitration agreement
from the debtor to the insolvency estate or the trustee has to be characterized. (301) The
outcome of such characterization will help to associate the scope ratione personae with the
appropriate conflict-of-law rule.
421 Where the transfer of the arbitration agreement from the debtor to the insolvency
estate or the trustee is characterized as a case of legal succession, the general conflict-of-
law rule applying to legal succession applies here also. It is well recognized that general
and individual successions of arbitration agreements fall within the in favor validitatis rule
of Article 178(2) IPRG. (302)
P 137 422 Where the characterization leads to the result that the transfer constitutes no legal
P 138 succession or that there is no transfer at all, the governing law can be determined with a
view to the rules governing cases of extension of arbitration agreements to non-signatories.
(303) Also, for the extension of the arbitration agreement to non-signatories, the Swiss
Federal Supreme Court determines the applicable law according to Article 178(2) IPRG.
(304) Moreover, from a policy standpoint, there are no evident reasons justifying the
application of a different governing law to types of insolvencies entailing a legal
succession as opposed to types that do not. Functionally, all types of insolvencies similarly
entitle the trustee or debtor-in-possession to exercise the debtor’s rights and duties.
423 In sum, it can be concluded that independent from the characterization of the transfer
of the arbitration agreement upon the commencement of an insolvency, Article 178(2) IPRG
always determines the law applicable to the scope ratione personae of the arbitration
agreement in cases of an insolvency.
15
[iii] Arbitration Agreement Providing for Arbitration Outside of Switzerland
424 Swiss national courts might be seized in a case where one of the parties contests the
court’s jurisdiction by invoking an arbitration agreement providing for arbitration outside
of Switzerland. (305) In such case Article 178(2) IPRG does not apply, since it only governs
when the arbitral tribunal has its seat in Switzerland. (306)
425 Instead, the validity and scope of an arbitration agreement is determined according to
Article II(3) NYC. (307) This provision does not, however, contain a choice-of-law rule for the
question of validity and scope of arbitration agreements. Commentators and case law
suggest applying the conflict-of-law rule of Article V(1)(a) NYC mutatis mutandis.
Accordingly, the applicable law is determined by the foreign lex arbitri and not the lex fori
of the Swiss national court. (308) This prevents the risk of a negative conflict, where a
national court finds it has no jurisdiction (under the lex fori or any other law without
P 138 considering Article V(1)(a) NYC), and later rejects recognition of the arbitral award under
P 139 the law determined by Article V(1)(a) NYC. (309) The same holds true when a non-Swiss
national court (310) decides according to Article II(3) NYC about the validity, scope ratione
materiae and personae of the arbitration agreement providing for arbitration in
Switzerland. Here, the foreign court should apply mutatis mutandis the conflict-of-law rule
contained in Article V(1)(a) NYC. (311)
[iv] Application of lex fori concursus as Mandatory Rule
426 It has been concluded that for arbitral tribunals in Switzerland, Article 178(2) IPRG
generally governs validity and scope ratione personae and materiae of arbitration
agreements in connection with insolvency law questions. Nevertheless, it is unclear
whether the lex fori concursus might still come into play as an international mandatory rule
(loi d’application immédiate or loi de police or Eingriffsnorm) superseding this general rule.
(312)
(1) General Principles
427 The doctrine of the direct application of international mandatory rules was developed
in connection with the substantive law applicable to the merits of a case. (313) This
guarantees the observation of certain mandatory rules in a dispute independent from any
conflict-of-law rules. (314) Swiss international private law codified this principle for
national court proceedings in Article 19 IPRG. (315) The provision says that mandatory rules
P 139 of another country may be taken into account where the circumstances of the case are
P 140 closely connected with that country. Whether and to what extent such a concept of
mandatory rules also applies to international arbitral tribunals is controversial. (316) The
Swiss Federal Supreme Court addressed the significance of Article 19 IPRG for arbitral
proceedings in Switzerland stating that the:
428
majority of the doctrine considers that this provision does not oblige an international
arbitral tribunal to apply foreign law to the lex causae, in particular not in the presence of
a choice of law, even less so as – and here the doctrine seems unanimous – the disregard of
such foreign law is not, as such, contrary to public policy in the sense of Art. 190(2)(e) IPRG
[...]. This opinion is all the more convincing because Art. 187 IPRG expressly reserves, in
international arbitration, party autonomy with regard to the choice of the applicable law,
and because Art. 19 IPRG is a provision of adaption which makes reference to the judge’s
discretionary power [...]. (317)
429 In a decision roughly four years later, the Swiss Federal Supreme Court no longer
mentioned Article 19 IPRG in a case involving EU competition law. Without referring to a
specific conflict-of-law rule, it elaborated that it:
430
[...] is generally accepted that a Swiss national court, or an arbitral tribunal, when having to
decide on the validity of a contractual agreement that affects the European Union market,
will examine this question in light of Art. 85 EC Treaty [today Art. 81 EC Treaty] [...]. They
must do so even if the parties agreed on the application of Swiss law to their contractual
relationship [...] This examination is in any event mandatory if a party invokes the nullity of
the contractual agreement before the Swiss court or arbitral tribunal. (318)
431 The two decisions seem to contradict each other, but they need to be placed in the
proper context. It is important to read them in line with the Swiss Federal Supreme Court’s
understanding that arbitral tribunals in Switzerland are solely bound by conflict-of-law
rules contained in Chapter 12 IPRG. (319) Consequentially, the more recent decision no
longer makes reference to Article 19 IPRG as a norm having its roots outside of Chapter 12
IPRG. Instead, the Swiss Federal Supreme Court recognizes that within Chapter 12 IPRG,
P 140 certain mandatory rules might apply independently from the law applicable to the
P 141 merits. (320) This suggests that the court identified a legal basis to apply selected
mandatory rules within the framework of chapter 12 IPRG. Such a stand-alone solution
enjoys broad support in legal scholarship. (321) The trend seems to go toward holding
arbitral tribunals bound by mandatory rules belonging to the Swiss understanding of
international public policy. (322)
432 Accordingly, Swiss arbitral tribunals only need to consider a mandatory lex fori
16
concursus rule where this rule is at the same time also considered to be part of Swiss
international public policy. This means that the mandatory rule’s claim to be applied is not
sufficient alone for its application, no matter how strong it may be. (323) Conversely, it is
crucial that such a norm claims both its mandatory application and that such application
be internationally binding. (324) Namely, where the lex fori concursus restricts its own reach
to a certain territory, its mandatory rules do not apply to international arbitral tribunals
seated outside such territory. This could, for instance, become relevant where national
insolvency laws follow the principle of active territoriality or limit the scope of certain
provisions to specific addressees. (325)
(2) Application of Mandatory Rules to the Validity And Scope of Arbitration Agreements
433 As seen above, the theory of mandatory rules was developed in the context of
substantive law applicable to the merits of a case. (326) The issue at hand, however,
concerns the capability of mandatory rules to supersede procedural norms, namely, the
P 141 validity of an arbitration agreement according to Article 178(2) IPRG. The impact of
P 142 mandatory provisions on procedural issues has only been rudimentarily addressed in
legal scholarship, and the Swiss Federal Supreme Court has not yet answered this question.
(327)
434 To begin, a look at the practice before national courts could provide some guidance as
to whether mandatory rules apply to procedural questions. Very few commentators have
addressed this issue at all. Schnyderdenies both the direct (328) and analogous (329)
application of Article 19 IPRG to procedural questions, namely jurisdiction before national
courts. Commentators also reject the idea of a foreign mandatory rule affecting the validity
of choice-of-forum agreements and stress that Swiss courts are in some cases – even in
violation of foreign law – obliged to hear a case. (330) Schnyder concludes that – at least de
lege lata – foreign mandatory rules do not have an impact on procedural questions, i.e. the
jurisdiction of Swiss national courts. (331)
435 In international arbitration, the idea of an application of mandatory rules on procedural
questions has only been discussed in the context of objective arbitrability. Most
commentators deny the capability of foreign mandatory rules to alter the objective
arbitrability as defined by the Swiss lex arbitri. (332) The Swiss Federal Supreme Court held
in dicta that mandatory rules are only capable of having an effect on the objective
arbitrability of an arbitral tribunal in Switzerland – and hence deprive the tribunal of its
jurisdiction – if the Swiss understanding of international public policy would require the
application of such rules. (333)
436 In the author’s view, legal literature and case law legitimately emphasize the Swiss
legal system’s reluctance to leave it up to other legal systems to decide questions of
P 142 jurisdiction where the Swiss lex arbitri does not explicitly refer to such law. This also
P 143 applies in connection with the validity of arbitration agreements under the in favorem
validitatis provision of Article 178(2) IPRG. International mandatory rules are insignificant
as long as they do not belong at the same time to the Swiss understanding of international
public policy. Possible policy concerns of foreign legal systems should be given effect at a
subsequent stage. (334) Instead of invalidating arbitration agreements and shifting cases
to national courts to ascertain public policy interests, arbitral tribunals should be
expected to apply – where appropriate – mandatory rules to the merits of the dispute.
(335) This serves, in the end, efficiency, predictability, and the reasonable expectations of
the parties. As a result, the lex fori concursus cannot affect the determination of the
applicable law according to Article 178(2) IPRG under the concept of international
mandatory rules.
[3] Interim Summary
437 There are different ways of approaching the identification of the law applicable to the
validity and scope of an arbitration agreement when a party became subject to insolvency
proceedings. In particular, reference may be made to the traditional conflict-of-law rules,
the cross-border insolvency conflict-of-law rules, or the lex fori concursus rules as
mandatory rules.
438 Arbitral tribunals seated in Member States of the EuInsReg follow the cross-border
insolvency conflict-of-law approach. The effect of the insolvency on the validity and scope
of arbitration agreements is generally determined according to the lex fori concursus
(Article 4(2)(e),(f) EuInsReg). Where the arbitration is already pending at the time of an
insolvency, the effects on the arbitration agreement are governed by the lex fori processus
(Article 15 EuInsReg).
439 Also UN-InsModLaw jurisdictions tend to apply the cross-border insolvency conflict-of-
law approach to arbitration. The effects of an insolvency on the validity and scope of the
arbitration agreement are subjected to the law of the country recognizing the insolvency.
The enforcement of arbitration agreements involving a party subject to insolvency will
often also require the participation of a national court.
440 In contrast, arbitration agreements in Switzerland remain, in the insolvency context,
governed by the traditional conflict-of-law approach. The effect of the insolvency of a party
on arbitration agreements is governed by the in favorem validitatis rule of Article 178(2)
IPRG. This rule governs the arbitration agreement’s validity as well as its scope ratione
17
materiae and ratione personae. In other words, Chapter 12 IPRG contains a comprehensive
conflict-of-law rule for all these aspects of the arbitration agreement. As a consequence, a
reference to cross-border insolvency conflict-of-law rules – analogous to other countries –
is not permissible for these questions. Moreover, the rules of the lex fori concursus cannot
alter the conflict-of-law rule of 178(2) IPRG under the concept of international mandatory
rules.
P 143
P 144
§6.02 EFFECTS OF THE INSOLVENCY ON THE CAPACITY OF THE PARTIES TO

ARBITRATION
441 The question of capacity (336) of a party is essential in international arbitration. On the
one hand, a party needs to have capacity to conclude a valid arbitration agreement. (337)
On the other hand, a party requires capacity to be party and act as a party in arbitral
proceedings. (338) In the past, arbitral tribunals and national courts were repeatedly
confronted with the effects of a commencement of an insolvency proceeding on the
parties’ capacity. Further, it was controversial to what extent a potential incapacity of a
party would have an impact on arbitration. (339)
442 This book, therefore, will first seek to compare and classify the notion of capacity and,
thereby, focus on the effects a commencement of an insolvency has on the capacity of a
parties. Second, it will demonstrate the effects a potential incapacity of a party has on an
international arbitration. Finally, the book analyzes questions of the governing law.
[A] Impact of Insolvency on Capacity of Parties

[1] Notion of Capacity
443 The term capacity is used in many international arbitration instruments such as the
NYC, the UN-ArbModLaw and other international treaties. Courts and arbitral tribunals
regularly make reference to it. Despite this wide use of capacity, no transnationally valid
definition exists. The term capacity is defined by local law, which differs considerably from
nation to nation. (340) In a transnational context, this results in a confusing use of
terminologies and legal concepts – particularly in a case involving both civil law and
common law elements.
444 Consequentially, this book approaches the questions of capacity in a comparative
manner looking at the concepts used in both civil law countries (sometimes with further
differentiations within this group) and the common law countries. Most countries seem to
share the understanding that capacity is divided into a substantive and a procedural
notion. This book follows this distinction.
P 144
P 145
[2] Effect of Insolvency on Capacity
[a] Effects of an Insolvency on the Substantive Notion of Capacity
445 Civil law countries distinguish between the ability of a person to hold rights and duties
(capacity to enjoy rights / Rechtsfähigkeit / capacité de jouissance) and the competence to
exercise rights or to assume duties (capacity to act / Handlungsfähigkeit / capacité
d’exercice). (341) In turn, the common law tradition focuses on the second aspect, speaking
of capacity to perform juristic acts, and often refers to it by simply using capacity. (342)
Differences between common law and civil law jurisdictions also surface in the manner
issues of capacity to act are regulated. Common law traditions always treat these issues
together with the specific legal institution within which it arises, while civil law countries
regard the capacity to act as a separate question. (343)
446 In the context of insolvency law, another dissimilarity can be identified. The
commencement of an insolvency – under Central European legal concepts – deprives the
debtor of its power of disposition (Verfügungsbefugnis). (344) Both the capacity to act and
the power of disposition are necessary components of an effective transaction, but they
come into play at different stages. Capacity to act decides whether a legal entity or natural
person can build the legally relevant intention to exercise certain rights at all, while the
power of disposition decides about the authorization to deal with this right. (345) To put it
differently, while the capacity to act looks at the legal characteristics of a legal entity or
natural person, the power of disposition looks at the relationship between the latter and
the right. (346) These concepts, for instance, are known in Swiss and German insolvency law
in which a debtor in liquidation proceedings loses the right to manage and dispose the
insolvency estate. (347) This right is transferred ex lege upon the trustee. (348)
447 It is important to note that such a distinction is foreign to most common law and
romanic jurisdictions, where it is also dealt with under the title of capacity. (349)
P 145
P 146
[b] Effects of an Insolvency on the Procedural Notion of Capacity
448 The procedural components of capacity derive from the substantive capacity
18
described above. Therefore, the approaches taken in civil law countries and common law
countries are, once again, very different. Both legal traditions do recognize that a party
needs to fulfill certain requirements in order to enjoy status as a party in legal
proceedings, referred to as capacity to be a party (Parteifähigkeit). (350) Where such a right
is missing, the proceeding has to be discontinued. (351)
449 Civil law doctrine further distinguishes the components of procedural capacity, while
common law jurisdictions do not make further differentiations. (352) Most civil law systems
treat the capacity to act as a party (Prozessfähigkeit) as the procedural counterpart to the
capacity to act (Handlungsfähigkeit). (353) In the interest of a party unable to exercise this
right, it might vest in someone else. (354)
450 Central European countries further distinguish the right to conduct legal proceedings
(Prozessführungsbefugnis). A party might be deprived of such a right, even while keeping
the capacity to be a party (Parteifähigkeit) and the capacity to act as a party
(Prozessfähigkeit). (355) This issue particularly arises in connection with insolvency
proceedings where the insolvency laws mandatorily transfer the right to conduct legal
proceedings (Prozessführungsbefugnis) to a trustee or the insolvency estate – without, at the
same time, depriving the debtor of his capacity to be a party (Parteifähigkeit) or the
capacity to act as party (Prozessfähigkeit) in a legal proceeding. (356) Thus, the insolvency
estate (represented by the trustee) or the assignee of such right conduct the proceedings
P 146 in its own name, asserting rights that are not its own. (357) For example, in a Swiss
P 147 insolvency, the debtor is deprived of the right to conduct legal proceedings
(Prozessführungsbefugnis). This right is transferred to the insolvency estate, which, in turn,
is represented by the trustee. (358) Swiss insolvency law does, however, not deprive the
debtor of the capacity to be a party (Parteifähigkeit) and the capacity to act as party
(Prozessfähigkeit) in proceedings. (359) During reorganization proceedings under Swiss
insolvency law, the extent of the debtor’s rights varies, depending on the type of
reorganization proceedings. (360)
451 Conversely, in common law, the substantive rights of the debtor vest in the person of
the trustee and the debtor has merely a beneficial interest. (361) It follows that there is no
need for a concept such as the right to conduct legal proceedings (Prozessführungsbefugnis).
(362) Common law doctrine refers for the procedural rights of a trustee or a legal successor
in insolvency proceedings to the term of capacity. (363) This is, for instance, the case in
liquidation proceedings according to Chapter 7 of the U.S. Bankruptcy Code. (364) In the
course of liquidation proceedings, the rights of the debtor’s estate fully vest in the trustee
as the successor to the debtor’s property rights. (365) The trustee becomes the
representative of the estate and acquires the right to sue and be sued for the estate. (366)
In contrast to the Central European legal system, there is no split in the capacity of the
debtor since the substantive rights fully vest in the trustee.
P 147
P 148
[c] No Effects of the Insolvency on the Debtor’s Capacity
452 Insolvency law, however, does not compromise the capacity of a debtor in all cases. It
also provides for proceedings, mainly reorganization proceedings, where the capacity of a
debtor is fully upheld.
453 This is the case in the U.S. where the debtor is subject to reorganization proceedings
according to Chapter 11 of the U.S. Bankruptcy Code. Here, the debtor retains, as debtor-in-
possession, all his rights. The debtor-in-possession is only subject to the supervision of the
U.S. bankruptcy court which can restrict or deprive him of his rights upon motions of the
creditors or the trustee. (367)
454 A similar legal situation exists in France. During preventive reorganization proceedings
(procédure de sauvegarde (368) ) and in ordinary insolvency proceedings in which the court
concludes that a reorganization of the debtor is viable (redressement judicaire with
subsequent plan de continuation (369) ), the debtor keeps all the rights regarding the
estate. (370)
455 Also in Germany, in cases of reorganization under self-administration
(Eigenverwaltung), the debtor keeps such rights subject, however, to the supervision of the
trustee. (371)
456 Finally, in Switzerland, the debtor usually keeps possession of the assets and the legal
right to dispose during a debt restructuring moratorium (Nachlassstundung / sursis
concordataire, Articles 293 et seqq. SchKG) and in ordinary debt restructuring agreement
proceedings (Ordentlicher Nachlassvertrag / concordat ordinaire, Articles 314 et seqq.
SchKG). (372) But he is subject to the supervision of the trustee, and certain actions require
approval of the trustee or judge. (373)
[d] Provisions Explicitly Depriving Capacity to be Party to Arbitration
457 Certain national insolvency laws even go a step further and include explicit provisions
that target a party’s capacity to be party in arbitration after becoming subject to
P 148 insolvency proceedings. For example, Article 142 of the Polish Bankruptcy and
P 149 Reorganization Code is interpreted as depriving a debtor of his legal capacity to be
party to an arbitration agreement. (374) Article 487 Latvian Code of Civil Procedure
19
contains a similar provision. (375)
458 However, such provisions are rather exotic in the landscape of insolvency laws. This
might be a consequence of the fact that the aim of such provisions remains unclear. (376)
Insolvency legislation strives to maximize the debtor’s assets, coordinate the distribution
of the insolvency estate, or structure the financial reorganization of the business. (377) It is,
however, from a policy standpoint, highly questionable whether these purposes are indeed
achieved through a provision that automatically deprives the debtor of his capacity to be
subject to arbitration, which results in the automatic termination of any arbitration. (378)
International arbitration might be, in certain cases, a more efficient regime than court
litigation in cross-border insolvency cases and hence foster the purposes of insolvency law.
(379)
459 Even more unusual is the situation under Article 142 of the Polish Bankruptcy and
Reorganization Code in which the involvement of a trustee or a creditors’ committee
cannot cure such lack of capacity. (380) An insolvency always causes the mandatory
discontinuation of pending international arbitration and forces the parties to subsequently
reinitiate new arbitral proceedings or court litigation. (381) Investments into prior
proceedings become useless. From an economic point of view, this is hardly beneficial for
the insolvency estate. (382)
P 149
P 150
[e] Conclusion
460 The above comparison shows that a common transnational understanding of the extent
an insolvency affects the capacity of a party does not exist. The capacity of a debtor to
effectively hold rights and obligations as well as to perform legal actions might not even
be touched at all. Beyond that, the underlying notions of capacity vary, specifically,
between civil law and common law countries. To adopt or transfer certain concepts from
one jurisdiction into another includes difficulties, since corresponding functions might not
fit into one of the available categories or do not exist at all.
461 However, where these capacity rights do not remain with the debtor, they vest in the
insolvency estate represented by the trustee or in the trustee himself, depending on the
involved insolvency system. (383) Hence, capacity regarding the insolvency estate will
always vest in someone. (384) The only question that arises is whether the debtor remains
the opponent in an action or whether the trustee needs to be added as counterparty in
order to continue the proceeding. Whether the trustee is also bound by an arbitration
agreement concluded by the debtor is, in turn, a question of the scope ratione personae of
the arbitration agreement. (385)
462 Not to include the trustee in the assessment of capacity of an insolvent party would,
particularly from a policy standpoint, make little sense. It would, in contradiction to the
objectives of insolvency law, lead to an automatic loss of creditors’ rights against the
debtor at the time of commencement of an insolvency. These are rights that insolvency law
precisely seeks to protect. Moreover, the purpose of the incapacity of a debtor is different
from the ordinary case of an incapacity, where a natural person lacks mental capacity or a
legal entity lacks statutory organs. When a natural person loses capacity, a guardianship is
appointed to protect the interests of the incapacitated, and some rights of the
incapacitated may not even be exercised at all. (386) Conversely, insolvency laws force the
debtor into incapacity to protect the interests of the creditors. It does not attempt to
protect the incapacitated debtor. The debtor’s incapacity directs the debtor’s
accountability to be handled by the proper representative in a fair and equal proceeding.
The capacity rights taken away from the debtor, fully vest ex lege in the trustee. An
P 150 insulated reference to the capacity of the debtor – without taking any notice of the position
P 151 of the trustee – is therefore alien to the purposes of the insolvency system. (387) It would
render provisions on the role of the trustee meaningless (388) and would have undesired
consequences in all legal proceedings, not only arbitrations. In jurisdictions where the
debtor loses its capacity upon the commencement of an insolvency, all proceedings
involving the debtor would have to be terminated. (389)
[3] Delimitations
[a] Authority
[i] In General
463 Issues of capacity should be kept apart from issues of authority. (390) Authority relates
to the authority of a certain agent or organ of the party to conclude an arbitration
agreement on behalf of a certain legal entity or to conduct the proceedings on its behalf.
(391) It has to be further distinguished from the authority to represent a party in legal
proceedings (Schiedsvollmacht). (392) Such issues do not influence the capacity of a party,
they rather decide whether the actions of the representative were binding for the latter,
P 151 and whether the action will be successful. A corrective mechanism for acts that are claimed
P 152 to be no longer in the authority of a trustee can for example be found in the principle of
apparent authority (“Anscheinsvollmacht” / “théorie du mandate apparent”), which is widely
recognized in the field of international arbitration. (393)
20
464 A differentiation between capacity and authority seems also to underlie Article 177(2)
IPRG. The Swiss lex arbitri explicitly regulates the capacity of parties in connection with
states as parties to arbitration. According to the majority view, the scope of the term
capacity in this provision excludes issues of authority. (394) Nevertheless, with regard to
the use of the term incapacity, as used in Article V(1)(a) NYC, various courts have held that
it has to be read in a broad way, and that it also includes issues of authority. (395)
[ii] Significance in Connection with Insolvency and Arbitration
465 In the context of insolvency, issues of authority come up in connection with the power
of the trustee or the debtor-in-possession to take certain actions. Even though the power to
manage and dispose of the insolvency estate might vest in the trustee, exercising such
rights sometimes depends on an approval by creditors, a creditor committee, or a court.
(396)
466 In Switzerland, the first and the second creditors reunion (erste und zweite
Gläubigerversammlung) decide about certain aspects of management, disposal, and the
continuation or initiation of lawsuits. (397) This includes the continuation and initiation of
arbitral proceedings. A non-approval of a business or a lawsuit does not, under Swiss law,
affect the capacity of any involved parties. It is, rather, an internal authorization of the
P 152 trustee – similar to an agency – to undertake certain legal actions. (398) This conclusion is
P 153 supported by the fact that a refusal to continue a proceeding does not result in a loss of
legal capacity but only in the discontinuation of the proceeding. Thereby, the action is
acknowledged or withdrawn. (399) The discontinuation of the proceeding by no means
releases the trustee or debtor-in-possession of his duties to face legal proceedings when
confronted with them.
467 In the U.S., the U.S. bankruptcy court may authorize the submission of a dispute to
arbitration after the commencement of an insolvency if the parties agreed upon
arbitrating the dispute. (400) The criteria applied by the U.S. bankruptcy court when
enforcing arbitration agreements were already described extensively above. (401) These
criteria do, however, not influence the capacity of the party subject to insolvency.
468 In Germany, the creditors or the creditors’ committee (Gläubigerausschuss) have to
approve the continuation of lawsuits where a significant amount is in dispute (Rechtsstreit
mit erheblichem Streitwert). (402) The trustee – even though generally entitled to conclude
new arbitration agreements (403) – also needs the approval of the creditors or the
creditors’ committee for the conclusion of new arbitration agreements where a significant
amount is in dispute. (404) The decision of the creditors or the creditors’ committee does
however not produce any external effects. (405) In particular, it does not affect the
capacity of the party subject to insolvency proceedings.
469 Summing up, it can be said that the approval or non-approval of certain actions by
creditors, creditors’ committees or a court are generally issues of authority that leave the
capacity of the parties to the action untouched. (406)
P 153
P 154
[b] Standing to Sue or to Be Sued (Aktivlegitimation / Passivlegitimation)
[i] In General
470 In civil law jurisdictions, it is important to distinguish between issues of capacity and
issues of standing to sue or to be sued (Aktivlegitimation / Passivlegitimation / qualité pour
agir / qualité pour defendre). (407) Issues of capacity to be party or to act as a party directly
relate to the jurisdiction of an arbitral tribunal and lead, in case of its absence, to a lack of
jurisdiction. This is a procedural question. On the contrary, standing to sue or to be sued
concerns the claimant’s and defendant’s entitlements regarding the substantive rights.
(408) It pertains to the subject of the asserted right, and its absence does not lead to the
inadmissibility of the claim, but rather to its denial. (409) Consequentially, this question is
decided on the merits of the case. (410) However, common law jurisdictions tend not to
make a clear distinction between procedural questions and the substantive nature of
standing to sue or to be sued. (411)
471 Before arbitral tribunals, drawing a clear line between procedural questions and the
substantive nature of standing to sue or to be sued might become problematic. The
jurisdiction of arbitral tribunals derives from the agreement by the parties. (412) Where the
main contract was subject to a transfer, the arbitration agreement – even though
independent from the main contract – may share the latter’s destiny. (413) Accordingly, the
transfer of a claim or a contractual relationship is twofold: it not only determines whether
a party has legal standing to sue and be sued for a certain claim or contractual relationship,
but also whether it becomes party to an arbitration agreement. In other words, the issue is
whether the arbitral tribunal had jurisdiction based on the scope ratione personae (414) of
the arbitration agreement in the first place. (415)
P 154
P 155
[ii] Significance in Connection with Insolvency and Arbitration
472 When a party to an arbitral proceeding becomes subject to insolvency, questions
21
relating to the standing to sue or to be sued are likely to become relevant. An insolvency
entails in many jurisdictions the transfer of preexisting claims or contractual relationships,
including the arbitration agreements related thereto, to a trustee or debtor-in-possession.
(416) Even though such an issue theoretically belongs to the merits of a case, it leads back
to the jurisdiction of the arbitral tribunal. In order to be able to decide about its
jurisdiction, an arbitral tribunal has to decide about parties that are entitled by the
transfer, which is a substantive question.
473 Before national courts, these so called facts of double relevance (Doppelrelevante
Tatsache / faits de double pertinence) are subjected to a summary assessment when
determining jurisdiction. (417) Conversely – based on their purely contractual jurisdiction –
arbitral tribunals will need to subject facts of double relevance to full review and proof.
(418) It is important to note that only because the standing to sue or to be sued may impact
on whether a party is subject to arbitration does not make it to an issue of capacity of this
party. (419) It is rather an issue of the scope ratione personae of the arbitration agreement,
which was discussed earlier. (420)
[4] Interim Summary
474 The notion of capacity and its components vary from country to country, in particular
P 155 between the civil and common law traditions. In addition, there is no common
P 156 transnational understanding as to how – if at all – an insolvency affects the capacity of a
party subject to insolvency. This leads to ambiguities in the transnational context. It often
causes difficulties in adopting or transferring certain concepts from one jurisdiction into
another, since corresponding functions might not fit into one of the available categories or
do not exist at all.
475 Where an insolvency affects the capacity of the debtor, the capacity rights generally
vest in the insolvency estate represented by the trustee or in the trustee himself. In the
insolvency context, an insulated reference to the capacity of the debtor – without taking
into account the role of the trustee – would contradict the purpose of insolvency law. Hence,
where the capacity rights of the debtor are affected, it is sufficient to add the trustee as a
counterparty in order to continue a proceeding.
476 Finally, issues of capacity need to be kept apart from issues of authority and standing
to sue or to be sued. While both authority and standing to sue or to be sued may come up in
connection with the insolvency of a party subject to arbitration, these issues do not impact
on the party’s capacity.
[B] Effect of Issues of Incapacity on Arbitration

477 The lack of capacity of a party might come up – depending on the time the insolvency
is commenced – at different stages of an arbitration. Where a party became subject to
insolvency before the conclusion of an arbitration agreement, capacity questions will arise
at the time the arbitration agreement is concluded. This is different when a party becomes
subject to insolvency after the conclusion of an arbitration agreement. In such a case,
capacity issues will either arise during the arbitral proceeding or at the time of recognition
and enforcement of the arbitral award. In each of these three stages of the arbitration, the
lack of capacity of a party has different effects.
[1] Arbitration Agreements Concluded after the Commencement of an Insolvency
478 In order to agree upon a valid arbitration agreement, both parties need to have
capacity at the time the agreement is concluded. (421) Consequentially, where a debtor was
deprived of capacity by the commencement of an insolvency, he will no longer be able to
agree to arbitration. (422) In these cases, capacity will vest in the trustee who remains
capable to exercise the debtor’s rights. (423)
P 156
P 157
479 Depending on the lex fori concursus, a trustee is either authorized to enter arbitration
agreements independently or the additional approval of creditors, a creditors’ committee
or a court is required. (424) The same is true for cases where a debtor – as a debtor-in-
possession – keeps capacity.
480 Arbitration agreements concluded after the commencement of an insolvency
proceeding are not within the purview of this book and will not be discussed any further at
this point. (425)
[2] Arbitration Agreements Concluded before the Commencement of an Insolvency
481 The legal questions are different when the debtor is in possession of his full capacity
when entering into an arbitration agreement but subsequently loses such capacity because
of the commencement of insolvency proceedings. In the Vivendi/Elektrim decision, the
arbitral tribunal and, subsequently, the national court referred to this issue by stating that
the parties would require “continuing capacity.” (426) In these instances, it is important to
keep two different aspects of the capacity apart. (427) The first aspect concerns whether
incapacity releases a party from its obligations under an agreement that was concluded at
an earlier stage when the party still possessed full capacity. In other words, the incapacity
of one of the parties might render an arbitration agreement obsolete. The second aspect
22
concerns the incapacitated party’s capability to be party and act as a party in an arbitral
proceeding. (428)
[a] Effect of Incapacity on Arbitration Agreement
482 Where the debtor was in possession of full capacity at the time of the conclusion of the
arbitration agreement, the debtor’s subsequent incapacity does not render the arbitration
agreement invalid or obsolete. Such a conclusion would contradict all general principles of
P 157 contract law, which also apply to arbitration agreements. (429) Namely, the subsequent
P 158 loss of capacity by a party to a contract does not cause the contract to lapse. (430)
Accordingly, the same should hold true for arbitration agreements. (431) In some legal
systems, contractual obligations against a legal entity even remain valid after the latter’s
dissolution. (432) This leads to the conclusion that the subsequent incapacity of the party
does not per se affect the continuing validity of the arbitration agreement.
[b] Effect of Incapacity on Arbitral Proceedings
483 As shown above, arbitration agreements remain valid even when the insolvent party
loses capacity subsequent to the conclusion of an arbitration agreement. Consequentially,
the arbitration agreement – as the basis of arbitral jurisdiction – remains eligible for the
parties to compel arbitration. But a loss of capacity of a party might still impact on the
party’s manner of participation in an arbitral proceeding. In civil law terms, the insolvency
could impact on the procedural part of capacity, such as the capacity to be a party or the
capacity to act as a party (Parteifähigkeit or Prozessfähigkeit). (433) In common law terms, a
debtor, for instance, loses its capacity where rights are vested in the trustee and the
debtor merely keeps a beneficial interest. (434)
484 When an insolvency deprives a debtor of such procedural capacity rights, these rights
are not wiped out. They vest ex lege in the trustee or in the insolvency estate, which, in
turn, is represented by the trustee. (435) The trustee’s participation in the arbitral
proceeding will cure potential problems in procedural capacity or proper procedural
representation. (436)
P 158
P 159
[c] Effect of Incapacity on Recognition and Enforcement of Arbitral Award
485 The capacity issues at the time of recognition and enforcement of the arbitral award
are discussed, in detail, in Chapter 7 of this book. (437)
[3] Interim Summary
486 Depending on the time the insolvency is commenced, the lack of capacity of a party
comes up at different stages of an arbitration.
487 Where a debtor is deprived of capacity by an insolvency before entering an arbitration
agreement, the capacity issues will arise at the time of the conclusion of the arbitration
agreement. The applicable lex fori concursus decides as to whether a debtor-in-possession
or a trustee has capacity and authority to enter into arbitration agreements.
488 In cases where a debtor is deprived of capacity by an insolvency commenced after the
arbitration agreement was concluded, two aspects need to be distinguished: First,
incapacity does not release the incapacitated party from its obligations under the
arbitration agreement that was concluded under full capacity. Second, depending on the
insolvency laws, the incapacity might affect the debtor’s procedural capacity. However,
these rights vest ex lege in the trustee or in the insolvency estate represented by the
trustee. The trustee’s participation in the arbitral proceeding cures potential deficiencies
in capacity or proper procedural representation.
[C] Applicable Law

489 The determination of the law applicable to the effects of an insolvency on the capacity
of a debtor is not clear. No international arbitration instruments provide for an explicit
conflict-of-law rule for issues of capacity in connection with parties that are subject to
insolvency.
490 Earlier, this book identified three possible conflict-of-law approaches that can
generally be chosen in connection with the effects of an insolvency on arbitration. (438)
This part will first elaborate how these conflict-of-law approaches could be applied to the
question of the capacity of a party to arbitration. In the next step, the book seeks to
determine the approaches taken in various jurisdictions. Some answers might be given when
comparing the approaches that were taken in countries following similar cross-border
insolvency regimes. The book groups the countries according to their cross-border
insolvency law system and seeks to identify common patterns within these groups. The
P 159 groups will be divided into countries following (a) the EuInsReg, (b) the UN-InsModLaw
P 160 and (c) Switzerland’s autonomous cross-border insolvency regime.
[1] Possible Conflict-of-Law Approaches in Connection with Capacity of a Party Subject to
Insolvency
23
491 Where tribunals make reference to the general conflict-of-law regime applicable to
parties outside of insolvency, they will rely on the provisions governing capacity in other
instances than insolvency. The NYC, the Europ-CArbCon, the UN-ArbModLaw all refer at
least implicitly to the need for a rule governing the question of capacity. Article VI Europ-
CArbCon requires for the enforcement of arbitration agreements that the parties had
capacity “under the law applicable to them.” 34(2)(a)(i) UN-ArbModLaw mentions
incapacity as a ground to set aside the arbitral award but without making any reference to
a legal order. (439) Finally, Article V(1)(a) NYC and Article 36(1)(a)(i) UN-ArbModLaw grant a
ground to refuse recognition and enforcement of an arbitral award when parties lacked
capacity “under the law applicable to them.” It is widely recognized that a reference to
capacity is also implicitly included in Article II NYC for the stage of enforcement of
arbitration agreements. (440)
492 But none of these rules contain either a conflict-of-law rule or a substantive rule
explicitly determining the law applicable to the capacity of a party at the stage of arbitral
proceedings. (441) Accordingly, it is left to the different national arbitration laws to
determine the law applicable to capacity during the arbitration proceedings. This lack of
legislative authority has led to a variety of approaches by national courts, arbitral
tribunals and scholars.
[i] Application of the International Private Law Rules of the Seat of the Arbitral Tribunal
493 Due to the lack of a clear authority regarding the applicable law to capacity issues in
international arbitration, national courts and arbitral tribunals have repeatedly applied
P 160 conflict-of-law rules originating from the private international law regime at the seat of the
P 161 arbitral tribunal. (442) This approach was mainly taken with reference to the wording of
the above-mentioned provisions of the NYC, Europ-CArbCon and UN-ArbModLaw. (443)
Some authorities emphasize, though, that the lex fori conflict-of-law rules need to be
handled with a certain flexibility to satisfy the special nature of international arbitration.
(444)
494 Depending on the conflict-of-law rules of the lex fori at the seat of the arbitration, the
applicable law to issues of capacity varies. Common law jurisdictions traditionally refer to
the place of incorporation while conflict rules of civil law jurisdictions point to the
company’s primary place of business. (445) Hence, the national law to which the conflict-of-
law rule refers for the determination of capacity does not necessarily – even though it
often does – coincide with the forum concursus. Accordingly, a situation could arise where
the capacity of a party is determined according to a law other than the lex fori concursus.
Such division is likely to occur where the seat country of the arbitration follows the
incorporation theory and the lex fori concursus follows the real seat theory or vice versa.
(446)
[ii] Direct Application of a Substantive International Capacity Rule
P 161 495 French authors interpret Article V(1)(a) NYC as a norm containing a substantive rule of
P 162 capacity in the international context. (447) This substantive rule aims “to determine
whether the parties have the required capacity to enter into an arbitration agreement
which is liable to produce effects in the country in which those courts are located.” (448)
[iii] Application of Closest Connection Rule
496 Other commentators approach the determination of capacity by reference to the law
with the closest connection to the issue. (449) This approach is based on the presumption
that the lex arbitri is an independent set of rules, disconnected from the traditional
conflict-of-law system. (450) The closest connection rule will regularly lead to the same
applicable law as a determination under the traditional conflict-of-law approach. (451) It
will either refer to the law of the place of incorporation, primary place of business, or the
place where the company is domiciled.
497 In connection with insolvency proceedings, such an approach can cushion shortcomings
of the traditional conflict-of-law approach. It allows handling incompatibilities between
countries following either the real seat or the incorporation theory. (452) Outside of a
pending arbitral proceeding, the closest connection approach will always refer to the lex
fori concursus. (453) Where an arbitration proceeding is pending, the closest connection for
the question of capacity in the proceeding shifts to the country where the arbitral
proceeding is pending. (454) Hence, here the law of the seat of the arbitration governs
issues of capacity of the parties. (455)
P 162
P 163
[iv] Application of Conflict Rules Applicable to the Substantive Validity of Arbitration
Agreements
498 Other authorities, such as the UK Supreme Court, suggest subjecting the question of
capacity to the same conflict-of-law rules as the arbitration agreement. (456) Since the law
applicable to the arbitration agreement can be determined by the parties, this would also
subject the law applicable to the capacity to party disposal. Such an approach could even
lead to the application of the in favorem validitatis principle to capacity, which applies
under certain leges arbitri to arbitration agreements. (457)
24
[v] Application of a in favorem validitatis rule
499 More recently commentators and arbitral tribunals urged that the in favorem validitatis
principle should generally be adapted for questions of capacity. (458) Born highlights that
where “parties enter into international transactions, calling by definition for activities
affecting multiple states, their contractual agreements should be given maximum effect,
notwithstanding local law provisions that would impede the enforceability of contractual
arrangements in a domestic setting.” (459)
[vi] Principles Preventing the Application of Inadequate Capacity Provisions
500 Certain authorities suggest that once the applicable law for capacity is determined,
the applicable capacity provision should be subject to further examination regarding its
adequacy in an international context. This can be achieved by the application of the New
York Convention’s principles against discriminatory and idiosyncratic provisions or by
reference to the principle of good faith.
P 163
P 164
(1) Application of New York Convention Principles against Discriminatory and Idiosyncratic
Provisions
501 U.S. courts and doctrine have steadily held that U.S. state law provisions devoted to
selectively invalidating arbitration agreements as opposed to other types of agreements
were not applicable under the U.S. FAA. (460) This principle was also adapted for the
international context. A broad body of U.S. case law holds that Article II(3) NYC and
Chapter 2 of the FAA – implementing the NYC – supplants discriminatory or idiosyncratic
provisions of foreign law applicable to international arbitration agreements. (461)
502 According to the U.S. Supreme Court, the NYC aims “to encourage the recognition and
enforcement of commercial arbitration agreements in international contracts and to unify
the standards by which agreements to arbitrate are observed and arbitral awards are
enforced in the signatory countries.” (462) In Rhone Mediterranee, the 3d Circuit
disregarded a provision of Italian law that required an even number of arbitrators and that
would have invalidated the arbitration agreement. (463) Relying on Article II(3) NYC the
court held that:
[...] signatory nations have effectively declared a joint policy that presumes the
enforceability of agreements to arbitrate. Neither the parochial interests of the forum
state, nor those of states having more significant relationships with the dispute, should be
permitted to supersede that presumption. The policy of the Convention is best served by
an approach which leads to upholding agreements to arbitrate. The rule of one state as to
the required number of arbitrators does not implicate the fundamental concerns of either
the international system or forum, and hence the agreement is not void. (464)
503 In another decision, U.S. courts pointed out that Article II(3) NYC prohibits contracting
P 164 states to legislate in a way that discriminates between arbitration agreements – as one
P 165 form of a contractual relationship – and other types of contracts. Accordingly, a court
found that Article II(3) NYC would supersede an Italian provision that appears “to be a
special requirement governing agreements to arbitrate, but [is] inapplicable to other
contractual terms and conditions.” (465) Repeatedly, courts have pointed out that it is
“well-established that it is not state law, but internationally recognized defenses to
contract formation or public policy concerns of the forum nation, which makes a valid
agreement to arbitrate the subject of the dispute unenforceable under Article II, section 3
of the Convention.” (466)
504 Born argues that these principles of international non-discrimination and neutrality
should also restrict the circle of applicable provisions to capacity. (467) Where a provision
excessively impedes a party’s capacity to conclude an arbitration agreement or to
participate in an arbitration, Article II(3) NYC would prevent such provisions from having
effect in an international context. (468) Provisions that deprive an insolvent party of its
capacity to be a party to arbitration or to act as a party in an arbitral proceeding and that
cannot be cured by the participation of a trustee are very unusual. (469) These provisions
might, therefore, qualify as discriminatory against arbitration and idiosyncratic on an
international level. (470) Outside the U.S., this doctrine has not yet received much
attention. In the interest of a coherent body of law under the NYC, which would enhance
predictability in international arbitration, the application of this doctrine should be
encouraged.
(2) Application of Rules Prohibiting a Party to Invoke Provisions of Incapacity
505 Another theory hinders a party’s reliance on provisions depriving it of capacity if such
P 165 provisions originate from this party’s national law. This theory is broadly accepted for cases
P 166 of state parties or state-controlled parties. (471) Beyond that, certain authorities argue
that the prohibition on relying on domestic legislation to evade an obligation to arbitrate
was even a principle of international law. (472)
506 This theory is rooted in the principle of good faith (venire contra factum proprium),
which applies to both state and private parties. (473) Some commentators conclude –
analogous to state parties – that private parties should be preempted from arguing in the
25
case of an insolvency that they lack capacity to arbitrate based on its national law. (474)
This argument, however, disregards the fact that a private party – contrary to a state –
usually has little or no influence on the creation of the rules governing its capacity in
insolvency. The simple fact that a party invokes an insolvency law provision of its own
national law once it became insolvent hardly reaches the threshold of acting against good
faith.
507 Beyond that, parallels might be drawn to the considerations made for situations where
a company negates the signing agent’s authority to conclude an arbitration agreement
after such agreement was signed. In such a situation, the company should be banned from
invoking the agent’s lack of capacity where the latter’s authority had been reasonably
assumed, and the counterparty was in good faith. (475) This situation, however, is not
comparable to the situation where insolvency law incapacitates a party. While a company
P 166 may exert influence on the authority and behavior of its agents – for instance through the
P 167 articles of incorporation or individual mandates – the question of capacity in an
insolvency is set by a national legislation, which is out of reach of private parties.
508 Whether the commencement of an insolvency proceeding against a party altogether
violates good faith is a different question and is assessed at the stage of the recognition of
the insolvency. (476)
509 An arbitral tribunal might also choose to apply conflict-of-law rules of the cross-border
insolvency regime at the seat. As a result, the capacity of the arbitration agreement will, in
most cases, either depend on the lex fori of the seat of the arbitral tribunal or on the lex
fori concursus. The lex fori of the seat applies, for instance, where the arbitral tribunal
refers to the conflict-of-law rules of the UN-InsModLaw or the autonomous Swiss cross-
border insolvency law rules. Both these regimes contain a unilateral reference to the lex
fori of the seat. (477)
510 Where the arbitral tribunal refers to the conflict-of-law rules of the EuInsReg, the law
governing the capacity of a party varies depending on the stage of the arbitral proceeding.
Before the commencement of the arbitration, capacity is determined by the lex fori
concursus (Article 4 EuInsReg). On the other hand, where the arbitral proceeding is already
pending, the law of the forum of the seat of the arbitration (Article 15 EuInsReg) governs
capacity. (478)
511 The arbitral tribunal could also directly apply the lex fori concursus in order to
determine the capacity of a party. (479) This applies where the provision determining the
status of a party to insolvency is considered to be an internationally mandatory provision.
(480)
[2] EuInsReg
P 167 512 Arbitral tribunals seated in Member States of the EuInsReg (481) most likely refer to the
P 168 EuInsReg conflict-of-law regime when determining the law applicable to the effects of
an insolvency on capacity. (482) Similar to the situation regarding the validity of an
arbitration agreement, the applicable law to capacity of parties depends on the stage of
the arbitration at the time the insolvency is commenced. (483)
513 Where the arbitration is not pending, Article 4 EuInsReg – referring to the lex fori
concursus – governs the effects of an insolvency on arbitration. (484) This also applies to
issues of capacity. With a view to the outcome, it makes no difference whether the capacity
of the debtor is considered under sub-section (e) as part of “current contracts,” (485) under
sub-section (f) as part of ”proceedings,” (486) or whether capacity is assessed under sub-
section (c) in connection with the power of the debtor and trustee. (487)
514 In turn, where an arbitral proceeding is already pending at the time of the
commencement of an insolvency, all effects of an insolvency on the arbitration are
governed by Article 15 EuInsReg. (488) The conclusion reached in connection with the
application of Article 15 EuInsReg to the validity and scope of arbitration agreements
applies mutatis mutandis also here. (489) Consequentially, the effect of an insolvency on
the capacity of parties is determined by the law applicable at the seat of the arbitration.
(490)
[3] UN-InsModLaw
515 Arbitral tribunals or national courts seated in UN-InsModLaw jurisdictions tend to rely
on provisions of the UN-InsModLaw when recognizing the effects of foreign insolvencies in
connection with international arbitrations. (491)
[a] United States
516 In the U.S., it is unclear whether a U.S. bankruptcy court would decide itself about
questions of capacity when enforcing an arbitration agreement, or whether it would refer
P 168 this question to the arbitral tribunal to decide. In the past, capacity issues outside the
P 169 insolvency context were treated in different ways. Some courts found that the decision
about capacity was for the courts to make, other courts referred it to the arbitrators. (492)
26
However, it has to be highlighted that this practice refers to capacity issues at the time of
the conclusion of the arbitration agreement and might need to be treated differently from a
case where an insolvency affects a party’s capacity during arbitral proceedings.
517 Beyond that, the allocation of competence in arbitration cases involving parties subject
to insolvency follows other rules than the ones governing arbitrations outside of insolvency.
(493) As discussed earlier, U.S. bankruptcy courts enjoy exclusive jurisdiction to recognize a
foreign insolvency (494) and to enforce an arbitration agreement involving a party subject
to insolvency. (495) This suggests that U.S. bankruptcy courts could also decide issues of
capacity of parties subject to insolvency and would not refer such questions to the arbitral
tribunal to decide.
518 U.S. courts will likely take into account the position of the trustee when deciding about
capacity issues. U.S. Bankruptcy Code § 1509 grants the “foreign representative” the right to
sue and to be sued upon recognition (496) of the foreign insolvency. (497) To determine the
appropriate “foreign representative” courts usually look at the foreign lex fori concursus.
(498) Alternatively, U.S. courts have also consulted their own insolvency law concepts when
determining the legal position of a “foreign representative.” (499)
P 169
P 170
519 The conception that insolvency law incapacitates the debtor with regard to arbitration,
leaving no possibility for the trustee to compensate this position (500) is alien to the U.S.
and most other legal systems. (501) U.S. doctrine refuses to apply discriminatory or
idiosyncratic provisions of foreign law applicable to international arbitration agreements
based on non-discrimination principles contained in Article II(3) NYC and Chapter 2 of the
FAA. (502) As a result, U.S. courts would likely qualify a provision of the lex fori concursus
providing for such incapacity of the debtor as discriminatory or idiosyncratic and ignore it.
[b] England
520 English courts, to the author’s knowledge, have not been confronted with the issue of
capacity under the implemented UN-InsModLaw. However, the earlier mentioned Cosco
case might provide some guidance as to how English courts would deal with such questions.
(503) The court’s conclusion was that Article 20 of the UN-InsModLaw provides for the
application of English law as to the effects of the recognition of a foreign insolvency. (504)
Hence, such reference could also be made in connection with the question as to how an
insolvency affects the capacity of the debtor and the function of the trustee in an
arbitration in England.
[4] Switzerland
521 The Swiss lex arbitri does not contain a provision determining the law governing
questions of capacity of a private party at the time of an arbitral proceeding. It does, on
the other hand, regulate issues of capacity of state or state-controlled parties. (505)
However, it is unclear whether it is appropriate at all to refer to such general capacity
provisions in the context of insolvency. It might be more suitable to use insolvency-specific
concepts of capacity.
P 170
P 171
[a] Literature
522 The literature on Swiss arbitration law merely refers to issues of capacity of a party at
the time of the conclusion of an arbitration agreement. The idea that the capacity of
parties is governed by the conflict-of law rule governing substantive validity and scope of
arbitration agreements is explicitly rejected. (506) The majority of the commentators
support the view that was first taken in the introductory comments to the IPRG (Botschaft
des Bundesrates zum IPRG). The introductory comments relegate to general conflict-of-law
principles which are also used before Swiss national courts. (507) The relevant provisions,
Article 35 IPRG or Articles 154 and 155 IPRG refer to the law where a party is domiciled and
to the law under which it is organized (lex incorporationis). Some of the authors suggest a
more flexible use of these provisions before arbitral tribunals than before national courts.
(508)
523 More recently, scholars rejected the solution of making reference to conflict-of-law
rules stemming from traditional private international law. They rather urge that the Swiss
lex arbitri has to be interpreted autonomously. Consequently, the closest connection rule
stipulated in Article 187(1) IPRG should determine the law applicable to capacity. (509) In
the process of defining the closest connection, traditional international private law rules
might provide some guidance. (510) Authors who favor the application of Article 187(1) IPRG
emphasize the flexibility such a solution would provide in connection with insolvency
proceedings. Instead of a fixed reference to the lex incorporationis under Article 35 IPRG or
Article 154 and 155 IPRG, it enables the tribunal to directly refer to the lex fori concursus.
(511) Some authors even go a step further and endorse an in favorem validitatis approach,
applying the most favorable law to the capacity of the party. (512)
524 Only a few authors draw a distinction between capacity issues at the time of the
conclusion of the arbitration agreement and capacity issues at the time of the arbitral
proceeding. It is argued that a loss of capacity of a party that had capacity at the time of
P 171
27
P 171 the conclusion of the arbitration agreement would not release such party from arbitrating
P 172 a dispute. (513) Other commentators argue that Article 177(2) IPRG also applies to a
trustee as a state-controlled party. (514) Accordingly, the trustee may not invoke its own
law to contest his or the debtor’s capacity to be subject to an arbitration.
[b] Case Law
525 The Swiss Federal Supreme Court has consistently held that issues of capacity are to be
decided by the lex incorporationis of a party. (515) The court relied – in the absence of a lex
arbitri provision – on the general international private law rules in Article 35 IPRG or
Articles 154 and 155 IPRG, respectively. (516) The Swiss Federal Supreme Court also
followed this approach in connection with the capacity of parties subject to insolvency.
(517) More recently, the court explicitly rejected the application of the closest connection
rule in this context, arguing that Article 187(1) IPRG only applies to the merits of the
dispute. (518) That is, its character would not match questions of capacity. While Article
187(1) IPRG leaves room for a party to choose the applicable law, the capacity of parties
does not permit for such party autonomy. (519) In addition, the Swiss Federal Supreme
Court rejects the applicability of Article 177(2) IPRG to private parties that are subject to
insolvency. (520)
526 In earlier decisions, the Swiss Federal Supreme court also emphasized the distinction
between the law applicable to issues of capacity and the law applicable to the question of
standing to sue and to be sued (Aktivlegitimation / Passivlegitimation). It determined that
the standing to sue and to be sued was a question of the scope ratione personae of the
arbitration agreement and accordingly was governed by Article 178(2) IPRG. (521)
527 Arbitral tribunals seated in Switzerland have repeatedly applied the law of the place
of incorporation (lex incorporationis) of the party to issues of capacity. (522) An arbitral
tribunal seated in Geneva noted that it had difficulties in distinguishing between the legal
P 172 standing to be sued or to sue and issues of capacity to be a party or to act as a party in a
P 173 case where the underlying contractual relationship was transferred. (523) The tribunal
eventually concluded that this question seemed to “possess a mixed or hybrid character,
combining procedural and substantive rules.” (524) In light of this conclusion, the tribunal
applied the lex incorporationis of the party to both legal standing to sue or to be sued and
to the capacity to be a party or to act as a party, even though it mainly characterized the
issue as procedural. (525) The tribunal came to such conclusion without considering further
conflict-of-law rules and accordingly followed an untypical approach – for Switzerland – of
directly applying a substantive rule. (526)
[c] Analysis
528 The existing literature and case law suggest various ways to determine the law
applicable to the capacity of an insolvent party subject to arbitration. Irrespective of the
suggested conflict-of-law rule, all proposals share some common features. They all have
their roots within the bounds of the traditional conflict-of-law approach (as opposed to an
insolvency-specific approach). (527) Also, none of the proposals fully matches the nature
and needs of insolvency law. This is reflected in the practice of the Swiss Federal Supreme
Court. The court seems to recognize that a satisfactory application of the traditional
capacity conflict-of-law rules in the insolvency context requires further adaption or
correction.
[i] Evolving Practice of the Swiss Federal Supreme Court
529 The traditional conflict-of-law approach was applied in connection with the insolvency
of a party in the Vivendi/Elektrim decision. (528) The court characterized and defined the
P 173 capacity to enjoy rights (Rechtsfähigkeit) and the capacity to be party (Parteifähigkeit)
P 174 according to the concepts of the lex incorporationis. (529) The court went on to assess
whether – in a proceeding governed by the lex incorporationis – the debtor would remain to
hold these components of capacity. This led to the conclusion that under the lex
incorporationis, the debtor was deprived of its capacity to be a party (Parteifähigkeit) in
arbitration. (530) Thereafter, the Swiss Federal Supreme Court applied this finding directly
to the arbitration conducted under the Swiss lex arbitri. In simpler terms, the concepts of
capacity under the lex incorporationis directly applied to an arbitration conducted under
the Swiss lex arbitri.
530 In BGE 138 III 714, the Swiss Federal Supreme Court was confronted once again with the
same issue. This time, however, the court altered one factor in its approach, which turned
out to be crucial. The court first reaffirmed its previous practice that the lex incorporationis
governs the capacity of a party. (531) But this time, in contrast with the Vivendi/Elektrim
(532) decision, the notion of capacity was no longer characterized according to the lex
incorporationis. Instead, the court characterized and defined the capacity to enjoy rights
(Rechtsfähigkeit) according to the notion underlying the Swiss lex arbitri. (533) Under Swiss
law, the capacity to enjoy rights (Rechtsfähigkeit) consists of the ability of a person to hold
rights and duties. (534) The court’s reference to the lex incorporationis was thereafter
limited to inquire whether the debtor was entitled to hold rights and duties under the lex
incorporationis. (535) No other components of capacity were determined under the lex
incorporationis; namely, neither the debtor’s capacity to enjoy rights (Rechtsfähigkeit) nor
its capacity to be a party (Parteifähigkeit). (536) Instead, all components of capacity were
28
allocated to the debtor according to the notions and concepts underlying the Swiss lex
arbitri. (537)
P 174
P 175
531 In short, the only element concerning the debtor’s capacity that was submitted to the
lex incorporationis was whether the foreign legal entity would fulfill the Swiss notion of
capacity to enjoy rights (Rechtsfähigkeit). All other questions were answered according to
the Swiss concepts underlying the lex arbitri.
532 The Swiss Federal Supreme Court, interestingly, rejected the assumption that
Vivendi/Elektrim in some manner set a precedent for the capacity issue arising in BGE 138
III 714. (538) Whether these two cases indeed concerned divergent cases is highly doubtful.
It was rather the Swiss Federal Supreme Court’s different approach that led to a different
outcome. One can even venture that the approach as taken in BGE 138 III 714 would also
have conferred capacity for purposes of arbitration upon the debtor in the Vivendi/Elekrim
case. (539)
[ii] Problems in Connection with the Reliance on General Incapacity Provisions in an
Insolvency Context
533 The most recent case law relies on the traditional conflict-of-law approach in
connection with capacity issues in insolvency. This is sometimes problematic.
534 First, as elaborated earlier, there are incompatibilities between the concepts and
elements of capacity as they are used in various judicial systems. (540) In addition, the
effects of an insolvency on the capacity of a debtor varies from country to country. In BGE
138 III 714, the Swiss Federal Supreme Court seemed to strive for a way to balance these
incoherencies. In order to reconcile its own capacity concepts with the foreign capacity
concepts, it first defined the capacity concepts according to Swiss principles underlying the
lex arbitri. It then ”filled” this definition with elements of the foreign lex incorporationis. This
displays an effective way to balance – at least some – incompatibilities.
535 This balance of incompatibilities, does, however, not dispel all concerns about the
application of the traditional conflict-of-law approach in the insolvency context. It
P 175 completely ignores the crucial role of the trustee in insolvency law. (541) BGE 138 III 714, for
P 176 instance, is silent on the grounds according to which the court assumed the trustee’s
right to conduct legal proceedings. This was particularly surprising since the trustee – and
not the debtor – was conducting the arbitration. (542) The insolvency estate’s right to
conduct legal proceedings (Prozessführungbefugnis), represented by the trustee, is namely
a condition for the admissibility of an action which Swiss courts usually assess ex officio.
(543) The court’s reluctance to engage in an assessment of the trustee’s role in BGE 138 III
714 might be explained by the fact that in this particular case the position of the trustee
was not relevant to establish capacity. The debtor maintained its ability to hold rights and
duties (capacity to enjoy rights / Rechtsfähigkeit) under the lex incorporationis.
536 The trustee’s position could, however, become crucial under a different constellation.
Where the lex incorporationis no longer provides the debtor with the ability to hold rights
and duties (capacity to enjoy rights / Rechtsfähigkeit) with respect to the insolvency estate,
the debtor no longer holds a position as a party. This is the case for certain types of
insolvencies under U.S. and English Law. (544) Here, the debtor merely retains a beneficial
right regarding the proceeds of the liquidation of the insolvency estate. (545) In such a
case, the approach taken by the Swiss Federal Supreme Court will no longer establish
capacity of the debtor without taking the position of the trustee into account.
[iii] Suggested Conflict-of-Law Approach for Issues of Capacity in Connection with
Insolvency
537 In order to live up to the nature of insolvency law, a reference to the position of the
trustee is possible in two ways. (546) Either, similar to most other jurisdictions, apply an
insolvency-specific conflict-of-law approach or further adapt the traditional capacity
conflict-of-law approach (547) to questions of insolvency.
(1) Insolvency-Specific Conflict-of-Law Approach
538 The comparative view shows that other legal systems included in this book mostly
refrain from using the traditional conflict-of-law approach in connection with the capacity
P 176 of parties subject to insolvency. Instead, they refer to concepts of cross-border insolvency
P 177 law. (548) This approach avoids deconstructing capacity into its components and
allocating them to counterparts in another legal system that does not necessarily follow
compatible notions. (549)
539 Such references to insolvency-specific conflict-of-law rules can also be considered in
Switzerland. Namely, would a reference to insolvency-specific conflict-of-law rules for
capacity issues in insolvency not be less legitimate than the capacity rule of the private
international law regime at the seat. (550) Both these rules originate outside of the lex
arbitri.
540 Swiss cross-border conflict-of-law rules allow a direct reference to the trustee in cases
where the debtor is deprived of its capacity under the traditional conflict-of-law
approach. (551) Hence, where a debtor is deprived of a component of capacity, the trustee
29
is able to cure such a deficiency. (552) Cross-border insolvency rules confer rights in a Swiss
proceeding upon the subject that administers, liquidates and distributes the debtor’s
estate under the lex fori concursus. (553) This necessarily includes capacity in a Swiss
proceeding. (554) This conception could also be adopted for the position of the trustee in
international arbitration. (555)
541 Such an approach, additionally, would create greater flexibility by referring to the lex
P 177 fori concursus and not only to the lex incorporationis. It could cushion differences between
P 178 countries following the real seat theory versus the ones following the incorporation
theory. (556) Such a solution would live up to the flexibility required in the international
arbitration context.
(2) Traditional Conflict-of-Law Approach
542 A reference to the trustee is also possible under the traditional conflict-of-law
approach. In such a case, the adjustment process of the capacity conflict-of-law rule
initiated by the Swiss Federal Supreme Court in 138 III 714 needs to be developed further.
(557) It has to be broadened and include the debtor and the trustee, where the trustee
conducts the proceedings. (558) This takes note of the fact that as a matter of insolvency
law, all components of capacity regarding the insolvency estate necessarily either vest in
the debtor or in the trustee. This interpretation is supported by the idea of Article 35 IPRG,
manifesting the principle of upholding the capacity to act whenever possible. (559)
543 Also, in the context of international arbitration, it is justified to interpret the reference
to the lex incorporationis flexibly as making reference to both the lex incorporationis, but
also to the real seat of a company. (560)
(3) Lex fori concursus as Mandatory Provisions
544 A provision of the lex fori concursus depriving the debtor of its capacity (561) in an
arbitral proceeding may apply directly to arbitration in Switzerland, where it is considered
a mandatory rule (loi d’application immédiate). (562) The approach applying certain rules of
the lex fori concursus as mandatory provisions was analyzed in detail in connection with
the validity and scope of arbitration agreements. (563) The conclusions drawn there also
apply mutatis mutandis here:
P 178
P 179
545 If the foreign provision depriving the debtor of its capacity in an arbitral proceeding is
characterized as a procedural question, it is suggested that for procedural questions the
mandatory provisions approach was not eligible. (564)
546 But even under the assumption that the mandatory provisions approach applies, Swiss
arbitral tribunals only need to consider a mandatory lex fori concursus rule, where this
rule, at the same time, is also considered to be part of Swiss international public policy.
(565) Provisions depriving the debtor explicitly of capacity for arbitration purposes are
internationally very rarely encountered. (566) Beyond that, it is doubtful whether the aim
of such provision is even beneficial to insolvencies. (567) Accordingly, such provisions do
not have fundamental character in insolvency law, as required for international mandatory
rules and are not part of Swiss international public policy.
[5] Interim Summary
547 Case law and scholars suggest, in general, a broad variety of conflict-of-law rules to
determine the law applicable to the capacity of parties to international arbitration, which
also apply in connection with insolvencies. However, the jurisdictions included in this book
often refer to insolvency-specific conflict-of-law approaches when confronted with the
effects of an insolvency on the capacity of a party.
548 Arbitral tribunals seated in Member States of the EuInsReg follow the insolvency-
specific conflict-of-law approach. The effect of the insolvency on the capacity of the
parties is generally determined according to the lex fori concursus (Article 4(2) EuInsReg).
Where the arbitration is already pending at the time of an insolvency, the effects on the
capacity are governed by the law applicable at the seat of the arbitration (Article 15
EuInsReg).
549 Also UN-InsModLaw jurisdictions tend to apply the cross-border insolvency conflict-of-
law rules to arbitration. The effects of an insolvency on the capacity of the parties are
subjected to the law of the country recognizing the insolvency. Beyond that, in the U.S., a
provision depriving a debtor of its capacity to be party in arbitration would likely be
ignored as discriminatory and idiosyncratic under Article II(3) NYC.
550 In Switzerland, courts apply the traditional conflict-of-law approach in connection with
questions of the capacity of parties subject to insolvency. Such reference does not always
live up to the particularities of insolvency law. This has led to gradual adjustments of this
approach. But the narrow reference to the capacity of the debtor ignores the role of the
trustee, who, as a matter of insolvency law, makes up for possible deficiencies in capacity.
The position of the trustee might be taken into account in two ways. Either – similar to
P 179 most other legal systems – reference can be made to the principles governing cross-
P 180 border insolvency law. Or, the position of the trustee can also be taken into account under a
broadened traditional conflict-of-law approach, referring to the capacity of the debtor and
30
trustee at the same time. Beyond that, mandatory rules depriving a party subject to
insolvency of its capacity are irrelevant in Swiss international arbitrations.
§6.03 SUSPENSION OF ARBITRAL PROCEEDINGS DUE TO AN INSOLVENCY

551 Upon the commencement of an insolvency proceeding, the actions raised against a
debtor are usually actions for payment against the insolvency estate. (568) Insolvency law,
however, typically prevents such actions from immediately going forward. The
commencement of an insolvency triggers the mechanism of an automatic stay of all legal
proceedings involving the insolvency estate. New proceedings outside the insolvency
proceeding are usually precluded. (569) Their continuance can only take place in
accordance with the terms of the applicable insolvency law.
552 In the following, this book provides a survey of provisions mandating an automatic stay
and their application to proceedings conducted before arbitral tribunals. In a second step,
the book analyzes questions of the governing law that arise in this context.
[A] Automatic Stay Provisions in Insolvency Laws

553 The suspension of legal proceedings at the time of a commencement of insolvency
proceedings is not regulated in international treaties. Provisions of suspension are,
however, found in most national insolvency laws. Also the European Court of Justice
observed this commonality, and stated that “[i]t follows from the principles common to the
procedural laws of the Member States, [...] that a creditor is not entitled to pursue his
claims before the courts on an individual basis against a person who is the subject of
insolvency proceedings but is required to observe the specific rules of the applicable
procedure.” (570)
554 The purpose of the automatic stay provisions is not considered the same everywhere.
Most countries see the purpose of the automatic stay to prevent an abatement of assets
belonging to the insolvency estate in order to safeguard an orderly payment to all
P 180 creditors. (571) It allows handling all claims in one collective proceeding, ensuring pro rata
P 181 payments to all ordinary unsecured creditors. (572) In other countries, the automatic
stay is also considered a direct consequence of the debtor being deprived of the right to
conduct legal proceedings. Hence, the automatic stay strives to provide the trustee and
the creditors sufficient time to prepare before continuing the debtor’s proceedings. (573)
555 The scope of automatic stay provisions depends on the applicable insolvency regime.
Whether the reach of automatic stay provisions also extends to proceedings conducted
before international arbitral tribunals varies. In determining the scope of automatic stay
provisions, the purpose attributed to them often turns out to be decisive.
[1] United States
556 Under U.S. insolvency law, the filing of a bankruptcy petition under all chapters of the
U.S. Bankruptcy Code (574) imposes, according to U.S. Bankruptcy Code § 362, an automatic
stay on legal actions involving the debtor or his estate. The automatic stay of U.S
Bankruptcy Code § 362 also applies upon recognition of a foreign insolvency proceeding
under Chapter 15 Bankruptcy Code. (575) Before the adoption of the UN-InsModLaw in the
year 2005, courts granted a stay of arbitral proceedings in the U.S. where the foreign
proceeding was recognized according to comity. (576)
557 The scope of the automatic stay of U.S Bankruptcy Code § 362 is broad and applies not
only to court proceedings but also to international and domestic arbitrations seated within
the U.S. (577) Exemptions from the automatic stay are explicitly listed under U.S.
Bankruptcy Code § 362(b). Once the insolvency is commenced, the U.S. bankruptcy court
has discretion to lift the stay and let legal proceedings – including arbitrations – go
P 181 forward. (578) The debtor cannot waive the stay without the court’s approval, since the stay
P 182 protects rights of the debtor and creditors at the same time. (579) Any arbitral award
resulting from an arbitration proceeding in disregard of the automatic stay is considered
void. (580)
558 When international arbitrations are seated outside of the U.S., the application of U.S
Bankruptcy Code § 362 needs to be assessed on a case-by-case basis. The scant authority
on this issue suggests that the automatic stay may apply in two situations in particular. The
stay might have extraterritorial effect in cases where U.S courts have in personam
jurisdiction over the parties or where the protection of the debtor’s property located within
the territorial jurisdiction of the United States is at stake. (581) In Fotochrome Inc. v. Copal
Co. the court denied the application of the automatic stay to an arbitration abroad
because the court lacked in personam jurisdiction. (582) At the same time, the court
refrained from answering if an automatic stay applies in cases where the court finds in
personam jurisdiction over the party. (583) In another case, where the court had in
personam jurisdiction, the arbitral proceeding seated outside the U.S. was stayed – even
though this time under U.S. Bankruptcy Code § 105(a). (584) In a case where a foreign
insolvency was recognized in the U.S., the court found that the triggered automatic stay
applies only “to the debtor within the United States for all purposes and may extend to the
debtor as to proceedings in other jurisdictions for purposes of protecting property of the
debtor that is within the territorial jurisdiction of the United States.” (585) The court went
on to declare that an automatic stay does not apply to international arbitrations in a
31
foreign venue that concerns “an entirely foreign transaction that has no connection to the
United States and no conceivable impact on debtor property in [the United States].” (586)
Further insights might also be provided in a case concerning a Chapter 11 insolvency. (587)
In said case, the U.S. debtor possessed assets in both the U.S. and Italy. (588) In the course
of the insolvency, a creditor obtained an arbitral award in Switzerland against the debtor.
P 182
P 183
The creditor enforced the award in Italy in order to obtain a lien on the assets located in
Italy. Later, the U.S. court found that procedures in Switzerland and Italy had violated the
automatic stay under U.S. law and accordingly the lien could not be recognized in the U.S.
(589)
559 U.S. doctrine points to additional grounds that provide for a suspension of an
international arbitration in cases that do not fall within the scope the automatic stay of
Bankruptcy Code § 362. These grounds originate in the procedural guarantees of the arbitral
proceeding. Where a trustee or a debtor-in-possession was not granted enough time to
prepare for the arbitration, the right of a fair proceeding might be impaired. (590) Such
additional time is necessary where the party conducting the arbitration changes upon the
commencement of an insolvency. This function of a suspension safeguarding a fair
proceeding was also swiftly addressed in Fotochrome v. Copal. (591) However, the court, in
this case, took notice that the parties to the arbitral proceeding did not change upon the
commencement of a Chapter 11 proceeding. The debtor remained – now as debtor-in-
possession – in charge of conducting the arbitration. (592) Accordingly, the court saw no
reason why the foreign arbitration should have been stayed. (593) In turn, this holding
leaves open the possibility to require arbitral tribunals to suspend the proceeding in a
case where the trustee needs time to get familiar with the ongoing arbitral proceeding.
[2] Germany
560 § 240 D-ZPO suspends all civil proceedings involving the debtor’s estate at the time of
a commencement of an insolvency. § 240 D-ZPO also applies in foreign insolvency
proceedings that are recognized under the EuInsReg in Germany. (594) This is based on
Article 15 EuInsReg submitting the effects of an insolvency on “lawsuits pending” to the law
of the lex fori processus. (595) Insolvencies commenced in an EuInsReg non-Member State
are recognized according to § 343 InsO. In such cases, § 352(1) InsO orders a suspension of
all civil proceedings upon recognition. (596)
561 According to German case law and commentators, the automatic stay provisions
P 183 deriving from insolvency law only apply to proceedings before national courts. They do not
P 184 apply to arbitral tribunals seated in Germany, neither directly nor analogously. (597) It is
argued that the rules governing international arbitration – with the exception of §§ 1025 et
seqq. D-ZPO – were detached from the national rules of the D-ZPO. (598) Beyond that, § 240
D-ZPO is not considered a part of German public policy. (599) As a result, none of these
automatic stay provisions apply to international arbitrations.
562 However, a different ground for a suspension might be found in procedural guarantees.
The parties’ right to be heard – which applies in Germany equally to national courts and
arbitral tribunals (600) – might require the arbitral tribunal to stay its proceeding. (601)
This could, for instance, become relevant where a trustee replaces the debtor in
conducting the proceeding. (602) Where a party’s right to be heard is disregarded, a
resulting arbitral award risks being set aside according to § 1059(II)(1)(b) D-ZPO. (603)
Alternatively, where the enforcement of a foreign award is sought, the enforcement of such
award could be refused based upon § 1061(1) D-ZPO, read in conjunction with Article V(1)(b)
NYC. (604)
[3] England
563 The automatic stay of proceedings under English insolvency law depends on the type
of insolvency proceeding applying to the corporate insolvency. (605) At the time of a
petition for a compulsory liquidation, (606) English courts have discretion to order a stay of
legal proceedings, including arbitrations. (607) Once the order of a compulsory liquidation
is issued, pending legal proceedings can only continue with the permission of the court.
(608) A permission to continue the proceedings can be conditioned according to the
discretion of the court. (609) Upon the commencement of an administration, (610) all legal
P 184 proceedings – including arbitral proceedings – are stayed. (611) The administrator will
P 185 need the permission of the court in order to proceed with the arbitration. (612)
Conversely, in a voluntary liquidation no automatic stay is imposed. (613) The same is true
for administrative receiverships. (614) The administrative receiver can, nevertheless,
prevent the continuation of proceedings by seeking an anti-suit injunction. (615)
564 English courts have been confronted with requests to stay legal proceedings based on
foreign insolvencies. A decision dating back to the time before the adoption of the UN-
InsModLaw (616) recognized the automatic stay imposed by a Chapter 11 proceeding under
the U.S. Bankruptcy Code. (617) It remains, however, unclear whether such stay would also
apply to arbitrations seated in England. (618) A case after the adoption of the UN-
InsModLaw, concerned an arbitration seated in London involving a party subject to Swiss
insolvency proceedings. The English High Court had to decide whether the recognition of
the Swiss insolvency in England would automatically stay the arbitration. (619)
Alternatively, the court was requested to stay the arbitration upon its discretion. (620) The
High Court left open whether a recognition of a foreign insolvency would trigger an
32
automatic stay of the arbitration and directly relied upon its discretion to decide whether
the arbitration should proceed. Thus, the court ordered the arbitration to go forward since
it considered arbitration the best legal forum to resolve the parties’ dispute. (621)
[4] France
565 Under French law, the commencement of insolvency proceedings imposes an
automatic stay on all legal actions against the debtor. (622) This stay will also be triggered
P 185 upon the recognition of a foreign insolvency through a formal exequatur. (623) The
P 186 automatic stay imposed by French insolvency law is part of French national and
international public policy. (624) It does, accordingly, also apply to international arbitral
proceedings. (625)
[5] Switzerland
566 In Switzerland, Article 207 SchKG provides for an automatic stay of all civil
proceedings, except in cases of urgency. (626) The provision provides for a stay ex lege.
(627) Article 207 SchKG is triggered upon the commencement of a liquidation proceeding
under Swiss insolvency law (Konkurs / faillite, Articles 197 et seqq. SchKG). (628) Until
recently it was unclear to what extent Article 207 SchKG also applied to insolvency
restructuring (629) proceedings. (630) The 2014 amendment to the SchKG now explicitly
extends the automatic stay to restructuring proceedings. (631)
[a] Case Law and Literature
P 186 567 According to the Swiss Federal Supreme Court, Article 207 SchKG applies – based on
P 187 the principle of territoriality – only before national courts and governmental agencies
within Switzerland. (632) It does not bind authorities extraterritorially. (633) Hence, legal
proceedings before foreign national courts or authorities do not have to be stayed in case
of a Swiss insolvency. (634) At the same time, the commencement of a foreign insolvency
does not impose a stay on Swiss legal proceedings. (635) A stay of legal proceedings can
exclusively be obtained through a formal recognition of the foreign insolvency in
Switzerland, which entails the application of the Swiss automatic stay according to Article
207 SchKG. (636)
568 The extent to which Article 207 SchKG applies to arbitration is not fully clear. In a
purely domestic setting under the old KSG, the Swiss Federal Supreme Court did not object
the direct application of Article 207 SchKG to arbitration. (637) Such an approach is
supported by certain commentators arguing for a direct application of Article 207 SchKG to
domestic arbitral tribunals. (638) In other decisions, the Swiss Federal Supreme Court held
that Article 207 SchKG only applies to Swiss courts and administrative organs (“Richter und
Behörden im Inland”). (639) Such a description suggests that Article 207 SchKG does not
apply to domestic arbitral tribunals either – since their nature is detached from any
statehood. (640)
569 Whether Article 207 SchKG applies to international arbitral tribunals has not yet been
decided by Swiss courts. Decisions of international arbitral tribunals seated in Switzerland
have varied in their outcomes. (641) Commentators of Swiss arbitration law largely deny a
P 187 direct applicability of Article 207 SchKG to international arbitral tribunals. (642)
P 188 Moreover, the literature does not qualify Article 207 SchKG as a mandatory rule (loi
d’application immédiate). (643)
[b] Analysis
[i] Purpose of Article 207 SchKG
570 Article 207 SchKG is rooted in the fact that a debtor loses the right to conduct legal
proceedings (Prozessführungsbefugnis) upon the commencement of an insolvency. (644) As
of this point in time, creditors are entitled to decide about the continuance of the pending
legal proceedings involving the insolvency estate. (645) The legislative materials suggest
that Article 207 SchKG intends to provide creditors with sufficient time to decide whether to
continue pending proceedings or whether to withdraw or acknowledge the claim. (646) This
understanding is shared by the Swiss Federal Supreme Court and commentators. (647) In
short, the provision strives to safeguard the basics of a fair proceeding.
[ii] Article 207 SchKG and Public Policy
571 As concluded above, the purpose of Article 207 SchKG is to safeguard fundamental
principles of a fair proceeding. Hence, its nature can be characterized as procedural. This
leads to the question whether the provision belongs to the Swiss procedural public policy.
In such cases, the observation of Article 207 SchKG was also mandatory for international
P 188 arbitral tribunals. Procedural public policy consists of fundamental procedural principles,
P 189 “the disregard of which contradicts the sense of justice in an intolerable way, so that the
decision appears absolutely incompatible with the values and legal order of a state ruled
by laws.” (648)
572 There is little evidence that such exceptional importance is attributed to Article 207
SchKG. First, contrary to automatic stay provisions in other countries, Article 207 SchKG is
not an absolute stay on all kinds of legal proceedings. (649) It completely exempts urgent
proceedings from its scope, and the stay of administrative proceedings is discretionary.
33
(650) Further, according to the Swiss Federal Supreme Court, Article 207 SchKG binds solely
“judges and public authorities in Switzerland” and does not apply to legal proceedings
outside of Switzerland. (651) Finally, the comparison to other legal systems shows that –
with the exception of France – none of the countries studied here consider the automatic
stay a principle of public policy. (652) As a result, Article 207 SchKG is not part of Swiss
public policy. (653)
[iii] Application of Article 207 SchKG to International Arbitration
573 Article 207 SchKG does not apply to arbitral tribunals seated outside of Switzerland
because of its limited extraterritoriality. (654) However, it is left to the foreign arbitral
tribunal or national court whether to take the stay under Swiss insolvency law into account
or not. (655)
574 The scope Article 207 SchKG does not directly extend to international arbitrations
P 189 seated in Switzerland, as it is, for example, the case for the automatic stay under U.S.
P 190 Bankruptcy Code § 362. The detachment from the territoriality of Swiss international
arbitral tribunals prevents the application of Article 207 SchKG. (656) Even under the
assumption – which is not shared by the author – that Article 207 SchKG applies directly to
international arbitral tribunals in Switzerland, a failure to observe this procedural rule
would not lead to a set-aside or non-enforcement of an arbitral award. In Switzerland,
arbitral awards are only set aside based on violations of procedural rules that are part of
public policy (657) – of which Article 207 SchKG is not. (658)
575 However, basic procedural guarantees might also – similar to the situation in the U.S.
and Germany (659) – provide an additional legal basis for a suspension of an arbitration
upon the insolvency of a party. Swiss international arbitral tribunals have to obey Articles
182(3) and 190(2)(d),(e) IPRG providing for equal treatment of the parties and their right to
be heard. After the commencement of an insolvency, creditors and the trustee should be
permitted sufficient time to assess pending proceedings and carry out the necessary
preparations. (660) Compliance with these minimal procedural safeguards could require
the arbitral tribunal to stay the proceeding for an appropriate period of time. (661) Such an
approach allows the arbitral tribunal to take into account the circumstances of the
individual case. For example, a party may merely seek to abusively delay the proceeding
with the request of a stay, or the two parties may agree on such stay. (662)
[6] Interim Summary
576 Provisions providing for a suspension of legal proceedings at the time of a
commencement of insolvency are found in most national insolvency laws. The purposes of
automatic stay provisions are first to prevent the diminution of assets belonging to the
insolvency estate in order to safeguard an orderly payment to all creditors. At the same
time, a stay should also provide the trustee and creditors with sufficient time to prepare for
proceedings as they take over from the debtor.
P 190 577 The application of automatic stay provisions on international arbitral proceedings
P 191 varies under the various insolvency regimes. In the U.S., the automatic stay of U.S.
Bankruptcy Code § 362 applies not only to international arbitral tribunals seated in the
U.S. but – under certain circumstances – also to arbitral tribunals seated outside the U.S.
This automatic stay gets also triggered upon the recognition of a foreign insolvency in the
U.S. In Germany, the insolvency law automatic stay provisions do not apply to international
arbitrations. Under English law, the automatic stay of proceedings – including arbitrations
– depends on the type of insolvency proceeding and mostly involves a discretionary
decision by English courts. The automatic stay imposed by French insolvency law, on the
other hand, is part of the French national and international public policy and, accordingly,
applies also to international arbitration. It also is triggered upon the formal recognition of
a foreign insolvency in France. The scope of the Swiss automatic stay – as stipulated in
Article 207 SchKG – is limited to Swiss national authorities and courts. It is not a principle
of Swiss public policy. Accordingly, does not apply to international arbitrations seated in
Switzerland and abroad.
578 In the alternative, countries like the U.S. and Germany recognize the possibility of a
suspension of arbitration originating in procedural guarantees of the arbitral proceeding. A
similar approach applies to Swiss international tribunals. Equal treatment of the parties
and their right to be heard requires the tribunal to grant the trustee and creditors sufficient
time to assess pending proceedings and carry out the necessary preparations. This could
require – according to the circumstances of the individual case – the suspension of the
arbitration for an appropriate period of time.
[B] Applicable Law

579 The law applicable to the question whether an arbitral proceeding is stayed upon the
commencement of an insolvency proceeding is not always clear. No international
arbitration instruments provide for an explicit conflict-of-law rule for the question of an
automatic stay.
580 Earlier, this book identified three possible conflict-of-law approaches that can
generally be chosen in connection with the effects of an insolvency on arbitration. (663)
This part will first elaborate how these conflict-of-law approaches could be applied to the
34
question of an automatic stay in an international arbitration.
581 In the next step, the book seeks to determine the approaches taken in various
jurisdictions. Some answers might be given when comparing the approaches that were
taken in countries following similar cross-border insolvency regimes. The book groups the
countries according to their cross-border insolvency law system and seeks to identify
common patterns within these groups. The groups will be divided into countries following
(a) the EuInsReg, (b) the UN-InsModLaw and (c) Switzerland’s autonomous cross-border
insolvency regime.
P 191
P 192
[1] Possible Conflict-of-Law Approaches in Connection with the Stay of Arbitral
Proceedings
582 The arbitral tribunal has the option to follow the traditional conflict-of-law approach.
(664) Under this approach, the conflict-of-law rules, in order to determine the law
applicable to the effects of the insolvency, are no different than if there was no insolvency
involved. Such an approach is likely to be considered where a stay of the arbitral
proceeding upon the insolvency of a party is characterized as an issue concerning general
procedural guarantees; (665) for instance, as a question seeking to safeguard the right of
the trustee to sufficiently prepare for the proceeding. (666) Accordingly, this approach likely
leads to the application of the lex arbitri or the law applicable to the arbitral proceeding.
583 An arbitral tribunal might refer to the conflict-of-law rules of the cross-border
insolvency regime at the seat where it characterizes the question of a suspension of the
arbitral proceeding as an issue of insolvency law – as opposed to one of procedural
guarantees of the arbitration. (667) As a result, the suspension of the arbitration will either
be submitted to the lex fori of the seat of the arbitral tribunal or to the lex fori concursus.
584 The lex fori of the seat applies to the automatic stay if an arbitral tribunal refers to the
conflict-of-law rules of the UN-InsModLaw or the autonomous Swiss cross-border insolvency
law rules. Both these regimes contain a unilateral reference to the lex fori of the seat. (668)
Under the EuInsReg, depending on the stage of the arbitration, the automatic stay is either
governed by the lex fori concursus or the lex fori of the seat of the arbitration. (669)
P 192 585 The arbitral tribunal could also directly apply the automatic stay provisions of the lex
P 193 fori concursus as a mandatory rule (loi d’application immédiate or loi de police or
Eingriffsnormen). (670) Such a solution will, in particular, have to be considered where the
involved automatic stay provisions claim to have the importance of international public
policy – such as in France. (671)
[2] EuInsReg
586 Tribunals seated in Member States of the EuInsReg (672) will likely follow the decisions
of the English courts, implicitly assuming that the EuInsReg not only applies to national
courts but also to arbitral tribunals seated in Member States. (673) This view is also
supported in the legal literature. (674) Ignoring the rules of the EuInsReg could subject the
arbitral award to the risk of annulment. (675)
587 Where arbitral tribunals refer to the conflict-of-law rules of the EuInsReg, the law
governing a stay of the arbitration depends on the stage of the arbitration proceeding. In
cases where no arbitral proceeding is pending, Article 4(2) EuInsReg refers for the
applicable law to the question whether such actions can proceed to the lex fori concursus.
(676)
588 Conversely, where an arbitral proceeding was pending at the time of the
commencement of an insolvency, a suspension of the arbitral proceeding is governed by
Article 15 EuInsReg. (677) The elaborations about the application of Article 15 EuInsReg to
an arbitral proceeding made in connection with the validity and scope of arbitration
agreements apply mutatis mutandis here also. (678) Consequentially, a possible suspension
of the arbitral proceeding is determined according to the lex fori at the seat of the
arbitration. (679)
P 193
P 194
589 Policies regarding the application of an automatic stay to arbitrations vary
considerably among the EuInsReg Member States. (680) Hence, the choice of the seat of the
arbitration might become critical. In a pending arbitration seated in Germany, the
automatic stay provided in insolvency law will not be applied to arbitrations, but an
arbitral tribunal seated in France will have to apply the automatic stay of French
insolvency law. (681) However, the German arbitral tribunal might, where appropriate, stay
an arbitration and provide the trustee with sufficient time to prepare for the proceeding in
order to satisfy the parties’ right to be heard. (682)
590 Within the framework of the EuInsReg, an additional application of automatic stay
35
provisions of lex fori concursus as mandatory provisions (loi d’application immédiate) is not
conceivable. The EuInsReg intends to provide a comprehensive regulation of the conflict-
of-law questions among its Member States and such deviation from its rules would
contravene this purpose.
[3] UN-InsModLaw
591 Article 20(1)(a) UN-InsModLaw provides for an automatic stay of individual proceedings
concerning the debtor’s assets, rights, obligations or liabilities. The recognition of a foreign
main proceeding (683) under Article 20(1)(a) UN-InsModLaw entails an automatic stay ipso
iure. (684) Arbitral tribunals or national courts seated in UN-InsModLaw jurisdictions tend
to rely on provisions of the UN-InsModLaw when determining the law applicable to effects
of foreign insolvencies on international arbitrations. (685)
592 It is, however, unclear to what extent this ipso iure stay also applies to international
arbitrations seated in UN-InsModLaw jurisdictions. The broad wording of Article 20(1)(a)
UN-InsModLaw indicates that the scope of such a stay may well extend to arbitral
proceedings. (686) But the UNCITRAL Guide on Insolvency Law recognizes that the
particular nature of international arbitration, namely its independence from the legal
P 194 system of the forum state, sometimes is in opposition to an application of the automatic
P 195 stay to arbitration. (687) Accordingly, the application of the stay to arbitration will depend
on the national legislation.
593 National courts and arbitral tribunals in England and the U.S. apply the automatic stay
based on Article 20 UN-InsModLaw to international arbitrations. (688) The modalities of the
stay remain determined by exceptions and limitations of the law of the recognizing state.
(689) Such a law also provides for the conditions of a possible lift of the automatic stay
imposed by Article 20(1) UN-InsModLaw. (690)
[4] Switzerland
[a] Case Law and Literature
594 Swiss national courts have not yet addressed the question of the applicable law to a
stay in cases of an insolvency before international arbitral tribunals. The available case
law of international arbitral tribunals with seat in Switzerland is inconsistent. Some
tribunals observed provisions of the lex fori concursus providing for an automatic stay as
P 195 mandatory rules; (691) other tribunals deemed provisions of the lex fori concursus
P 196 inapplicable to international arbitration. (692) Most commentators on Swiss arbitration
law reject a direct application of insolvency law provisions mandating an automatic stay to
arbitral tribunals seated in Switzerland. (693) This conclusion is justified on the basis of a
characterization of the automatic stay as a procedural question. It is argued that
procedural issues before arbitral tribunals in Switzerland were governed by the lex arbitri
and not the lex fori concursus. (694)
[b] Analysis
[i] Insolvency-Specific Conflict-of-Law Approach
595 Arbitral tribunals seated in EuInsReg Member States or in countries that adopted the
UN-InsModLaw tend to refer directly to cross-border insolvency rules in order to determine
the law governing the automatic stay. (695) Arbitral tribunals seated in Switzerland could,
accordingly, also consider following an insolvency-specific conflict-of-law approach. (696)
However in general, international arbitral tribunals in Switzerland are exclusively bound
by the conflict-of-law rules of the lex arbitri. (697) Rules and principles outside of Chapter
12 IPRG might only be considered in exceptional circumstances where the lex arbitri is silent
on a certain issue. (698)
596 As seen earlier, a characterization in connection with issues of insolvency is strongly
influenced by the legal concepts underlying the Swiss lex arbitri. (699) From a Swiss
perspective, an automatic stay in the case of an insolvency is characterized as an
instrument seeking to safeguard the procedural rights of the parties involved in the arbitral
proceeding. (700) The Swiss lex arbitri contains a comprehensive conflict-of-law rule
regulating the conduct of the arbitral proceeding. (701) Consequentially, a reference to
principles outside the lex arbitri is not permissible.
P 196
P 197
[ii] Traditional Conflict-of-Law Approach
597 Since the automatic stay upon a proceeding is characterized as a procedural question
(702) before Swiss arbitral tribunals, the traditional conflict-of-law approach applies. (703)
598 Article 182 IPRG refers for procedural questions to the procedural rules chosen by the
parties. But even when parties make use of such a choice, it is very unlikely that the set of
rules contains a provision regulating the question of a stay in the case of an insolvency of a
party. (704) Accordingly, it is up to the arbitral tribunal to determine the procedural rules,
(705) limited only by the procedural safeguards of equal treatment of the parties and their
right to be heard (Article 182(3), Article 190(2)(d) IPRG) and the procedural public policy in
the sense of Article 190(2)(e) IPRG. (706)
36
[iii] Application of lis pendens Rules Requiring Suspension of Arbitration
599 An additional option to stay the arbitration could arise from a situation where the
arbitral tribunal characterizes the insolvency proceeding as a parallel proceeding. It has
been noted earlier in this book that a suspension based on the lis pendens rule of Article 9
IPRG does not apply to arbitral tribunals with respect to an insolvency proceeding. (707)
This conclusion also applies here.
[iv] Lex fori concursus as Mandatory Provisions
600 A provision of the lex fori concursus providing for an automatic stay may directly apply
to an arbitration in Switzerland as a mandatory rule (loi d’application immédiate). (708)
Such a case concerns the application of a mandatory provision on a procedural aspect of
P 197 the arbitration. It was suggested earlier that in connection with procedural questions, the
P 198 mandatory rules approach was not eligible. (709) This conclusion also applies mutatis
mutandis to the question here, since the Swiss lex arbitri safeguards in a comprehensive
manner all fundamental procedural rights. (710) A suspension should only be available – in
accordance with the case law of the Swiss Federal Supreme Court – where it violates the
minimum standards of the Swiss lex arbitri. (711)
601 Even under the assumption – which is not shared by the author – that mandatory rules
can impact the conduct of proceedings before Swiss arbitral tribunals, the automatic stay
of the lex fori concursus would not be considered mandatory. This is true since it is not up
to the mandatory provision of the lex fori concursus to define its scope of application. (712)
Swiss arbitral tribunals only need to consider a mandatory lex fori concursus rule where
this rule is, at the same time, also considered to be part of Swiss international public policy.
(713) The automatic stay in case of an insolvency is, however, not part of Swiss international
public policy. (714)
[5] Interim Summary
602 The choice of the conflict-of-law approach to determine the law applicable to a
suspension of an arbitration in connection with insolvencies varies from country to country.
603 Arbitral tribunals seated within the EuInsReg regime likely follow the insolvency-
specific conflict-of-law approach. The suspension of a pending arbitral proceeding upon
the commencement of an insolvency is determined according to the law of the seat of the
arbitration (Article 15 EuInsReg). Conversely, the lex fori concursus (Article 4(2)(f) EuInsReg)
governs the question whether new arbitral proceedings can be initiated. Mandatory rules
within this framework are irrelevant.
604 Also UN-InsModLaw jurisdictions tend to apply the insolvency-specific conflict-of-law
rules to arbitration. Whether arbitrations need to be suspended is determined by the
national legislation of the recognizing country implementing the ipso iure stay of Article
20(1)(a) UN-InsModLaw.
605 In a Swiss international arbitration, the automatic stay is characterized as an
P 198 instrument seeking to safeguard the procedural rights of the parties involved in arbitral
P 199 proceedings. Accordingly, the determination of the applicable law – as distinguished
from other countries – follows the traditional conflict-of-law approach. Under this
approach, it is up to the arbitral tribunal to determine the procedural rules, limited only
by the basic procedural safeguards of the Swiss lex arbitri. Provisions of the lex fori
concursus providing for an automatic stay do not apply as mandatory rules (loi
d’application immédiate).
P 199
References
1) Poudret/ Besson, paras. 149 et seq. with further references; Lew/ Mistelis / Kröll, para.
6.1.
2) See, e.g., Art. 21(2) UN-ArbRules; Art. 6(1) UN-ArbModLaw; Blackaby/ Partasides /
Redfern / Hunter, paras. 2.89 et seqq.; Lew/ Mistelis / Kröll, para. 6.9.
3) Bucher / Tschanz, para. 62.
4) Poudret/ Besson, para. 305; Lew/ Mistelis / Kröll, paras. 7.59 et seqq.
5) Walter / Bosch / Brönnimann, p. 83; BSK IPRG-Hochstrasser/ Blessing, Einleitung No.
209. See also BGE 134 III 565 at 3.2.
6) Issues of capacity and subject-matter arbitrability – even though also affecting the
arbitration agreement – are excluded at this point. These topics will be discussed
separately. See for the legal capacity, paras. 441 et seqq. and for objective
arbitrability paras. 182 et seqq.
7) See, in detail, para. 183. See, in different context, Shore, para. 4.1.
8) See para. 182.
37
9) Judgment of June 30, 2011, Bundesgerichtshof, III ZB 59/10; Judgment of January 29,
2009, Bundesgerichtshof, III ZB 88/07; Judgment of January 17, 2008,
Bundesgerichtshof, III ZB 11/07, SchiedsVZ 2008, pp. 148 et seqq.; Judgment of
November 20, 2003, Bundesgerichtshof, III ZB 24/03, ZInsO 2004, pp. 88 et seqq.
10) Société Soules v. Société Henry, February 4, 1986, Cour de cassation, Rev. Arb. 1988, p.
718; T.A.G. v. B. M. P. C. et al., February 12, 1985, Cour de cassation, Rev. Arb. 1985, pp.
275 et seq.; Courrèges Homme v. Fleurot-Charvet et Fils, October 19, 1982, Cour d’appel
de Grenoble, Rev. Arb. 1983, pp. 321 et seqq.
11) Fulham Football Club (1987) Ltd v. Richards & Anor [2011] EWCA Civ 855 paras. 27 et
seq.; Sutton / Gill / Gearing, paras. 3.023 et seqq.; Blackaby/ Partasides / Redfern /
Hunter, para. 2.132; Burn / Grubb, p. 126. See already Mustill/ Boyd, pp. 151 et seq. for
the 1985 Company Act that was superseded by the 1986 Insolvency Act.
12) See Restatement (Third) U.S. Law of Int’l Comm. Arb. § 4–17 (T.D. No. 2, 2012). See, for
an overview of U.S. case law, Houser / Pearson / Knowles, pp. 1 et seqq.
13) See, in detail, paras. 188 et seqq.
14) Art. 142 Polish Bankruptcy and Reorganization Code: “as at the date bankruptcy is
declared, [...] any pending arbitration proceeding shall be discontinued.” According
to one opinion, this provision could be characterized as affecting the validity of the
arbitration agreement. See Aslanowicz/ Jasiewicz, p. 333. Contra: Vivendi S.A. et al. v.
Deutsche Telekom AG et al., Schweizerisches Bundesgericht, March 31, 2009,
4A_428/2008, where the majority opinion characterized the provision as affecting the
capacity of the parties and not the substantive validity of the arbitration agreement.
This characterization was however highly controversial. See also Stacher,
Rechtsprechung, pp. 131 et seq.; Naegeli, Bankruptcy, pp. 205 et seqq. See also the
characterization approach taken in BGE 138 III 714 at 3.6.
15) Art. 487 Latvian Code of Civil Procedure: “All disputes relating to civil matters may be
referred to an arbitral tribunal except for a dispute: […] relating to the rights and
duties of persons with respect to whom insolvency or bankruptcy proceedings have
been initiated before the arbitral award has been rendered.” Kröll, Conflict of Law, p.
216.
16) Art. 5(1) of the old Ley Concursal that invalidated all arbitral proceedings was
replaced on May 20, 2011 by the reform act 22/2003 of July 9, including a provision
explicitly allowing arbitration: “La declaración de concurso, por sí sola, no afecta a
los pactos de mediación ni a los convenios arbitrales suscritos por el concursado[...].”
17) BGE 138 III 714 at 3.6; BGE 136 III 107 at 2.5.
18) BSK IPRG-Wenger/ Müller, Art. 178 No. 83. See, generally regarding conditioned
arbitration agreements, Rüede/ Hadenfeld, pp. 59 et seq.
19) Walter / Bosch / Brönnimann, p. 83; BSK IPRG-Hochstrasser/ Blessing, Einleitung No.
209. See also BGE 134 III 565 at 3.2.
20) See, e.g., Zimmerli v. Ocwen Loan Servicing, LLC, 432 B.R. 238 (Bankr. N.D. Tex. 2010).
See Becker, pp. 259 et seqq. for a study about the authority of U.S. bankruptcy courts
to compel arbitration.
21) Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th Cir. 1996); Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985); Houser / Pearson / Knowles, p. 2.
22) See paras. 188 et seqq. for a detailed analysis.
23) See, e.g., Tittle v. Enron Corp., 463 F.3d 410, 418 (5th Cir. 2006); Webb v. Investacorp,
Inc., 89 F.3d 252, 258 (5th Cir. 1996).
24) In re Morgan, 28 B.R. 3, 5 (9th Cir. BAP 1983) (“A reorganization debtor-in-possession is
bound by the mandatory arbitration provisions contained in a contract where he
makes a claim arising out of that contract against a non-creditor.”); In re Guy C. Long,
Inc., 90 B.R. 99 (E.D.Pa.1988) (concluding that an arbitration clause was enforceable
against a Chapter 11 debtor); Fallick v. Kehr, 369 F.2d 899, 904 (2d Cir.1966) (binding a
bankruptcy debtor under the U.S. Bankruptcy Code to a pre-petition arbitration
agreement).
25) Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, 885 F.2d 1149, 1154 (3d Cir. 1989).
See also, e.g., In re Friedman’s, Inc., 372 B.R. 530, 538 (Bankr. S.D. Ga. 2007).
28) Judgment of June 30, 2011, Bundesgerichtshof, III ZB 59/10; Judgment of January 29,
2009, Bundesgerichtshof, III ZB 88/07; Judgment of January 17, 2008,
Bundesgerichtshof, III ZB 11/07, SchiedsVZ 2008, pp. 148 et seqq.; Judgment of
November 20, 2003, Bundesgerichtshof, III ZB 24/03, ZInsO 2004, pp. 88 et
seqq.;Judgment of February 28, 1957, Bundesgerichtshof, VII ZR 204/56.
29) Heidbrink/ von der Groeben, p. 266; Kröll, Insolvency, pp. 370 et seq.; Jestaedt, p. 84;
Trunk, Insolvenzrecht, p. 128; Flöther, Schiedsverfahren, p. 93; Liebscher, para. 9.39.
But see Häsemeyer, para. 23.28.
30) Judgment of November 20, 2003, Bundesgerichtshof, III ZB 24/03, ZInsO 2004, pp. 88 et
seqq.; Kröll, Insolvency, p. 371; Flöther, Schiedsverfahren, p. 93.
31) “Der Insolvenzverwalter “klebt” mithin an der vom Schuldner geschlossenen
Schiedsvereinbarung.“ Flöther, Schiedsverfahren, p. 93 citing the bon mot of Richter,
KuT 1928, p. 54.
32) Häsemeyer, para. 13.28.
38
35) Bankruptcy refers, under English law, only to insolvencies of natural persons and is,
therefore, outside the scope of this book.
36) Compulsory liquidation generally occurs on the petition of a creditor seeking the
complete shutdown and liquidation of the business.
37) Administration strives towards a survival and reconstruction of the company as a
going concern.
38) Administrative receivership is a security enforcement procedure for creditors holding a
“floating charge.” This form of insolvency is being phased out.
39) Mustill/ Boyd, p. 153; Burn / Grubb, pp. 127 et seq.; Sutton / Gill / Gearing, para. 3.028.
40) Sutton / Gill / Gearing, para. 3.028; Burn / Grubb, p. 127.
41) Sec. 130(2) Insolvency Act; Cosco Bulk Carrier Co Ltd v. Armada Shipping SA & Anor,
High Court, Chancery Division, February 11, 2011, [2011] EWHC 216 (Ch); Burn / Grubb, p.
128; Mustill/ Boyd, p. 153; Sutton / Gill / Gearing, para. 3.028.
42) HIH Casualty and General Insurance Ltd sub-nom Enron Metals and Commodity Ltd v.
HIH Causalty and General Insurance Ltd, [2005] EWHC 485 (Ch.); Re Exchange and
Commodities Ltd [1983] B.C. L. C. 186.
43) The criteria for whether the court will grant such request were set out in Re Atlantic
Computer Systems Plc [1992] Ch. 505. See also Cosco Bulk Carrier Co Ltd v. Armada
Shipping SA & Anor, High Court, Chancery Division, February 11, 2011, [2011] EWHC 216
(Ch).
44) Burn / Grubb, p. 127.
45) Baytur SA v. Finagro Holding SA, English Court of Appeal, [1992] 1 Lloyd’s Rep. 134.
46) Burn / Grubb, p. 127.
47) ICC Award No. 6057 (1991), reported and commented by Derains, JDI 1993, pp. 1016 et
seqq.; Société Soules v. Société Henry, February 4, 1986, Cour de cassation, Rev. Arb.
1988, p. 718; T.A.G. v. B. M. P. C. et al., February 12, 1985, Cour de cassation, Rev. Arb.
1985, pp. 275 et seq.; Courrèges Homme v. Fleurot-Charvet et Fils, October 19, 1982,
Cour d’appel de Grenoble, Rev. Arb. 1983, pp. 321 et seqq.
48) Ancel, Procédures collectives, pp. 129 et seq.; Fouchard, pp. 486 et seq.
49) Fouchard, pp. 486 et seq.
50) Fouchard, pp. 486 et seq.; Ancel, Procédures collectives, p. 130.
51) BGE 33 II 648 at 4 (“[...] la faillite n’est pas une forme de succession, elle n’est qu’une
forme d’exécution; elle n’a pas pour effet de transférer a la masse la propriété des
biens et les droits du faille [...]”).
52) BGE 33 II 648 at 4.
53) BGE 33 II 648 at 4 (“De là s’ensuit que la déclaration de faillite [...] suisse a eu pour
effet d’entrainer la caducité de la clause compromissoire, vu l’impossibilité de
l’exécution decette clause; la masse ne peut, ni l’invoquer en sa faveur, puisqu’elle
n’est pas subrogée au faille [...]”).
54) BGE 41 II 534 at 2. Repeatedly confirmed, see, e.g., BGE 101 II 168 at 1.
55) Judgment of November 15, 1961, unpublished, Schweizerisches Bundesgericht,
reported by Jolidon, pp. 141 et seqq.
56) In BGE 117 II 94 at 5c the Swiss Federal Supreme Court was confronted with an
assignment of a contract during an insolvency proceeding containing an arbitration
agreement. The court was asked to decide whether the assignee could invoke the
arbitration agreement. The Swiss Federal Supreme Court denied the transfer of the
arbitration agreement to the assignee because the contract included a non-
assignment agreement. At the same time, the court did not directly address whether,
in the first place, the insolvency estate became subject to the arbitration agreement.
But it can be assumed that the court only engaged in the discussion as to whether the
assignee was bound to the arbitration agreement because the court concluded that
the arbitration agreement was indeed transferred to the insolvency estate in the first
place. See Lévy, Insolvency, pp. 95 et seq.
57) BGE 136 III 107 at 2.5.
58) BGE 136 III 107 at 2.5 referring to BGE 33 II 648 at 4.
59) The Swiss Federal Supreme Court justified this conclusion by vaguely pointing at the
fact that corporate responsibility claims according to Art. 757 OR were governed by
“special rules” (BGE 136 III 107 at 2.5). Indeed the decision concerns the scope ratione
materiae of the arbitration agreement. See, in detail, para. 366.
60) BGE 138 III 714 at 3.6 (“Jedenfalls nach schweizerischem Recht berührt ein Konkurs die
Gültigkeit der Schiedsvereinbarung nicht [...].”) referring to BGE 136 III 107 at 2.5.
61) See para. 307.
62) See Judgment of July 8, 1991, Hger Zürich, ZR 90/1991, pp. 216 et seqq. explicitly
rejecting BGE 33 II 648 at 4: (“Die Konkursmasse nimmt die Forderung so auf, wie sie in
die Masse fiel: behaftet mit der Schiedsabrede. [...] Der Hinweis der Klägerin, das
Bundesgericht habe seine Meinung nicht geändert, ist insofern zu relativieren, als das
Bundesgericht den Entscheid aus dem Jahre 1907 in der Zwischenzeit auch nicht
bestätigt hat. Vielmehr scheint es sich zu dieser Frage seither nicht mehr geäussert zu
haben”); Judgment of July 9, 1986, Trib. cant. Valais, ASA Bull. 1987, pp. 203 et seqq.;
Judgment of October 8, 1981, Trib. cant. Jura, ASA Bull. III 1987, pp. 27 et seqq.
63) Judgment of July 8, 1991, Hger Zürich, ZR 90/1991, p. 216; Judgment of July 9, 1986, Trib.
cant. Valais, ASA Bull. 1987, pp. 203 et seqq.; Judgment of October 8, 1981, Trib. cant.
Jura, ASA Bull. 1983/3, pp. 27 et seqq.
64) Judgment of July 8, 1991, Hger Zürich, ZR 90/1991, p. 216.
39
65) Lalive/ Poudret / Reymond, Art. 4 old KSG No. 1.2; Rüede/ Hadenfeld, p. 81; Jolidon, p.
141; Kaufmann-Kohler/ Lévy, p. 267; Berger / Kellerhals, Arbitration, paras. 511b et
seq.; BSK ZPO-Girsberger, Art. 357 No. 40; Bernet, p. 8.; Poudret/ Besson, para. 290; BSK
ZPO-Girsberger, Art. 357 No. 40; BSK IPRG-Wenger/ Müller, Art. 178 No. 68. See also BGE
136 III 107 at 2.5 where the Swiss Federal Supreme Court acknowledged this consensus
in the Swiss literature.
66) Berger / Kellerhals, Arbitration, paras. 511b et seq.; BSK IPRG-Wenger/ Müller, Art. 178
No. 78.
67) BSK ZPO-Girsberger, Art. 357 No. 40.
68) Meier, Zivilprozessrecht, p. 160 with further references. Under Swiss law the debtor
keeps its right to act as a party in the proceedings (Prozessfähigkeit). Only the right to
conduct proceedings (Prozessführungsbefugnis) is conferred upon the insolvency
estate, which, in turn, is represented by the trustee. See BSK SchKG-Wohlfart/ Meyer,
Art. 204 No. 44.
69) Grob-Andermacher / Walder-Richli, § 9 para. 4 (fn. 18); Meier, Zivilprozessrecht, p.
160; BSK SchKG-Wohlfart/ Meyer, Art. 204 No. 44.
70) See, generally regarding the derivative right of action (Prozessstandschaft), Meier,
Zivilprozessrecht, p. 159.
71) Grob-Andermacher / Walder-Richli, § 9 para. 4 (fn. 18); BSK SchKG-Handschin/
Hunkeler, Art. 197 No. 6; BSK SchKG-Wohlfart/ Meyer, Art. 204 No. 45; Meier,
Zivilprozessrecht, pp. 160 et seq.
72) Grob-Andermacher / Walder-Richli, § 9 para. 4 (fn. 18); Meier, Zivilprozessrecht, p. 161.
73) BSK SchKG-Vollmar, Art. 293 No. 33; BSK SchKG-Guggisberg/Hardmeier, Art. 314 Nos.
50, 60 et seq. with further references.
74) Where appropriate, the management of the company might even be fully transferred
to the trustee. See, in detail, BSK SchKG-Vollmar, Art. 298 Nos. 3 et seqq.
75) BGE 80 III 41 at 1; BSK SchKG-Bauer/ Hari / Jeannerret / Wüthrich, Art. 317 Nos. 6 et
seq.
76) BGE 80 III 41 at 1; Meier, Zivilprozessrecht, p. 161; BSK SchKG-Bauer/ Hari / Jeannerret
/ Wüthrich, Art. 317 Nos. 6 et seq.
77) BSK SchKG-Bauer/ Hari / Jeannerret / Wüthrich, Art. 317 Nos. 6 et seq.
78) BSK SchKG-Bauer/ Hari / Jeannerret / Wüthrich, Art. 317 No. 8 with further references.
81) See paras. 324 et seqq. for a detailed analysis of the nature of the transfer in the
various forms of insolvency under Swiss law.
82) Sprecher, Ausländischer Prozess, p. 25; Günter, para. 500.
83) Günter, para. 500.
84) See for Germany: Judgment of November 20, 2003, Bundesgerichtshof, III ZB 24/03,
ZInsO 2004, pp. 88 et seqq.; Kröll, Insolvency, p. 371; Flöther, Schiedsverfahren, p. 93;
Wagner, Insolvenz und Schiedsverfahren, p. 4. See also para. 313.
85) See para. 326.
86) See also Berger / Kellerhals, Arbitration, para. 512.
87) Rüede/ Hadenfeld, p. 82; Berger / Kellerhals, Arbitration, para. 494; BSK IPRG-
Wenger/ Müller, Art. 178 No. 76. See also BGE 93 I 323 at 3 regarding choice-of-forum
clauses.
88) Rüede/ Hadenfeld, p. 82; Berger / Kellerhals, Arbitration, paras. 494; BSK IPRG-
Wenger/ Müller, Art. 178 No. 76.
89) BSK IPRG-Wenger/ Müller, Art. 178 No. 76; Berger / Kellerhals, Arbitration, para. 494.
But see, under the old KSG, BGE 102 Ia 574 at 8a.
90) See Günter, para. 500; Wagner, Insolvenz und Schiedsverfahren, p. 4.
91) Policy considerations regarding creditor and third party rights should not be taken
into account at this point. These interests are protected by different tests, namely by
the objective arbitrability test.
92) Günter, para. 500 with further references.
93) See paras. 311 et seqq.
94) See Lazić, Insolvency, p. 194.
95) U.S. Bankruptcy Code § 365. For detailed definitions of executory contracts, see, e.g.,
In re General DataComm Industries, Inc., 407 F.3d 616, 627 (3d Cir. 2005), cert. denied,
546 U.S. 1031 (2005); In re Sunterra Corp., 361 F.3d 257, 264 (4th Cir. 2004); In re
Southern Pacific Funding Corp., 268 F.3d 712, 715 (9th Cir. 2001).
96) See, for details, Kilborn, para. 20.23.
97) Kilborn, para. 20.23.
100) § 103 InsO;Paulus / Berberich, para. 10.23.
101) Paulus / Berberich, para. 10.23.
102) Such right also exists under an English bankruptcy, which, however, only applies to
natural persons and is, accordingly, outside the scope of this book.
103) In Manning v. AIG Europe UK Ltd., [2006] Ch 610 the court decided that the crucial
criteria for considering a contract “unprofitable” was whether “performance of the
future obligation will prejudice the liquidator’s obligation to realize the company’s
property and pay a dividend to creditors within a reasonable time.” McCormack,
para. 8.23.
40
104) Sec. 178 Insolvency Act 1986; McCormack, para. 8.23.
105) See Art. L. 622-13(II); L. 627-2; L. 641-10 Code de commerce.
106) See, for an overview, Dupoux/ Nerguararian, para. 9.23.
107) Art. 211(2) SchKG; SchKG; BSK SchKG-Schwob, Art. 211 Nos. 4 et seqq.
108) BGE 104 III 84 at 3b; Judgment of February 6, 2006, Schweizerisches Bundesgericht,
4C.252/2005 at 5.1.
109) E.g. BGE 48 III 158 at 2.
110) See Art. 197a SchKG (in force since January 1, 2014) and report of Swiss Federal
Council, BBl 2010, 6488, 6514.
111) The creditor needs to be fully indemnified. The indemnification is, however, merely a
claim against the insolvency estate. See Art. 197a SchKG and report of Swiss Federal
Council, BBl 2010, 6488, 6514.
112) Lazić, Insolvency, p. 194.
113) Lew/ Mistelis / Kröll, para. 6.9.
114) In re Fleming Companies, Inc., 03-10945 MFW, 2007 WL 788921 (D. Del. March 16, 2007);
In re CellNet Data Sys., Inc., 327 F.3d 242, 249 (3d Cir.2003); Societe Nationale
Algerienne Pour La Recherche, La Prod., Le Transp., La Transformation et La
Commercialisation des Hydrocarbures v. Distrigas Corp., 80 B.R. 606, 609 (D. Mass.
1987).
115) Allegaert v. Perot, 548 F.2d 432, 436 (2d Cir. 1977). This does, however, not determine
whether the claim is objectively arbitrable.
116) See, e.g., Matter of Austin Dev. Co., 19 F.3d 1077, 1082 (5th Cir. 1994); Matter of Cont’l
Airlines, 981 F.2d 1450, 1459 (5th Cir. 1993) (“to assert that a contract effectively does
not exist as of the date of rejection is inconsistent with deeming the same contract
breached”); In re Modern Textile, Inc., 900 F.2d 1184, 1191 (8th Cir.1990).
117) Societe Nationale Algerienne Pour La Recherche, La Prod., Le Transp., La
Transformation et La Commercialisation des Hydrocarbures v. Distrigas Corp., 80 B.R.
606, 609 (D. Mass. 1987).
118) Societe Nationale Algerienne Pour La Recherche, La Prod., Le Transp., La
Transformation et La Commercialisation des Hydrocarbures v. Distrigas Corp., 80 B.R.
606, 609 (D. Mass. 1987).
119) In re Fleming Companies, Inc., 03-10945 MFW, 2007 WL 788921 (D. Del. March 16, 2007).
120) In re Fleming Companies, Inc., 03-10945 MFW, 2007 WL 788921 (D. Del. March 16, 2007).
121) Kröll, Insolvency, p. 373; Flöther, Schiedsverfahren, p. 94; Jestaedt, pp. 67 et seq.;
Raeschke-Kessler/ Berger, para. 387.
seqq.; Kröll, Insolvency, p. 373; Flöther, Schiedsverfahren, p. 94; Heidbrink/ von der
Groeben, p. 266. Contra: Häsemeyer, para. 13.28.
123) Ancel, Arbitrage, p. 270; Mourre, p. 157.
124) Mourre, p. 157; Ancel, Arbitrage, p. 270. These authors also draw parallels to the
practice by French courts in connection with choice-of-forum clauses contained in
executory contracts. See the case law cited by Mourre, p. 157.
125) See para. 259.
126) Sec. 130(2) Insolvency Act; Burn / Grubb, pp. 127 et seq.; Mustill/ Boyd, p. 153; Sutton /
Gill / Gearing, para. 3.028. See, in detail, paras. 314 et seqq.
127) Mustill/ Boyd, p. 153 (still referring to the old provisions which were replaced by Sec.
178 et seqq. of the Insolvency Act); Lazić, Insolvency, p. 190 with further references.
128) BGE 104 III 84 at 3b; Judgment of February 6, 2006, Schweizerisches Bundesgericht,
4C.252/2005 at 5.1.
129) See para. 340.
130) BGE 41 II 534 at 2. Repeatedly confirmed, see, e.g., BGE 101 II 168 at 1.
131) The nature of continuous obligations in Art. 297a SchKG refers to substantive contracts
that provide for a continuous and repeated exchange of goods or services. See report
of Swiss Federal Council (Botschaft des Bundesrats), BBl 2010, 6472.
132) But it needs to be highlighted that this conclusion does not mean that the issue will
ultimately be submitted to arbitration. Namely, it needs to be addressed separately
whether the dispute remains covered by the scope ratione materiae of the arbitration
agreement, and whether the claim is objectively arbitrable.
133) Poudret/ Besson, para. 305 with further references; Lew/ Mistelis / Kröll, paras. 7.59 et
seqq.
134) Berger / Kellerhals, Arbitration, para. 463.
135) See paras. 181 et seqq. for a discussion of objective arbitrability in connection with
insolvency proceedings. See, in general, Lew/ Mistelis / Kröll, para. 9.1.
136) ICC standard arbitration clause.
137) LCIA standard arbitration clause; SIAC standard arbitration clause.
138) Swiss Chambers’ Arbitration Institution standard arbitration clause.
139) ICC standard arbitration clause; LCIA standard arbitration clause; SIAC standard
arbitration clause.
140) Swiss Chambers’ Arbitration Institution standard arbitration clause.
141) See, in general, Lew/ Mistelis / Kröll, paras. 8.13 et seqq.
142) The situation is likely to be different where the scope ratione materiae of arbitration
agreements needs to be determined outside of insolvency proceedings. Here, the
question will rather be for the arbitral tribunal and not for the national court to
decide. See Bermann, Gateway Problem, p. 38.
41
143) See, in detail, para. 311. Zimmerli v. Ocwen Loan Servicing, LLC, 432 B.R. 238 (Bankr.
N.D. Tex. 2010). See also Becker, pp. 259 et seqq. for a study about the authority of the
U.S. bankruptcy courts to compel arbitration.
144) See, in detail, para. 311. Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th Cir. 1996);
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985); Houser /
Pearson / Knowles, p. 2.
145) See paras. 305, 311 et seqq.
146) See, e.g., Tittle v. Enron Corp., 463 F.3d 410, 419 (5th Cir. 2006).
147) They stand “in the shoes of the debtor for the purposes of the arbitration clause.”
Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, 885 F.2d 1149, 1153 (3d Cir. 1989).
150) In re Friedman’s, Inc., 372 B.R. 530, 538 (Bankr. S.D. Ga. 2007) (involving a trustee); In re
Martin, 387 B.R. 307, 316 (Bankr. S.D. Ga. 2007) (involving a debtor-in-possession); Hays
& Co. v. Merrill Lynch, Pierce, Fenner & Smith, 885 F.2d 1149, 1154 (3d Cir. 1989).
151) An example of a claim that is code-created and thus not debtor-derived is a §544(b)
voidable-preference claim. The trustee brings this claim on behalf to the debtor, and
it is not available to the pre-petition debtor. See U.S. Bankruptcy Code §544(b); Case
note Harv. L. Rev., p. 2300, fn. 30; Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith,
885 F.2d 1149, 1154 (3d Cir. 1989).
153) See, e.g., In re Friedman’s, Inc., 372 B.R. 530, 539 (Bankr. S.D. Ga. 2007); Javitch v. First
Union Secs., Inc. 315 F.3d 619, 625 (6th Cir. 2003); James Gandy, Kartar Gandy, Hary
Gandy Ltd. P’ship v. Sarma Gandy (In re Gandy), 299 F.3d 489, 496 (5th Cir. 2002);
Stewart Foods, Inc. v. Broecker (In re Stewart Foods, Inc.), 64 F.3d 141, 145 (4th Cir.
1995); Case note Harv. L. Rev., p. 2300.
154) Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, (U.S. S. Ct. 1967). See also
Tittle v. Enron Corp., 463 F.3d 410, 419 (5th Cir. 2006).
156) Judgment of June 30, 2011, Bundesgerichtshof, III ZB 59/10; Wagner, Herausforderung,
p. 130; Flöther, Schiedsverfahren, p. 93.
157) Judgment of June 30, 2011, Bundesgerichtshof, III ZB 59/10.
158) Wagner, Insolvenz und Schiedsverfahren, p. 6.
159) § 180(1) D-ZPO; Heidbrink/ von der Groeben, p. 268; Wagner, Insolvenz und
Schiedsverfahren, p. 7.
160) §§ 129 et seqq. InsO.
seqq.; Judgment of January 17, 2008, Bundesgerichtshof, III ZB 11/07, SchiedsVZ 2008,
pp. 148 et seqq.; Judgment of October 17, 1957, Bundesgerichtshof, NJW 1956, 1920;
Kröll, Insolvency, p. 371; Wagner, Insolvenz und Schiedsverfahren, pp. 11 et seqq.
162) Art. 103 InsO; Judgment of June 30, 2011, Bundesgerichtshof, III ZB 59/10.
163) See, e.g., Hunter, p. 108; Burn / Grubb, pp. 124 et seqq.
164) Yuri Privalov and others v. Fiona Trust Holding Corporation and others, House of
Lords, October 17, 2007, in: Y.B. Comm. Arb. 2007, pp. 654 et seqq.
165) Yuri Privalov and others v. Fiona Trust Holding Corporation and others, House of
Lords, October 17, 2007, in: Y.B. Comm. Arb. 2007, pp. 654 et seqq.
166) Mourre, pp. 159 et seq.; Ancel, Procédures collectives, p. 131 seems to favor a solution
where any insolvency law claim can be submitted to arbitration by a preexisting
arbitration agreement as long as the dispute remains arbitrable. At the same time, he
draws the line between arbitrable and non-arbitrable insolvency law claims between
the claims deriving from the parties’ agreement and the claims deriving from
insolvency proceedings.
167) Mourre, p. 159.
168) See Art. 530 Code des sociétés.
169) Mourre, p. 159.
170) Mourre, p. 159.
171) Ste Prodim v. Gemodis, June 13, 2006, Cour de cassation, Rev. Arb. 2006, pp. 955 et
seqq.: “[...][L]a clause compromissoire ne concerne que les litiges entre les parties qui
l’ont stipulée et n’est opposable au commissaire à l’exécution du plan que dans la
mesure où celui-ci exerce les droits et actions du débiteur lui-même suivant les
modalités de la liquidation judiciaire.”
172) Ste Prodim v. Gemodis, June 13, 2006, Cour de cassation, Rev. Arb. 2006, pp. 955 et
seqq.: “[...] l’arrêt retient que tel n’est pas le cas de l’action [...], que a été engagée au
nom et dans l’intérêt collectif des créanciers [...].”
173) BGE 136 III 107 at 2.5.
174) BGE 136 III 107 at 2.5.
175) BGE 136 III 107 at 2.5.
176) BGE 136 III 107 at 2.5.
177) Judgment of December 1, 2006, KGer Zug, ZG GVP 2006, pp. 179 et seqq.
178) The agreement contained a very broad arbitration clause: ”Any dispute among the
parties touching the construction, meaning or effect of this Agreement, or the rights or
liabilities of the parties hereunder, or any matter arising out of the same or
connected herewith, shall, unless otherwise specifically provided herein, be referred
to the arbitration in England [...].”
179) Judgment of December 1, 2006, KGer Zug, ZG GVP 2006, pp. 179 et seqq.
42
180) The objective arbitrability of actio paulianas is highly controversial. See paras. 221 et
seqq.
181) Judgment of December 1, 2006, KGer Zug, ZG GVP 2006, pp. 187 et seq.
182) Judgment of December 1, 2006, KGer Zug, ZG GVP 2006, p. 187.
183) Judgment of December 1, 2006, KGer Zug, ZG GVP 2006, p. 187.
184) Günter, para. 501; Kaufmann-Kohler/ Lévy, p. 265.
185) Kaufmann-Kohler/ Lévy, p. 265.
186) Kaufmann-Kohler/ Lévy, p. 265.
187) For the U.S.: Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614
(1985); Remy Amerique, Inc. v. Touzet Distribution, S.A.R.L., 816 F. Supp. 213, 217
(S.D.N.Y. 1993). For Germany: Raeschke-Kessler/ Berger, paras. 282 et seq. For England:
Yuri Privalov and others v. Fiona Trust Holding Corporation and others, House of
Lords, October 17, 2007, in: Y.B. Comm. Arb. 2007, pp. 654 et seqq. But see for a
restrictive interpretation Krauss Maffei Verfahrenstechnick GmbH et al. v. Bristol
Myers Squibb, March 10, 2000, Italian Corte Suprema di Cassazione Y.B. Comm. Arb.
2001, pp. 816 et seqq.
188) Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985).
189) BGE 129 III 675 at 2.3; Judgment of May 19, 2003, Schweizerisches Bundesgericht,
4C.40/2003 at 5.3; BGE 116 Ia 56 at 3b; Rüede/ Hadenfeld, p. 74; BSK IPRG-Wenger/
Müller, Art. 178 Nos. 35, 57; Walter / Bosch / Brönnimann, p. 73.
190) BGE 129 III 675 at 2.3; Judgment of May 19, 2003, Schweizerisches Bundesgericht,
4C.40/2003 at 5.3; BGE 116 Ia 56 at 3b; Rüede / Hadenfeld, p. 74; BSK IPRG-Wenger/
Müller, Art. 178 Nos. 35, 57; Walter / Bosch / Brönnimann, p. 73.
191) Berger / Kellerhals, Arbitration, para. 465; Poudret/ Besson, para. 307.
192) Kaufmann-Kohler/ Lévy, p. 262. See generally Berger / Kellerhals, Arbitration, para.
465; Poudret/ Besson, para. 307.
193) Swiss courts and commentators tend to accept that arbitration agreements using the
language of “disputes in relation to the contract” or “in connection with the contract”
were broad enough to cover disputes of tort or unfair competition law in connection
with the contract. See Poudret/ Besson, para. 307; Berger / Kellerhals, Arbitration,
para. 465; Walter / Bosch / Brönnimann, p. 73; Rüede/ Hadenfeld, p. 76. See also BGE
102 Ia 493 at 12, where the Swiss Federal Supreme Court assumed that an arbitration
clause referring to “any controversy or claim, arising out of and relating to this
agreement or breach thereof” includes also unfair competition law claims.
194) See Art. II(1) NYC according to which each contracting state shall recognize arbitration
agreements that relate to differences arising from a “defined legal relationship,
whether contractual or not.“ See also BGE 102 Ia 493 at 12; Berger / Kellerhals,
Arbitration, para. 472 with further references. See generally regarding extra-
contractual claims Lew/ Mistelis / Kröll, paras. 7.63 et seqq.; Poudret/ Besson, para.
307.
195) See, e.g., Judgment of December 1, 2006, KGer Zug, ZG GVP 2006, pp. 187 et seq. for
actio paulianas.
196) See, e.g., BGE 136 III 107 at 2.5 for actions based on Art. 757 OR.
197) See the reasoning in BGE 136 III 107 at 2.5 for the case of a corporate responsibility
claim according to Art. 757 OR; Judgment of December 1, 2006, KGer Zug, ZG GVP 2006,
pp. 187 et seq. for the case of an actio pauliana.
198) Kaufmann-Kohler/ Lévy, p. 262. See generally Berger / Kellerhals, Arbitration, para.
465; Poudret/ Besson, para. 307.
199) These claims are generally considered objectively arbitrable. See BGE 112 III 120 at 1;
BGE 108 III 41 at 4; BGE 101 III 58 at 2; Rüede/ Hadenfeld, p. 51; Poudret/ Besson, para.
363; Lalive/ Poudret / Reymond, Art. 5 old KSG No. 3.
200) BGE 94 I 365 at 3; BGE 56 III 233 at 2. See regarding the nature of these claims BSK
SchKG-Reiser, Art. 279 No. 14.
201) But the objective arbitrability of this claim is highly controversial. Pro arbitrability:
Poudret/ Besson, para. 363 (only for the case that the insolvent estate is party);
Berger / Kellerhals, Arbitration, para. 226; Kaufmann-Kohler/ Lévy, p. 264; Brown-
Berset/ Lévy, pp. 672 et seq. Contra arbitrability: Rüede/ Hadenfeld, p. 51; Bucher /
Tschanz, para. 74; Poudret/ Besson, para. 363 (only for the case that the insolvent
estate is not party); Knoepfler, Note, p. 698.
Berger / Kellerhals, Arbitration, para. 226; Kaufmann-Kohler/ Lévy, pp. 264 et seq.;
Brown-Berset/ Lévy, pp. 672 et seq. Contra arbitrability: Rüede/ Hadenfeld, p. 51;
Knoepfler, Note, p. 698; Perret, Faillite, p. 42 (regarding the Aussonderungsklage). See
generally also Günter, para. 249 with further references.
203) A submission to arbitration requires that the trustee (as bound by the debtor’s
arbitration agreement) and the counterparty signing the arbitration agreement or its
successor conduct the proceeding (Art. 250(1) SchKG). The scope of a preexisting
arbitration agreement will not cover an action that is conducted by another creditor
against the creditor subject to the arbitration agreement (Art. 250(2) SchKG).
43
Kaufmann-Kohler/ Lévy, p. 264; Berger / Kellerhals, Arbitration, para. 226; Brown-
Berset/ Lévy, pp. 672 et seq. Contra arbitrability: Judgment of December 1, 2006, KGer
Zug, ZG GVP 2006, pp. 179 et seqq.; Knoepfler, Note, p. 698; Rüede/ Hadenfeld, p. 51;
Perret, Faillite, p. 42. See generally also Günter, para. 249 with further references.
205) Art. 185(2) SchKG; Judgment of December 1, 2006, KGer Zug, ZG GVP 2006, pp. 187 et
seq.
206) See also Judgment of December 1, 2006, KGer Zug, ZG GVP 2006, pp. 187 et seq.
207) See, e.g., for Switzerland: Berger / Kellerhals, Arbitration, para. 301.
208) See paras. 182 et seqq. for objective arbitrability and paras. 489 et seqq. for issues of
capacity.
210) See paras. 272 et seq.
211) See paras. 276 et seqq. for characterization in connection with insolvency law issues.
212) See, for the law applicable to the scope ratione personae of arbitration agreements,
Berger, Economic Arbitration, p. 176 with further references; Wagner,
Abstimmungsfragen, p. 145; Lévy, Insolvency, p. 94; Kaufmann-Kohler/ Rigozzi, para.
271; Poudret/ Besson, para. 295 with further references. For Switzerland: Judgment of
December 9, 2011, Schweizerisches Bundesgericht, 4A_631/2011 at 3.1; BGE 129 III 727
at 5.3.2.
213) These authors qualify the transfer of the arbitration agreement from the debtor to the
trustee as an case of legal succession or at least as an issue that is comparable to a
legal succession. Lévy, Insolvency, p. 94; Kaufmann-Kohler/ Lévy, p. 267; Brown-
Berset/ Lévy, p. 668. See also Bernet, pp. 6 et seqq.; Naegeli, Bankruptcy, p. 203.
214) Mantillo-Serrano, p. 64.
215) Mantillo-Serrano, p. 64. See also ICC Award No. 6206, unpublished (1990), reported by
Mantillo-Serrano, p. 64.
216) BSK IPRG-Wenger/ Müller, Art. 178 No. 78. See, similarly, Berger / Kellerhals,
Arbitration, para. 511a.
217) See Art. V(1)(a) NYC; Art. 36(1)(a)(i) UN-ArbModLaw. Even though these provisions refer
to the stage of the annulment or enforcement of the award, there is a strong argument
to apply them in a pre-award stage to avoid a set-aside or non-enforcement of the
award. Lew/ Mistelis / Kröll, para. 6.53 with further references.
218) See Lew/ Mistelis / Kröll, para. 6.59 with further references.
219) For Switzerland: According to Art. 178(2) IPRG, the validity of the arbitration
agreement is upheld if it conforms either to the law chosen by the parties, or to the
law governing the subject-matter of the dispute, in particular the law governing the
main contract, or as it conforms to Swiss law.
220) This approach was developed in France in Comité populaire de la municipalité de
Khoms El Mergev v. Dalico Contractors, December 20, 1993, Cour de cassation, Rev.
Arb. 1994, p. 116.
221) Gaillard, p. 75.
222) See paras. 269 et seqq. For England: See Cosco Bulk Carrier Co Ltd v. Armada Shipping
SA AS, February 11, 2011, High Court, Chancery Division, reported and commented by
Fletcher, ITA Board of Reporters, www.kluwerarbitration.com. For Switzerland: Karrer,
p. 111.
223) See paras. 37 et seq., para. 46 and para. 96.
224) Art. 15 EuInsReg.
225) Wagner, Abstimmungsfragen, p. 146.
226) LCIA Interim Award, Elektrim SA v. Vivendi Universal SA of March 19, 2008 reported
and commented by Foster / Walsh, sec. 2.
227) Josef Syska (acting as Administrator for Elektrim S.A.) v. Vivendi Universal S.A. et. Al.,
Court of Appeal, July 9, 2009, [2009] EWCA Civ 677; Josef Syska (acting as Administrator
for Elektrim S.A.) v. Vivendi Universal S.A. et. al., High Court of Justice, October 2, 2008,
[2008], EWHC 2155 (Comm).
228) Opinion of LangmoreLJ in Josef Syska (acting as Administrator for Elektrim S.A.) v.
Vivendi Universal S.A. et. Al., Court of Appeal, July 9, 2009, [2009] EWCA Civ 677. See
also ICC Award No. 6057 (1991), reported and commented by Derains, JDI 1993, pp. 1016
et seqq.
Vivendi Universal S.A. et. Al., Court of Appeal, July 9, 2009, [2009] EWCA Civ 677.
Vivendi Universal S.A. et. Al., Court of Appeal, July 9, 2009, [2009] EWCA Civ 677.
231) Millett, p. 116.
232) Schlosser, para. 428; BSK IPRG-Wenger/ Müller, Art. 178 No. 78; ICC Award No. 7337
(1996), reported by Arnaldez/ Derains / Hasche, Collection of ICC Awards, 1996 - 2000,
pp. 308 et seqq.
233) The EuInsReg applies to all EU countries with the exception of Denmark.
234) So far the applicability of the EuInsReg has not been contested in any proceeding
and was simply assumed. See Josef Syska (acting as Administrator for Elektrim S.A.) v.
Vivendi Universal S.A. et. Al., Court of Appeal, July 9, 2009, [2009] EWCA Civ 677; Josef
Syska (acting as Administrator for Elektrim S.A.) v. Vivendi Universal S.A. et. al., High
Court of Justice, October 2, 2008, [2008], EWHC 2155 (Comm).
235) Wagner, International Insolvency, p. 59; Nacimiento/ Bähr, p. 4759; Virgós/
Garcimartín, para. 261.
44
236) For instance, in Germany the award could be annulled according to § 1059(II)(1)(a) D-
ZPO. Wagner, International Insolvency, p. 59.
and commented by Foster / Walsh, sec. 2.; Josef Syska (acting as Administrator for
Elektrim S.A.) v. Vivendi Universal S.A. et. al., High Court of Justice, October 2, 2008,
[2008], EWHC 2155 (Comm).
238) Art. 4 EuInsReg: “[...] 2. The law of the State of the opening of proceedings shall
determine the conditions for the opening of those proceedings, their conduct and
their closure. It shall determine in particular: [...] (e) the effects of insolvency
proceedings on current contracts to which the debtor is party.”
[2008], EWHC 2155 (Comm).
240) Moss / Fletcher / Stuart, para. 8.252.
241) See, e.g., the German version referring to “Rechtsstreit,” which is common in
connection with both proceedings before national courts and arbitral tribunals. But
see Moss / Fletcher / Stuart, para. 8.252, limiting the word’s use to court proceedings.
The French version refers to “instance,” which can refer to proceedings before national
courts, but also to arbitral proceedings as “instance arbitral.” Moss / Fletcher / Stuart,
para. 8.252.
242) Virgós/ Garcimartín, para. 261; Josef Syska (acting as Administrator for Elektrim S.A.) v.
Vivendi Universal S.A. et. Al., Court of Appeal, July 9, 2009, [2009] EWCA Civ 677; Josef
Court of Justice, October 2, 2008, [2008], EWHC 2155 (Comm). Question left open in
Moss / Fletcher / Stuart, para. 8.252.
243) In the Vivendi/Elektrim cases, the courts applied English law as the lex fori processus.
Josef Syska (acting as Administrator for Elektrim S.A.) v. Vivendi Universal S.A. et. Al.,
[2008], EWHC 2155 (Comm). See also para. 389.
and commented by Foster / Walsh, sec. 2.; Josef Syska (acting as Administrator for
Elektrim S.A.) v. Vivendi Universal S.A. et. al., High Court of Justice, October 2, 2008,
[2008], EWHC 2155 (Comm).
Court of Appeal, July 9, 2009, [2009] EWCA Civ 677.
Court of Appeal, July 9, 2009, [2009] EWCA Civ 677.
247) Lord Justice Patten stated in his concurring opinion that “’the effects of insolvency
proceeding on a lawsuit pending’ would appear to comprehend any issues about the
validity of the arbitration agreement which would affect the continuation of the
arbitration itself.” Josef Syska (acting as Administrator for Elektrim S.A.) v. Vivendi
Universal S.A. et. Al., Court of Appeal, July 9, 2009, [2009] EWCA Civ 677.
248) Josef Syska (acting as Administrator for Elektrim S.A.) v. Vivendi Universal S.A. et. al.,
High Court of Justice, October 2, 2008, [2008], EWHC 2155 (Comm).
249) Nacimiento/ Bähr, p. 4769; Wagner, International Insolvency, p. 63.
250) See Virgós/ Schmit Report, para. 142, which is generally regarded as an aid and the
leading authority to the interpretation of the EuInsReg. It states that “[e]ffects of the
insolvency proceedings on other legal proceedings concerning the assets or rights of
the estate are governed (ex Article 15 [EuInsReg]) by the law of the Contracting State
where these proceedings are under way. The procedural law of this State shall decide
whether or not the proceedings are to be suspended, how they are to be continued
and whether any appropriate procedural modifications are needed in order to reflect
the loss or the restriction of the powers of disposal and administration of the debtor
and the intervention of the liquidator in his place [italic added].” See also Virgós/
Garcimartín, paras. 254 et seqq.
251) Millett, p. 118; Chan, p. 15. But see Kröll, Conflict of Law, p. 248 arguing that excluding
substantive questions from the scope of Art. 15 EuInsReg could lead to odd results in
cases involving choice-of-forum clauses. He points at the potential case where
national courts establish jurisdiction based on choice-of-forum clauses as apposed to
statutory rules. While the proceedings based on statutory rules could proceed, the
proceeding based on a choice-of-forum clause would have to be discontinued where
the lex fori concursus mandates for a termination. This would lead to a less favorable
treatment of proceedings based on choice-of-forum clauses.
252) This is only true under the premise that the lex fori concursus pertains to another
EuInsReg Member State. Chan, p. 19; Millett, p. 119.
253) Kröll, Conflict of Law, p. 248. See also fn. 251.
254) Kröll, Conflict of Law, p. 248 who points out that such solution would provide parties
striving for predictability and legal certainty with more uncertainties compared to
the ones not agreeing on a choice-of-forum clause at all.
255) Whether Art. 15 EuInsReg is determined as the prevailing provision based on the
reasoning by the approach of the English High Court or by the English Court of Appeal
plays, in the result, a minor role.
45
256) Millett, p. 115.
257) The arbitration agreement can be qualified as a “contract” according to Art. 4(2)(e)
EuInsReg. There is a controversy as to whether Art. 4(2)(e) EuInsReg only applies to
substantive contracts or also to procedural contracts. See the arguments discussed in
Josef Syska (acting as Administrator for Elektrim S.A.) v. Vivendi Universal S.A. et. al.,
258) In the event, the arbitration agreement is qualified as a “proceeding brought by
individual creditor” according Art. 4(2)(f) EuInsReg. See Nacimiento/ Bähr, p. 4759.
259) Wagner, International Insolvency, p. 59; Nacimiento/ Bähr, p. 4759. See also Josef
Court of Justice, October 2, 2008, [2008], EWHC 2155 (Comm).
260) Art. 4(2)(e), (f) EuInsReg. See also Virgós/ Garcimartín, para. 261; Eidenmüller,
Gesellschaftsstatut, p. 482.
261) For the U.S.: In re JSC BTA Bank, 434 B.R. 334, 336 (Bankr. S.D.N.Y. 2010). For England:
Cosco Bulk Carrier Co Ltd v. Armada Shipping SA & Anor, High Court, Chancery
Division, February 11, 2011, [2011] EWHC 216 (Ch).
262) See paras. 37 et seq. and para. 96.
263) See, e.g., generally for the applicable law after a Chapter 15 recognition of a foreign
insolvency proceeding, Windt v. Qwest Communications Int’l, Inc., 544 F. Supp. 2d 409,
432 (D.N.J. 2008) aff’d, 529 F.3d 183 (3d Cir. 2008) (“[O]nce a foreign bankruptcy
proceeding is recognized, a wide range of relief available under American bankruptcy
law immediately becomes applicable, including the automatic stay provision in
[S]ection 362 of the [Bankruptcy] Code”); In re JSC BTA Bank, 434 B.R. 334, 336 (Bankr.
S.D.N.Y. 2010) where the court stated that after the recognition according to Chapter
15 U.S. Bankruptcy Code the automatic stay rules of the U.S. Bankruptcy Code would
apply for proceedings (including arbitration) and assets within the U.S. See also In re
White Mountain Mining Co., 403 F.3d 164 (4th Cir. 2005) where the court applied U.S.
law on the question of the enforceability of an arbitration agreement providing for
arbitration in England.
264) See para. 77.
265) See para. 77.
267) This involves only arbitrations in England involving insolvencies that were not
commenced in a Member State of the EuInsReg.
268) Cosco Bulk Carrier Co Ltd v. Armada Shipping SA & Anor, High Court, Chancery
270) See, in detail, para. 311 et seqq. See also Sec. 130(2) Insolvency Act; HIH Casualty and
General Insurance Ltd sub-nom Enron Metals and Commodity Ltd v. HIH Causalty and
General Insurance Ltd, [2005] EWHC 485 (Ch.); Re Exchange and Commodities Ltd
[1983] B.C. L. C. 186.
Division, February 11, 2011, [2011] EWHC 216 (Ch). See also comments in Cosco Bulk
Carrier Co Ltd v. Armada Shipping SA AS, February 11, 2011, High Court, Chancery
Division, reported and commented by Fletcher, ITA Board of Reporters,
www.kluwerarbitration.com.
272) See, in detail, paras. 268 et seqq., para. 384.
273) Judgment of December 8, 1999, Schweizerisches Bundesgericht, 4P.154/1999 at 2b, ASA
Bull. 2000, pp. 546 et seqq.; IPRG-Hochstrasser/ Blessing, Einleitung zum 12. Kapitel,
No. 202; Berger / Kellerhals, Arbitration, para. 86; Naegeli, Auswirkungen, paras. 38 et
seq.
274) BGE 138 III 714 at 3.3.1; Vivendi S.A. et al. v. Deutsche Telekom AG et al.,
Schweizerisches Bundesgericht, March 31, 2009, 4A_428/2008; Berger / Kellerhals,
Arbitration, paras. 326, 340.
275) See, e.g., BGE 138 III 714 at 4 where the Swiss Federal Supreme Court examined
mandatory rules in addition to a traditional conflict-of-law analysis.
276) Judgment of January 9, 2008, Schweizerisches Bundesgericht, 4A_436/2007 at 2;
Judgment of May 19, 2003, Schweizerisches Bundesgericht, 4C.40/2003 at 2; Berger /
Kellerhals, Arbitration, para. 314; BSK IPRG-Wenger/ Müller, Art. 178 No. 8; Poudret/
Besson, para. 299; Berger, Economic Arbitration, pp. 324 et seqq.
277) Where a party’s seizure of a Swiss national court is contested by the opponent
invoking an arbitration agreement providing for arbitration in Switzerland, Art. 7 IPRG
mandates the court to decline its jurisdiction unless the court finds that the
arbitration agreement is null and void, inoperative, or incapable of being performed.
The legal regime applicable to arbitral tribunals applies also before national courts
when they get confronted with this issue in the course of the constitution of an
arbitral tribunal (Art. 179(2),(3) IPRG), provisional or protective measures (Art. 183
IPRG), taking of evidence (Art. 184 IPRG) or further assistance (Art. 185 IPRG). See BSK
IPRG-Wenger/ Müller, Art. 178 No. 8; Berger / Kellerhals, Arbitration, para. 304.
278) Lévy, Insolvency, p. 92; Kaufmann-Kohler/ Lévy, p. 267; Günter, paras. 487 et seqq.;
Karrer, p. 4. See also Naegeli, Auswirkungen, para. 15.
279) Günter, para. 491; Lévy, Insolvency, p. 100.
46
280) Walter / Bosch / Brönnimann, p. 81; Berger / Kellerhals, Arbitration, para. 302; Lalive/
Poudret / Reymond, Art. 178 IPRG No. 14; BSK IPRG-Wenger/ Müller, Art. 178 No. 25;
Bucher / Tschanz, para. 83;ZK IPRG-Volken, Art. 178 No. 58.
281) BSK IPRG-Wenger/ Müller, Art. 178 No. 78; Berger / Kellerhals, Arbitration, para. 511a.
For Germany: Schlosser, para. 428.
282) Bernet, p. 7; Naegeli, Bankruptcy, p. 203; Kaufmann-Kohler/ Lévy, p. 267. See for the
general applicability of Art. 178(2) IPRG to validity and scope of arbitration
agreements BSK IPRG-Hochstrasser/ Blessing, Einleitung zum 12. Kapitel, No. 209;
Lalive/ Poudret / Reymond, Art. 178 IPRG Nos. 14, 21.
283) Kaufmann-Kohler/ Lévy, p. 267; Brown-Berset/ Lévy, p. 668; Lévy, Insolvency, p. 94.
See also Bernet, pp. 7 et seq.; Naegeli, Bankruptcy, pp. 203 et seq.
284) Kaufmann-Kohler/ Lévy, p. 267; Brown-Berset/ Lévy, p. 668; Lévy, Insolvency, p. 94.
See also Bernet, pp. 7 et seq.; Naegeli, Bankruptcy, pp. 203 et seq.
285) Aebi/ Frey, p. 26; Perret, Faillite, p. 43.
286) Vivendi S.A. et al. v. Deutsche Telekom AG et al., Schweizerisches Bundesgericht,
March 31, 2009, 4A_428/2008 at 3.
287) See the Swiss Federal Supreme Court’s elaborations reported by Naegeli,
Auswirkungen, para. 15. See also Stacher, Rechtsprechung, p. 131.
288) The effects of Art. 142 of the Polish Bankruptcy and Reorganization Code on the Swiss
arbitration was characterized by the majority of the court as an issue of capacity of
the insolvent party. Vivendi S.A. et al. v. Deutsche Telekom AG et al., Schweizerisches
Bundesgericht, March 31, 2009, 4A_428/2008 at 3.
289) BGE 138 III 714 at 3.1.2.6 and 3.6.
290) BGE 138 III 714 at 3.6.
291) For the scope ratione personae: Judgment of April 19, 2011, Schweizerisches
Bundesgericht, 4A_44/2011 at 2.4.1; BGE 134 III 565 at 3.2; BGE 117 II 94 at 5b; BGE 129
III 727 at 5.3. For the scope ratione materiae, which in the end is a question of
interpretation of the arbitration agreement, see: BGE 129 III 675 at 2.3.
293) See paras. 407 et seqq. For the cross-border insolvency conflict-of-law approach see
para. 269 and paras. 388 et seqq.
294) See paras. 407 et seqq. For the traditional conflict-of-law approach see paras. 272 et
seq. and paras. 385 et seqq.
295) BSK IPRG-Wenger/ Müller, Art. 178 No. 24.
296) BSK IPRG-Wenger/ Müller, Art. 178 No. 25; Walter / Bosch / Brönnimann, p. 81; Berger /
Kellerhals, Arbitration, para. 302; Lalive/ Poudret / Reymond, Art. 178 IPRG No. 14; BSK
IPRG-Wenger/ Müller, Art. 178 No. 25; Bucher / Tschanz, para. 83;ZK IPRG-Volken, Art.
178 No. 58; Judgment of April 19, 2011, Schweizerisches Bundesgericht, 4A_44/2011 at
2.4.1; BGE 134 III 565 at 3.2; BGE 117 II 94 at 5b; BGE 129 III 727 at 5.3.
297) See, in detail, paras. 521 et seqq.; Walter / Bosch / Brönnimann, p. 83.
298) It is controversial in Swiss doctrine to which extent Art. 178(2) IPRG or other conflict-
of-law rules apply to issues of agency in arbitration. In favor of conflict-of-law rules
other than Art. 178(2) IPRG: Rüede/ Hadenfeld, p. 90; Aebi/ Frey, p. 26; Berger /
Kellerhals, Arbitration, para. 302, 373; BSK IPRG-Wenger/ Müller, Art. 178 No. 25;
Bucher / Tschanz, para. 86, generally referring to the special conflict-of-law rules of
Art. 126 and 155 IPRG, point out that „[p]ursuant to Art. 15 [IPRG], however, these Swiss
conflict rules need not to be applied strictly.” Favoring the application of Art. 178(2)
IPRG also to questions of agency: Walter / Bosch / Brönnimann, pp. 83 et seq.;
Judgment of December 8, 1999, Schweizerisches Bundesgericht, ASA Bull. 2000, pp.
546 et seqq. where the court found that nothing would speak against the application
of Art. 178(2) IPRG also to questions of agency. See generally Poudret/ Besson, para.
274 with further references; Judgment of December 22, 1992, Schweizerisches
Bundesgericht, 4P.161/1992, ASA Bull. 1996, pp. 646 et seqq.
299) Berger / Kellerhals, Arbitration, para. 302, 373; BSK IPRG-Wenger/ Müller, Art. 178 No.
25; Bucher / Tschanz, para. 86; Aebi/ Frey, p. 26; Poudret/ Besson, para. 270; Vivendi
S.A. et al. v. Deutsche Telekom AG et al., Schweizerisches Bundesgericht, March 31,
2009, 4A_428/2008 at 3.
300) See paras. 414 et seq. for the different approaches in legal doctrine. See, in general
for Switzerland, BSK IPRG-Wenger/ Müller, Art. 178 No. 25; Walter / Bosch /
Brönnimann, p. 81; Berger / Kellerhals, Arbitration, para. 302; Lalive/ Poudret /
Reymond, Art. 178 IPRG No. 14; BSK IPRG-Wenger/ Müller, Art. 178 No. 25; Bucher /
Tschanz, para. 83;ZK IPRG-Volken, Art. 178 No. 58; Judgment of April 19, 2011,
Schweizerisches Bundesgericht, 4A_44/2011 at 2.4.1; BGE 134 III 565 at 3.2; BGE 117 II 94
at 5b; BGE 129 III 727 at 5.3.
302) Judgment of October 16, 2001, Schweizerisches Bundesgericht, 4P.176/2001 at 3a;
Bucher / Tschanz, para. 83; Berger, Economic Arbitration, pp. 175 et seq.; Lalive/
Poudret / Reymond, Art. 178 IPRG No. 21; Walter / Bosch / Brönnimann, p. 83; Poudret/
Besson, para. 295; ZK IPRG-Volken, Art. 178 No. 19. But see Berger / Kellerhals,
Arbitration, paras. 493 et seqq.
303) See for examples of extensions of the scope of arbitration agreements to non-
signatories, BSK IPRG-Wenger/ Schott, Art. 186 Nos. 25 et seqq.; Berger / Kellerhals,
Arbitration, paras. 319; Poudret/ Besson, para. 250.
47
304) Judgment of April 19, 2011, Schweizerisches Bundesgericht, 4A_44/2011 at 2.4.1; BGE
134 III 565 at 3.2; BGE 129 III 727 at 5.3.1.
305) See for further cases of court involvement, para. 411.
306) Chapter 12 IPRG only applies to international arbitral tribunals with seat in
Switzerland, and if at least one of the parties at the time the arbitration agreement
was concluded was neither domiciled nor habitually resident in Switzerland (Art.
176(1) IPRG). See BGE 122 III 139 at 2a; Judgment of January 9, 2008, Schweizerisches
Bundesgericht, 4A_436/2007 at 2; Judgment of May 19, 2003, Schweizerisches
Bundesgericht, 4C.40/2003 at 2; BSK IPRG-Berti, Art. 7 No. 7.
307) NYC Commentary-Schramm/ Geisinger / Pinsolle, Art. II, pp. 41 et seq.; Berger /
Kellerhals, Arbitration, para. 307.
308) Judgment of March 21, 1995, Schweizerisches Bundesgericht, ASA Bull. 1996, pp. 255 et
seqq.; Berger, Economic Arbitration, pp. 326; Poudret/ Besson, para. 299; Berger /
Kellerhals, Arbitration, para. 311. Unclear Rüede/ Hadenfeld, p. 79.
309) Judgment of March 21, 1995, Schweizerisches Bundesgericht, ASA Bull. 1996, pp. 255 et
seqq.; Poudret/ Besson, para. 299.
310) See, e.g., for the U.S: Courts require four basic conditions for the application of Art.
II(3) NYC, generally called the Ledee or Sedco test. Art. II(3) NYC applies if: “(1) there is
an agreement in writing to arbitrate the dispute; (2) the agreement provides for
arbitration in a Contracting State; (3) the agreement arises out of a commercial legal
relationship; and (4) a party to the agreement is not an American citizen (Sedco) or
the parties’ commercial relationship has some reasonable relation with a foreign
country (Ledee).” See, in detail, NYC Commentary-Schramm/ Geisinger / Pinsolle, Art.
II, pp. 41 et seq.
311) Schlosser, para. 251; van den Berg, New York Convention, p. 124; NYC Commentary-
Schramm/ Geisinger / Pinsolle, Art. II, pp. 56 et seq. with further references.
312) ICC Award No. 9163 (2001), Rev. Arb. 2003, pp. 227 et seqq. qualified the lex fori
concursus as a whole as an international mandatory rule (loi de police) which applies
to the case independently from the place of arbitration and the applicable law to the
merits and procedure: “La lex fori concursus présente alors tous les caractères d’une
loi de police que le Tribunal arbitral s’estime tenu de prendre en considération, en
raison des ‘liens étroits’ qu’elle présente avec le litige et des ‘intérêts légitimes’
qu’elle entend sauvegarder. Peu importent le lieu de l’arbitrage et la loi applicable
au fond du litige ou à la procédure arbitrale.” ICC Award No. 11028, unpublished
(2002), reported by Perret, Faillite, p. 44 discussed the mandatory character of the
automatic stay provision. See also Naegeli, Auswirkungen, para. 34.
313) Hochstrasser, pp. 57 et seqq.; Blessing, Mandatory Rules, pp. 23 et seqq.
314) See Art. 3(3) Rome Convention; Art. 3(3) Rome I Regulation; Art. 18, 19 IPRG. See
generally Hochstrasser, pp. 57 et seqq.; BSK IPRG-Karrer, Art. 187 No. 229; Poudret/
Besson, para. 706. For France: Gaillard/ Savage, para. 1516.
315) ZK IPRG-Vischer, Art. 19 Nos. 1 et seqq.
316) Favoring an analogous application of Art. 19 IPRG to international arbitration:
Knoepfler, L’article 19 LDIP, pp. 531 et seqq. Contra: Schnyder, Vertragsstatut, pp. 696
et seq. who argues that the concept governing private international law may not be
simply transferred to international arbitration cases; Lalive/ Poudret / Reymond,
Introduction No. 26, Art. 187 IPRG Nos. 2, 17; Rüede/ Hadenfeld, p. 279. See also
Hochstrasser, pp. 54 et seqq.; Blessing, Mandatory Rules, pp. 23 et seqq.; BSK IPRG-
Karrer, Art. 187 Nos. 262 et seqq. For a methodological approach in the sense of a
“Rule of Reason,” see: Schnyder, Wirtschaftskollisionsrecht, paras. 224 et seqq. and
paras. 322 et seqq.; Schnyder, Eingriffsnormen, pp. 303 et seqq.
317) Judgment of December 30, 1994, Schweizerisches Bundesgericht, ASA Bull. 1995, pp.
217 et seqq. referring to Art. 190(2)(e) IPRG, in: Berger / Kellerhals, Arbitration, para.
1303.
318) Judgment of November 13, 1998, Schweizerisches Bundesgericht, 4P.119/1998, in:
Berger / Kellerhals, Arbitration, para. 1303.
319) Judgment of December 8, 1999, Schweizerisches Bundesgericht, 4P.154/1999 at 2b, ASA
Bull. 2000, pp. 546 et seqq. See also Berger / Kellerhals, Arbitration, para. 1305.
320) See for a convincing interpretation of he Swiss Federal Supreme Court’s decision
Berger / Kellerhals, Arbitration, para. 1305. For the insolvency context BGE 138 III 714
at 4.
321) Schnyder, Eingriffsnormen, pp. 302. Schnyder, Vertragsstatut, pp. 695 et seqq. See also
BSK IPRG-Karrer, Art. 187 No. 238; ZK IPRG-Heini, Art. 187 Nos. 20 et seqq.; Kaufmann-
Kohler/ Rigozzi, para. 663.
322) Schnyder, Eingriffsnormen, pp. 302 et seq. favors a “stand-alone” conflict-of-law
system for mandatory rules for arbitral tribunals. Schnyder, Vertragsstatut, pp. 695 et
seqq.; Voser, pp. 345 et seqq.; BSK IPRG-Karrer, Art. 187 No. 238; ZK IPRG-Heini, Art. 187
Nos. 20 et seqq.; Hochstrasser, pp. 84 et seqq.; Blessing, Mandatory Rules, pp. 23 et
seqq.; Kaufmann-Kohler/ Rigozzi, para. 663. See also BGE 118 II 353 at 3c.
323) BSK IPRG-Karrer, Art. 187 No. 285.
324) Schnyder, Eingriffsnormen, p. 304; Kaufmann-Kohler/ Rigozzi, para. 663; BSK IPRG-
Karrer, Art. 187 No. 230. See also BGE 138 III 714 at 4.2 where a provision of the lex fori
concursus was not even considered under the aspect of mandatory rules, because the
provision did not claim its own mandatory application.
48
325) See, for examples and definitions, paras. 32 et seqq. See also, e.g., BGE 135 III 127 at 3
where the Swiss Federal Supreme Court limited the active applicability of Art. 207
SchKG to authorities located within Switzerland, despite the fact that Swiss
insolvency law generally follows the principle of active universality.
327) See BGE 138 III 714 at 4 where the Swiss Federal Supreme Court left explicitly open
the possibility of invoking mandatory provisions in connection with the validity of
arbitration agreements.
328) Schnyder, Rechtskollision, pp. 378 et seq. suggesting that such an idea was alien to
Swiss law because of concerns regarding the right to access justice
(Rechtsweggarantie) and guarantees for a constitutional court (Garantie des
verfassungsmässigen Gerichts).
329) Schnyder, Rechtskollision, p. 378 denies such direct application of Art. 19 IPRG to
questions of jurisdiction with reference to the article’s systematic position within the
IPRG under the section of “applicable law” See also, BSK IPRG-Mächler-Erne/ Wolf-
Mettier, Art. 19 No. 27.
330) See, e.g., Art. 5(3) IPRG where Swiss courts are obliged to hear a case – even against
foreign mandatory rules – if one party is seated in Switzerland. Schnyder,
Rechtskollision, p. 369; BSK IPRG-Mächler-Erne/ Wolf-Mettier, Art. 19 No. 27 arguing
that Art. 19 IPRG only applies to questions of substantive law and that an application
to procedural questions would have to be construed by analogy.
331) Schnyder, Rechtskollision, p. 369.
332) Contra applicability of mandatory rules in connection with the arbitrability of
actions: Kaufmann-Kohler/ Lévy, p. 260; Abdulla, p. 21; Schnyder, Rechtskollision, p.
372; Voser, p. 332 who limits the application of foreign mandatory rules, however, to
cases where they are at the same time also part of Swiss public policy. Pro
applicability of mandatory rules in connection with the arbitrability: Bucher /
Bonomi, para. 1235.
333) BGE 118 II 353 at 3c: “[L]e fait que la dite prétention touche à l’ordre public ne suffirait
pas, en soi, à exclure l’arbitrabilité de la cause; il appartiendrait, dans ce cas, au
Tribunal arbitral de tenir compte de cette circonstance et, le cas échéant, de refuser
toute protection juridique à la prétention contestée, sa sentence pouvant alors être
attaquée sur ce point pour le motif prévu à l’art. 190 al. 2 let. e [IPRG].”
334) BGE 118 II 353 at 3c; Schnyder, Rechtskollision, p. 373.
335) See also Judgment of November 13, 1998, Schweizerisches Bundesgericht, 4P.119/1998,
in: Berger / Kellerhals, Arbitration, para. 1303; BGE 118 II 193 at 5.
336) The terminology concerning aspects of capacity is very inconsistent. It is also referred
to “subjective arbitrability” or “arbitrability ratione personae.” Sometimes legal
capacity is also treated as a sub-element of “subjective arbitrability.” Berger /
Kellerhals, Arbitration, para. 323; Blackaby/ Partasides / Redfern / Hunter, para. 2.28.
337) Lew/ Mistelis / Kröll, para. 7.33.
338) Blackaby/ Partasides / Redfern / Hunter, para. 2.28; Poudret/ Besson, para. 270.
339) See, e.g., the decision of the ICC arbitration and the subsequent confirmation in
Vivendi S.A. et al. v. Deutsche Telekom AG et al., Schweizerisches Bundesgericht,
March 31, 2009, 4A_428/2008 where a capacity depriving effect was given to Art. 142
Polish Bankruptcy and Reorganization Code; ICC Award No. 12907 (2005), ICC ICArb.
Bull 1 / 2009, pp. 98 et seqq. where capacity was discussed and upheld; ICC Award No.
6192, unpublished (1990), reported by Mantillo-Serrano, pp. 64 et seqq. where
capacity was also discussed and upheld.
340) Blackaby/ Partasides / Redfern / Hunter, para. 2.29.
341) For Switzerland: Art. 11 ZGB and Art. 53 ZGB; Art. 12 ZGB and Art. 54 ZGB. For Italy: Art. 2
Codice civile. For France: Art. 3 Code civil. See also Heldrich/ Steiner, p. 9; von
Overbeck, p. 6.
342) Heldrich/ Steiner, p. 9 with further references.
343) von Overbeck, p. 13; Heldrich/ Steiner, p. 9.
344) For Switzerland: Art. 204 SchKG. For Germany: § 80 InsO.
345) Heldrich/ Steiner, p. 10.
347) For Switzerland: Art. 204 SchKG; BSK SchKG-Wohlfart/ Meyer, Art. 204 Nos. 1, 10 et
seqq., 20. For Germany: § 80 InsO; Paulus, pp. 63 et seq.
348) For Switzerland: The debtor is not completely deprived of his right to dispose, but all
dispositions (Verfügungsgeschäfte) of the debtor involving his assets are ineffective
towards the creditors. New obligations (Verpflichtungsgeschäfte) might only be agreed
to regarding assets that are not part of the debtors’ estate. See, in detail, BSK SchKG-
Wohlfart/ Meyer, Art. 204 Nos. 1, 10 et seqq, 20. For Germany: § 80 InsO; Paulus, pp. 63
et seq.
350) For Switzerland: For the capacity to be party to a legal proceeding Art. 66 ZPO refers to
Art. 11 ZGB and Art. 53 ZGB. See also Art. 562 OR, Art. 602 OR, Art. 240 SchKG providing
certain estates with the capacity to be a party. See Meier, Zivilprozessrecht, p. 151;
Cohn, p. 3.
351) Cohn, p. 3.
352) Cohn, p. 3.
49
353) For Switzerland: Art. 67 ZPO refers to Art. 13 ZGB and Art. 54 ZGB. For Germany: §§ 51 et
seqq. For Italy: Art. 75 Codice di procedura civile. See generally Meier,
Zivilprozessrecht, p. 151; Blackaby/ Partasides / Redfern / Hunter, para. 2.28.
354) For instance, in the case where a minor’s capacity to act as a party in legal
proceedings vests in his parents. Cohn, p. 3.
355) Meier, Zivilprozessrecht, p. 151.
356) For Switzerland: During insolvency proceedings the debtor maintains the capacity to
be a party (Parteifähigkeit) and the capacity to act as party (Prozessfähigkeit). Only the
right to conduct proceedings (Prozessführungsbefugnis) is conferred to the insolvency
estate, which, in turn, is represented by the trustee. See BSK SchKG-Wohlfart/ Meyer,
Art. 204 No. 44.
357) For Switzerland: The assignee of an insolvency claim that was assigned according to
Art. 260 SchKG is conferred with the right to conduct legal proceedings by the
insolvency law statute (gesetzliche Prozessführungsbefugnis or Prozessstandschaft).
Accordingly, the assignee has a right to assert rights in his own name that
substantively belong to the debtor. See BGE 121 III 488 at 2b; BGE 132 III 343 at 2.2.
Conversely, a trustee pursuing legal proceedings for the debtor is not conferred with
the right to conduct proceedings (Prozessführungsbefugnis). The right to conduct
proceedings remains with the insolvency estate. The trustee merely has the position
of a representative of the insolvency estate.
358) Under Swiss law the debtor keeps, however, its capacity to act as party in proceedings
(Prozessfähigkeit). Only the right to conduct such proceedings is conferred upon the
estate, represented by the trustee. See BSK SchKG-Wohlfart/ Meyer, Art. 204 No. 44.
359) See also Award in Case No. 415, November 20, 2001, Zürcher Handelskammer, ASA
Bull. 2002, pp. 467 et seqq. where the arbitral tribunal found that a corporation in
liquidation (after the insolvency proceedings were suspended because of a lack of
assets) would not lose its capacity just because it was in liquidation and represented
by a liquidator.
360) See, in detail, paras. 325 et seq.
361) See for the U.S.: U.S. Bankruptcy Code § 323 (“The trustee in a case under this title has
capacity to sue and be sued.”); Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 885 F.2d 1149, 1154 (3d Cir. 1989 (“Thus, we conclude that in actions brought by the
trustee as successor to the debtor’s interest under section 541 [of the Bankruptcy
Code] the ‘trustee stands in the shoes of the debtor and can only assert those causes
of action possessed by the debtor. [Conversely,] [t]he trustee is, of course, subject to
the same defenses as could have been asserted by the defendant had the action
been instituted by the debtor.’”) For England: see, e.g., Sec. 145 Insolvency Act.
362) In contrast, in civil law countries, the concept of substantive rights of the debtor
vesting in the trustee and thereby splitting up ownership rights is unknown. Cohn, p.
23.
363) For the U.S.: U.S. Bankruptcy Code § 323 (“The trustee in a case under this title has
capacity to sue and be sued”).
364) See U.S. Bankruptcy Code. §§ 700 et seqq.
365) Sender v. Simon, 84 F.3d 1299, 1304 (10th Cir. 1996) (“Causes of action commenced by a
trustee on behalf of a debtor estate fall into two broad categories: (1) actions brought
by the trustee as successor to the debtor’s interests included as property of the
estate under U.S. Bankruptcy Code § 541, and (2) actions brought under one of the
trustee’s avoidance powers”).
366) U.S. Bankruptcy Code § 323.
368) Art. L. 620 et seqq. Code de commerce.
369) Art. L. 631-1 et seqq. Code de commerce.
370) Art. L. 622-1 Code de commerce; Dammann/ Undritz, p. 200.
371) § 270 InsO; Paulus, p. 123.
372) BSK SchKG-Vollmar, Art. 293 No. 33; BSK SchKG-Guggisberg/Hardmeier, Art. 314 Nos.
50, 60 et seq. with further references.
373) Where appropriate, the management of the company might even be fully transferred
to the trustee. See, in detail, BSK SchKG-Vollmar, Art. 298 Nos. 3 et seqq.
374) See p. 99, fn. 14. See also the interpretation of the Swiss Federal Supreme Court
(relying on an opinion of a Polish law professor) of Art. 142 Polish Bankruptcy and
Reorganization Code in Vivendi S.A. et al. v. Deutsche Telekom AG et al.,
Schweizerisches Bundesgericht, March 31, 2009, 4A_428/2008 at 3. See also
Aslanowicz/ Jasiewicz, p. 333. This interpretation was, however, highly controversial
and the minority of the Swiss Federal Supreme Court interpreted this provision as
affecting the substantive validity of the arbitration agreement. See paras. 300 et
seqq.
375) Art. 487 Latvian Code of Civil Procedure. See p. 99, fn. 15.
376) The provisions of the Polish Bankruptcy and Reorganization Code were apparently
also subject to criticism in Poland. It was argued that this provision would not serve
Polish companies that want to subject themselves to international arbitration
agreements. Consequentially, the Polish government is making an effort to repeal the
controversial provisions. See Zawicki, pp. 1 et seqq.
377) UNCITRAL Guide on Insolvency Law, pp. 9 et seqq.
378) See Lazić, Cross-Border Insolvency, p. 342.
50
379) See Gropper, Improve and Expedite, pp. 46 et seq. convincingly arguing to consider
arbitration as a more efficient and fair remedy in cross-border insolvency cases,
particularly for foreign claims, intercompany claims, and arbitration of certain
central insolvency issues that can facilitate a reorganization.
380) See the interpretation of Art. 142 Polish Bankruptcy and Reorganization Code in
Vivendi S.A. et al. v. Deutsche Telekom AG et al., Schweizerisches Bundesgericht,
March 31, 2009, 4A_428/2008, where the involvement of the Polish trustee did not
cure such lack of capacity. See Naegeli, Auswirkungen, para. 24.
381) Under Polish insolvency law, the arbitral tribunal has to issue a formal ruling of
discontinuance of the arbitral proceedings effective as of the date of the
commencement of the insolvency. The trustee, however, is entitled to subsequently
reintroduce the arbitration agreement provided the creditors consent to such
proceeding. See also Aslanowicz/ Jasiewicz, p. 333; Lazić, Cross-Border Insolvency, p.
342.
382) Lazić, Cross-Border Insolvency, p. 342.
383) It is, however, necessary that the trustee is properly involved in the proceeding. See
ICC Award No. 12907 (2005), ICC ICArb. Bull 1 / 2009, pp. 98 et seqq.; Lazić, Cross-Border
Insolvency, p. 345.
384) See, e.g., ICC Award No. 12907 (2005), ICC ICArb. Bull 1 / 2009, pp. 98 et seqq. where the
tribunal found that “all the debates between the parties concerning the remaining
capacity of [the debtor] are irrelevant. The issue is who has the standing to sue and
defend this arbitration. [...] It is clear from the text that from the moment an
individual is declared bankrupt in Egypt, only his trustee has standing to sue and
defend in Court or before an Arbitral Tribunal.” See also Lazić, Cross-Border
Insolvency, p. 345.
386) See, e.g., for legal entities, Art. 392 Ziff. 2 ZGB. For natural persons, see Art. 368 et seqq.
ZGB.
387) See also ZK IPRG-Vischer, Art. 35 No. 11 who points out that the capacity conflict-of-
law norms requires an autonoumous interpretation of the norm in connection with
fields of law other than private law. This applies also for issues of capacity with cross-
border insolvency law. See, e.g., Art. 2(d) UN-InsModLaw, Art. 166 IPRG making direct
reference to the foreign person or body representing the debtor.
389) See the narrow reference to only the capacity of the debtor by the Swiss Federal
Supreme Court in Vivendi S.A. et al. v. Deutsche Telekom AG et al., Schweizerisches
Bundesgericht, March 31, 2009, 4A_428/2008 at 3; Lazić, Cross-Border Insolvency, p.
344. But see BGE 138 III 714 at 3.3.4 where the Swiss Federal Supreme Court’s seems to
take a less formal view of the debtor’s capacity. It, namely, relies on a holistic
assessment of whether the debtor remains to have capacity to hold rights and
obligations. The position of the trustee was – despite the fact that the trustee was
conducting the arbitration – also not taken into account. See also Lazić, Cross-Border
Insolvency, p. 345.
390) Lalive/ Poudret / Reymond, Art. 178 IPRG No. 10; Gaillard/ Savage, para. 453; Poudret/
Besson, paras. 274 et seqq. with further references. But see Aebi/ Frey, p. 166 referring
for issues of capacity to the Judgment of July 4, 2003, Schweizerisches Bundesgericht,
4P.137/2002 concerning the issue of authority of a representative of a company to
conclude an arbitration agreement. See also Dalmine S.p.A. v. M. & M. Sheet Metal
Forming Machinery A.G., April 23, 1997, Corte di cassazione, 10229, Y.B. Comm. Arb.
1999, pp. 709 et seqq. where the court held that capacity to agree to arbitration would
also include the power of the representative to bind a legal entity.
391) Poudret/ Besson, para. 269; Schlosser, paras. 338 et seqq. Reference can also be
made to the ultra vires doctrine in common law countries. This doctrine helps to
determine whether a certain transaction was within the powers that were granted to
the incorporation by the articles of incorporation. Such determination has no
influence at all on the determination of the capacity of a party and the admissibility
of the claim, but it is rather a question of success of the claim. See Cohn, p. 8.
392) Poudret/ Besson, para. 269.
393) See, e.g., ICC Award No. 10504, unpublished (2000), reported and commented by
Grigera Naón, p. 103; Judgment of October 13, 1992, Schweizerisches Bundesgericht,
ASA Bull. 1993, pp. 68 et seqq.
394) Judgment of October 13, 1992, Schweizerisches Bundesgericht, ASA Bull. 1993, pp. 68 et
seqq. where the Swiss Federal Supreme Court explicitly approved the determination
of the authority of the representative of the state party according to the law of the
party. This indicates that the representative’s authority was not considered under the
capacity term of Art. 177(2) IPRG. See also BSK IPRG-Briner, Art. 177 No. 26; Lalive/
Poudret / Reymond, Art. 177 IPRG No. 10. But see in favor of including cases of
apparent authority in the scope of Art. 177(2) IPRG: ZK IPRG-Vischer, Art. 177 No. 31.
None of these authorities, however, argue that capacity would also include issues of
authority. See also ICC Award No. 6476, unpublished (1992), reported and commented
by Grigera Naón, pp. 100 et seq. where the arbitral tribunal – even though
distinguishing between issues of capacity of a party and issues of authority of a
representative – applied Art. 177(2) IPRG to the issue whether a state party’s
representative had authority to enter into an arbitration agreement.
51
396) See, e.g., Art. 238 SchKG and Art. 253 SchKG where the creditors’ committee decides
about the management, the disposal of certain assets and about lawsuits.
397) Art. 238 and 253 SchKG; BSK SchKG-Russenberger, Art. 238 Nos. 9 et seqq.; BSK SchKG-
Bürgi, Art. 253 No. 8.
398) See BSK SchKG-Bürgi, Art. 253 No. 3. See, for questions of agency, Poudret/ Besson,
para. 269. Should the majority of the creditors or the creditors’ committee vote
against the continuation of certain proceedings, individual creditors will have the
option to acquire the right to continue the action on behalf of the debtor. See Art. 260
SchKG.
399) See, for details, BSK SchKG-Russenberger, Art. 238 Nos. 9 et seqq.
400) Rule 9019(c) U.S. Bankruptcy Rules: “On stipulation of the parties to any controversy
affecting the estate the court may authorize the matter to be submitted to final and
binding arbitration.” This provision does, however, not address whether it applies to
arbitration agreements that were concluded before or after the commencement of
the insolvency. It is generally recognized that it applies to both. However, different
procedures apply for the case that parties remain to agree to arbitrate their dispute
after the commencement of an insolvency and the case where parties no longer
agree. “If parties have a pre-petition contract to arbitrate and the parties mutually
agree to submit a dispute to arbitration, then a motion to compel arbitration may be
filed under [Rule 9019(c) U.S. Bankruptcy Rules]; differently, if the parties have a
contract to arbitrate (be it pre-petition or entered into post-petition), but one party
refuses to honor that contract, then a motion to compel arbitration may be filed
under FAA § 4.” (In re Interactive Video Resources, Inc., 170 B.R. 716 (S.D. Fla. 1994));
Oehmke/ Brovins, para. 148.
401) See, in detail, paras. 311 et seqq. and paras. 357 et seqq.
402) § 160 InsO; Münchner Kommentar InsO-Görg, § 160 No. 21.
403) Heidbrink/ von der Groeben, p. 268; Nacimiento/ Bähr, p. 4754.
404) Art. 160 InsO; Münchner Kommentar InsO-Görg, § 160 No. 21.
405) Münchner Kommentar InsO-Görg, § 160 Nos. 25 et seq. and 34.
406) See also ICC Award No. 6192, unpublished (1990), reported by Mantillo-Serrano, pp. 64
et seqq. where the influence of such approval under Belgian law was discussed and
the capacity upheld.
407) The diversity of terms that are being used internationally makes this aspect
sometimes highly confusing. See Berger / Kellerhals, Arbitration, para. 330.
408) BGE 128 III 50 at 2b.
409) Judgment of July 4, 2003, Schweizerisches Bundesgericht, 4P.137/2002 at 3.2; BGE 128
III 50 at 2b; Berger / Kellerhals, Arbitration, para. 330.
410) Lalive/ Poudret / Reymond, Art. 8 old KSG No. 2. See also BGE 128 III 50 at 2b.
411) See also Cohn, pp. 20 et seqq. with further references.
412) In contrast to the jurisdiction of national courts which is based on abstract norms and
legislation.
413) See also BGE 128 III 50 at 2b.
415) This was accurately explained by the Swiss Federal Supreme Court in BGE 128 III 50 at
2b stating that “[l]a cession d’une créance (ou d’une relation contractuelle) assortie
d’une clause compromissoire revêt donc une double nature: elle entraîne non
seulement le transfert matériel du droit cédé, question qui relève du fond, mais
également la transmission de la convention d’arbitrage, question qui ressortit à la
procédure. En d’autres termes, la même circonstance - à savoir la cession valable de
la créance litigieuse - sortit deux effets distincts, puisqu’elle détermine à la fois la
légitimation active ou passive du cessionnaire ainsi que sa capacité d’être partie à
une procédure arbitrale mise en oeuvre en exécution de la clause compromissoire.
C’est en cela que les notions de légitimation et de capacité d’être partie se
recouvrent en quelque sorte dans l’hypothèse de la cession de créance, si bien qu’il
devient plus délicat d’en délimiter les contours.”
416) Whether the claims or contractual relationships are indeed transferred to the trustee
at the time of the commencement of an insolvency proceeding or whether the trustee
simply acts as a representative of the insolvency estate will depend on the involved
insolvency laws.
417) Before national courts such issues are known as facts of double relevance
(Doppelrelevante Tatsache / Faits de double pertinence) which, in order to establish
jurisdiction, only have to be provisionally demonstrated. For Switzerland: BGE 122 III
249 at 3 with further references; Poudret/ Besson, para. 462.
418) For Switzerland: BGE 121 III 495 at 6; BGE 128 III 50 at 2b. For England:Aoot Kalmneft v.
Glencore International Ag & Anor, July 27, 2001, Court of Appeal - Commercial Court,
[2001] EWHC 464 (Comm).
52
419) But see Aebi/ Frey, p. 116 who seem to include legal standing to sue and to be sued in
the term capacity of a party. The authors refer to BGE 128 III 50 at 2b, which deals with
the consequences of an assignment of a contract and the arbitration agreement
included therein. The Swiss Federal Supreme Court concluded that the legal standing
to sue and to be sued influences the “capacité d’être partie.” The elaborations,
however, do not suggest that the Swiss Federal Supreme Court qualifies issues of
capacity and legal standing to sue and to be sued both as procedural issues or that
legal standing to sue and to be sued would somehow be part of legal capacity. This
becomes clear when looking at the law the court applied. It did not refer to the law of
the parties – which it does according to consistent case law for issues of capacity –
but to Art. 178(2) IPRG which applies to the validity and scope ratione personae of the
arbitration agreement – and, vice versa, does not apply to issues of capacity
according to the court’s consistent case law. See Günter, para. 432.
421) For Switzerland: Art. 13 et seqq. ZGB; Rüede/ Hadenfeld, p. 57 For the U.S.: U.S.
contract doctrine does not require capacity of a party to validly conclude a contract.
The contract will rather not be enforceable against the party lacking capacity. In turn,
that party is entitled to enforcement of such contract. See Restatement (Second) of
Contracts (1981) § 12; Sarfaty v. PFY Mgmt. Co., CV020394269S, 2008 WL 642641 (Conn.
Super. Ct. February 15, 2008). See generally Lew/ Mistelis / Kröll, para. 7.33.
422) The extent and nature of such deprivation varies under the different national
insolvency laws. See paras. 443 et seqq.
423) See paras. 445 et seqq. and 460 et seqq.
425) But see, regarding the benefits of the conclusion of arbitration agreements after the
commencement of an insolvency in cross-border insolvency cases, Gropper, Improve
and Expedite, pp. 45 et seqq.; Gropper, Cross-Border Insolvencies, pp. 201 et seqq.
March 31, 2009, 4A_428/2008 at B.
427) Such distinctions might become relevant regarding the possibilities and applicable
grounds in a challenge to set aside the arbitral award in a national court. See also
Stacher, Rechtsprechung, p. 131.
428) See also Schlosser, para. 337.
429) See, for the applicability of general contract principles to international arbitration
agreements in Switzerland: Judgment of November 7, 2011, Schweizerisches
Bundesgericht, 4A_246/2011 at 2.2. For the U.S.: Buckeye Check Cashing, Inc. v.
Cardegna, 546 U.S. 440, 440, 126 S. Ct. 1204, 163 L. Ed. 2d 1038 (2006) (“A written
provision in [...] a contract [...] to settle by arbitration a controversy thereafter arising
out of such contract [...] or an agreement in writing to submit to arbitration an existing
controversy arising out of such a contract [...] shall be valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity for the revocation of
any contract”).
430) For Switzerland: BK ZGB-Bucher, Art. 12 No. 16; Stacher, Rechtsprechung, p. 130. For
the U.S.: Baroudi v. Hales, 98 So. 2d 515 (Fla. Dist. Ct. App. 3d Dist. 1957). For Germany:
§ 130(2) BGB.
431) Independent as to whether the debtor remains at least formal party to the
arbitration agreement or whether the insolvency estate fully vests in the trustee, the
incapacity of the debtor does not invalidate the arbitration agreement.
432) For Switzerland: After the distribution of the insolvency proceeds, creditors are,
according to Art. 265 SchKG, provided with a certificate of shortfall with respect to the
uncovered portion of their claim. The underlying claim against the dissolved debtor
“survives.” In the case that new assets of the dissolved debtor should be discovered
at a later point in time, the creditor’s claim can still be satisfied. BSK SchKG-Huber,
Art. 265 No. 8 with reference to BSK SchKG-Huber, Art. 149 No. 44; Stacher,
Rechtsprechung, p. 131. But for England: Arbitration agreements might become a
nullity after the liquidation of a corporation since the corporate person no longer
exists. Burn / Grubb, p.12.
433) See paras. 448 et seqq. See also Schlosser, para. 337 referring for these questions to
the lex arbitri.
436) See paras. 460 et seqq. See also Lazić, Cross-Border Insolvency, p. 345.
439) The UN-ArbModLaw makes only in Art. 36(1)(a)(i) reference to “under the law
applicable to them.”
440) B. V. Bureau Wijsmuller v. United States, 487 F. Supp. 156, 1979 U.S. Dist. (S.D.N.Y. 1979);
Gaillard/ Savage, para. 1708; Born, Arbitration, p. 627.
441) Born, Arbitration, p. 552.
53
442) For Switzerland: Schweizerisches Bundesgericht, 4P.161/1992, ASA Bull. 1996, pp. 646
et seqq.; Vivendi S.A. et al. v. Deutsche Telekom AG et al., Schweizerisches
Bundesgericht, March 31, 2009, 4A_428/2008 at 3; Rüede/ Hadenfeld, p. 90. For
Germany: Judgment of April 23, 1998, Bundesgerichtshof, Y.B. Comm. Arb. 1999, pp. 928
et seqq. See generally Born, Arbitration, p. 555 with further references; Born, Cases
and Materials, p. 417; Cordero Moss, p. 626; Lew/ Mistelis / Kröll, para. 6.51; Poudret/
Besson, para. 271.
443) The wording of these provisions was often used to emphasize that the conflict-of-law
rules stemming from private international law also apply to international arbitration.
See Lew/ Mistelis / Kröll, para. 6.51; Born, Arbitration, p. 552. Contra such choice-of-
law method Gaillard/ Savage, para. 454.
444) Bucher / Tschanz, para. 86
445) Problems might arise in connection with the different seat theories (the real seat
theory vs. the incorporation theory). While in civil law jurisdictions the capacity of a
party will be governed by the law of the primary place of business, common law
jurisdictions rely on the law of the place of incorporation. Born, Arbitration, pp. 552 et
seq.; Lew/ Mistelis / Kröll, para. 6.51; Poudret/ Besson, para. 271; Cordero Moss, p. 629.
For Switzerland: Rüede/ Hadenfeld, p. 90; Vivendi S.A. et al. v. Deutsche Telekom AG
et al., Schweizerisches Bundesgericht, March 31, 2009, 4A_428/2008; For Germany:
Judgment of April 23, 1998, Bundesgerichtshof, Y.B. Comm. Arb. 1999, pp. 928 et seqq.
See also ICC Award No. 7373, ICC ICArb. Bull. 2004, pp. 74 et seqq.
446) Günter, paras. 371 et seqq. This could become problematic in cases where the primary
place of business (real seat) of a corporation is located in a different country than the
place of incorporation. Suppose that an insolvency proceeding is commenced at the
primary place of business (this is a very likely scenario, since a lot of cross-border
insolvency laws refer to the real seat as place where the main insolvency proceedings
are commenced), the impact of the lex fori concursus on the capacity of the party
would not be taken into account if the applicable conflict-of-law rules follow the
incorporation theory. On the other hand, if such rules follow the real seat theory, the
lex fori concursus would be taken into account. See also Vivendi S.A. et al. v. Deutsche
Telekom AG et al., Schweizerisches Bundesgericht, March 31, 2009, 4A_428/2008 at 3,
where the insolvency proceedings were commenced at the place of incorporation and,
at the same time, also the conflict-of-law rules referred to the place of incorporation.
Hence, in this particular case, no such difficulties arose.
447) Gaillard/ Savage, para. 454.
448) Gaillard/ Savage, para. 454.
449) See Art. 4 and Art. 15 EuInsReg for an incorporation of the closest connection principle
in the EuInsReg. See Art. 187(1) IPRG for the incorporation of the closest connection
principle in the Swiss lex arbitri. Favoring the closest connection rule in questions of
capacity: Günter, para. 424; Naegeli, Auswirkungen, para. 38; Lalive/ Poudret /
Reymond, Art. 178 IPRG No. 19; Lévy, Insolvency, p. 93; BSK IPRG-Wenger/Müller, Art.
178 No. 25. Contra: Berger / Kellerhals, Arbitration, para. 511a; ComR LDIP-Tschanz, Art.
178 No. 60; BGE 138 III 714 at 3.3.1 where the Swiss Federal Supreme Court denied the
application of the closest connection rule to questions of capacity. The court argued
that Art. 187(1) IPRG – as a norm incorporating the closest connection rule in the Swiss
lex arbitri – would only determine the law applicable to the merits. For the provision’s
inapplicability further speaks that – contrary to the rule in Art. 187(1) IPRG – the
determination of the law applicable to capacity does not leave room for its
determination by party autonomy.
450) See, e.g., Judgment of December 8, 1999, Schweizerisches Bundesgericht, 4P.154/1999
at 2b, ASA Bull. 2000, pp. 546 et seqq.
451) Günter, para. 395; Stacher, Rechtsprechung, p. 131; Aebi/ Frey, p. 118.
452) Günter, para. 396. See p. 161, fn. 445 for the different seat theories and for the
problems that their conflict might cause.
453) See also Günter, para. 372, who argues that such reliance on the lex fori concursus
would facilitate the enforcement of the award since assets were located at the real
seat instead of the place of incorporation.
454) Sprecher,Verordnung, para. 80; Günter, para. 397.
455) Günter, para. 397. Such an approach was also followed by the legislator in Art. 15
EuInsReg submitting question of capacity after the commencement of a lawsuit to the
law with the closest connection to the dispute – i.e. the law of the place where the
lawsuit is pending.
456) Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs,
Government of Pakistan, November 3, 2010, UK Supreme Court, [2010] UKSC 46, where
the issue of capacity or authority to enter an arbitration agreement was assessed
under the law governing the arbitration agreement and not under the personal law of
the party. See also Cordero Moss, p. 626; ICC Award No. 10663, unpublished (2000),
reported and commented by Grigera Naón, p. 98; Dicey / Morris / Collins, para. 16.027.
457) This might, for instance, be the case for Switzerland where this principle is
incorporated in Art. 178(2) IPRG. But commentators on Swiss international arbitration
law and Swiss courts reject the application of Art. 178(2) IPRG to questions of capacity
almost unanimously. See, e.g., Lalive/ Poudret / Reymond, Art. 178 IPRG No. 19; Bucher
/ Tschanz, para. 86; Walter / Bosch / Brönnimann, p. 83; Poudret/ Besson, para. 271.
54
458) Born, Arbitration, p. 557; BSK IPRG-Wenger/ Müller, Art. 178 No. 25 noting that for
issues of capacity the principle of in favorem validitatis is stipulated in Art. 35 IPRG;
ICC Award No. 7373, ICC ICArb. Bull. 2004, pp. 74 et seqq.
460) In the U.S., it is well established that arbitration agreements may not be rendered
inoperable by a state-law applicable to only arbitration agreements as opposed to
any other types of agreements. See, e.g., Carter v. SSC Odin Operating Co., LLC, 2012 IL
113204, 976 N.E.2d 344 (Ill. 2012) (FAA preempts state laws that single out arbitration
agreements for special treatment); Southland Corp. v. Keating (1984) 465 U.S. 1 [79 L.
Ed. 2d 1, 104 S.Ct. 852] (state-law grounds that merely exist for the revocation of
arbitration agreements in contracts (as opposed to grounds that exist at law or in
equity “for the revocation of any contract”) violate the U.S. Supremacy Clause).
461) Ledee v. Ceramiche Ragno, 684 F.2d 184, 186 (1st Cir. 1982); Rhone Mediterranee
Compagnia Francese Di Assicurazioni E Riassicurazoni v. Lauro, 712 F.2d 50 (3d Cir.
1983). See, for an illustrative overview, Lindo v. NCL (Bahamas), Ltd., 652 F.3d 1257,
(11th Cir. 2011); Born, Arbitration, pp. 558 et seq.
462) Scherk v. Alberto–Culver Co., 417 U.S. 506, 520 n. 15, 94 S.Ct. 2449, 2457 n. 15, 41 L.Ed.2d
270 (1974).
463) Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Lauro,
712 F.2d 50 (3d Cir. 1983); Riley v. Kingsley Underwriting Agencies, 969 F.2d 953, 960
(10th Cir.1992); Khan v. Parsons Global Services, Ltd., 480 F. Supp. 2d 327, 339 (D.D.C.
2007) rev’d, 521 F.3d 421 (D.C. Cir. 2008).
464) Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Lauro,
712 F.2d 50 (3d Cir. 1983).
465) Matter of Ferrara S. p. A., 441 F. Supp. 778 (S.D.N.Y. 1977) aff’d sub nom. Ferrara, S.P.A.
v. United Grain Growers, Ltd., 580 F.2d 1044 (2d Cir. 1978) and aff’d sub nom. Fratelli
Moretti Cereali, S.P.A. v. United Grain Growers, Ltd., 580 F.2d 1044 (2d Cir. 1978).
466) Chloe Z Fishing Co., Inc. v. Odyssey Re (London) Ltd., 109 F. Supp. 2d 1236, 1258-59 (S.D.
Cal. 2000). See also Oriental Commercial and Shipping Co., Ltd. v. Rosseel, N.V., 609
F.Supp. 75 (S.D.N.Y.1985).
467) Born, Arbitration, p. 559. Born mentions the example of a contracting state to the New
York Convention which enacted legislation providing that “no local corporation would
have the capacity to enter into an international arbitration agreement unless
unanimously approved at a shareholders meeting or validated by a local regulatory
official.” Born argues that such legislation should not be given effect in an
international arbitration.
468) See also, the explicit regulation for states or state-controlled parties to arbitration
agreements in Art. 177(2) IPRG, which may not invoke their own law to contest the
arbitrability of a dispute or its capacity to be subject to an arbitration. Born,
Arbitration, p. 558.
469) Such approach was taken in Vivendi S.A. et al. v. Deutsche Telekom AG et al.,
Schweizerisches Bundesgericht, March 31, 2009, 4A_428/2008 at 3. It was argued that
Art. 142 Polish Bankruptcy and Reorganization Code would deprive the debtor of its
capacity and that the role of the trustee was insignificant. See, in detail, para. 458.
471) For Switzerland: Art 177(2) IPRG. For England: Gatoil Int’l Inc. v. Nat’l Iranian Oil Co.
[1988], Q.B., Y.B. Comm. Arb., pp. 587 et seqq. For the U.S.: Buques Centroamericanos,
S.A. v. Refinadora Costarricense de Petroleos, S.A., 1989 U.S. Dist., 3 (S.D.N.Y. May 17,
1989). Contra: B. V. Bureau Wijsmuller v. United States, 487 F. Supp. 156, 1979 U.S. Dist.
(S.D.N.Y. 1979); For France: Ministry of Public Works v. Société Bec Frères, February 24,
1994, Paris Cour d’appel, Y.B. Comm. Arb. 1997, pp. 682 et seqq.; Gatoil v. Nat’l Iranian
Oil Co., December 17, 1991, Paris Cour d’appel, 1993 Rev. Arb. 1993, pp. 281 et seqq.
472) See, e.g., Benteler et autres v. Etat belge, November 18, 1983, Ad Hoc Arbitral Award
rendered in Switzerland, reported and commented by Hascher, Rev. Arb. 1989, pp. 339
et seqq. where “[l]es arbitres laissent entendre que la capacité pour l’Etat de
compromettre est un principe général du droit de l’arbitrage international, encore
qu’ils évoquent la possibilité d’y voir une règle matérielle de droit international
privé. Il serait de toute manière choquant que l’Etat puisse renier l’engagement qu’il
a pris de se soumettre à l’arbitrage en se prévalant de la prohibition contenue dans
son propre droit.“); Gatoil v. Nat’l Iranian Oil Co., December 17, 1991, Paris Cour
d’appel, 1993 Rev. Arb. 1993, pp. 281 et seqq. where the court referred to international
public policy preventing a party to rely on its national law to deny its capacity (“[L]a
convention d’arbitrage est conforme à l’ordre public international – qui, au contraire,
interdirait à une entreprise publique de se prévaloir des dispositions restrictives de
son droit national pour se soustraire a posteriori à l’arbitrage convenu entre les
parties; de même, sa cocontractante ne peut pas davantage fonder sa contestation
de la capacité et des pouvoirs de cette entreprise publique sur les dispositions du
droit national de celle-ci.”). See also Art. II(1) Europ-CArbCon.
473) Also the principle of pacta sunt servanda is – at least in civil law countries – typically
understood to include the principle of good faith when complying with contractual
obligations. See also X. v. Y., Z., October 13, 1992, Schweizerisches Bundesgericht, ASA
Bull. 1993, pp. 68 et seqq.; BSK IPRG-Briner, Art. 177 No. 22 with further references;
Walter / Bosch / Brönnimann, p. 63.
55
474) In favor of such application: Günter, para. 420. Contra: Vivendi S.A. et al. v. Deutsche
Telekom AG et al., Schweizerisches Bundesgericht, March 31, 2009, 4A_428/2008 at 3
where the court rejected the applicability of Art. 177(2) IPRG to private parties.
475) Art. 9 European Community’s First Council Directive on Co-ordination of Safeguards;
Blackaby / Partasides / Redfern / Hunter, para. 2.32.
477) See paras. 37 et seq., para. 45 and para. 59. See, e.g., Cosco Bulk Carrier Co Ltd v.
Armada Shipping SA AS, February 11, 2011, High Court, Chancery Division, reported and
commented by Fletcher, ITA Board of Reporters, www.kluwerarbitration.com.
478) See the elaborations under paras. 388 et seq. in connection with the validity and
scope of the arbitration agreement which apply mutatis mutandis to the issue of
capacity of the parties.
479) See Naegeli, Auswirkungen, paras. 34 et seqq.
480) See regarding this approach para. 274.
481) The EuInsReg applies to all EU countries with exception of Denmark.
482) See para. 393.
484) See para. 403.
485) In the event capacity is qualified as an aspect of the “contract” according to Art. 4(2)
(e) EuInsReg.
486) In the event the capacity is qualified as being part of a “proceeding brought by
individual creditor” according Art. 4(2)(f) EuInsReg.
487) In the event capacity is qualified as an aspect of the “respective powers of the debtor
and the liquidator” according to Art. 4(2)(c) EuInsReg.
488) See, for details, paras. 395 et seqq. which also apply in connection with questions of
capacity of the parties.
490) See para. 389 for the conclusion that the lex fori processus as referred to in Art. 15
EuInsReg corresponds to the law applying at the seat of the arbitration.
491) See para. 404.
492) In Primerica Life Ins. Co. v. Brown, 304 F.3d 469, 472 (5th Cir. 2002) the 5th Circuit
referred to Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, (1967) and
stated that the “capacity defense is a defense to [the] entire agreement […] and not a
specific challenge to the arbitration clause. Therefore, [the] capacity defense is part
of the underlying dispute between the parties which, in light of Prima Paint and its
progeny, must be submitted to the arbitrator.” In Spahr v. Secco, 330 F.3d 1266, (10th
Cir. 2003) the 10th Circuit found that the capacity challenge placed the “making” of
the agreement to arbitrate at issue. That is why it was up to the court and not the
arbitrator to decide such challenge.
493) Namely, can the U.S. bankruptcy court decide more aspects about the enforcement of
an arbitration agreement as opposed to the aspects courts are usually entitled to
decide in cases outside of an insolvency. Outside of an insolvency, many questions
concerning the enforcement of an arbitration agreement are for the arbitral tribunal
to decide.
495) See paras. 404 et seqq. Where an insolvency is not recognized in the U.S., the effects
of an insolvency on capacity will not be taken into account.
496) A court that has denied recognition may issue any appropriate order necessary to
prevent the foreign representative from obtaining comity or cooperation from courts
in the United States. See U.S. Bankruptcy Code § 1509(d).
498) See, e.g., In re Board of Directors of Multicanal S.A., 314 B.R. 486 (Bankr. S.D.N.Y. 2004),
where the court recognized the board of directors of an Argentinian corporation in
restructuring proceedings as a “foreign representative” despite an objection to the
board’s alleged lack of independence. The court reasoned that the board of directors
had an obligation under Argentinian law to carry out the restructuring.
499) See, e.g., In re Board of Directors of Multicanal S.A., 314 B.R. 486 (Bankr. S.D.N.Y. 2004),
where the court engaged in a comparison of the Chapter 11 debtor-in-possession and
the Argentinian board of directors when determining whether the latter would qualify
as a “foreign representative.”
500) But see the interpretation of Art. 142 Polish Bankruptcy and Reorganization Code,
which deprives the debtor of its capacity to be a party to arbitration. On the other
hand, the trustee’s role seems to be insignificant. See Vivendi S.A. et al. v. Deutsche
Telekom AG et al., Schweizerisches Bundesgericht, March 31, 2009, 4A_428/2008 at 3.2.
503) See para. 406. Cosco Bulk Carrier Co Ltd v. Armada Shipping SA & Anor, High Court,
Chancery Division, February 11, 2011, [2011] EWHC 216 (Ch).
Division, February 11, 2011, [2011] EWHC 216 (Ch). However, such a conclusion has to be
read with precaution since the fact that English law was applicable to the merits also
seemed to influence the determination of the applicable law by the court. It remains
open whether a court would have decided the same way had the arbitration
agreement provided for a different law applicable to the merits.
56
505) Art. 177(2) IPRG stating that a party may not invoke its own law to contest its capacity
to be subject to an arbitration. See, for details, paras. 505 et seqq.
506) Berger / Kellerhals, Arbitration, para. 301 with further references.
507) BBl 1983 I 263, p. 459; Rüede/ Hadenfeld, p. 90; Walter / Bosch / Brönnimann, p. 83;
Poudret/ Besson, para. 271; ZK IPRG-Volken, Art. 178 No. 3; Bucher / Tschanz, para. 86.
Contra Baizeau, Compétence, p. 10; Blessing, Introduction, para. 470; Lalive/ Poudret
/ Reymond, Introduction IPRG No. 26; Günter, paras. 370 et seqq.
508) Bucher / Tschanz, para. 86.
509) Naegeli, Auswirkungen, para. 38; Lalive/ Poudret / Reymond, Art. 178 IPRG No. 19;
Lévy, Insolvency, p. 93; Baizeau, Compétence, p. 10.
510) Schnyder, Vertragsstatut, p. 687; BSK IPRG-Wenger/ Müller, Art. 178 No. 25; BSK IPRG-
Karrer, Art. 187 No. 19.
511) Günter, para. 396.
512) BSK IPRG-Wenger/ Müller, Art. 178 No. 25 referring for such conclusion to the idea set
forth in Art. 35(2) IPRG stating that a change of domicile does not affect the capacity
to act once that capacity has been established.
513) Günter, paras. 413 and 431 with reference to the interpretation of Art. V(1)(a) NYC;
Karrer, p. 111 referring to the principle of perpetuatio fori.
514) Kuhn / Jakob, para. 45.
March 31, 2009, 4A_428/2008 at 3; Judgment of December 22, 1992, Schweizerisches
Bundesgericht, 4P.161/1992, ASA Bull. 1996, pp. 646 et seqq.
516) See also paras. 493 et seq.
517) BGE 138 III 714 at 3.3; Vivendi S.A. et al. v. Deutsche Telekom AG et al., Schweizerisches
Bundesgericht, March 31, 2009, 4A_428/2008 at 3.2.
518) BGE 138 III 714 at 3.3.
519) BGE 138 III 714 at 3.3.
520) BGE 138 III 714 at 3.3.1; Vivendi S.A. et al. v. Deutsche Telekom AG et al.,
Schweizerisches Bundesgericht, March 31, 2009, 4A_428/2008 at 3.2.
521) BGE 128 III 50 at 2. But see ICC Award No. 9691, unpublished (2000), reported and
commented by Grigera Naón, pp. 100 et seq. where the arbitral tribunal seated in
Geneva concluded that the standing to sue and to be sued had to be determined by
the “closest connection rule” according to Art. 187(1) IPRG.
522) Award in Case No. 415, November 20, 2001, Zürcher Handelskammer, ASA Bull. 2002,
pp. 467 et seqq.
Grigera Naón, p. 109: “a (sometimes rather fine) line must be drawn between the field
of ‘quality to act’ (qualité pour agir), which is connected with admissibility, and the
‘legitimacy to act’ (Aktivlegitimation) which relates to the merits. The absence of the
first element leads the judge to declare the claim inadmissible, while the absence of
the second element will lead to a decision recognizing the claim as admissible but
unfounded [...] the question of ‘quality to act’ is a notion of procedural law.”
Grigera Naón, p. 109.
525) The tribunal concluded that even if the issue “under examination must be
characterized as procedural, it would appear advisable to take into consideration, if
not to ‘apply’ in the strict sense of the term, Austrian law [the lex incorporationis of the
Claimant] not only or mainly because both Parties have referred to it at great length,
but also because, the extent that the objection of inadmissibility is based on the
relationship between Claimant and [Claimant’s country] export insurance system, the
provisions of the [Claimant’s country] law are undoubtedly relevant.” (ICC Award No.
6476, unpublished (1992), reported and commented by Grigera Naón, p. 109).
526) See, in detail, para. 495.
527) See paras. 385 et seqq. for a definition of this approach.
March 31, 2009, 4A_428/2008 at 3.2.
529) “Die Beurteilung der Rechts- und damit der Parteifähigkeit in einem internationalen
Schiedsverfahren richtet sich gemäss Art. 154 i.V.m. Art. 155 lit. c IPRG folglich nach
dem polnischen Recht” [italic added]. (Vivendi S.A. et al. v. Deutsche Telekom AG et al.,
Schweizerisches Bundesgericht, March 31, 2009, 4A_428/2008 at 3.2.)
530) The court referred to Art. 142 Polish Bankruptcy and Reorganization Code which
deprives the debtor of its capacity to be a party to arbitration. See Vivendi S.A. et al.
v. Deutsche Telekom AG et al., Schweizerisches Bundesgericht, March 31, 2009,
4A_428/2008 at 3.2.
531) BGE 138 III 714 at 3.3.4.
March 31, 2009, 4A_428/2008 at 3.2.
533) BGE 138 III 714 at 3.3.4. See paras. 282 et seqq. generally for a characterization
according to concepts underlying the lex arbitri.
534) BGE 138 III 714 at 3.3.4. See also BK ZGB-Bucher, Art. 11 No. 8.
535) BGE 138 III 714 at 3.3.4 (“Findet auf die Frage der Rechtsfähigkeit ausländisches Recht
Anwendung, ist somit zu untersuchen, ob dem nach ausländischem Recht organisierten
Gebilde Rechte und Pflichten zugeordnet werden können. Ein ausländisches Gebilde,
das nach seinem Recht als juristische Person verfasst und damit Träger von Rechten
und Pflichten ist, geniesst in der Schweiz Rechtsfähigkeit [...]” [italic added]).
57
536) This was, however, the approach taken by the Swiss Federal Supreme Court in Vivendi
2009, 4A_428/2008 at 3.2 (“Die Beurteilung der Rechts- und damit der Parteifähigkeit in
einem internationalen Schiedsverfahren richtet sich gemäss Art. 154 i.V.m. Art. 155 lit.
c IPRG folglich nach dem polnischen Recht” [italic added]).
537) BGE 138 III 714 at 3.3.4 where the court exclusively applied Swiss law principles in
order to determine whether all the remaining elements of capacity, namely the
capacity to be a party (Parteifähigkeit), the capacity to act (Handlungsfähigkeit) and
the capacity to act as a party (Prozessfähigkeit) were complied with. (“Ein
ausländisches Gebilde, das nach seinem Recht als juristische Person verfasst und
damit Träger von Rechten und Pflichten ist, geniesst in der Schweiz Rechtsfähigkeit
und folglich auch Parteifähigkeit (vgl. auch BGE 135 III 614 [at 4.2], wonach von der
Rechtspersönlichkeit des ausländischen Gebildes – über die blosse Rechtsfähigkeit
hinaus – grundsätzlich sogar auf die Handlungs- und damit Prozessfähigkeit
geschlossen werden kann)“ [italic added]).
538) The court referred to the specific nature of Art. 142 Polish Bankruptcy and
Reorganization Code which would have led to a peculiar situation and solution. See
BGE 138 III 714 at 3.3.4.
539) It was never alleged, nor were there indications that the debtor under the Polish lex
incorporationis was no longer a legal entity holding rights and duties as required by
the definition of capacity to enjoy rights (Rechtsfähigkeit) in Switzerland. See Vivendi
2009, 4A_428/2008 at 3.2.
541) None of the past decisions of the Swiss Federal Supreme Court made reference to the
position of the trustee in connection with the capacity of the insolvent. See BGE 138
III 714 at 3.3.4; Vivendi S.A. et al. v. Deutsche Telekom AG et al., Schweizerisches
Bundesgericht, March 31, 2009, 4A_428/2008 at 3.2.
542) This was explicitly mentioned in the caption of BGE 138 III 714.
543) Judgment of November 7, 2011, OGer Zurich, F110042-O/U; Staehelin/ Staehelin /
Grolimund, § 13 No. 27. See also Meier, Zivilprozessrecht, pp. 159 et seqq.
544) See, for details, paras. 445 et seqq.
545) See, for details, paras. 445 et seqq.
546) See, in detail, paras. 460 et seqq. for the need to adapt the capacity concepts to the
nature of insolvency law.
547) See also ZK IPRG-Vischer, Art. 35 No. 11 who points out that the capacity conflict-of-
law norm requires an autonomous interpretation of the norm in connection with fields
of law other than private law. This should also apply to capacity issues in cross-
border insolvency law.
549) See paras. 443 et seqq. for the different notions of capacity.
550) The Swiss Federal Supreme Court does only allow a reference to principles and rules
outside the Swiss lex arbitri where Chapter 12 IPRG does not contain a comprehensive
rule. See BGE 138 III 714 at 3.3.4.
551) BGE 137 III 570 at 2 where the Swiss Federal Supreme Court determined the
deprivation of a debtor’s capacity to act through the application of the general
conflict-of-law provisions of Art. 35, 154, 155 IPRG and at the same time referred to Art.
166 et seqq. IPRG to determine the trustee’s right to conduct the proceedings for the
debtor.
552) See BGE 137 III 570 at 2 where the trustee was able to make up for the debtor’s lack of
capacity to act (Handlungsfähigkeit).
553) Art. 166(1) IPRG and by reference Art. 175 IPRG define the requirements that have to be
fulfilled in order to provide a trustee or a debtor-in-possession with capacity in a
proceeding regarding the insolvency estate. ZK IPRG-Volken, Art. 166 No. 64 et seq.;
BGE 137 III 631 at 2.3.2: “Der Begriff der ausländischen Konkursverwaltung wird von der
Funktion der Konkursverwaltung nach schweizerischem Recht vorbestimmt. Es
handelt sich um diejenige Instanz, welche das Vermögen des Konkursiten verwaltet,
verwertet und verteilt, wobei sich die Ausgestaltung im Einzelfall nach dem Recht des
Konkursstaates richtet. Unter den Begriff fallen somit Institutionen oder Personen, die
nach dem ausländischen Recht des Hauptkonkurses zur Anhebung, Leitung und
Durchführung des Verfahrens zuständig sind.” See also BGE 135 III 666 at 3.2.2;
Staehelin, Anerkennung, p. 28. The application of this substantive rule does not
require a formal recognition of the foreign insolvency in Switzerland, since Art. 166(1)
IPRG applies before such formal recognition of the insolvency. Art. 175 IPRG refers to
Art. 166 IPRG and includes an analogous application of the capacity of the trustee to
the debtor-in-possession for cases of reorganizations. See Breitenstein, para. 252;
Staehelin, Anerkennung, p. 180; ZK IPRG-Volken, Art. 175 No. 21.
554) Capacity is a general requirement for any party subject to any legal proceeding in
Switzerland. By giving the debtor-in-possession or the trustee the explicit right to
conduct proceedings before Swiss courts, Swiss cross-border insolvency law also
confers capacity upon them where the lex fori concursus would deprive them of such
capacity. See also BGE 137 III 570 at 2.
58
555) The limitations conferred upon the rights of a foreign trustee in proceedings before
Swiss national courts in which the foreign insolvency was not formally recognized in
Switzerland do not apply in international arbitration. See, in detail, paras. 81 et seq.
and paras. 227 et seqq.
556) See p. 161, fn. 446 for the problems caused by the collision of the real seat theory with
the incorporation theory. See also Günter, paras. 371 et seqq.
558) Such an approach also lives up to the international differences that not all national
insolvency laws do in fact deprive the debtor of its capacity and sometimes the
trustee simply represents the insolvency estate.
559) In favor of the application of the in favorem validitatis principle in questions of
capacity in international arbitration: BSK IPRG-Wenger/ Müller, Art. 178 No. 25. See, in
general for the in favorem validitatis principle stipulated in Art. 35 IPRG, ZK IPRG-
Vischer, Art. 35 Nos. 16 et seq.
560) See also para. 90, para. 245 and paras. 522 et seq.
561) See, e.g., the effects of Art. 142 of the Polish Bankruptcy and Reorganization Code on
the Swiss arbitration was characterized by the majority of the court as an issue of
capacity of the insolvent party. Vivendi S.A. et al. v. Deutsche Telekom AG et al.,
Schweizerisches Bundesgericht, March 31, 2009, 4A_428/2008 at 3.
562) See para. 274, generally, for applying the approach to consider the lex fori concursus
as a mandatory rule.
563) See, in detail, paras. 427 et seqq. regarding the application of mandatory rules to
international arbitration.
564) See paras. 434 et seqq. See also Schnyder, Rechtskollision, p. 374.
565) See para. 432.
570) Commission of the European Communities v. AMI Semiconductor Belgium BVBA and
Others, March 17, 2005, European Court of Justice, March 17, 2005, Case C-294/02.
572) Preferential payments to preferred or secured creditors take place in different
classes. Lazić, Cross-Border Insolvency, p. 349.
573) This is, for instance, the case under Swiss insolvency law. See para. 570.
574) Such stay does apply to both liquidation proceedings under Chapter 7 and
reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code.
575) The recognition of the foreign insolvency under Chapter 15 grants all of the relief set
forth in U.S. Bankruptcy Code § 1520, including the automatic stay under U.S.
Bankruptcy Code § 362(a); In re JSC BTA Bank, 434 B.R. 334, 339 (Bankr. S.D.N.Y. 2010).
576) Vesta Fire Ins. Corp. v. New Cap Reinsurance Corp., Ltd., 244 B.R. 209, 221 (S.D.N.Y.
2000) aff’d sub nom. In re McKenna, 238 F.3d 186 (2d Cir. 2001). The court stayed the
arbitration seated in the U.S. after recognizing the foreign insolvency and
commencing an ancillary proceeding according to old U.S. Bankruptcy Code § 307
(replaced in 2005 by the implementation of the UN-InsModLaw rules).
577) In re JSC BTA Bank, 434 B.R. 334, 339 (Bankr. S.D.N.Y. 2010); In re U.S. Lines, Inc., 197
F.3d 631 (2d Cir. 1999); In re Braniff Airways, Inc., 33 B.R. 33, Bankr. L. Rep. (CCH) P 69377
(Bankr. N.D. Tex. 1983); H.R. Rep. No. 595, 95th Cong., 1st Sess. 174 (1977).
578) U.S. Bankruptcy Code § 362(d). See also FAA § 4: “A party aggrieved by the alleged
failure, neglect, or refusal of another to arbitrate […] may petition any United States
district court […] for an order directing that such arbitration proceed in the manner
provided for […].” The U.S. bankruptcy courts are units of the U.S. district courts and
have subject-matter jurisdiction over insolvency cases. See 28 USC § 151.
579) Ostano Commerzanstalt v. Telewide Systems, Inc., 790 F.2d 206, Bankr. L. Rep. (CCH) P
71103 (2d Cir. 1986); Constitution Bank v. Tubbs, 68 F.3d 685, Bankr. L. Rep. (CCH) P
76677 (3d Cir. 1995); Matter of Arbitration Between Trans Chem. Ltd. & China Nat. Mach.
Imp. & Exp. Corp., 978 F. Supp. 266, 310 (S.D. Tex. 1997) aff’d sub nom. Trans Chem. Ltd.
v. China Nat. Mach. Imp. & Exp. Corp., 161 F.3d 314 (5th Cir. 1998) where the court found
that the fact that the arbitration was not stayed with the U.S. bankruptcy court’s
allowance did not violate public policy.
580) Acands, Inc. v. Travelers Cas. and Sur. Co., 435 F.3d 252, 45 Bankr. Ct. Dec. (CRR) 243,
Bankr. L. Rep. (CCH) P 80447 (3d Cir. 2006), cert. denied, 126 S. Ct. 2291, 164 L. Ed. 2d
833 (U.S. 2006). See also In re Kaiser Aluminum Corp., 303 B.R. 299 (D. Del. 2003);
Oehmke, § 23:9.
581) This perspective only concerns the extraterritorial effects U.S. courts confer upon U.S.
Bankruptcy Code § 362. Non-U.S. arbitral tribunals and non-U.S. national courts are,
as a matter of fact, free whether they recognize such effects within their own
jurisdiction.
582) Fotochrome, Inc. v. Copal Co., 517 F.2d 512 (2d Cir. 1975), where the court found that it
had no in personam jurisdiction over the defendant, a Japanese company, since the
latter did not have sufficient minimum contacts with the United States.
583) Fotochrome, Inc. v. Copal Co., 517 F.2d 512 (2d Cir. 1975).
59
584) Springer-Penguin, 74 Bankr. at 881. In re Springer-Penguin, Inc., 74 B.R. 879, 885 (Bankr.
S.D.N.Y. 1987). It has to be noted that Springer-Penguin sought to obtain a stay
pursuant to U.S. Bankruptcy Code § 105(a), which grants the U.S. bankruptcy court
broad equitable powers to protect its jurisdiction. The reason for taking such
approach lied in the fact that Springer-Penguin, due to expiration, lost the benefit of
the automatic stay pursuant to U.S. Bankruptcy Code § 362(e) by the time of its
request.
585) In re JSC BTA Bank, 434 B.R. 334, 343 (Bankr. S.D.N.Y. 2010).
586) In re JSC BTA Bank, 434 B.R. 334, 343 (Bankr. S.D.N.Y. 2010).
587) In re Gucci, 309 B.R. 679, 682 (S.D.N.Y. 2004).
590) See Westbrook, International Arbitration, p. 646.
591) Fotochrome, Inc. v. Copal Co., Ltd., 517 F.2d 512 (2d Cir. 1975).
592) “In the case of this Chapter XI proceeding, the result is a fortiori, for the debtor in
possession had actually participated in the Japanese arbitration, which began before
the petition was filed.” (Fotochrome, Inc. v. Copal Co., Ltd., 517 F.2d 512, 517 (2d Cir.
1975)).
593) Fotochrome, Inc. v. Copal Co., Ltd., 517 F.2d 512, 517 (2d Cir. 1975).
594) Judgment of October 17, 2007, OLG Köln, 16 W 24/0.
595) Judgment of October 17, 2007, OLG Köln, 16 W 24/0.
596) § 352(1) InsO.
597) Judgment of January 27, 2009, OLG Dresden, 11 SchH 02/04; Judgment of November 21,
1966, Bundesgerichtshof, VII ZR 174/65; Nacimiento/ Bähr, p. 4755; Wagner,
Herausforderung, p. 130; Kröll, Insolvency, p. 369. But see Lenzen, p. 430 who argues
for an analogous application of these provisions to arbitral tribunals.
598) Nacimiento/ Bähr, p. 4755; Wagner, Abstimmungsfragen, p. 132.
599) Judgment of January 29, 2009, Bundesgerichtshof, BGH III ZB 88/07.
600) Wagner, Abstimmungsfragen, p. 132; Lenzen, p. 430 with further references;
Nacimiento/ Bähr, p. 4755.
601) Nacimiento/ Bähr, p. 4755; Münchner Kommentar InsO-Schumacher, vor §§ 85 bis 87
No. 53. See also Lenzen, pp. 429 et seq. who emphasizes that § 240 D-ZPO was initially
created to secure the parties’ right to be heard.
602) Münchner Kommentar InsO-Schumacher, vor §§ 85 bis 87 No. 53.
605) The treatment of insolvencies of natural persons – in England called bankruptcy – is
outside the scope of this book.
606) Compulsory liquidation generally occurs on the petition of a creditor seeking the
complete shut down of the business.
607) Sec. 130(2), Sec. 285(3)(b) Insolvency Act; Burn / Grubb, p. 129.
608) Burn / Grubb, p. 129.
609) Sec. 126(1), Sec. 285(1) Insolvency Act; Burn / Grubb, p. 129.
610) Administration strives towards a survival and reconstruction of the company as a
going concern.
611) Sch.B1, paras. 42 et seq. Insolvency Act; Burn / Grubb, p. 129.
612) Sch.B1, paras. 42 et seq. Insolvency Act; Burn / Grubb, p. 129.
613) Sec. 112 Insolvency Act.
614) Administrative receivership is a security enforcement procedure for creditors holding a
“floating charge.“ It is, however, being phased out.
615) Burn / Grubb, p. 129.
616) The UN-InsModLaw was adopted by the Cross-Border Insolvency Regulations 2006 (‘SI
2006/1030’), which came into force on April 4, 2006.
617) Bankque Indosuez SA v. Ferromet Resources Inc., [1993] B.C.L.C 112. But see Felixstowe
Dock and Railway Co v. US Lines Inc, Queen’s Bench Division [1989] QB 360 where the
court refused to recognize the automatic stay.
618) Burn / Grubb, p. 129. See also Hargrove / Liborio, p. 55.
619) It has to be noted that the insolvent party was not party to the arbitral proceeding
itself, but it claimed that the arbitration would concern assets that would belong to
its estate. Cosco Bulk Carrier Co Ltd v. Armada Shipping SA & Anor, High Court,
Chancery Division, February 11, 2011, [2011] EWHC 216 (Ch).
620) It has to be noted that the entity subject to insolvency was not party to the arbitral
proceeding itself, but it claimed that the arbitration would concern assets that
belonged to its insolvency estate. Cosco Bulk Carrier Co Ltd v. Armada Shipping SA &
Anor, High Court, Chancery Division, February 11, 2011, [2011] EWHC 216 (Ch).
622) Art. L. 622-21 Code de commerce. See also Art. 369 Code de procédure civile.
623) Omar, pp. 113 et seq.
624) Liquidateurs of Sté Jean Lion v. Sté International Company for Commercial Exchange
Income, Cour de cassation, Civ. 1ère, May 6, 2009, n°08-10.281, JCP Ed. Gen. 2009, n°20,
May 13, 2009, act. 135; Société Thinet v. Labrely ès-qualites, March 8, 1988, Cour de
cassation, Rev. Arb. 1989, pp. 473 et seq.
60
625) Société Almira Films v. Pierrel ès-qual., February 16, 1989, Cour d’appel de Paris, Rev.
Arb. 1989, pp. 711 et seqq.; Fouchard, p. 480; Ancel, Procédures collectives, pp. 130 et
seq.
626) While the stay of civil proceedings is automatic, the stay of administrative
proceedings is up to the court’s discretion. See Art. 207 SchKG; Judgment of October
21, 2011, Schweizerisches Bundesgericht, 2C_303/2010 at 2.4.
627) BGE 100 Ia 301 at 2; ComR SchKG-Romy, Art. 207 No. 12; Lorandi, Bemerkungen, p. 484
with further references.
628) Fritsche/ Walder, § 49 para. 15; ComR SchKG-Romy, Art. 207 No. 1.
629) These are namely debt restructuring moratoriums (Nachlassstundung / sursis
concordataire, Art. 293 et seqq. SchKG), ordinary debt restructuring agreements
(Ordentlicher Nachlassvertrag / concordat ordinaire, Art. 314 et seqq. SchKG) and debt
restructuring agreements with assignment of assets (Nachlassvertrag mit
Vermögensabtretung / concordat par abandon d’actif, Art. 319 et seqq. SchKG).
630) For debt restructuring moratoriums (Nachlassstundung / sursis concordataire, Art. 293
et seqq. SchKG): The majority opinion in Swiss insolvency law doctrine opposes the
application of Art. 207 SchKG to debt restructuring moratoriums. See, e.g., Lorandi,
Grenzüberschreitende Aspekte, p. 35. See also references cited by Stöckli,
Nachlassverfahren, p. 515. In favor of the analogous application of Art. 207 SchKG to
debt restructuring moratoriums: Stöckli, Nachlassverfahren, p. 516. For debt
restructuring agreements (Ordentlicher Nachlassvertrag / concordat ordinaire, Art. 314
et seqq. SchKG) and debt restructuring agreements with assignment of assets
(Nachlassvertrag mit Vermögensabtretung / concordat par abandon d’actif, Art. 319 et
seqq. SchKG): see, in detail, Stöckli, Nachlassverfahren, p. 516 with further references;
Lorandi, Grenzüberschreitende Aspekte, p. 35 with further references; BSK SchKG-
Bauer/ Hari / Jeanneret / Wüthrich, Art. 319 No. 37. BSK SchKG-Wohlfart/ Meyer, Art.
207 No. 5.
631) According to the amendment of the SchKG, in force since January 1, 2014, the
automatic stay applies upon the approval of the debt restructuring moratorium, also,
to all insolvency restructuring proceedings. See Art. 297(5) SchKG, BBl 2010, p. 6514.
632) Judgment of October 21, 2011, Schweizerisches Bundesgericht, 2C_303/2010 at 2.4.
633) BGE 133 III 386 at 4.2; BGE 130 III 769 at 3.2. In BGE 93 III 84 at 3 the extraterritorial
application of Art. 207 SchKG was explicitly left open. But see BGE 112 III 36 at 3 where
the Swiss Federal Supreme Court applied Art. 63 KOV (containing the implementing
regulations to Art. 207 SchKG) to a pending proceeding before a national court in
Germany. See, in favor of an extraterritorial application, Fritsche/ Walder, § 49 para.
15; ComR SchKG-Marchant, Art. 311 No. 3.
634) See p. 187, fn. 633.
635) Judgment of October 21, 2011, Schweizerisches Bundesgericht, 2C_303/2010 at 2.4 (The
court left explicitly open whether Art. 207 SchKG should at least apply analogously
during the interim period between the time of the commencement of the foreign
insolvency and the time the foreign trustee reasonably can file for recognition of the
foreign insolvency). See also the obiter dictum in BGE 130 III 769 at 3.2; Judgment of
March 29, 2000, Trib. cant. Vaud, SJZ 2001, pp. 329 et seqq.; BSK SchKG-Wohlfart, Art.
207 No. 13.
636) Judgment of October 21, 2011, Schweizerisches Bundesgericht, 2C_303/2010 at 2.4.
637) Judgment of January 29, 2009, Schweizerisches Bundesgericht, 5A_169/2008 (partially
published in BGE 135 III 321 at 2.3). The arbitral proceeding took place before the cour
arbitrale du tribunal cantonal du canton du Valais, which according to old Art. 313
Zivilprozessordnung Kanton Wallis was governed by the old KSG.
638) Berger / Kellerhals, Arbitration, para. 1076; Rüede/ Hadenfeld, p. 244.
639) BGE 130 III 769 at 3; BGE 135 III 127 at 3.
640) See, regarding the nature of Swiss domestic arbitral tribunals, BSK ZPO-Girsberger/
Habegger / Mráz / Weber-Stecher, Art. Vor Art. 353-399 No. 9 with further references.
641) ICC Award with unknown number, unpublished, reported by Mantillo-Serrano, pp. 56
et seq., where an international tribunal seated in Geneva applying Swiss law stayed
the arbitral proceeding between the insolvent Swiss party and the Italian claimant
according to Art. 207 SchKG. However, it has to be emphasized that both parties
requested such stay. In Procedural Order No. 14 of November 27, 2002, ASA Bull., 2005,
pp. 108 et seqq. an international arbitral tribunal seated in Zurich rejected the
applicability of Art. 207 SchKG to international arbitral tribunals.
642) Lorandi, Bemerkungen, p. 485; Bernet, p. 19; Brown-Berset/ Lévy, p. 676; Poudret/
Besson, para. 548; Kaufmann-Kohler/ Lévy, p. 270. But, in favor of an application of
Art. 207 SchKG to international arbitration, Rüede/ Hadenfeld, p. 244.
643) Günter, para. 528; Kaufmann-Kohler/ Lévy, pp. 269 et seq.; Lévy, Insolvency, pp. 102 et
seq; Bernet, p. 19.
644) Art. 204 and 298 SchKG; BGE 133 III 377 at 5.1; BGE 132 III 89 at 1 and 2.
645) Art. 238 SchKG. See, e.g., BGE 133 III 377 at 5.1; BGE 132 III 89 at 1 and 2.
61
646) Art. 207 SchKG was based on old Art. 213 SchKG before it got partially amended. Old
Art. 213 SchKG pointed out that the purpose of the automatic stay was to provide
creditors with sufficient time to decide whether to continue with the proceeding (old
Art. 213 SchKG: “Mit Ausnahme dringlicher Fälle sind anhängige Civilprozesse [sic], bei
denen der Gemeinschuldner, sei es als Kläger, sei es als Verklagter, betheiligt [sic] ist,
bis zu dem Zeitpunkte einzustellen, wo die Massegläubiger über die Frage der
Fortsetzung von Prozessen Beschluß fassen kö nnen”). This is also the purpose of the
current Art. 207 SchKG (BBl 1991 III 122: “Damit haben die Gläubiger [...] genügend Zeit,
um über die Fortführung des betreffenden Prozesses zu entscheiden.“).
647) BGE 133 III 377 at 5.1; BGE 132 III 89 at 1 and 2; BGE 130 III 769 at 3.2; BSK SchKG-
Wohlfart/ Meyer, Art. 207 No. 15; ComR SchKG-Romy, Art. 207 No. 1.
648) BGE 136 III 345 at 2.1; BGE 132 III 389 at 2.2.1; BGE 125 III 8 at 3b. See also BSK IPRG-
Berti/ Schnyder, Art. 190 Nos. 77 et seqq. with further references; ZK IPRG-Vischer, Art.
182 No. 23.
649) See for provisions incorporating a more absolute understanding of an automatic stay,
for example, Art. L. 622-21 Code de commerce in France (see para. 565) or the U.S.
Bankruptcy Code § 362 (see paras. 556 et seqq.).
650) See para. 566. See also Bernet, p. 19; Kaufmann-Kohler/ Lévy, p. 270.
651) See para. 567. See also BGE 130 III 769 at 3.2; Bernet, p. 19; Kaufmann-Kohler/ Lévy, p.
270.
652) See paras. 556 et seqq. for a comparative study. An additional argument against the
qualification of automatic stay provisions as a principle of public policy is provided
in Art. 15 EuInsReg. This provision refers for the law applicable to a pending
proceeding to the law of the Member State where the lawsuit is pending. By doing so,
Art. 15 EuInsReg excludes, at the same time, the application of the automatic stay
provision of the lex fori concursus. See Kaufmann-Kohler/ Lévy, p. 270.
653) Such a conclusion can also be drawn from BGE 132 III 89 at 2. In this case, the Swiss
Federal Supreme Court was confronted with a judgment that was issued by a Swiss
court after the commencement of insolvency proceedings against one of the parties.
The court had no knowledge of the party’s insolvency and did, consequentially, not
apply the automatic stay according to Art. 207 SchKG. Eventually, the court issued a
judgment. The Swiss Federal Supreme Court was then asked to annul this judgment.
However, the Swiss Federal Supreme Court did not find the judgment of the lower
court null and void. See also Günter, para. 528; Kaufmann-Kohler/ Lévy, p. 270; Bernet,
p. 19; Perret, Faillite, p. 46.
654) See para. 567.
655) The Swiss perspective only concerns the extraterritorial effects Swiss courts give Art.
207 SchKG. Non-Swiss arbitral tribunals and non-Swiss national courts are not barred
from recognizing such effects.
657) According to the Swiss Federal Supreme Court does a violation of procedural rules,
other than the minimum standards of equal treatment of the parties and their right to
be heard (Art. 182(3) IPRG, Art. 190(2)(d)) IPRG and the procedural public policy in the
sense of Art. 190(2)(e) IPRG not lead to a set-aside of the award. The Swiss Federal
Supreme Court comes to this result based on the interpretation of Art. 190(2)(d) IPRG e
contrario. BGE 117 II 346 at 1a; Judgment of October 23, 1989, Schweizerisches
Bundesgericht, in: ASA Bull. 1990, pp. 51 et seqq. at 3a. See also ZK IPRG-Vischer, Art.
182 No. 22 with further references; BSK IPRG-Schneider, Art. 182 No. 70; Walter / Bosch
/ Brönnimann, pp.125 et seq.; BSK IPRG-Berti/Schnyder, Art. 190 No. 59.
658) See para. 572.
659) For the U.S: see para. 559. For Germany: see para. 562.
660) Bernet, p. 19; Kaufmann-Kohler/ Lévy, p. 270.
661) Günter, para. 538; Berger / Kellerhals, Arbitration, para. 1076; Kaufmann-Kohler/ Lévy,
p. 269; Bernet, p. 19.
662) See also Kröll, Insolvency, pp. 372 et seq.
665) See paras. 276 et seqq. regarding the characterization of insolvency law questions in
arbitration.
666) See paras. 575 and 562 for the approaches suggested in Switzerland and Germany.
667) See paras. 276 et seqq. regarding the characterization of insolvency law questions in
arbitration.
668) See para. 37, para. 45 and paras. 591 et seqq. See, e.g., Cosco Bulk Carrier Co Ltd v.
Armada Shipping SA AS, February 11, 2011, High Court, Chancery Division, reported and
commented by Fletcher, ITA Board of Reporters, www.kluwerarbitration.com.
669) See, in detail, para. 389 and paras. 586 et seqq.
670) See, e.g., the approach taken in ICC Award No. 9163 (2001), Rev. Arb. 2003, pp. 227 et
seqq.; ICC Award No. 11028, unpublished (2002), reported by Perret, Faillite, p. 44; ICC
Award No. 12907 (2005), ICC ICArb. Bull 1 / 2009, pp. 98 et seqq. See also the obiter
dictum in BGE 138 III 714 at 4 where the Swiss Federal Supreme Court acknowledged
the possibility of such approach.
671) See para. 565.
672) The EuInsReg applies to all EU countries with exception of Denmark.
62
673) The applicability of the EuInsReg has not been contested in any arbitral proceeding
so far. It was simply assumed. See Josef Syska (acting as Administrator for Elektrim
S.A.) v. Vivendi Universal S.A. et. Al., Court of Appeal, July 9, 2009, [2009] EWCA Civ 677;
Josef Syska (acting as Administrator for Elektrim S.A.) v. Vivendi Universal S.A. et. al.,
674) Wagner, International Insolvency, p. 59; Nacimiento/ Bähr, p. 4759; Virgós/
Garcimartín, para. 261; Münchner Kommentar InsO-Reinhart, § 15 para. 4.
675) In Germany, for instance, the award could be annulled according to § 1059(II)(1)(a) D-
ZPO. See Wagner, International Insolvency, p. 59 with further references.
676) See Art. 4(2)(f) EuInsReg.
677) See paras. 395 et seqq. for details regarding the qualification of an arbitration as a
“lawsuit pending” according to Art. 15 EuInsReg.
678) See, in detail, para. 389 and paras. 393 et seqq.
682) See para. 562.
683) Only the recognition of a main foreign proceeding imposes an automatic stay on all
pending proceedings. In turn, a recognition of a foreign non-main proceeding imposes
no such automatic stay. But the court has discretion to impose also here a stay
according to Art. 21 InsModLaw. See Art. 2(b),(d) UN-InsModLaw regarding the
distinction between foreign main and non-main proceedings.
684) UNCITRAL Guide to Enactment of UN-InsModLaw, para. 143. See also Cosco Bulk
Carrier Co Ltd v. Armada Shipping SA & Anor, High Court, Chancery Division, February
11, 2011, [2011] EWHC 216 (Ch) where the court left open whether Art. 20(1)(a) UN-
InsModLaw would provide for an automatic stay ipso iure.
685) See para. 404.
686) UNCITRAL Guide to Enactment of UN-InsModLaw, para. 145; UNCITRAL Guide on
Insolvency Law, para. 344.
687) UNCITRAL Guide to Enactment of UN-InsModLaw, para. 145; UNCITRAL Guide on
Insolvency Law, para. 344.
688) For the U.S.: The recognition of the foreign insolvency under Chapter 15 grants all of
the relief set forth in 11 U.S.C § 1520 including the automatic stay under 11 U.S.C §
362(a) which also applies to arbitral tribunals. In re JSC BTA Bank, 434 B.R. 334, 339
(Bankr. S.D.N.Y. 2010). See also paras. 556 et seqq. For England: Cosco Bulk Carrier Co
Ltd v. Armada Shipping SA & Anor, High Court, Chancery Division, February 11, 2011,
[2011] EWHC 216 (Ch). See also para. 564.
689) Art. 20(2) UN-InsModLaw; UNCITRAL Guide to Enactment of UN-InsModLaw, paras. 148
et seqq. See, e.g., In re JSC BTA Bank, 434 B.R. 334, 343 (Bankr. S.D.N.Y. 2010) where the
court stated that a stay under Chapter 15 (which implements the UN-InsModLaw) only
applies “to the debtor within the United States for all purposes and may extend to
the debtor as to proceedings in other jurisdictions for purposes of protecting
property of the debtor that is within the territorial jurisdiction of the United States.”
See also Cosco Bulk Carrier Co Ltd v. Armada Shipping SA & Anor, High Court,
Chancery Division, February 11, 2011, [2011] EWHC 216 (Ch) where the court did not
determine the stay of the arbitral proceeding according to the foreign lex fori
concursus provision mandating for an automatic stay – which was in this case Swiss
law (Art. 207 SchKG) – but rather according to the local English insolvency law.
690) UNCITRAL Guide to Enactment of UN-InsModLaw, para. 149. See, e.g., Cosco Bulk
Carrier Co Ltd v. Armada Shipping SA & Anor, High Court, Chancery Division, February
11, 2011, [2011] EWHC 216 (Ch) where the court, after the recognition of the foreign
insolvency under the UN-InsModLaw, allowed the parties to proceed with the
international arbitration seated in England. It considered the arbitration in England
the best legal forum to resolve the parties’ dispute.
691) ICC Award No. 9163 (2001), Rev. Arb. 2003, pp. 227 et seqq. where the whole French lex
fori concursus was declared to be a “foreign” mandatory rule and hence the stay of
French insolvency law was applicable to the arbitral proceeding. ICC Award with
unknown Number., unpublished, reported by Mantillo-Serrano, pp. 56 et seq., where
an international tribunal seated in Geneva applying Swiss law stayed the arbitral
proceeding between the insolvent Swiss party and the Italian claimant, according to
Art. 207 SchKG.
692) ICC Award No. 11028, unpublished (2002), reported by Perret, Faillite, p. 45, where the
tribunal did not take into account the provision of the “foreign” lex fori concursus
because it was not part of the Swiss ordre public international. ICC Award No. 11714
(2004), ICC ICArb. Bull 1 / 2009, pp. 74 et seqq. where the arbitral tribunal neither
stayed the proceeding according to the foreign lex fori concursus (because the parties
did not submit evidence of the content of such law), nor according to Art. 207 SchKG
since this provision would not be part of Swiss international public policy.
693) Günter, para. 534; Lévy, Insolvency, p. 102; Bernet, p. 19; Brown-Berset/ Lévy, p. 676;
Poudret/ Besson, para. 548; Kaufmann-Kohler/ Lévy, p. 270.
694) Günter, para. 534; Lévy, Insolvency, p. 102; Bernet, p. 18.
696) See, in detail, regarding this approach paras. 269 et seqq.
63
697) Judgment of December 8, 1999, Schweizerisches Bundesgericht, 4P.154/1999, ASA Bull.
2000, pp. 546 et seqq.; Günter, para. 370; Naegeli, Auswirkungen, paras. 38 et seq.;
Aebi/ Frey, p. 112.
698) See, e.g., BGE 138 III 714 at 3.3; Vivendi S.A. et al. v. Deutsche Telekom AG et al.,
Schweizerisches Bundesgericht, March 31, 2009, 4A_428/2008 at 3.2.
699) See, in detail, paras. 282 et seqq. See also, for the characterization in connection with
issues of capacity, paras. 537 et seqq.
701) See Art. 182 IPRG. See also Art. 182(3), Art. 190(2)(d),(e) IPRG providing for minimal
guarantees in connection with the equal treatment of the parties and their right to be
heard and the observation of the procedural ordre public.
702) See para. 596.
703) See, generally for such approach, para. 272.
704) The common arbitration rules do not include a reference to a possible stay of the
arbitral proceeding in case of an insolvency.
705) Art. 182(2), (3) IPRG. See, regarding the freedom of an arbitral tribunal to determine
the procedural rules in cases where the procedural rules chosen by the parties do not
contain an answer to the issue, ZK IPRG-Vischer, Art. 182 Nos. 1 et seqq; BSK IPRG-
Schneider, Art. 182 No. 3; BGE 117 II 346 at 1a; Judgment of October 23, 1989,
Schweizerisches Bundesgericht, in: ASA Bull. 1990, pp. 51 et seqq. at 3a; Walter / Bosch
/ Brönnimann, pp. 125 et seq. See also, for Art. 190(2)(d) IPRG which coincides with Art.
182(3) IPRG, BSK IPRG-Berti/Schnyder, Art. 190 No. 59.
706) See, for a suspension of an arbitral proceeding under these provisions, para. 575;
Günter, para. 538; Berger / Kellerhals, Arbitration, para. 1076; Kaufmann-Kohler/ Lévy,
p. 269; Bernet, p. 19.
708) See para. 274, generally for the approach to consider the lex fori concursus as
mandatory rule.
709) See paras. 433 et seqq. See, in detail, paras. 427 et seqq. regarding the application of
mandatory rules to international arbitration.
710) See, for a restrictive interpretation of grounds to stay an arbitration, BGE 119 II 386 at
1b.
711) BGE 119 II 386 at 1b held that a suspension of a Swiss international arbitral
proceeding can only be granted under exceptional circumstances. Such reason is, for
instance, where the parties’ right to be heard would be violated. See, in connection
with parallel proceedings, Schnyder, Rechtskollision, p. 374.
712) This also means that the mandatory rule’s claim to be applied alone is not sufficient
for its application, no matter how strong it may be. Conversely, it is crucial that such a
norm claims both its mandatory application, and that such application is
internationally binding. See, e.g., BGE 138 III 714 at 4.2; Schnyder, Eingriffsnormen, p.
304; Kaufmann-Kohler/ Rigozzi, para. 663; BSK IPRG-Karrer, Art. 187 No. 230. See, in
detail, para. 432.
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Cross Border Insolvency Chapter 6 PDF

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[A] Distinction between Validity and Scope of an Arbitration Agreement

[B] Validity of Arbitration Agreement

[C] Scope of Arbitration Agreement ratione personae

§6.02 EFFECTS OF THE INSOLVENCY ON THE CAPACITY OF THE PARTIES TO

[A] Impact of Insolvency on Capacity of Parties

[B] Effect of Issues of Incapacity on Arbitration

[C] Applicable Law

§6.03 SUSPENSION OF ARBITRAL PROCEEDINGS DUE TO AN INSOLVENCY

[A] Automatic Stay Provisions in Insolvency Laws

[B] Applicable Law

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