Opting for choice of forum clause in favour of Swiss state courts

In our March 2014 column in China Business Law Journal, we featured Switzerland as a preferred place for international arbitration. While in our practice we still see a majority of international contracts being subjected to arbitration, an increasing number of parties to international contracts is opting for a choice of forum clause in favour of Swiss state courts for a variety of reasons – even in cases that have no other reference to Switzerland.

Court resolution or arbitration?

Parties usually opt for Swiss arbitration, or a choice of forum in favour of Swiss state courts, because they subjected the contract to Swiss law, mainly because they are well aware of Switzerland’s political neutrality and trust that the Swiss civil law is well balanced. When it comes to the issue of submitting dispute resolution to Swiss arbitration or Swiss state courts, a party familiar with the Swiss state courts’ dispute resolution system may favour state court resolution over arbitration for the reasons discussed below.

Generally, Switzerland is well known for its efficient court system, which is independent from the government, free of corruption and unbiased.

Enforceable in EU, not in China

Decisions rendered by a competent Swiss court are automatically acknowledged in all member states to the so-called Lugano Convention, and may be enforced in those countries (and even others) with ease. Besides Switzerland, all member states of the EU, Denmark, Norway and Iceland are members of the Lugano Convention.

Nevertheless, as with the court judgments of many other Western countries, Swiss state court judgments are, for lack of a bilateral Sino-Swiss treaty on the mutual recognition and enforcement of judgments, not enforceable in China, unlike Swiss arbitral awards, which are enforceable under the New York Convention to which both China and Switzerland are members.

If, therefore, a Chinese party agrees with a Swiss or other EU party – unaware of the unenforceability of Swiss state court judgments in China – to adopt a choice of forum clause in favour of Swiss state courts the Chinese party will be better off than with an arbitration clause. As a claimant, it will be able to avail itself of the enforceability of Swiss judgments in the EU, while as a defendant it can successfully oppose the enforcement of the Swiss judgment in China.

Nevertheless, a Chinese party interested in winning as a claimant rather than escaping enforcement as a losing defendant may still worry whether litigating before Swiss state courts may be riskier due to less business-experienced judges, or more expensive or more time consuming than litigating before Swiss arbitration tribunals. The following features of Swiss state court proceedings may help to properly assess these issues.

No pre-trial discovery proceedings

In contrast to most common law jurisdictions, and as in arbitration, the Swiss Civil Procedure Code does not provide for pre-trial discovery proceedings. However, where evidence is at risk – for example, dying or relocating witness, building on the verge of collapse, etc. – the risk of loss of the evidence opens up the possibility of asking the court for a precautionary taking of evidence.

Zurich Commercial Court

In the canton of Zurich – like in some other cantons – where the majority of Swiss banks and numerous eminent Swiss and international companies have their headquarters, commercial disputes between companies will be heard and decided by the Commercial Court.

The chair of the Zurich Commercial Court is assisted by judges who have gained a thorough experience in a broad variety of sectors in the domestic and international economy. In contrast to arbitral proceedings, the judges may not be designated by the parties.

Instruction hearing

As with all ordinary courts in Switzerland, the Zurich Commercial Court may at any time conduct an organisational hearing, also referred to as “instruction hearing”. Under the scope of such hearings are informal discussions of the matter in dispute, supplementation of the facts, sometimes preparation for the main hearing and the taking of evidence. The Zurich Commercial Court is well known for its well qualified provisional assessments of the case as presented to the court in the parties’ first briefs.

As a highly welcome consequence of this professional pragmatism, the majority of cases are terminated within approximately 12 to 15 months by amicable and balanced settlements to the benefit of both parties, rather than by a formal decision, which may take another 12 to 15 months. Especially in the case of an amicable settlement, the proceedings before the Zurich Commercial Court may thus be swifter than those before an arbitral tribunal.

Court fees

The court fees of the Zurich Commercial Court, as with all ordinary Swiss courts, are lower than the fees usually levied by the arbitral tribunals.

However, all briefs need to be submitted in German, the official language in the canton of Zurich. Exhibits in other languages must be translated, which may be a costly process, but in practice exceptions may apply, especially with respect to documents in English and French.

Powerful appeals

In cases where no settlement can be reached, decisions by the Zurich Commercial Court may be directly appealed before the Swiss Federal Supreme Court. This possibility to appeal is one of the differences compared to arbitration proceedings, where an appeal is available in exceptional cases only, restricted to a very limited list of accepted legal grounds.

On the other hand, the possibility to appeal may delay the dispute resolution process by more than one year.