Swiss Supreme Court Cancels Arbitration Award On Hotel And Casino Project Due To Violation Of The Right To Be Heard

Author:Dr. Thomas Rihm
Profession:Rihm Attorneys

A company under the law of the Principality of Liechtenstein entered in 1996 into a development and construction contract on a hotel and casino project in the West Bank. This contract was concluded with the Palestinian Autonomy Authority along with a company registered under local Palestinian laws in 1964. The casino and the five-star hotel opened their doors with 1'800 local employees in September 1998 and July 2000, respectively, whereby guests consisted to 95 percent of people from Israel. Immediately after the second entifada began, the Israeli army barred all routes leading to the hotel and casino compound which required a closing of the entire operations in fall of 2000.

"The principle of "pacta sunt servanda" was not violated, as local Palestinian laws did not forbid any gambling in 1996 and 2000." In the following, the above parties concluded in December 2000 a further agreement extending the contractor's license to operate the hotel and casino project until 2028. As the hotel and casino operations could not be resumed in the following years, the contractor requested an arbitral tribunal established under the Swiss Rules of International Arbitration to order the Palestinian Autonomy Authority to grant a casino and hotel license until 2028 including the repayment of lost profits of close to USD 1,5 billion (2008 to 2014) and of income taxes paid in the amount of up to USD 35 million.

By an award rendered on August 2, 2016, the arbitrational tribunal dismissed the contractor's requests on three accounts. The Swiss Federal Supreme Court reviewed the arbitrational award under the public policy test. A violation of public policies in Switzerland requires that fundamental principles of Swiss laws are violated. Such fundamental principles are breached if basic cornerstones of Swiss laws like "pacta sunt servanda" or the acting against good-faith principles ("venire contra factum proprium") are affected. Further fundamental cornerstones in Switzerland are the prohibition of discriminationy actions, the expropriation w/o an adaequate consideration and the personal freedom against excessive contractual restrictions.

"The Palestinian Autonomy Authority did no act against good-faith principles by concluding and renewing the hotel and casino contract in 1996 and 2000, whilst enacting a gambling ban in 2002." The Swiss Federal Supreme Court held that the principle of "pacta sunt servanda" was not violated, as local Palestinian laws did not...

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