Thoughts on Cross-border Litigations from a Swiss Perspective
In this article, I would like to share some thoughts triggered by a recently concluded cross-border litigation in which I assisted a Swiss financial institution.
In the litigation discussed herein, which has recently been concluded by a settlement, my client had been sued abroad (i.e., outside of Switzerland), in violation of the jurisdiction agreement entered into with the claimant. Here are some observations triggered by the mentioned litigation.
(i) For a Swiss financial institution, operating under the Swiss banking secrecy obligation, being sued abroad can be especially problematic, because the foreign judge might have difficulties to accept the extent of the Swiss banking secrecy obligation. The Swiss banking secrecy obligation contained in the Swiss Federal Banking Act and other legal bases is interpreted extensively by Swiss authorities, construing it in a fashion pursuant to which it even prohibits, for example, the simple acknowledgment or denial of a banking relationship with a certain person. It might be irritating to a non-Swiss judge if a Swiss party to the foreign proceedings insists on such issues which, from the foreign judge’s perspective, might be perceived as being an attempt to hamper the conduct of the proceedings. Depending on the circumstances, it is, however, important from the Swiss party’s perspective to carefully draft any submissions to the court to avoid being exposed because of the Swiss banking secrecy obligation that, by the way, does not only apply to banks but also to securities traders operating in Switzerland. For further information on this issue, please have a look at my article published by Jusletter on 16 April 2018 (title: Die von ihrem Kunden eingeklagte Bank und das Bankkundengeheimnis).
(ii) Commercial litigations before Swiss courts are not cheap, especially in Zurich, but commercial litigations in a common law litigation system are, depending on the circumstances, even more expensive, especially when highly qualified barristers are involved. One reason for this cost spread is the circumstance that in Swiss commercial litigations, the judge conducts the proceedings and sets the agenda in a very efficient manner. Consequently, before Swiss courts there is, for instance, no extensive motion practice. Another reason is that before Swiss commercial courts, the proceedings are generally conducted principally in writing. The Commercial Court of the Canton of Zurich (Zurich Commercial Court) is a good and rather extreme example of both the very efficient agenda-setting of the judge as well as the preponderantly written conduct of the proceedings. Around 70% of all cases before the Zurich Commercial Court are decided in a settlement hearing that follows just one exchange of written submissions, the statement of claim and the statement of defense, without that any trial with the hearing of witnesses or experts is conducted (in this regard, please see my article published by Jusletter on 6 January 2014, with the title: Praktische Hinweise zur früheren Referentenaudienz bzw. heutigen Vergleichsverhandlung vor dem Handelsgericht Zürich). The situation is very different before commercial courts that operate under a common-law-inspired system. In such proceedings, the parties can exchange various briefs and file various motions, and generally judgments are made after a trial has been held, including the testimony of witnesses. Speaking of witnesses, this is another important difference between the civil law and the common law worlds. In Switzerland, it is not only frowned upon but, in principle, outright forbidden for a lawyer to contact witnesses before their testimony, while it is normal in, particularly, US proceedings to prepare witnesses before their testimony. Obviously, preparing witnesses is another cost factor that does not exist, at least not to the same extent, in Switzerland. For a comparison of such differences between US and Swiss civil proceedings, please see my article dated 27 November 2018, with the title Der Einzelkämpfer als Prozessanwalt.
(iii) In the matter mentioned further above, I could once again observe an old rule: The willingness to conduct a commercial litigation is inversely proportional to the costs involved. Once the legal costs reach a certain threshold from which further litigation costs really begin to hurt, the parties often seek a way out of the proceedings. The following should be noted in this context: Sometimes there is no alternative to litigation, but sometimes it can be observed that a litigant was initially not informed at all or not detailed enough about the costs associated with commercial litigation, which, of course, should not have happened. Regarding the crucial importance of a careful analysis of a litigation’s chances of success and the costs involved, please see my article published by Jusletter on 25 September 2017, with the title: Zur Bedeutung und zum Inhalt von Prozesschancenanalysen.
(iv) Finally, another observation regularly made in connection with commercial litigations, which is linked to point (iii) above, concerns management’s disapproval of litigation risk. In other words, under normal circumstances, as soon as the opportunity for a reasonable settlement arises, the management of a company is willing to seize such opportunity, even if locking in the result of the litigation would appear to come with a premium vis-à-vis the projected ultimate outcome of the matter. A payment to be made under a settlement is a payment that the management controls in terms of its amount and timing, something that is, under normal circumstances, not possible with regard to payments to be made pursuant to an arbitral award or a court judgment. So, even if, to illustrate this point on the basis of a hypothetical example, inside and outside counsel may assure a defendant’s management that any payment to be made to the opposing party on the basis of a final judgment or award will in all likelihood not cost more than USD 100’000.00, usually the defendant’s management will be inclined to agree to a payment in excess of such amount when such agreed payment shields the defendant from a worst case payment of, for example, USD 1.5m (and from further legal costs). I remember arbitral proceedings in which the parties had conducted these proceedings for years and at very substantial costs, only to eventually nevertheless settle their dispute, shortly before the arbitral tribunal issued its award. This type of regular outcome of protracted and costly arbitral or court proceedings is a good illustration of management’s aversion to litigation risks discussed above.
PHH, Zurich, 31 January 2019 (www.haberbeck.ch)
The information contained in this post is for general informational purposes only and is not intended to constitute legal advice. Readers of this post should not take any actions or decisions without seeking specific legal advice.
Rechtsgebiete: Bank- und Finanzmarktrecht