What?
The revision of the Company Law, which will come into force on 1 January 2023, has already been discussed in a large number of publications. However, one change that is of great importance for the settlement of disputes, has received little attention:
Whereas previously only state courts could be called upon to adjudicate corporate law claims, the new Art. 697n of the Code of Obligations provides that an arbitration clause can be introduced in the articles of association. Undoubtedly, a clause providing that actions may only be brought before an arbitral tribunal (i.e. to the exclusion of the state courts) is permissible.
Such mandatory arbitration would be possible, for example, in the following actions:
- liability actions against members of the board of directors or against the auditors
- actions for rescission and nullity against resolutions of the general meeting of shareholders
- actions based on liquidator’s liability
- actions against shareholders, members of the board of directors and persons closely associated with them for the reimbursement of benefits received without justification.
- actions arising from prospectus liability.
So What?
There is a big difference between a dispute claim being judged by a state court and an arbitral tribunal:
- Arbitration courts are massively more expensive than the (highly subsidised) state courts. The advances for legal costs to be paid by the claimant when filing the lawsuit are also significantly higher. Financial relief for parties who cannot afford these costs does not exist in arbitration.
- Proceedings before arbitral tribunals are not public: there is no access to hearings by third parties or the press and no judgments are published.
- Legal remedies are extremely limited: There is no appeal to a “higher” arbitral tribunal against the judgement of an arbitral tribunal. Only an appeal to the Federal Supreme Court is possible. The essential point here is that the Federal Supreme Court has only extremely limited power to review arbitral tribunal judgments: It only examines whether the ruling is completely “arbitrary”, which is most rarely the case.
- The arbitration rules (i.e. the procedural rules governing the arbitral tribunal) may also provide for a “short trial”, i.e. a procedure involving limited party rights (e.g. limiting evidence to documentary evidence)). Since the choice of the procedural rules is entirely in the hands of the companies – there are no minimum procedural guarantees in the law – it is to be expected that the companies will use the freedom to restrict claims even further, e.g. limit the freedom in the choice of arbitrators, change the rules on litigation costs even further to the disadvantage of the claimants, etc. The companies will exhaust their leeway. It will then be up to the courts to develop criteria for when the plaintiff is no longer guaranteed fair access to legal protection.
- A private individual will usually feel more comfortable as a plaintiff before a state court than before an arbitral tribunal: at the state court he faces a panel of judges of different political orientation with diverse careers. These may have a certain sympathy for him as “David” or “Robin Hood”. Arbitration courts, on the other hand, are staffed almost exclusively by commercial lawyers who could be suspected to seek good relationships with the companies.
The introduction of an arbitration clause therefore leads to an obstruction of lawsuits as well as to less publicity of lawsuits. This will be welcome on the one hand to the company’s bodies (board of directors, auditors and possibly liquidators) and on the other hand also to the majority shareholders of the company. It is to be expected that a large number of companies (especially all publicly traded companies) will introduce arbitration clauses.
Do What?
- If you, as a member of the board of directors or as a majority shareholder of a company, have the motive of making lawsuits more difficult, you should introduce an arbitration clause in the articles of association. This requires a notarised resolution of the general meeting of shareholders. The resolution must be passed with a special majority, namely at least two-thirds of the votes represented at the general meeting and a majority of the nominal share value represented.
- However, if you are a minority shareholder, you should oppose the introduction of the arbitration clause.
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