The Swiss Federal Tribunal rules on the applicability of the Lugano Convention in Swiss enforcement proceedings

In a decision published on July 28, 2021 (DFT 5A_697/2020 dated March 22, 2021), the Swiss Federal Tribunal partially clarified the applicability of the Lugano Convention on Jurisdiction and the Recognition and Enforcement of Judgments in enforcement proceedings in Switzerland after Brexit. The decision was marked as a leading case.

The key take aways and open issues

• The Lugano Convention continues to apply in Swiss enforcement proceedings concerning UK judgments rendered pre-Brexit (January 31, 2020) if – at the same time – the enforcement proceedings were completed on the cantonal level before the end of the Brexit transitional period on December 31, 2020 (the Transition Period).
• The Lugano Convention very likely continues to apply if the judgment was rendered in the UK during the Transition Period and/or the recognition/enforcement proceedings were initiated but not completed on the cantonal level in Switzerland before the end of the Transition Period.
• It is doubtful whether the Lugano Convention continues to apply if the judgment was rendered in the UK before January 1, 2021 but the recognition/enforcement proceedings in Switzerland were initiated after December 31, 2020.
• It is rather unlikely that the Lugano Convention continues to govern the recognition of UK judgments rendered after 2020, even if the UK proceedings have been pending since before January 1, 2021.

In a nutshell, the particulars of the case were as follows

In a decision dated October 17, 2019, the High Court of Justice in England ordered a debtor to pay GBP 8 million plus interest to its creditors (the Order).

In November 2019, the creditors initiated enforcement proceedings against the debtor and requested the attachment of certain of the debtor’s assets in Switzerland. The creditors sought recognition and enforcement of the Order in Switzerland pursuant to the Lugano Convention.

In December 2019, the Swiss district court granted the creditors’ request ex parte and ordered the attachment of assets of the debtor based on the Order. After hearing the debtor, the district court confirmed the attachment. In July 2020, following an appeal by the debtor, the second instance cantonal court confirmed the lower court’s decision.

Finally, the debtor filed an appeal with the Swiss Federal Tribunal, arguing – inter alia – that the Lugano Convention no longer applied because of Brexit (as of February 2020) and the end of the Transition Period (December 31, 2020), which concluded while the case was pending before the Federal Tribunal. The debtor argued that, consequently, the (stricter) requirements of the Swiss International Private Law Act (PILA) applied.

The Federal Tribunal’s decision

First, the Federal Tribunal noted that the EU is a contracting state of the Lugano Convention and that, although the UK left the EU on January 31, 2020, it continued to be treated as a member state of the EU during the Transition Period, i.e. until December 31, 2020.

The Federal Tribunal also noted that the lower courts entered their judgments before the end of the Transition Period and, therefore, correctly applied the Lugano Convention.

Second, the Federal Tribunal assessed the consequences of the end of the Transitional Period in light of the pending appeal proceeding before the Federal Tribunal.

The Federal Tribunal held that from January 1, 2021, the Lugano Convention no longer applies to the UK. The Federal Tribunal emphasized that the Lugano Convention neither provides for an express regulation addressing the situation in which a member state ceases to be bound by the Lugano Convention nor does the Lugano Convention provide for a transitional regulation.

The Federal Tribunal referred to the views of various commentators on the subject, which support the view that the recognition and enforcement of judgments rendered during the term of the Lugano Convention should, in principle, continue to be governed by the Lugano Convention. In addition, the Federal Tribunal referred to the opinion of the Swiss Federal Office of Justice, which generally suggests that the recognition and enforcement of judgments rendered in the UK before January 1, 2021, remain subject to the Lugano Convention, even after December 31, 2020.

The Federal Tribunal did not expressly confirm these views, but simply noted that the Order as well as the entire cantonal enforcement proceedings and the filing of the appeal against the decision of the court of second instance took place before the end of the Transition Period. Further, the Tribunal emphasized that it is not clear what major public interest could justify the application of the PILA instead of the Lugano Convention. Furthermore, the Federal Tribunal underscored the principle of non-retroactivity, which courts must consider when interpreting the scope of application of the PILA, and the Federal Tribunal explained that, in certain cases, the new law, if stricter than the old one, might be inapplicable.

Accordingly, the Federal Tribunal held that the present case remains to be subject to the Lugano Convention.

Discussion

The Federal Tribunal’s recent judgment partly clarifies the application of the Lugano Convention after Brexit. In its judgment, the Federal Tribunal carefully avoided any obiter dictum, deciding only the narrow case before it. It did so only with short and strikingly vague arguments that are difficult to extrapolate to other fact patterns. The Federal Tribunal thus retained full freedom to decide other cases as it sees fit if and when they arise. In particular, the Federal Tribunal did not expressly confirm that the Lugano Convention generally continues to apply to all decisions rendered in the UK before the end of the Transition Period and irrespective of when the enforcement proceedings are initiated in Switzerland.

Moreover, the Federal Tribunal did not address the opinion expressed by some commentators that the Lugano Convention continues to govern the recognition of judgments rendered in the UK after 2020, provided that the proceedings have been initiated in the UK before January 1, 2021. While this opinion is in line with Article 67(2) of the Withdrawal Treaty applicable between the UK and the EU, it is doubtful whether it is valid under the Lugano Convention. In its assessment from May 2020 on the impact of Brexit on the Lugano Convention, the Federal Office of Justice supported the view that the Lugano Convention governs the recognition of judgments rendered in the UK after 2020, but in its April 2021 opinion mentioned above, the Federal Office of Justice left the question open.

Reading between the (few) lines in the Federal Tribunal’s decision, however, it is possible, as explained in the key take aways section above, to anticipate how the Federal Tribunal may approach the various possible fact patterns regarding judgments affected by Brexit.

In this regard, the decision of the District Court of Zurich dated February 24, 2021 – although not binding on other Swiss courts – is of particular interest. The District Court of Zurich held that the Lugano Convention does not apply in enforcement proceedings initiated after the Transition Period concerning a judgement of the English High Court issued during the Transition Period.

Hence, in practice, potential pitfalls remain for the time being. In order to avoid these pitfalls, it is necessary to analyze carefully the specifics of the case.