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A judgment of a foreign court will not be recognized and enforced in Switzerland if it was made in disregard of a valid arbitration clause in place between the parties, as long as the defendant duly objects to the foreign court assuming jurisdiction, the Swiss Federal Tribunal recently ruled (Ruling 124 III 83).

In 1985 a French public enterprise and a Peruvian mining company entered into an agreement granting a pre-emption right to the mining company for shares in a Peruvian subsidiary of the French enterprise. This agreement contained a valid clause providing for ICC arbitration in Switzerland. In 1996, a dispute arose over whether the French enterprise was trying to circumvent the pre-emption right by selling part of its stake to an Australian company.

The Peruvian company brought a suit before a court in Lima. The French public enterprise objected to the jurisdiction of the Lima court on the grounds that the parties had concluded a valid and enforceable arbitration agreement. The Lima court ruled in spite of the arbitration clause that it had competent jurisdiction.

At the same time, the French enterprise started arbitration in Switzerland. The Peruvian company contested the jurisdiction of the arbitral tribunal, but the tribunal upheld its jurisdiction, supported by the ICC court. The Peruvian company appealed against this ruling to the Swiss Federal Tribunal.

The Peruvian company submitted that the arbitral tribunal should have declined jurisdiction because another court was already dealing with the matter (lis pendens). The Swiss Federal Tribunal rejected this argument on the grounds that Peru is a contracting party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and therefore the Lima courts are bound to decline jurisdiction if there is a valid and enforceable arbitration clause with respect to the matter with which they are seized (Art. II par. 3 NYC). A judgment in disregard of this provision cannot be recognized in Switzerland for lack of indirect jurisdiction under Swiss internal law. As a result, the Swiss Federal Tribunal allowed the arbitration to continue, even though more parties, not bound by the arbitration clause, were involved in the proceedings in the Lima court. The risk that irreconcilable judgments might result, as the Lima court argued, is not enough to exclude arbitration which falls within the scope of the New York Convention.

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