Originally published February 2010

The Swiss Supreme Court forced a creditor to argue simultaneously the same claim at the forum applicable to that claim and at the Swiss forum of a debt-restructuring moratorium. Belgium is now suing Switzerland before the International Court of Justice ("ICJ") for breach of the Lugano Convention on jurisdiction and the enforcement of judgments in civil and commercial matters (the "Lugano Convention").

Facts

In 1995, Swissair (subsequently renamed SAirGroup) and its subsidiary SAirLines acquired some equity in Sabena and entered a partnership with the Belgian State and three state-controlled Belgian companies. Various other contracts were entered into, between 1995 and 2001, among others, to secure the financing and joint management of Sabena, providing for the exclusive jurisdiction of the Brussels courts in the event of dispute and for the application of Belgian law.

On 3 July 2001, the Belgian State and three state-controlled Belgian companies (the "Belgian shareholders") initiated a judicial proceeding in Belgium against Swissair and SAirLines (the "Swiss Shareholders"). They alleged various contractual and extra contractual breaches, and sought compensation, inter alia, for the amount lost on investments made on the basis of representations by the Swiss Shareholders and for the expenses incurred. With a judgment dated 20 November 2003, the Commercial Court of Brussels acknowledged its jurisdiction to decide the contract and extra-contractual liability, based on Articles 17 and 5 (3) of the Lugano Convention. The Court admitted the breaches but denied all compensation claims. Both sides appealed this judgment; the appeal decision on the merits is pending to date.

In the meantime, on 4 October 2001, the Swiss Shareholders filed for a debt-restructuring moratorium (sursis concordataire) with the District Court (Tribunal d'arrondissement) of Zurich, as a result of which they were placed in liquidation. The Belgian shareholders sought to ensure that the claims pending in Belgium be listed on the schedule of claims (état de collocation) and be recognized in the apportionment of the SAirLines and SAirGroup's assets. The liquidators of the Swiss shareholders declined to register these debt claims, without awaiting the conclusion of the Belgian proceedings, based on the principle of territoriality of debt-restructuring proceeding under Swiss law. The Belgian shareholders contested SAirLines and SAirGroup's schedule of claims before the Swiss courts, seeking to have their debt claims registered thereon. They also lodged an administrative "complaint" against SAirLines' Swiss liquidators. They sought, in both instances, the stay of the liquidation proceedings in Switzerland, pending the outcome of the Belgian proceedings in respect of the Swiss companies' contractual and non-contractual liability, on the basis of Article 21 of the Lugano Convention (lis pendens). They contested that the substantive arguments in support of their action contesting the schedule of claims fell exclusively within the scope of the Belgian law of civil liability, not the law of bankruptcy. Both proceedings ended up in last resort before the Swiss Supreme Court1.

The Swiss Supreme Court left open the question whether the action contesting the schedule of claims qualifies as a bankruptcy proceeding within the meaning of Article 1, par. 2 ch. (2) of the Lugano Convention (excluded from the scope of the Lugano Convention), or indeed its qualification as an enforcement proceeding within the purview of Article 16 par. 5 (exclusive jurisdiction of the courts of the Contracting State in which the judgment has been or is to be enforced). Rather, the Supreme Court considered that the procedural nature of such action subjects it to the strict territoriality principle, and denied the existence of any grounds, whether based on the Lugano Convention or on Swiss domestic law, which would justify the stay of the debt-scheduling proceedings in Switzerland, pending the determination in Belgium of a claim arguably included in the schedule of claims. As a result,notwithstanding the exclusive jurisdiction clause the Belgian Shareholders were compelled to argue the same issues of contractual and non-contractual liability under Belgian law also in Switzerland in order to preserve their rights in the debt-scheduling proceedings.

The Belgian Application

The Government of Belgium argued that, by refusing to stay the debt-scheduling proceedings in Switzerland, pending the determination, by a foreign jurisdiction, of a claim arguably included in the schedule of claims, Switzerland's committed a three-fold breach of its international obligations relating to the Lugano Convention :

  1. Non-recognition of the future Belgian judgment, based on the alleged procedural / enforcement nature of the challenge:
  • pursuant to the Belgian Government "the nature of proceedings pending in the requested State, Switzerland in this case, has no impact on application of the Lugano Convention provisions on recognition of foreign judgments. All that matters is the nature of the judgments whose recognition is sought, namely, the Belgian judgments. This must be determined by means of an independent interpretation of the Lugano Convention, not one based on the particularities of the procedural law of the requested State. In the present case the Belgian judgments lie completely outside the area of bankruptcy."
  • Following the same line of argument: "The proceedings under way in the Belgian courts are not about enforcing judgments but about the substance of the dispute between the parties, namely, the contractual and non-contractual liability of the Swiss shareholders, which lies within the Belgian courts' jurisdiction [...]."
  1. Refusal to stay the proceedings pursuant to Swiss municipal law, based on the non "recognisability" of the Belgian judgment in Switzerland; in so doing, the Swiss Supreme Court "is violating the rule of international law providing that the exercise of any State authority, in particular in judicial matters, is subject to observance of the rule of reason. Specifically, this bars any exercise of State authority on grounds conflicting with the obligations of the State in question under an international convention [...]."
  2. Refusal to stay the proceedings pursuant to the Lugano Convention, based on the characteristic features of the Swiss debt-scheduling procedure excluding such procedure from the scope of the Lugano Convention:
  • The Belgian Government points out : "all civil or commercial actions based on the general rules of the law of liability are within the scope of application of the Convention. The exclusion of bankruptcy matters extends only to those claims whose legal foundation is based on the law of bankruptcy [...] Accordingly, a cause of action in contractual and non-contractual liability falls within the scope of application of the Convention, whether it arises independently of proceedings in bankruptcy or at the time of or as part of such proceedings."
  • The Belgian Government also relies on an extensive interpretation of the lis pendens principle under the Lugano Convention (Art. 21): "This article must be interpreted independently and applies even in the absence of strict identity between the two actions, so long as they concern the same legal relationship and have the same objective (identity of cause of action)." In the case at hand, the Government considers that the actions in the Belgian and Swiss courts meet the criteria laid down in Article 21 of the Lugano Convention "since they involve the same parties, the same facts and the same contractual legal relationship and have the same objective in respect of determining the Swiss shareholders' civil liability. The Swiss court, seised later, is thus required by the Convention to stay its proceedings on the disputed question. Switzerland is therefore violating Article 21 of the Lugano Convention."

The Government of Belgium hence requested the ICJ to adjudge and declare, inter alia, that Switzerland take all appropriate steps to enable the judgment by the Belgian courts on the contractual and non-contractual liability to be recognized in Switzerland, and to stay the debt-scheduling proceedings in Switzerland, pending the determination, by the Belgian Court, of the Belgian Shareholders' claim which inclusion in the schedule of claims is sought.

Commentary

It would be greatly premature at such a preliminary stage of the proceedings – Belgium has only filed its Application instituting proceedings – to forecast the outcome of the case. However, considering the venue of the case – the ICJ – it is very unlikely that any meaningful discussion be held on the highly sensitive issue of the interaction (indeed complementarity) between the general European civil proceeding rules on the one hand, and the specific European rules on insolvency proceedings on the other hand. Such interaction, which proved already difficult and uncertain at the intra-European level,2 would be even more disputable at the EU/EFTA level, not least considering that the Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings is not directly applicable in EFTA jurisdictions.

Whilst the European Court of Justice – which has not yet decided on the delimitation between the two instruments – would probably be more inclined to favor a coherent European judicial area, the ICJ will be basing its reasoning primarily (if not exclusively) on public international law considerations and confine its analysis to the question of Switzerland's compliance with its international obligations. In that respect, it is doubtful whether the ICJ be the most suitable forum to discuss technicalities of the European judicial system such as lis pendens and the interpretation of the exclusion of insolvency proceedings from the scope of the Lugano Convention. It is not impossible – although it would require the consent of all the Parties involved – that the matter be subsequently deferred to the ECJ upon Switzerland's completion of its ratification processes of the revised 2007 Lugano Convention, in application of Protocol 2 on the Uniform Interpretation of the Convention and on the Standing Committee.

Kingdom of Belgium v. Swiss Confederation, Application instituting proceedings, filed December 21, 2009. The complete text of Belgium's Application, is available on the docket of the ICJ in its original French version with an English translation by the Registry; http://www.icj-cij.org/docket/index.php?p1=3&p2=1&code=bch&case=146&k=ad.

Footnotes

1 On the administrative complaint: Swiss Supreme Court's decision in the matter 7B.226/2006, Staat Belgien, Société Fédérale de Participations et d'Investissement SA and SA Zephyr-Fin v. SAirLines in Nachlassliquidation sowie Obergericht des Kantons Zürich, of 23 April 2007, published in Digest of the Swiss Supreme Court's decisions (ATF) year 133 part III page 386. On the contestation of the SAirLines schedule of claims: Swiss Supreme Court's decision in the matter 5A_20/2008, SAirLines in Nachlassliquidation gegen Staat Belgien, Société Fédérale de Participations et d'Investissement SA and SA Zephyr-Fin, of 30 September 2008, published in ATF 135 III 127.

2 That is between the Council Regulation (EC) No. 44/01 of December 22, 2000 on Jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Regulation I) on the one hand, and the Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings on the other hand); see e.g. Hess/ Pfeiffer/ Schlosser, Report on the Application of Regulation Brussels I in the Member States, Study JLS/C4/2005/03, September 2007, par. 88: noting that "delimitation between the instruments proved to be difficult and led to uncertainties".

For further information on this topic please contact Frank Spoorenberg or Isabelle Fellrath at Tavernier Tschanz by telephone (+41 22 704 3700) or by fax (+41 22 704 3777) or by email (spoorenberg@taverniertschanz.com, fellrath@taverniertschanz.com).

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