First investment treaty arbitral award set aside by the Swiss Federal Supreme Court

Lenz & Staehelin successfully represented Clorox Spain (Clorox), a Spanish subsidiary of The Clorox International Company (Clorox International), in proceedings before the Swiss Federal Supreme Court against the Bolivarian Republic of Venezuela (Venezuela) to obtain the setting aside of an arbitral award rendered by a tribunal established under the Spain-Venezuela Bilateral Investment Treaty (BIT). The tribunal, seated in Geneva, had rendered its award in an UNCITRAL arbitration administered by the Permanent Court of Arbitration on 20 May 2019, finding that it did not have jurisdiction over the dispute as (in its view) Clorox had never made an investment protected under the BIT.

In the proceedings before the Federal Supreme Court, Clorox argued that the tribunal had wrongly declined jurisdiction over the dispute and that the award should be set aside. The Federal Supreme Court followed this position in decision 4A_306/2019 dated 25 March 2020, the reasons of which were notified on 25 May 2020. This is the first time the Federal Supreme Court has set aside an award rendered in an investment treaty arbitration in Switzerland, having previously rejected similar applications in a number of cases.

By way of background, the tribunal's decision was based on its interpretation of the BIT to the effect that it required an "active" act of investing, which the tribunal associated with the need for the investor to obtain the investment "in exchange for consideration." Clorox had been created through a restructuring, in which Clorox International contributed the shares in its Venezuelan subsidiary to the newly created company, thus making Clorox the owner of the shares in the Venezuelan subsidiary and Clorox International the owner of the shares in Clorox. According to the tribunal, under those circumstances the putative requirement of an "active" act of investing and the investment having been made "in exchange for consideration" was not fulfilled.

The Federal Supreme Court agreed with Clorox's view that by requiring an "active investment that would necessarily have to be carried out by the investor himself in exchange for consideration", the arbitral tribunal had imposed a requirement for protection, for which there was no indication in the BIT. As a consequence, the Federal Supreme Court set aside the award. Since Venezuela had raised additional jurisdictional objections before the tribunal and these had not yet been decided upon, the Federal Supreme Court further took the view that a final decision on the tribunal's jurisdiction could only be taken in the arbitral proceedings.

The Federal Supreme Court awarded Clorox the reimbursement of two thirds of the costs of the proceedings as well as two thirds of its legal costs.

The Lenz & Staehelin team included partner Xavier Favre-Bulle and counsel Hanno Wehland (both Litigation and Arbitration).

Published: 5 June 2020