According to a new Federal Supreme Court decision, securing an advantageous place of jurisdiction in Switzerland (so-called 'forum running') in an international dispute is of sufficient interest for an action seeking a negative declaratory judgment. This new precedent enables parties domiciled in Switzerland to anticipate foreign proceedings initiated by a counterparty by filing an action for a negative declaratory judgment to drag the case before a court in Switzerland.
New Federal Supreme Court precedent
Swiss parties which have been confronted with an impending legal action by a counterparty abroad have thus far not been in a position to pre-empt such an action by filing an action for a negative declaratory judgment (ie, an action seeking a declaration that the claim asserted by the counterparty does not exist) in Switzerland. Pursuant to earlier precedent (ATF 136 III 523), the Federal Supreme Court has previously denied that there was a legitimate interest in filing such actions to secure the jurisdiction of the Swiss courts. This restrictive precedent has been widely criticised as discriminating against Swiss parties in international disputes.
In a new decision (4A_417/2017, awaiting official publication), the Federal Supreme Court has changed its view and now allows such actions.
Facts assessed by Federal Supreme Court
The plaintiffs (the Swatch Group and two of its subsidiaries) had decided to stop supplying the defendant (an English wholesaler of watch parts) by introducing a selective distribution system. The defendant requested that the plaintiffs confirm that they would resume the delivery, as otherwise the defendant would file an action before the UK High Court in London for violation of European antitrust law without further notice. The defendant subsequently filed such action.
However, shortly before the filing of the action in London, the plaintiffs filed an action for a negative declaratory judgment in the Commercial Court of the Canton of Berne in Switzerland. In this action, the plaintiffs asked for a declaration that they were not obliged to supply the defendant and that they did not owe the defendant anything in connection with the termination of supply, particularly no damages.
The Commercial Court limited the proceedings to the question of whether the plaintiffs had a legitimate interest in such action. Based on Swiss law, the Commercial Court denied such interest and dismissed the action on procedural grounds.
The plaintiffs filed an appeal with the Federal Supreme Court. In the complaint they argued that the question of legitimate interest should be decided based on the Lugano Convention, which would not require a special interest in a negative declaratory judgment. If the Federal Supreme Court was to assess this question under Swiss law, the plaintiffs argued that no particular interest in a negative declaratory action was required under the Code of Civil Procedure and that in any event such interest must be assumed in the present international dispute.
Federal Supreme Court's considerations
The Federal Supreme Court upheld the complaint by Swatch Group and its subsidiaries.
The Federal Supreme Court followed its established precedent insofar as the court considered that the question of a legitimate interest in an action for a negative declaratory judgment is not governed by the (otherwise applicable) Lugano Convention, but by the applicable national law (c 3.2). The court raised the question (which, since the entry into force of the Code of Civil Procedure, had been left open) as to whether legitimate interest is a question of substantive or procedural law. The court decided in favour of a procedural qualification, particularly because legitimate interest is regulated in the code (as part of the general interest in legal protection which, according to Article 59(2) of the code, is a requirement for any civil proceedings). Therefore, the interest in an action for declaratory relief in a Swiss litigation is determined by Swiss law (lex fori) in international matters, and not by the law applicable to the merits (lex causae) (c 4.3).
Departing from its previous precedent, based on Swiss law, the court affirmed that the plaintiffs' aim (ie, the defendants in the forthcoming foreign proceedings) to secure a favourable place of jurisdiction in Switzerland is a sufficient interest in an action for a negative declaratory judgment. The previous restrictive approach disadvantaged Swiss parties in disputes since they were denied a possibility to file such action in Switzerland, while this opportunity was available to their counterparties abroad. In its new precedent, the court regards a party's actual interest in conducting the litigation in a particular country (and not another country), and thus its ability to initiate an action for a negative declaratory judgment in Switzerland, as substantial. The reasons for this are, in particular, the different procedural rights, languages, duration and cost of litigation in different countries. However, this reasoning applies in principle only to international disputes and not domestic litigation in Switzerland, since in the latter the choice of a particular jurisdiction is of much less importance (c 5.3).
In the Federal Supreme Court's opinion, the admission of an action for a negative declaratory judgment is also reasonable from the perspective of the defendant (ie, the plaintiff in the forthcoming foreign proceedings). Contrary to its previous precedent, the court no longer assumes that the defendant would be unduly forced to litigate the case prematurely. In fact, in this situation, the defendant planned to initiate litigation abroad and thereby signalled that it was prepared to conduct the litigation. The additional objection by the defendant that the admission of such actions for negative declaratory judgments would unduly burden the courts with unnecessary parallel proceedings was rejected by the Federal Supreme Court (with reference to Article 27 of the Lugano Convention (c 5.2)). This provision prevents parallel proceedings by requiring any court other than the court first seized with the matter to stay the proceedings and decline its jurisdiction as soon as the jurisdiction of the court first seized has been established.
The Federal Supreme Court held that, at least in international disputes, a party's interest in securing a preferential place of jurisdiction in forthcoming court proceedings must be qualified as a legitimate interest in an action for a negative declaratory judgment (c 5.4).
Relevance of decision for Swiss parties
The new Federal Supreme Court precedent departs from the previous restrictive approach regarding the admission of actions for negative declaratory judgments to secure a place of jurisdiction. The court now focuses primarily on the practical advantages of conducting the litigation in the home jurisdiction (in particular, the fact that proceedings are governed by procedural law with which the party is familiar and are conducted in the party's own language). The court strongly relativises its previous concerns regarding forum running (which were of a primarily theoretical nature), that had tipped the scales in favour of the restrictive approach, and now aims at preventing discrimination against Swiss parties in international disputes. Since, in the case at hand, the initiation of the foreign proceedings was imminent, the court did not have to decide on how imminent foreign proceedings must be in order to establish a legitimate interest in filing an action for a negative declaratory judgment in Switzerland. Thus, the question remains open.
From the perspective of parties which are domiciled in Switzerland, the new precedent by the Federal Supreme Court is good news. It enables Swiss parties to conduct a pre-emptive strike by filing an action for a negative declaratory judgment to secure a preferential place of jurisdiction in Switzerland (provided that Swiss jurisdiction exists based on the Lugano Convention or the Private International Law Act). In addition, the new precedent ensures that in cross-border disputes Swiss parties have the same procedural means available as their foreign counterparties. Indeed, in many other countries the filing of an action for a negative declaratory judgment is available.
The practical aspects which, among others, were decisive in the Federal Supreme Court's decision to admit actions for a negative declaratory judgment to secure the preferred place of jurisdiction in an international context exist only to a lesser extent in domestic legal disputes between parties which are both domiciled in Switzerland. This is particularly true since the entry into force of the unified Code of Civil Procedure. Nevertheless, there may also be practical interests in forum running in domestic disputes (particularly due to Switzerland's different national and procedural languages). However, based on the considerations in the new precedent, it is not expected that the court will also abandon its restrictive approach with regard to forum running in domestic disputes and permit actions for a negative declaratory judgment to this end.
For more information please contact Miguel Oural at Lenz & Staehelin's Geneva office by telephone (+41 58 450 70 00) or email ([email protected]). Alternatively, contact Dominique Müller at Lenz & Staehelin's Zurich office by telephone (+41 58 450 80 00) or email ([email protected]). The Lenz & Staehelin website can be accessed at www.lenzstaehelin.com.
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