For companies domiciled in Switzerland or other parties wishing to avert an impending lawsuit abroad in Switzerland or before Swiss courts, the option of action for a negative declaratory judgement is now available as a valid option, at least in international cases.
By decision of 14 March 2018 (BGer 4A_417/2017; designated for publication, available in German/French/Italian), the Federal Supreme Court relaxed its previous overly restrictive practice regarding the existence of an interest in legal protection in actions for a negative declaratory judgement.
In a change to the previous case law, the intention of one party to secure a place of jurisdiction in Switzerland for an impending legal dispute in an international relationship is now regarded as sufficient interest in legal protection for a corresponding declaratory action. This opens up new possibilities for defence parties in Switzerland.
Swatch Group Ltd stopped supplying wholesalers with spare parts for Swatch Group watches at the end of 2015. One British company subsequently demanded that Swatch Group Ltd and two of its subsidiaries (hereinafter referred to as "Swatch Group") resume their previous supply, otherwise they would bring an action without further notice. Even before the British company actually filed its action for performance in England, Swatch Group had already demanded to the Commercial Court of the Canton of Berne to declare that it was not obliged to supply and that it owed the English company nothing due to the suspension of supply. The Commercial Court limited the proceedings to the question of whether Swatch Group had a sufficient interest in legal protection in its "action for a negative declaratory judgment". The Commercial Court denied this because, according to case-law, a party's interest in securing a place of jurisdiction in Switzerland by means of an action for a negative declaratory judgment does not justify a sufficient interest in legal protection. The Commercial Court therefore did not admit the suit.
The Federal Supreme Court has now upheld the appeal of Swatch Group. In particular, the Federal Supreme Court states the following:
First, the Federal Supreme Court held that the Lugano Convention does not regulate the question of the interest of legal protection for actions arising from the Lugano Convention and that this question is judged according to national law.
The question of the conditions under which a state's jurisdiction can be exercised is of procedural nature, which is why the conditions of the interest of declaratory judgement are subject to the lex fori.
In accordance with the case law of the European Court of Justice on the suspension of lis pendens under the Brussels I Regulation, the Federal Supreme Court then assumes that the action for performance and the action for a declaratory judgment that negates these have the same subject matter (core point theory). From this, the equality of performance and negative declaratory action is derived as a general principle. Thus, if the equality of the action for performance and the negative declaratory action is not to be affected, restrictive conditions of the negative declaratory action cannot be maintained and increased requirements for the negative declaratory action undermine this equality.
The Federal Supreme Court further states that certain conditions must always be fulfilled with regard to the interest of declaratory judgment.
The legal relationship between the parties must obviously be uncertain and this uncertainty can be remedied by a court decision. No other action (action for performance or modification) may be available, since the declaratory action is only subsidiary. Furthermore, the continuation of the uncertainty must be unreasonable for the plaintiff and thus the interest of the negative declaratory judgment plaintiff in having the existing uncertainty clarified in court itself must appear worthy of protection in such situations in international circumstances. In this very matter, the Federal Supreme Court has now correctly stated that merely securing a place of jurisdiction acceptable to one party is an actual interest worth protecting in order not to have to face certain practical disadvantages, such as a foreign judicial system or a foreign language.
As a result, the Federal Supreme Court has finally brought the possibilities for legal action in Switzerland that have so far been denied in the area of forum running into line with the possibilities for legal action abroad and eliminated the existing discrimination against parties willing to bring legal action in Switzerland in international relations.
Now that the Federal Supreme Court has ruled that, at least in international relations, a party's interest in securing an acceptable place of jurisdiction in forthcoming court proceedings qualifies as sufficient interest for a negative declaratory judgment, a party in Switzerland willing to bring an action for such a judgement now has the option of blocking a counterparty's action for performance filed at a later date by filing an action for a negative declaratory judgment in due time.
In Switzerland, the tactical procedural means of forum running is now also made available to parties in the area of actions for a negative declaratory judgment, which is a good thing.
If you liked this article you may also be interested in reading about:
Stay on top of the latest legal topics in this field and subscribe now to receive the latest blog posts as soon as they appear on our website.