15 May 2018

Forum Running – Switzerland takes the lead

The Swiss Federal Supreme Court reduces the requirement for the legal interest in a declaratory judgment in an international context and thereby allows proceedings to be moved to Switzerland by means of actions for negative declaration.

One of the primary concerns of the European (and Swiss) international civil procedure law is to avoid, as far as possible, parallel proceedings regarding the same disputed subject matter. For this purpose, court proceedings once formally commenced foreclose subsequent court proceedings on the same matter within Europe. This effectively impedes that courts render different, possibly contradicting judgements on the same matter.

If proceedings are threatened, the defendant may be tempted to take the appropriate steps to bring such proceedings to a convenient court. This is referred to as forum running. If the defendant choses a particularly slow court, the term torpedo action is often applied.

The most common method for forum running is an action for negative declaration: the party threatened with an action for performance, e.g., in England sues the threatening party for declaration that the claim at issue does not exist before, e.g., the Swiss courts. As a result of the foreclosing effect, such a negative declaratory action excludes a subsequent positive action for performance on the same claim.

Under Swiss civil procedure law, a legitimate interest in the proceedings is a prerequisite for litigation (Art. 59(2)(a) CPC). Many years of case law have established that for declaratory actions a particular interest in a declaratory relief is required: the claimant must have a material interest worthy of protection in the immediate determination of the legal position. This requires that the legal relationship between the parties is uncertain, that such uncertainty can be lifted only by a court and that the claimant cannot be expected to accept the continuance of such uncertainty since it impedes its freedom of action. The interests of the creditor have also to be taken into account (DSFC 136 III 523, c. 5; 131 III 319, c. 3.5; 123 III 414, c. 7.b).

According to previous case-law, the mere interest of one party to choose the court of jurisdiction which suits it, is not recognized as an interest in declaratory judgement worthy of legal protection (DFSC 136 III 523, c. 6.4; 131 III 319, c. 3.5). An unreasonable persistence of legal uncertainty was to be denied by the courts whenever an action for performance was expected in the short term. This is always the case in the circumstances described here, in which one party expects the other party to file an action for performance and, for that reason only, wants to file an action for negative declaration at a different (preferable for it) court. Hence, forum running into Switzerland was not possible because the courts did not render a judgement on the merits due to the lack of a legitimate interest in the proceedings.

In a current decision, the Swiss Federal Supreme Court has overturned this case law, at least for international cases (DFSC, 14.3.2018, 4A_417/2017, c. 5.4). The Court has openly acknowledged that the high threshold for the legal interest in a declaratory judgement did not effectively impede the phenomenon of forum running, but only rendered it impossible for Switzerland; with the effect that the parties that could avail themselves of a Swiss forum were disadvantaged by international standards. Accordingly, the Federal Supreme Court has ruled that a party's interest in "securing a place of jurisdiction acceptable to it in forthcoming court proceedings" is now sufficient as a legitimate interest in legal protection, subject to abuse of rights. It is therefore now possible to bring legal proceedings which are threatened soon in a foreign action into Switzerland by means of a negative declaratory action.

In this context, it will be of importance that Swiss conciliation proceedings pursuant to Art. 202-212 of the Swiss Civil Procedure Code under the Lugano Convention constitute the lis pendens of the action. This was found, at least, by an English Court in Lehman Brothers Finance AG v. Klaus Tschira Stiftung GmbH [2014] EWHC 2782 (Ch). This will allow a party that is threatened with a court action abroad and wants to move these proceedings into Switzer-land to act very quickly without the need to file an action already having to be fully substantiated.

Overall, the Swiss Federal Supreme Court's new position has, with one stroke, rendered Switzerland very attractive for blocking proceedings at an unsuitable foreign forum and bringing the matter before the Swiss courts instead. There is no danger that this will create "Swiss torpedo" actions as the Swiss courts will deal with actions for negative declaration in their usual swift manner.

Author: Christian Oetiker

Our Dispute Resolution Team will be happy to answer any further questions you may have.

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