Deals & Cases

Procedural aspects in the Vivendi / Deutsche Telekom / Elektrim dispute

In a high profile ICC arbitration between Vivendi SA and subsidiaries, Deutsche Telekom AG and subsidiaries and, i.a., the Polish holding company Elektrim SA, the Federal Supreme Court rendered an interesting decision regarding the impact of the bankruptcy of a legal entity on a pending arbitration with seat in Switzerland to which the entity is a party.

Elektrim SA was declared bankrupt. Pursuant to Polish bankruptcy law, any arbitration proceeding to which the bankrupt entity is a party shall be terminated. It was disputed among the parties to the arbitration whether the impact of bankruptcy on a pending arbitration is governed by the law of the state in which the bankruptcy was declared or the law of the State in which the arbitration has its seat. Caught by a setting aside motion against an interim award of the arbitral tribunal, which had terminated the arbitration against Elektrim SA, the Federal Supreme Court confirmed the award.

The Court held that the capacity of a bankrupt entity to be a party in arbitral proceedings raises issues of capacity, which are governed by the law under which the entity is registered. Two of the five sitting members of the bench, however, disagreed with the majority. They saw no connection of the issue at stake with capacity of a legal entity and voted for the application of Swiss law as the law of the seat of arbitration. Pursuant to Swiss law, the arbitration against Elektrim SA would have been continued.

Interestingly, the Federal Supreme Court will not publish the decision, which raised critical comments among specialists of international arbitration, in its official bulletin although this was the first time it has decided on the impact of bankruptcy on a pending arbitration. Obviously, the Federal Supreme Court wanted to leave the question open to reconsideration in a later case.

Homburger is counsel to Vivendi SA and subsidiaries in the pending arbitration.

The decision of the Federal Supreme Court (no. 4A_428/2008 of March 31, 2009) has been published in the internet [].