The Principle of Lis Pendens in International

Arbitration: The Swiss Decision in

Fomento v. Colon

by C H R I S T I A N OETIKER*

IN A fundamental decision of 14 May 2001 (Fomento de Construcciones y

Contratas S.A. v. Colon Container Terminal S.A.),1 the Swiss Federal Supreme
Court has ruled that the principle of lis pendens, well established in the civil
procedure rules of most civilian countries, applies in arbitration proceedings
governed by the Swiss Arbitration Act.2 The decision of the highest Swiss Court
gives a firm answer to many very contentious questions under Swiss arbitration law,
but raises many new issues at the same time.

I. T H E F A C T S O F T H E FOMENTO CASE3
Colon Container Terminal S.A. ('Colon') had entrusted Fomento de Construc-
ciones y Contratas S.A. ('Fomento') with the construction of a port terminal in
Panama by agreement of 26 April 1996. The contract of the parties provided for
an arbitration agreement. During the performance of the contract differences
between the parties arose and the contract was eventually terminated early.
On 12 March 1998, Fomento commenced court proceedings against Colon
before the courts of Panama. Colon raised the arbitration defence. On 26 June
1998, the court of first instance held tfiat the arbitration defence had been raised late
and accordingly continued its proceedings. Colon appealed against that decision.
On 30 September 1998, despite the decision of the Panamanian state court of
26 June 1998 to continue proceedings, Colon started arbitral proceedings. The
seat of die arbitral tribunal was Geneva. The proceedings were governed by die

* Attorney-at-law, VISCHER, Basel, Switzerland.

1
Decision of the Swiss Federal Supreme Court (DSFSC) 127 [2001] HI 279 er seq.
2
Art. 176-194 of the Private International Law Statute (PILS).
A
For an English translation of the decision: See ASA Bulletin (2001), p. 555 et seq.

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© LCIA, 2002

137
138 Arbitration International Volume 18 Number 2

ICC Arbitration Rules 1998 and, in second instance, by the Swiss Federal Civil
Procedure Rules. Fomento disputed the jurisdiction of the arbitral tribunal, arguing
that it had proposed to waive the arbitration clause by commencing proceedings
before the Panamanian courts and that Colon had accepted such proposal by not
raising the arbitration defence within the deadline provided for in the Panamanian
Civil Procedure Rules. Fomento therefore contended that the courts of Panama had
jurisdiction and that the arbitration agreement had been revoked.
The Panamanian Court of Appeal quashed the decision of the court of first
instance and held that the arbitration defence by Colon had been raised in time.
Fomento appealed against this decision.
O n 30 November 2000 explicidy referring to the decision of the Panamanian
Court of Appeal, the Swiss arbitral tribunal affirmed its jurisdiction.
However, on 22 January 2001, the Supreme Court of Panama ruled that the
arbitration defence had been introduced too late and accordingly ordered the
continuation of the state court proceedings.
Eventually, Fomento appealed to the Swiss Federal Supreme Court against the
arbitral tribunal's affirmation of jurisdiction. It argued that the arbitral tribunal had
wrongly affirmed its jurisdiction, in particular by misapplying the principle of lis
pendens.

II. T H E D E C I S I O N O F T H E SWISS F E D E R A L
SUPREME C O U R T
The Swiss Federal Supreme Court had to decide whether the Swiss arbitral
tribunal was entided to decide upon its own jurisdiction or whether it should have
applied the lis pendens principle and accordingly stayed its own proceedings until
the Panamanian courts had either affirmed or declined jurisdiction in a final and
binding decision.
First of all, the court stated that it was a concern of public policy ('ordre public')
to avoid contradicting decisions on the same issue between the same parties. Since
arbitral awards were enforceable just as court judgments, conflicting decisions of
arbitral tribunals on the one hand and state courts on the other hand were
considered to be of concern just as conflicting decisions of state courts. The court
reasoned that one of the possible tools to avoid contradicting decisions was the lis
pendens principle, according to which a court has to stay proceedings if another
court has been seized earlier with the identical claim.4 The court characterized the
lis pendens principle as being closely related to the principle of res iudicata, the
general applicability of which, including the field of international arbitration, is
widely recognized. The court concluded that there was a nexus between the two
principles of such a kind that they should be treated in the same manner. Since the

On a euro-international level, the lis pendens rule is provided for in Art. 27 of the Council Regulation (EC)
No 44/2001 and Art. 21 of the Lugano Convention (being adapted to Reg 44/2001).
 The Swiss Decision in Fomento v. Colon 139

principle of res judicata was acknowledged in international arbitration, it was only

logical to apply the lis pendens principle as well. The court therefore held that
Article 9 PILS, which provides for a lis pendens rule as between Swiss and foreign
state courts, should be applied by analogy.
Finally, the court considered the question of whether the particular nature of
the arbitral tribunal entailed a priority rule which allows the arbitrators 'to come to
a decision on their jurisdiction prior to any court or other judicial authority, and
thereby limits the role of the courts to the review of the award'.5 The court
answered the question in the negative and concluded that both arbitral tribunals
and state courts were equally competent to decide upon the jurisdiction of the
arbitral tribunal. Any conflict had to be resolved applying the lis pendens
principle, giving precedence to the court or tribunal seized first.

III. T H E R U L E O F A R T I C L E 9 PILS
When applying Article 9(1) PILS, a Swiss arbitral tribunal has to stay its
proceedings, provided that the foreign state court proceedings have been brought
first, under a threefold requirement: (1) both actions must have regard to the same
subject-matter between the same parties, (2) it is to be expected that the foreign state
court will render a judgment within a reasonable time and (3) it is to be expected that
the judgment rendered by the foreign state court will be enforceable in Switzerland.
The identity of the dispute under head 1 has to be investigated in depth. As to heads
2 and 3, the arbitral tribunal may limit its analysis to a prediction. It has to examine if
the fulfilment of the imposed requirements is probable, but does not have to answer
the question with certainty.6 In doubt the tribunal may assume that the conditions
will be met, i.e. that the foreign state court will make a decision within due course
which will be enforceable in Switzerland.7
The question of enforceability under head 3 is the most difficult part of the
prediction requirement. Whether a foreign judgment may be enforced in
Switzerland has to be determined under Article 25 PILS. This provision requires
(a) that jurisdiction lay with the courts of the country in which the decision was

'' Fouchard, Gaillard, Goldman/Gaillard, Emmanuel, Savage John (eds), Fouchard Gaillard Goldman on
International Commercial Arbitration (The Hague, Kluwer International, 1999), para. 660, p. 401. Positive:
A. Bucher and P.-Y. Tschanz, International Arbitration in Switzerland (Basel, Helbing & Lichtenhahn,
1989), p. 76 et seq. Negative: P. Schlosser, 'The Competence of Arbitrators and of Courts' in [19921 8
Arbitration International 203-204; G. Walter, W. Bosch, and J. Bronnimann, Internationale
Scbiedsgerichtsbarkeit in der Schweiz, Kommentar zu Kapitel 12 des IPR-Gesetzes (Bern, Verlag
Stampfli+Cie AG, 1991), p. 94.
6
Decision of the Zurich Supreme Court of 10 May 1990, (1990) Blatter fur Zurcher Rechtsprechung, pp.
199-200; P. Volken, 'Commentary on Art. 9 PILS', in A. Heini et al. (eds), IPRG Kommentar,
Kommentar zum Bundesgesetz iiber das Internationale Privatrecht (IPRG) vom 1. Januar 1989 (Zurich,
Schulthess Polygraphischer Verlag, 1993), paras 21-23, p. 77.
7
I. Schwander, 'Auslandische Rechtshangigkeit nach IPR-Gesetz und Lugano-Ubereinkommen', in
Festschrift fiir Oscar Vogel, Beitrage zum schweizerischen und internationalen Zivilprozessrecbt (Freiburg,
Universitatsverlag Freiburg Schweiz, 1991), p. 412.
 140 Arbitration International Volume 18 Number 2

rendered {'indirect international jurisdiction'), (b) that the judgment is final and
binding and (c) that no ground for non-recognition under Article 27 PILS (public
policy, incorrect service with process, violation of essential principles of Swiss
procedural law, res judicata) exists. For the present purpose, the most interesting
issue is the question of indirect international jurisdiction (head (a)). According to
internationally acknowledged principles of private international law, indirect
international jurisdiction is to be determined by the law of the court where
enforcement of a judgment is sought, i.e. Swiss law in the Fomento case.8 As the
Swiss Federal Supreme Court found in Compania de Minas Buenaventura SA v.
BRGM-Perou and ICA Arbitral Tribunal,9 under Swiss law, indirect international
jurisdiction results from Article 26 PILS or any relevant provisions of international
treaties. Article 26 PILS provides that jurisdiction lies widi a foreign authority, (a) if a
provision of the Private International Law Statute so provides, or if there is no such
provision, if the defendant had his or her domicile in the country where the decision
was rendered, (b) if, in disputes of financial interest, the parties by an agreement
valid under the Private International Law Statute subjected themselves to the
jurisdiction of the authority that rendered the decision, (c) if, in a dispute of financial
interest, the defendant entered an unconditional appearance, or (d) if, in the case of
a counterclaim, the authority that rendered the decision had jurisdiction over the
principal claim, and the two claims are materially connected. Article 149 PILS
determines under which conditions the jurisdiction of a foreign state court
concerning claims under the law of obligations may be recognized in Switzerland.
This is in particular the case if the decision was rendered by a court residing (a) in
the country of the defendant's domicile or habitual residence (provided the claims
are connected with the activities at the habitual residence) or (b) if it concerns a
contractual obligation, in the country of performance of mat obligation, and the
defendant was not domiciled in Switzerland (Article 149(1) and (2)(a) PILS).
In the field of international arbitration, in addition to the provisions of the
Private International Law Statute referred to supra, the New York Convention 10 is
relevant to determine the indirect international jurisdiction, as the Swiss Federal
Supreme Court has held in the Condesa case. 11 Under Article II.3 NYC, a state
court has to decline jurisdiction if the parties have made an arbitration agreement,
unless that agreement is null and void, inoperative or incapable of being
performed. The Court stated that this rule derogates from the jurisdiction of the
state court to hear the case and concluded that a state court which proceeds,

8
Dicey and Morris K., The Conflict of Laws (London, Sweet & Maxwell, 2000 13th edn.), para. 14-006, p.
469; S.V. Berti and A. Schnyder, 'Commentary on Art. 26 PILS', para. 1, p. 227, in H. Honsell, N.P. Vogt
and A.K. Schnyder (eds), Kommentar zum schweizerisehen Privatrecht, Internationales Privatrecht (Basel
Helbing & Lichtenhahn, 1996); I. Schwander, Einfuhrung in das Internationale Privatrecht - Erster Band
(St. Gallen, Dike, 2000 3rd edn.), p. 290 et seq.
9
DSFSC 124 [19981 III 86-87.
The New York Convention applies only if the arbitration agreement provides that the arbitral tribunal shall
have its seat in a state different from the state of the national court: see DSFSC 122 119961 III 139, 141;
(1996) Revue Suisse de Droit International et de Droit Europeen, p. .'586.
11
DSFSC 124 [19981 III 87.
 The Swiss Decision in Fomento v. Colon 141

although the requirements of Article II.3 NYC are fulfilled, lacks indirect
international jurisdiction and, according to Article 25(a) PILS, its judgment may
not be enforced in Switzerland.12
Article II.3 NYC fulfils a twofold function: it ensures that disputes are referred
to arbitration if the parties have provided for a valid and binding arbitration
agreement (positive element), and it prohibits state courts to deal with a case if the
requirements of Article II.3 NYC are fulfilled (negative element). 13 It follows diat
Switzerland - being obliged to adhere to this rule as a member of the New York
Convention - must not recognize and enforce any decision that violates the
provision of Article II.3 NYC. If Swiss law could, as suggested by some
commentators, define indirect international jurisdiction absolutely independently,
it would be possible to provide a stricter rule. However, this would amount to a
violation of the New York Convention. It follows that the criteria of Article II. 3
NYC have to be taken into account when an arbitral tribunal has to apply the lis
pendens principle according to Article 9 PILS and therefore has to make a finding
on die indirect international jurisdiction of die foreign state court under Article 25
er seq., PILS. The question whedier diere was a valid arbitration agreement has to
be determined under Article II.3 NYC. If the foreign state court would have been
obliged under the criteria of Article II.3 NYC to hold that diere was a valid
arbitration agreement, but has decided to die contrary, such state court lacks
indirect international jurisdiction and its decision may not be recognized.
However, the New York Convention is not a comprehensive body of law and
leaves certain questions to national law. The most important issue left to national
law is the question of arbitrabihty.14 The arbitrabihty of a dispute is relevant at
several stages of a dispute, e.g. when deciding whether an arbitration agreement is
valid and binding (Article II NYC) or when deciding whether an arbitral award is
enforceable (Article V NYC). It is acknowledged that each court applying die New
York Convention is entided to assess die arbitrability of a dispute under its own lex
fori.15 That diis may lead to different results, e.g. regarding the enforceability of an
arbitration agreement or an arbitral award, is accepted.
Some Swiss commentators have criticized diat, according to die Swiss Federal
Supreme Court, an arbitral tribunal should apply Article II.3 NYC when
determining die indirect international jurisdiction of die foreign state court. 16 They

12
DSFSC 124 [1998] III 87, referred to in DSFSC 127 III [2001] 285.
On this positive and negative aspect, see J.-M. Vulliemin, 'Litispendance et competence internationale
indirecte du juge etranger, notes sous ATF 127 III 289', in (2001) ASA Bulletin, p. 447.
14
AJ. Van den Berg, The New York Arbitration Convention of 1958, Towards a Uniform Judicial
Interpretation (Deventer, Kluwer Law and Taxation Publishers, 1981), pp. 152-154.
15
Van den Berg, supra n. 14 at pp. 152-153.
M. Liatowitsch, 'Die Anwendung der Litispendenzregeln von Art. 9 IPRG durch schweizerische
Schiedsgerichte: Ein Paradoxon? Uberlegungen zu einem Bundesgerichtsentscheid vom 14. Mai 2001 im
Lichte von BGE 124 III 82' in (2001) ASA Bulletin, p. 428 er seq.; F. Perret, 'Parallel Actions Pending
before an Arbitral Tribunal and a State Court: The Solution under Swiss Law", in |2000] 16 Arbitration
International 337 er seq. Similarly M. Scherer, 'When should an Arbitral Tribunal Sitting in Switzerland
Confronted with Parallel Litigation Abroad Stay the Arbitration' in (2001) ASA Bulletin, p. 454 etseq., who
wants to apply Swiss law exclusively as to the validity of the arbitration agreement.
142 Arbitration International Volume 18 Number 2

argue that the application of Article II.3 NYC implies that the question whether
there is a valid and binding arbitration agreement has to be scrutinized under the
lex fori of the foreign state court and that this would be against the principle
according to which indirect international jurisdiction is a question of the law of the
state where enforcement is sought Thereby, and this is these commentators' main
concern, the law of an arbitration-unfriendly country would become relevant in
considering whether the Swiss arbitral tribunal has to stay proceedings under the
lis pendens principle and Switzerland might lose its status as an arbitration-friendly
country. It is submitted that these concerns are unfounded and that the position of
the Swiss Federal Supreme Court is reasonable. 17 Under the New York
Convention, Swiss state courts as well as Swiss arbitral tribunals may assess the
question of arbitrability under their lex fori/lex arbitri, i.e. Swiss law. Therefore,
the danger that the law of an arbitration-unfriendly state might become relevant for
the determination of arbitrability under Article 9 PILS is unfounded. The correct
application of the New York Convention leads to the same result as suggested by
authors denying the applicability of the New York Convention (NYC), i.e. the
determination of arbitrability under the (Swiss) lex arbitri.16
At first sight, it might seem that the discussion whether the indirect international
jurisdiction of the foreign state court has to be assessed with or without regard to
die New York Convention, is of no practical relevance since Swiss law contains an
identical rule (Article 7 PILS) and therefore leads to the same result. However, the
application of the lis pendens principle triggers the question of indirect
international jurisdiction, and the application of an internationally standardized
and recognized rule as contained in Article II.3 NYC will enhance the
transparency and foreseeability of any decision as to indirect international
jurisdiction for the parties and the arbitrators. In contrast, the application of
national rules regarding the enforcement of arbitration agreements, which do not
have to be identical to Article II.3 NYC as in the Swiss case, might void the lis
pendens principle, the general application of which in international arbitration is
very desirable, by implementing requirements in addition to those provided for in
Article II.3 NYC. Therefore, the position taken by the Swiss Federal Supreme
Court is sound. As far as no international consensus subsists (as e.g. regarding the
question of arbitrability), the New York Convention leaves enough room for
national law to be applied and thereby allows arbitration-friendly countries such as
Switzerland to enhance further the position of arbitration.

IV. P R I O R I T Y R U L E
According to Article 186(1) PILS the arbitral tribunal may decide on its own
jurisdiction (competence-competence). This competence of the arbitral tribunal

17
DSFSC 124 11998] III 86-87. See also Vulliemin, supra n. 13 at p. 446 et seq.
Is
Liatowitsch, supra n. 16 at p. 434; Perret, supra n. 16 at p. 338 ef seq.
 The Swiss Decision in Fomento v. Colon 143

conflicts with the power of state courts equally to decide on the jurisdiction of
arbitral tribunals under such rules as Article II.3 NYC. Some legal frameworks
provide that, if the dispute has already been submitted to an arbitral tribunal when
the jurisdictional question arises, the competence of the arbitral tribunal to decide
on its own jurisdiction has absolute priority, i.e. that the state court has to defer to
the arbitral tribunal even if it was seized first.19 Such priority rule would be
incompatible with the application of the lis pendens principle according to which
the body first seized with the case, whether arbitral tribunal or state court, should
decide on the validity of the arbitration agreement.
The Swiss Arbitration Act does not explicitly provide for such a priority rule.
However, in two cases, the Swiss Federal Supreme Court made interesting
remarks which invited the conclusion that in certain circumstances, such a priority
rule subsisted under Swiss law. The cases regarded the extent of the court's
examination of the issue of jurisdiction. In Compagnie de Navigation et Transport
SA v. Mediterranean Shipping Company SA,20 the court held that, if the place of
arbitration was abroad, the Swiss state court, before which an arbitration objection
was raised, had to decide on this objection with full power of examining its
grounds, in particular the grounds under Article II.3 NYC, without limiting its
examination to a prima facie assessment. It went on to say that Article II.3 NYC
established the state court's duty to decide freely on the arbitration objection in the
light of the validity criteria of the New York Convention. 21 A mere prima facie
assessment would be at odds with the state court's duty to examine its own
jurisdiction exhaustively before deciding on the merits. 22
In Stiftung M v. Bank X23 the court held that, if the arbitral tribunal had its seat
in Switzerland, the state court should analyse the validity of the arbitration
agreement only prima facie. The extent of the court's examination was therefore
different, depending on whether the place of arbitration was Switzerland or not.
This distinction seems to be motivated by the court's view that any decision about
the jurisdiction of a Swiss state court - and the decision of a state court to defer to
arbitration is to be regarded as such a jurisdictional decision - has to be subject to a
(possible) in-depth examination by a Swiss court. This is the case if the arbitral
tribunal, to which the state court has deferred, has its seat in Switzerland, because
the jurisdictional decision of the arbitral tribunal is subject to a review by the Swiss

19
See Art. 1458(2) French NCPC and Art. VI(3) European Convention 1961.
20
DSFSC 121 [1995] III 38-46: (1996) XXI Yearbook Commercial Arbitration 690-698; referred to by A.
Dimolitsa, 'Separability and Kompetenz-Kompetenz' in ICCA Congress series no. 9, AJ. Van den Berg
(ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New
York Convention (The Hague, Kluwer Law International, 1999), pp. 240-241.
21
(1996) XXI Yearbook Commercial Arbitration 695; negative: Dimolitsa, supra n. 20 at p. 241.
22
(1996) XXI Yearbook Commercial Arbitration 694.
23
DSFSC 122 11996] III 139; (1996) Revue Suisse de Droit International et de Droit Europeen, p. 586; see
also Dimolitsa, supra n. 20 at 241.
144 Arbitration International Volume 18 Number 2

Federal Supreme Court (Article 190(l)(b) PILS), but not if it has its seat in a
foreign country.24
From these two decisions it followed that a Swiss state court could defer the
jurisdictional question to a Swiss arbitral tribunal if a mere prima facie assessment
of the arbitration agreement favoured its validity, but that such deferment to a
foreign arbitral tribunal was only possible after an in-depfh assessment of the
arbitration agreement. A possible and justifiable conclusion of these two decisions
was that the Swiss Federal Supreme Court had opined in favour of a limited
priority rule, applicable if the arbitral tribunal had its seat in Switzerland.2'5 The
Swiss Federal Supreme Court has now declared that such interpretation of its
recent decisions was wrong and that under Swiss law, no priority rule at all exists.26
Hence, both state courts and arbitral tribunals are equally competent to make a
finding on the validity of an arbitration agreement. According to the lis pendens
principle, the decision is to be made by the tribunal first seized with the case.27

V. C O N S E Q U E N C E S O F T H E D E C I S I O N F O R
SWISS ARBITRAL TRIBUNALS28
The Fomento decision of the Swiss Federal Supreme Court firmly states that
under Swiss law, there is no priority rule which would give arbitral tribunals
precedence to decide upon the validity of an arbitration agreement (and thereby
upon the jurisdiction of the arbitral tribunal). Instead, the principle of lis pendens
as provided in Article 9 PILS decides which body is competent to rule on the
issue. Consequendy, a Swiss tribunal seized with a case that is already pending
before a foreign state court will face a threefold question: (1) Do both actions have
regard to the same subject-matter between the same parties? (2) Is it to be expected
that the foreign court will render a judgment within a reasonable time? (3) Is it to
be expected that the judgment rendered by the foreign court will be enforceable in
Switzerland? W h e n answering these questions, the arbitral tribunal will have to
apply its lex arbitri, i.e. Swiss law in the case of a Swiss arbitral tribunal. As to the
third question, the New York Convention, in particular Article II.3 NYC, applies
as part of the lex arbitri.
Only if the answer to these three questions is in the affirmative, the Swiss

DSFSC 122 [1996] III 139, consideration 2b at the end; (1996) Revue Suisse de Droit International et de Droit
Europeen, pp. 588-589 with comment of Knoepfler. Negative: W. Wenger, 'Commentary on Art. 186 PILS',
in Honsell, Vogt and Schnyder, supra n. 8 para. 6, p. 1570. Approving: Knoepfler in his comment to DSFSC
121 [1995] III 38 in (1996) Revue Suisse de Droit International et de Droit Europeen, p. 561.
The conclusions of Fouchard, Gaillard and Goldman, supra n. 5 at para. 675, p. 409, and Dimolitsa, supra
n. 20 at p. 239, that the priority rule is per se accepted in Switzerland, are based on the decisions of the
Swiss Federal Supreme Court regarding the Swiss Arbitration Act only and neglect the strict position when
the New York Convention applies (Dimolitsa, supra n. 20 at p. 244).
DSFSC 127 12001] III 285-286: (2001) ASA Bulletin, p. 562.
DSFSC 127 [2001] III 286: (2001) ASA Bulletin, p. 563.
See also Scherer, supra n. 16 at p. 451 et seq.
 The Swiss Decision in Fomento v. Colon 145

arbitral tribunal has to stay its proceedings until the foreign state court has made a
final and binding decision on the validity of the arbitration agreement. If not all
three requirements of Article 9 PILS are fulfilled, the Swiss arbitral tribunal is
perfectly entitled to continue its proceedings despite the existence of the foreign
state court proceedings.
If the foreign state court, while Swiss arbitral proceedings are stayed, holds that
the arbitration agreement is not enforceable and therefore affirms its own
jurisdiction, the arbitral tribunal has to terminate proceedings. On the other hand,
if the state court affirms the effectiveness of the arbitration agreement, the state
court has to terminate its proceedings and the Swiss arbitral tribunal may resume
its proceedings and hear the case.

VI. C O N C L U S I O N
On balance, it may be said that the application of the lis pendens principle will be
an effective tool to avoid costly parallel proceedings. If the foreign state court
seized first with the case has indirect international jurisdiction, there is no valid
reason why arbitral proceedings in Switzerland should continue. Furthermore, the
fall-back, provisions of Article 9 PILS ensure that the liberal Swiss position as to
arbitration will not be compromised.
As to the future, it will be interesting to see whether Swiss state courts will from
now on also apply Article 9 PILS in the opposite situation in which a foreign
arbitral tribunal has been seized first with the same dispute, and whether Swiss
arbitral tribunals will apply the rule when deciding upon possible jurisdictional
conflicts with other arbitral tribunals constituted by the same parties.