23 May 2017

Why should I care about Brexit?

At the IBA Litigation Conference in Zurich at the beginning of this month, one session was dedicated to the impact of Brexit to the statutory landscape relevant for litigators. Many litigators will have thought before that session: Why should I care about Brexit? The answer came quickly and clearly. Brexit will have negative consequences on the allocation of jurisdiction between States and the recognition and enforcement of judgments.

As a Swiss litigator, one is already well aware of the issues arising from the fact that a country is not part of the EU, and the only instrument available on questions of jurisdiction and enforcement is the Lugano Convention ("LugC"). To avoid misunderstandings: The LugC is a very good tool which generally works well in practice. The main problems arise at the borders of its scope. This may be exemplified by reference to the exception of insolvency proceedings as per Art. 1(2)(b) of the LugC.

The coordination of court proceedings is a necessity
The necessity of coordinating court proceedings in various States in the same matter is well recognized. The avoidance of contradicting judgments is, according to the Swiss Federal Supreme Court, part of public policy. Recent case law of the Swiss Courts shows that such coordination is jeopardized in certain situations.

The existing case law mainly concerns disputes between Sabena (in liquidation) and its former shareholders on the one hand and entities of the former Swissair group on the other hand. The insolvency proceedings of the latter took place in Switzerland. The Belgian parties had initiated court proceedings in Belgium, making substantial claims against certain companies of the Swissair group. They submitted the same claims in the Swiss insolvency proceedings, which led to litigation in Switzerland. Both sets of proceedings proceeded in parallel.

Domestic law versus international instruments
Under the governance of EU law, in which the Brussels Convention (having basically the same content as the LugC) is complemented by other instruments such as the Insolvency Regulation, a coordination of the various proceedings would have occurred. However, if only part of the relevant aspects is governed by an international convention (such as the LugC), such coordination does not work. The Swiss Federal Supreme Court ultimately resolved the problem by invoking the lex attractiva concursus (see "How can I claim against an insolvent Swiss debtor?"), a concept previously unknown to Swiss law. This resolved the issue as to whether the judgments handed down in the Belgian proceedings had an impact on the Swiss proceedings. As per the solution of the Swiss Federal Supreme Court they did not. The Court found that the Swiss Courts have exclusive jurisdiction in such a situation. Part of the reasoning was that the Belgian proceedings, from a Swiss point of view, had to be considered as insolvency proceedings as per Art. 1(2)(b) of the LugC.

This approach had no impact on the Belgian proceedings, and they indeed continued. This led to a situation in which recognition was mutually excluded, of the Belgian decisions in Switzerland, and of the Swiss decisions in Belgium.

As a matter of fact, the reasoning of the Swiss Federal Supreme Court means that the lex attractiva concursus  (which was based on Swiss insolvency law) can limit the scope of the LugC, being an instrument of international law. This approach raised concerns from a number of commentators.

Revision of the Swiss Private International Law Act
The Swiss legislator has recognized that there is an issue with the Swiss Federal Supreme Court's position. The Swiss Private International Law Act rules on the recognition of foreign insolvency are currently being revised and this problem is likely to be addressed. The preliminary draft of the amendment was published in 2015 and the draft, which will be the basis for the decision in Parliament, will be published within the next few weeks. Litigation practitioners would welcome if the coordination of proceedings in situations such as in the Swissair cases described above were governed by clear statutory rules.

What remains, however, is the fact that the Swiss legislator's effort will remain unilateral. As has already been voiced by commentators, it is at least doubtful whether Switzerland can unilaterally enact rules that directly limit the scope of application of the LugC. Implementing an effective coordination mechanism will only be possible by international instrument. Within the EU, the Insolvency Regulation fulfills this role. It is doubtful that the other Contracting States of the LugC will accept Switzerland's unilateralism.

That brings me back to the starting point. After Brexit, Britain will be faced with these same coordination issues. The Insolvency Regulation (and other regulations on jurisdiction and enforcement) will fall away without any fallback such as the LugC. This is why litigators should care about Brexit.

Our Litigation Team and our Insolvency Law Team will be happy to answer any further questions you may have.

Author: Christan Oetiker

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