Prevailing in arbitration as well as in subsequent enforcement proceedings in Switzerland will be all for naught if the award debtor is able to frustrate the enforcement of the award (for example, by transferring its assets outside of Switzerland) before the award creditor can satisfy its claim(s).
If the award creditor has identified specific assets belonging to the award debtor, Swiss law provides for a number of measures aimed at “freezing” the status quo, ensuring that its rights are safeguarded during the course of the enforcement proceedings. Those measures (and the applicable legal framework) vary depending on the relief granted in the award.
If the award provides for non-monetary relief, Article 340 of the Swiss Code of Civil Procedure (CPC) allows the award creditor to request an order for protective measures from the enforcement court (for example, an injunction forbidding the award debtor to sell certain goods). In accordance with Article 13(b) CPC, such a request may also be filed with the competent court at the place where the requested measures are to be enforced (for example, the court at the place where the goods are stored). An application for protective measures can be filed before, together with or after the request for enforcement.
Contrary to interim measures governed by Article 261 and what follows of the CPC, the applicant does not have to demonstrate that there is an imminent risk of irreparable harm to its rights. The applicant must only show that the award is enforceable. For its part, the enforcement court enjoys broad discretion when deciding on an application for protective measures. The CPC does not list exhaustively the protective measures that can be ordered.
In cases of particular urgency, the enforcement court may render an order for protective measures ex parte, that is, without hearing the other party. In such cases, however, the applicant must provide prima facie evidence that there is a risk that enforcement of its claim(s) will be frustrated if the order is not granted. Should the enforcement court grant an ex parte order, it must subsequently hear the other party and decide, after the hearing, either to uphold or revoke the protective measure it has ordered.
The situation is markedly different in case of an award for monetary relief. Protective measures in the context of enforcing monetary claims are exhaustively governed by the Swiss Debt Enforcement and Bankruptcy Act (DEBA). Specifically, the procedures and requirements regarding civil attachment, that is, the freezing of assets, are set out in Articles 271 and what follows of the DEBA.
In short, in order to obtain an attachment order, the award creditor must credibly show (that is, establish on a prima facie basis) that the following three requirements are met:
- The creditor has a mature and unsecured claim against the debtor.
- The debtor holds assets located in Switzerland.
- The creditor can rely on one of the (exhaustive) statutory grounds to grant an attachment provided in Article 271(1) DEBA.
In relation to this last requirement, Article 271(1)(6) DEBA provides that an attachment will be granted if the creditor holds an enforceable title within the meaning of Article 80 DEBA, such as an arbitral award.
If the award was made in Switzerland, the award creditor is automatically entitled to an attachment order (and can request it immediately upon notification of the award). In case of a foreign arbitral award, the same applies provided the award meets the applicable recognition and enforcement requirements. In this regard, it is not necessary first to have the award recognised in independent proceedings. Indeed, according to the Swiss Supreme Court, the court ruling on the request for attachment can decide, on a preliminary basis, on the recognition and enforceability of the award. It is therefore sufficient for the award creditor to demonstrate that the award is prima facie recognisable and enforceable in Switzerland.
The award creditor can file its application for an attachment either with the court at the place where debt collection proceedings can be initiated against the debtor (that is, the debtor’s domicile or seat), or with the court at the place where the assets are located. In the specific case of a bank account held by the award debtor, the Swiss Supreme Court considers that a distinction must be made depending on the debtor’s domicile:
- If the debtor is domiciled in Switzerland, the assets (that is,the debtor’s claim against the bank) are deemed to be located at the debtor’s domicile.
- If the debtor is domiciled outside of Switzerland but the bank has its seat in Switzerland, the assets are deemed to be located at the place where the bank has its seat.
It must also be noted that the court ruling on the application is competent to order the attachment of any and all assets held by the debtor in Switzerland, regardless of where they are specifically located. This means that the court at the place where only some of the debtor’s assets are located can order the attachment of any other assets located in Switzerland.
The court decides on the application in ex parte, summary proceedings. The debtor will therefore not be heard in this first phase and, should the application be rejected, the debtor will not even be informed. If the application is granted, the court will issue an attachment order to the competent debt collection office at the place(s) where the assets are located. The debt collection office will then execute the order and notify the debtor and any third party holding assets belonging to the debtor (such as a bank) with an attachment certificate, listing the assets that have been attached. In application of Swiss banking secrecy laws, Swiss banks generally refuse to provide information as to the existence of a debtor’s assets at this stage. Swiss banks are therefore unlikely to indicate whether the attachment was successful.
The award debtor or any third party whose rights are affected may challenge the attachment order by filing an objection with the court that rendered the attachment order within ten days of learning of the attachment. This objection will be addressed in inter partes summary proceedings. The decision on the objection is subject to appeal to a higher cantonal court and, ultimately, to the Swiss Supreme Court. The attachment order remains in full force during the objection and appeal proceedings.
If the attachment order is granted, the award creditor must validate the attachment by initiating debt collection proceedings within ten days upon service of the attachment certificate. It must be noted that such proceedings may be initiated at the place where the assets that have been attached are located. Should the award creditor fail to comply with this deadline, the attachment will no longer be effective.
In short, and although the lack of discovery and Swiss banking secrecy can make the identification of assets more difficult, an award creditor who has managed to identify assets belonging to the award debtor is in a good position to secure its rights prior to (or during) enforcement proceedings.
In our next and final post in this series dedicated to enforcement in Switzerland, we will examine the legal specificities of enforcement proceedings directed against a state.