Switzerland: Litigation / Arbitration in Switzerland

Switzerland is a small West European Country with about 7,3 Mio. of inhabitants which does not make part of the political system of the European Union (EU). Switzerland is a federal republic consisting of 26 cantons and half-cantons with four languages (German, French, Italian and Raeto-Romantsch). The legal system developed on the romano-germanic legal system and therefore enacted or written law is by far the most important source of law. The legislation is based on the principle of direct democracy (compulsory constitutional referendum, optional referendum, legislative initiatives). There are cantonal and federal laws such as provisions on the level of the municipalities. Due to historical reasons and federal principles, each of the cantons institutes a code of civil procedure and a code of judicial organization. In March 2000 the Federal Constitution was revised and the jurisdiction in the field of civil procedure law transferred to the federal legislator in order to unify the single procedural laws within one Federal Act. The judicial reform of the government to ascertain efficiency and equality consists of following three matters:

Per January 1, 2001, the Federal Act on the Place of Jurisdiction in Civil Matters (PJA) of March 24, 2000, was enacted. The place of jurisdiction is no more defined by the single cantonal codes of civil procedure.

The government charged an expert commission for drafting a Federal Law of Civil Procedure. The Draft shall be available to the public in April 2003. The legislation process (report of the government, discussions in the parliament, referendum) shall take some years and it is expected that the law in its final version may be enacted during 2008. Notwithstanding the unification of the Civil procedure law, the organisation of the courts shall remain in the competence of the 26 cantons.

The reform of the Federal Jurisdiction (relief of the Federal Tribunal by forming a separate Federal Administrative Tribunal and a Federal Criminal Tribunal and reform of the rights of appeal).

Main Principles: (1) According to the principle of free disposal each party determines the matter in dispute. A judge may not award more that a party claims or less than the other party recognizes. (2) Each party has to assert the relevant facts, to state defenses and to submit evidence. On the contrary to the common law, the parties are neither obliged nor allowed to a pretrial discoveriey. Insufficient or unclear allegations made by the parties may be questioned by the Court. In some matters the court must ex officio even help the parties in eliciting the facts (for example in family matters). (3) The parties have to submit briefs within a certain time limit. (4) Each party has a right to be heard. (5) The judge administrates the procedures. (6) The judge must find the applicable law. However, the parties may be requested for assistance and in case the content of the foreign law cannot be established, Swiss law would apply.

Court Structure: Each canton has several courts of primary jurisdiction (in larger cantons so-called district courts) and one court of appeal. They usually cover civil and criminal cases. Administrative matters are heard by a special court. The courts of primary jurisdiction normally consist of five or three members. If the value of the matter in dispute does not exceed a certain amount and in cases a summary or accelerated procedure applies disputes are settled by a single judge or by a commission of three of its members. In the four cantons of Zurich, Bern, Aargau and St. Gallen civil matters are heard in commercial courts if they involve commercial transactions of a certain value of the matter in dispute and if both parties or at least the defendant are listed as firms in the commercial register. In some cantons specialised courts exist for labour disputes and for rent tribunals. Certain matters such as disputes about industrial property law and other specialized matters are heard before the court of appeal as first instance. Finally, parties may agree to let out the primary jurisdiction and to choose the court of appeal as only cantonal instance. The Federal Court is the final court of appeal (see Rights of Appeal).

Parties: Each subject of rights may sue or be sued. In respect to an incorporated body this question is decided according to the law under which it was organized. According to Swiss Civil Law, corporate bodies are held to be subject of rights and therefore may be party of a civil procedure. A person may conduct civil proceedings if he has full discretion to make rational decisions. Substantive law determines in which cases an action may be brought or defended by a person which is not the real party in interest. For example, an executor may sue in his own name for the benefit of the community of heirs. Parties may bring or defend actions personally without being represented by counsel if the court does not decide that a person is unable to plead properly. In some cases determined by substantive law a compulsory joinder of parties is needed for just adjudication (for example: a community among heirs). In case a person will be liable if a favourable judgment is not forthcoming, the plaintiff may notify this person of intervention (third party complaint) with the effect that this person will be unable in further litigation to make the assertion that the judgment of the prior proceeding was not correct. A person fearing affects of a judgment to his rights may be admitted in a law suit of other parties to the assistance of one litigant in case the legal interest is substantiated.

Commencing An Action / Place of Jurisdiction: Before the beginning of the court proceedings the parties usually have to try to settle the dispute by a justice of peace or mediator who in general has no legal education and is elected by the municipal voting people. In case no settlement is found, the mediator issues a document that entitles the plaintiff to introduce action before the competent tribunal. The competence of the single courts is regulated by the cantonal provisions, usually within the codes of judicial organization. In respect to proceedings between parties having domicile in Switzerland, the place of jurisdiction is determined as of January 1, 2001, by the PJA (see introduction). According to Art. 9 PJA the parties may agree in writing on a forum for an existing or potential dispute concerning claims arising out of a specific legal relationship. The designated court may only decline its jurisdiction, if the dispute lacks a sufficient local or factual connection to the stipulation forum. In respect to proceedings involving a party with domicile out of Switzerland, the place of jurisdiction is determined either by the Federal Code on Private International Law (PIL) having taken effect on January 1, 1989, or the Convention on Jurisdiction and the Enforcement of judgments in Civil and Commercial Matters, signed on 16 September 1988 by the EU and the EFTA countries (Lugano-Convention). In Zurich parties do not have to try a settlement before the mediator in case of jurisdiction based on the Lugano Convention but rather can introduce action before the tribunal directly.

Evidence: According to the general rule stated in Article 8 of the Swiss Civil Code, in the absence of a special provision, the burden of proving an alleged fact rests on the party who bases his claim on that fact. The judge decides on the admissibility of instruments of proof. The cantonal codes of civil procedure usually provide for as instruments of proof explicitly: documents, witnesses, experts, questioning of parties. Testimony on observations of facts has to be done in a procedure where witnesses must testify orally after having been cautioned to tell the truth and informed of the possible reasons for refusing to testify (such as relationship for instance). Witnesses are obliged to testify if they have no right to refuse to give evidence and may be fined in case of refusing testimony. Parties and third persons in possession of documents necessary to prove a fact may be compelled to produce them.

Special Procedures: Summary proceedings take place when the defendant’s liability can immediately be proven by instantly present instruments of proof (such as documents) or when a clear claim based on clear law is to be decided, which rather rarely is affirmed by the summary judge. Enforcement of judicial decisions take also place in summary proceedings such as claims for safeguarding measures. Accelerated proceedings take place when the nature of the case demands a decision without delay, such as in labour disputes and disputes connected with the execution of debts.

Rights of Appeal: Appeals and appeals for nullity are submitted to the cantonal court of appeal. Some cantons, such as Zurich, have stipulated that an appeal for nullity be brought before a court of cassation in cases where important rules of cantonal procedure law may have been violated. Notwithstanding the decisions of these courts, the parties may file an appeal to the Federal Tribunal claiming that rules of Swiss federal law have been violated by the cantonal court. Civil appeal may be brought to the Federal Court in case federal private law is concerned and if the value of the matter in dispute reaches the amount of CHF 8’000.-- (it is planned to increase this amount up to CHF 40’000.-- during the judicial reform). The Federal Court only decides on the legal question and bases on the state of facts established during the procedures before the cantonal courts of primary jurisdiction and of appeal (and eventually of cassation). Therefore, special attention has to be paid to the evidence procedure before the cantonal court(s).

Courts Costs, Attorney’s Fees: Claimants having no residence in Switzerland or in a member State to the Hague Convention of March 1, 1954 of Civil Procedure, and by bankrupt claimants have to pay a judicial bond in advance to ensure the court costs and the other party’s attorney’s fees. After the suit is terminated the losing party is condemned by the court to pay the court costs as well as the other party’s attorney’s fees. If a party does not lose totally, the costs are divided proportionally on both parties. Court costs are generally due based on the value of the matter in dispute while the cantonal provisions regarding the other party’s attorney’s fees differ. In Zurich the other party’s attorney’s fees are also due on the basis of the value of the matter in dispute. Other cantons provide for the compensation of the real fees. Contingency fees are not allowed in Switzerland.

Enforcement: Switzerland has a rather special system allowing a party to apply to the execution officer claiming an award of money outstanding even if there have not yet been court proceedings in the matter. The debtor has either to pay upon the order of the execution officer within twenty days or to deny the claim within ten days. In case of denying the claim, an ordinary or summary action has to be brought by the creditor to get a court decision. The system allows to enforce clearly disclosed and provable claims in an efficient way. Swiss Judgments orders stating a performance in money or a provision of security are enforceable according to the Swiss Debt Enforcement and Bankruptcy Law (SDEBL) of April 11, 1889, revised in 1994. Foreign decisions are recognized in Switzerland based on the Articles 25 ff. PIL. The recognition is granted in case the judicial or administrative authorities of the state in which the decision was rendered had jurisdiction and if there are no grounds of refusal such as the manifest incompatibility with Swiss law of principal importance. Foreign decisions rendered in EU and EFTA states are recognized according to the Lugano Convention.

Arbitration: Due to security, political stability, a highly developed infrastructure and neutrality, Switzerland has a long tradition as a place for international arbitration. A number of chambers of commerce offer arbitration services. Among these, the most important are the Zurich and the Geneva Chamber of Commerce, but also the Swiss-German or the Swiss-American Chamber of Commerce. Each of these chambers offer their own arbitration rules designed for international arbitration cases. Swiss arbitration tribunals also frequently use arbitration rules such as the ICC Rules of Arbitration or the UNCITRAL Arbitration Rules. However, the parties to the arbitration are free to choose the rules governing the arbitral proceedings as well as the law governing the subject matter in dispute. In the absence of a choice of procedural rules, the arbitral tribunal sets up its own rules as far as necessary. International arbitrations are governed by Chapter 12 of the PIL Act, which applies to all arbitration cases where the arbitral tribunal has its seat in Switzerland and at least one of the parties had no domicile or habitual residence in Switzerland at the time when the arbitration agreement was concluded. Companies are considered to be domiciled at their registered seat. In the absence of a choice of substantive law, the arbitral tribunal must decide the case according to the provisions of the law having the closest connection with the case. The parties may also authorise the tribunal to decide ex aequo et bono. The application of Chapter 12 of the PIL Act may be excluded by the parties. The PIL Act reflects a broad concept with regard to arbitrable disputes. In principle, any dispute involving a financial interest and having a commercial character may be arbitrated. In any case, the arbitral tribunal must ensure equal treatment of the parties and their right to be heard. An arbitral award may be challenged before the Swiss Federal Supreme Court for a limited number of reasons. However, if neither party has its domicile, its habitual residence or a business establishment in Switzerland, they may even exclude any challenge of the arbitral award by an express stipulation. Switzerland is a party to several arbitration conventions, including the Geneva Protocol of September 24, 1923, on Arbitration Clauses, the Geneva Convention of September 26, 1927, on the Enforcement of Foreign Arbitral Awards and the New York Convention of June 10, 1958, on the Recognition and Enforcement of Foreign Arbitral Awards. In addition to this, Switzerland has entered into bilateral agreements with several countries. Arbitration regarding parties both having domicile in Switzerland is either governed by cantonal codes of civil procedure or the Intercantonal Arbitration Convention.

Mediation: In recent time, mediation as a new form of settlement of conflicts is being established in Switzerland too. In some cases, this non-judicial conflict resolution method may lead to a more effective and satisfying settlement than court or arbitration proceedings. The Swiss Chamber of Commercial Mediation offers mediation services (see under http://www.mediationskammer.ch)

This publication is intended to provide accurate information in regard to the subject matter covered. Readers entering into transaction on the basis of such information should seek additional, in-depth services of a competent professional advisor. Wenger vieli belser, the author, consultant or general editor of this publication expressly disclaim all and any liability and responsibility to any person, whether a future client or mere reader of this publication or not, in respect of anything and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication.