Relevance of the res judicata principle for arbitration tribunals in Switzerland

There is no statutory regulation of substantive legal force with regard to arbitral tribunals seated in Switzerland. However, under Article 190(2)(e) of the Private International Law Act (PILA), awards which are incompatible with public policy give reason for annulment. Accordingly, in its decision of 27 May 2014 (4A_508/2013), the Swiss Federal Supreme Court held that an award issued by an international arbitral tribunal sitting in Switzerland which disregards the preclusive effect of an earlier state court judgement or arbitral award violates the principle of res judicata and thus violates the principle of procedural public policy stipulated in Article 190(2)(e) PILA.

What law determines whether there is res judicata?

Whether a res judicata exists is determined by the lex fori. The Swiss Federal Supreme Court acknowledged in its decision 4A_508/2013 of 27 May 2014 that the conditions under which a foreign judgment becomes binding on the parties as well as the scope of its binding effect depend on the legal system under which the judgment has been rendered. However, according to the approach taken by the Supreme Court, a foreign judgment can never deploy effects in Switzerland that would not equally be available to a Swiss domestic judgment. This in particular means that the res judicata principle only applies if the parties to the prior and subsequent proceedings (identity of the parties), as well as the claims raised on the basis of a particular set of facts (identity of the subject-matter of the dispute; see also below), are identical, according to the relevant standards which have been developed in Swiss domestic case law.

Res judicata pursuant to the case law of the Swiss Federal Supreme Court

In its latest decision 4A_536/2018 of 16 March 2020 the Swiss Federal Supreme Court reiterated and confirmed its longstanding jurisprudence:

• The negative effect of res judicata prevents parties from litigating or arbitrating the same subject-matter twice. A claim may not be tried again if it has already been decided by another court or arbitral tribunal in a previous case involving the same parties.
• In the event of a further dispute between the same parties, the positive res judicata effect binds a court or an arbitral tribunal to the previous decision.
• The res judicata effect, however is limited to the operative part of arbitral awards and state court decisions. Hence, arbitral tribunals seated in Switzerland are not bound by the considerations of previous decisions despite the «paradoxical» consequences this may entail. The considerations of previous decisions may only be consulted in order to clarify the scope of the decisions’ operative part. For the avoidance of any such «paradoxical» consequences, the Supreme Court noted that parties should be allowed to rely on requests for declaratory relief. When future proceedings are already in view, requests for declaratory relief are legitimate and necessary, and should pursuant to the Supreme Court’s decision not be rejected as inadmissible. This opens up the scope of requests for declaratory relief, which under Swiss law are only admissible if no claim for performance can be brought.
• The res judicata effect extends to the existence of a claim only in cases where a final decision is rendered on its merits. If no decision is rendered on the merits because the claim is found to be inadmissible, the res judicata effect is limited to the aspect of inadmissibility.
• An award that ignores the res judicata effect of a previous decision violates procedural public policy and qualifies as sufficient grounds for setting aside the award based on Article 190(2)(e) PILA.

What constitutes the “subject-matter of a dispute”?

The Swiss Federal Supreme Court defined the “subject-matter of a dispute” as facts relied upon in support of the claim without reference to legal grounds. The identity must be understood from a substantive, life event-oriented and not grammatical point of view (“Lebenssachverhalt”). The res judicata effect therefore extends to all the facts existing at the time of the first judgment, whether or not they were known to the parties, stated by them, or considered as proof by the first court. The Supreme Court concluded that “[a] new claim, no matter how it is formulated, will have the same object as the claim already adjudicated even if it appears to be its opposite or if it was already contained in the preceding action, such as a claim decided on the merits in the first litigation and presented as a preliminary issue in the second.” (4A_508/2013).

Conclusion

When drafting written submissions, the parties should consider how much factual information they want to include in an initial arbitral proceeding, having due regard to the potential res judicata effect of the award. In unsure factual circumstances, e.g., or when parties might rely on subsequent or parallel arbitrations, limiting the subject-matter in dispute may be worth considering. In contrast, if parties judge the merits of the case to be advantageous and want to exclude parallel or subsequent arbitration in the matter at issue, they might consider extending the factual setting in order to “nail down” the case as much as they can. In this context, the parties may contemplate securing their claims for compensation or alike by equally filing for declaratory relief thus broadening the subject-matter of the dispute and with that the res judicata effect of the award.