However, a project for the construction of a 400 MW gas-fired combined cycle plant on the site of an existing plant in the alpine canton of Wallis has taken a large step forward. The plans to offset the 600,000 to 700,000 tons of CO2 expected to be emitted by the Chavalon plant once completed (which will represent roughly 2 to 3 per cent of total Swiss emissions) have been found to be financially feasible.

The offsetting measures, which have been the subject of studies and will soon be submitted for the approval of the Swiss Federal Ministry of Environment, include advances such as the use of heat pumps and improved energy use of sewage and water infrastructure. The projected measures will allow for the plant’s emissions to be offset in their entirety.

In addition, the Chavalon project was made possible by a recent ordinance of the Swiss government exempting new fossil-fuel power plants built on the site of an existing plant from the requirement of waste heat recovery. Such waste heat recovery would not have been feasible for the Chavalon project given the projected plant’s isolated location high above the Rhone valley.

While the waste heat recovery exception carved out by the Swiss Government for the Chavalon plant was controversial given Switzerland’s energy policy, which is focused on nuclear and hydro-electric power, the Government adopted the exception in order to keep the option of building gas-fired plants open, and because of the advanced nature of the Chavalon project’s carbon-offsetting plans. Electricity companies have been pushing for the right to build such plants since the middle of the decade in order to satisfy demand until new nuclear power plants, which would have higher production capacities of up to 1600 MW, become operational.

The Chavalon plant, which could be operational by 2016, will give a significant boost to Swiss electricity production in the coming years.

The electricity generated in Chavalon will not only compete with relatively low cost hydro-electrical and nuclear power, but also with the more expensive imported power produced with gas-fired combined cycle plants. The higher prices for such imported power will be decisive to the profitability of the Chavalon plant, and the development of a Europe-wide offsetting system will further enhance the plant’s cost-effectiveness.

In May 2008, the Swiss Federal Government commenced a consultation process with a view to the full revision of the Federal Law on Public Procurement. During the process, however, it became clear that a full revision was not advisable due to delays of the WTO Government Procurement Agreement of 15 April 1994 to which the Federal Law has to conform. The Federal Government therefore decided to put the full revision on hold and to focus on certain elements of the Law that required urgent attention.

In May 2010, the Government submitted to the Parliament a proposal for an amendment of the Federal Law on Public Procurement (Message to the Parliament of 19 May 2010, 10.051, http://www.admin.ch/ch/d/ff/2010/4051.pdf). The amendment would, in respect of Federal procurement processes for certain types of projects, preclude unsuccessful bidders from seeking a stay of the entire process when challenging a decision of the adjudicatory authority. According to the Government, the current public procurement regulations do not achieve one of their stated main goals, namely the efficient use of public funds.

Pursuant to the legislation in force, challenges of a tender process by unsuccessful bidders, as a rule, do not automatically stay the process. However, courts may grant a stay of the tender process. Bidders bringing a challenge often file a request for such a stay, and these requests are often granted by the courts. This is the opposite of other areas of Swiss public and administrative law, in which challenges, as a rule, automatically have the effect of a stay, and in which the relevant agency or the courts may lift the stay if warranted by the circumstances.

The Government’s experiences in two highly publicized procurement processes in particular are at the origin of its amendment proposal. Both processes came to a grinding halt when certain decisions of the adjudicating authority were challenged:

• The dispute arising out of the procurement for the construction project of the Erstfeld tunnel, which is part of the NEAT project (the world’s longest railway tunnel; see our blog of 6 July 2010), delayed the commencement of the works for 18 months and caused an approximately 50 million Swiss Franc increase of the costs of the project.

• Also in the framework of the NEAT project, the award of the 1.7 billion Swiss Franc contract for the installation of technical railway equipment in the Saint-Gotthard base tunnel was challenged by an unsuccessful bidder. The court in charge of handling the challenge took six months to decide on the request for a stay of the works, which resulted in a de facto stay of the same length. It ultimately rejected the request, but estimates are that every month of stay entailed additional project costs of approximately 10 million francs. Fortunately, the adjudicator and the bidder subsequently reached a settlement.

The Federal Government’s proposed amendment to the Federal Law on Public Procurement would first provide for an automatic stay of a procurement process where a decision of the adjudicatory authority is challenged. Most importantly, however, the amendment provides that if important supra-regional procurement projects are urgent or if their postponement would cause disproportionate delays or damage, a challenge would not prevent the procuring entity from entering into a contract with the successful bidder.

Critics of the proposal consider that it is difficult to reconcile with Switzerland’s treaty obligations and with the fundamental right to court review of adjudicators’ procurement decisions (Peter Galli, Kein Verzicht auf aufschiebende Wirkung, Neue Zürcher Zeitung, 6 August 2010, p. 10; Marc Steiner, Der Rechtsschutz im öffentlichen Beschaffungswesen – ein Baustellenbericht kurz vor dem Durchbruch am falschen Ort, http://www.sgvw.ch/d/fokus/Seiten/100727_lexleuenberger_steiner.aspx).

The event is co-chaired by David Robertson of Fenwick Elliott LLP in London and Cecilia Vidigal Monteiro de Barros of Xavier Bernardes Bragança in São Paulo, and like earlier editions, it will take place in Brussels.

Speakers from different jurisdictions will cover topics on recent developments in construction industry dispute resolution, procurement rules, anti-corruption measures, financing models, practical tips for implementing the ICC’s ADR rules and the impact of the global economic downturn on the construction industry.

A panel led by Pierrick Le Goff of Alstom will begin the first day of the Conference by tackling anti-corruption measures and procurement rules (the panel will be composed of Jeremy Glover, Fenwick Elliott; Sara Hannaford, Keating Chambers, and Wanda Ternau, AGIP). Thereafter, a panel chaired by Tim Reynolds of TLT in London, and consisting of Doug Jones of Clayton Utz in Sydney and Marc Frilet of Frilet in Paris, will address financing models in the context of motorway, powerplant and hospital construction projects.

Jaya Sharma and her panelists Habib Al Mulla of Habib Al Mulla & Co in Dubai and Young Seok Lee of Yulchon in Seoul will analyse the effect of the economic crisis on the construction industry. Another panel of speakers, chaired by Mark Lane of Pinsent Masons in London, will end the day by presenting a session focusing on the construction of sports facilities and stadiums, including strategies for avoiding delay, contract structuring and securing financing.

The second day of the Conference will be devoted to two panels dealing with construction disputes. The first will be chaired by Tom Wilson (Kilpatrick Stockton, Dubai) and will make suggestions as to how construction disputes could be streamlined and made more efficient (the panel will consist of Mona Dragan of Costin Soimulescu Dragan-Costin & Partners in Bucharest, Nicholas Gould of Fenwick Elliott in London, and Hanna Tuempel of the ICC in Paris). In the second panel, ICC Secretary General Jason Fry and his panelists (Steve Stein of Stein, Ray & Harris in Chicago, Sean Brannigan of 4 Pump Court in London, and Matthias Scherer of Lalive in Geneva) will discuss arbitration of construction disputes, focusing on time and cost efficiency, construction arbitration under bilateral investment treaties, and how to deal with evidence.

The conference reception and dinner, which is usually one of the highlights of this biennial event, will take place on Friday 17 September 2010.

Information on registration and a full programme can be found on the IBA website.

An acceleration of the drilling and construction of the Gotthard Base Tunnel over the past years has left its planners faced with the unusual prospect of the project being completed a year ahead of schedule. Work on the 57 km long railway tunnel through the Swiss alps, the longest in the world, was scheduled to be completed in 2017. However, following faster than anticipated progress in the excavation and construction of the tunnel, the consortium of companies responsible for the second phase of the works, the installation of the railway infrastructure, will propose the possibility of a 2016 hand-over date.

The Gotthard Base Tunnel is part of the 20 billion Swiss Franc AlpTransit project to build a new rail link through the Alps, with the objective of creating a direct and level route for high speed passenger and freight trains. The new rail link will lead to significantly shorter travel times, for example shaving an hour off the current 3.5 hour trip from Zurich to Milan, and will partially accommodate the projected increase in passenger and freight traffic through the Alps. The project involves the boring of several tunnels, of which the Gotthard Base Tunnel will be the longest and most costly, at just under 10 billion Swiss Francs. The tunnel construction is led by Alptransit Gotthard GA, a wholly owned subsidiary of the Swiss Federal Railways.

Instead of the dual-track tunnel which was initially planned, the Gotthard Base Tunnel consists of two parallel single track tunnels, allowing for faster excavation and shortening construction time by two to three years. Construction time was also shortened by digging several access tunnels, allowing for construction to be conducted on several sections simultaneously. Various consortia were assigned the construction works for different sections of the tunnel, and consist of several major international construction companies. For example, the Consorzio TAT, responsible for the Faido and Bodio sections, includes Hochtief, Implenia and Impregilo, among others. Excavation works are being conducted using four imposing tunnel boring machines, as well as by drilling and blasting. Only a small portion of the tunnel still remains to be excavated, with final break-through in one of the parallel tunnels expected to occur in the autumn of 2010, and break-through in the other expected for the beginning of 2011.

The progress of the boring and construction works has allowed for the second main phase of the project to begin at the end of June 2010: the installation of the railway infrastructure, including the railway tracks, power supply, telecommunication and safety systems. The consortium which was awarded the 1.7 billion Swiss Franc contract for installing the railway infrastructure, Transtec Gotthard, is composed of Swiss energy company Alpiq, British infrastructure company Balfour Betty, French technology company Alcatel-Lucent/Thales and Austrian construction company Alpine Bau. Transtec Gotthard expects to complete the first section of the tunnel by 2013, allowing for test runs at speeds of up to 230 km/h.

AlpTransit Gotthard SA has recognised that it would be technically possible to complete the project a year before schedule, barring any delays to the final break-through of the excavation works, which could for example be caused by cavities or water. It is uncertain however whether AlpTransit Gotthard SA and the ultimate user of the tunnel, the Swiss Federal Railways, will approve the acceleration of the works. In particular, such an acceleration would engender additional costs and would require a greater coordination of the construction works. The political overseers of the project have expressed reservations. Moreover, given that the tunnel is unlikely to be profitable, the advantages of a sooner than planned entry into service are not readily apparent. Indeed, it is uncertain whether revenues from the tunnel will even be sufficient to cover its operating and maintenance costs.

By Matthias Scherer and Samuel Moss

The Swiss principal applied to the Swiss Federal Supreme Court for revision of the partial award, the time limit for the setting aside of the award, which would have been the ordinary remedy in such a case, having already expired. The principal contended before the Supreme Court that the agreement had an illegal content as it contemplated bribery, and produced new evidence to support its claim. The Court denied the request, as the prerequisites under Swiss law for a review of the award were not met. Indeed, according to the Court, the evidence could have been produced in the arbitration and was therefore not new. The arbitration resumed and the arbitrators eventually rendered a final award in favour of the consultant.

The principal sought to have the final award set aside on the grounds that it breached public policy, relying on the same evidence on which it had previously sought to rely in its request for review of the partial award. The principal further argued that the Supreme Court must examine the alleged nullity of a contract on its own motion. The Court however dismissed the application. It found that the principal could and should have produced the evidence purportedly showing bribery during the arbitration. The Court also ruled that it would not review on its own motion the validity of private law contracts.

The principal again raised its public policy defence in the subsequent enforcement proceedings in Switzerland. The competent cantonal court however ruled that arguments which could have been raised in setting aside proceedings could no longer be raised at the enforcement stage.

In another dispute between a consultant and a principal, the Swiss Federal Supreme Court admitted the principal’s request to set aside an arbitral award due to procedural fraud. In the highly publicized Thales v Frontier AG matter, the award was annulled and the matter remanded to the arbitrators. The facts of the case are summarised below.

In 1989, France authorised the export of new F-3000 frigates to Taiwan. Mainland China objected to the export and a few months later, upon request of a French minister, France withdrew the export authorisation. In 1990, Thomson CSF (which later became Thales), the manufacturer of the frigates, entered into an agreement with Frontier, a Swiss company, to act as its agent. According to the agreement, Frontier was to receive remuneration amounting to 1% of the value of Thomson CSF’s contract with Taiwan for its assistance in relation to the sale of the warships. Behind Frontier was Alfred Sirven, a high ranking manager with the French oil company Elf Aquitaine. Subsequently, in 1991, the French government reversed its previous position and gave its final approval for the sale of the ships. The contract between Thomson and Taiwan was concluded on 31 August 1991 for a purchase price of approximately USD 2.5 billion.

Thomson however refused to pay Frontier, which initiated ICC arbitration as a result. In the arbitration, Thomson contended that the objective of the contract was in fact for Frontier to solicit the services of Edmond Kwan, a consultant of Elf Aquitaine in China, in order that he use his political connections to persuade the Chinese to cease their opposition to the sale of the warships to Taiwan. Thomson argued that the contract was void as its object was influence peddling. Messrs Sirven and Kwan, as well as other witnesses, were heard by the arbitral tribunal.

In 1996, the tribunal rendered its award, ordering Thomson to pay the contractual fee to Frontier. The tribunal found that Frontier had provided the services which were due under the contract by assisting Thomson, through Edmond Kwan, to appease Chinese opposition to the sale. The tribunal admitted that influence peddling was unlawful but found that it had not been proven that influence peddling had occurred. Thomson subsequently initiated criminal proceedings in France against Mr. Kwan and others for giving false testimony before the arbitral tribunal. On 1 October 2008, the French authorities ceased their investigation as a result of Mr. Sirven’s death and because there was insufficient evidence against the other actors. The French authorities however concluded that Sirven had indeed given false testimony during the arbitration.

On 17 December 2008, Thales (formerly Thomson) brought a request for review of the 1996 arbitral award before the Swiss Federal Supreme Court on the basis of the findings of the French authorities. The French investigation had shown that the real objective of the contract between Thomson and Frontier was not to lobby for the sale of the warships in China, but rather to persuade a French minister, who wanted to avoid retaliation measures by Mainland China, to reconsider his objections to the sale. Commissions had therefore been paid by Frontier to Mr. Sirven and a woman who had privileged relations with the minister. Mr. Sirven had represented to the arbitral tribunal that Mr. Kwan had been the only beneficiary of a commission, however it was uncovered that he had implicated Mr. Kwan merely for the purposes of the arbitration. The Swiss Supreme Court ruled that it had been established that Mr. Sirven had orchestrated an influence peddling scheme to the detriment of the French authorities. He had misled the arbitral tribunal and was therefore guilty of procedural fraud. In the opinion of the Supreme Court, Mr. Sirven’s untruthful testimony had had a direct influence on the tribunal’s award. Consequently, the Supreme Court annulled the award and remanded the matter to the original arbitral tribunal or a new tribunal to be constituted in accordance with the ICC Rules.

Conclusions

Several conclusions can be drawn from these two cases. The first is that arbitral tribunals and the Swiss Supreme Court will not uphold contracts that are flawed by illegality. However, it is for the party which alleges an illegality to prove it. Another conclusion to be drawn is that if evidence of illegality exists at the time of the arbitration, it must imperatively be produced in the arbitral proceedings. A party therefore cannot hold back evidence, even if it is self-incriminating, and rely on it in subsequent annulment or enforcement proceedings in the event of an unfavourable outcome of the arbitral proceedings. On the other hand, if a party misleads the arbitral tribunal, as could be uncovered in subsequent criminal proceedings, an arbitral award may not stand.

By Matthias Scherer and Sam Moss