Swiss law offers a wide range of freezing options to the skilful creditor. The most common freezing measure is the civil attachment. There are, however, many other options, including the enforcement of foreign judgments or interim freezing orders that may be obtained in bankruptcy or criminal proceedings. All these options, which may or may not overlap in a given scenario, have their own specific strengths and weaknesses. The challenge is to pick the one that best suits a creditor’s needs. This article aims to provide a brief introduction.
A party seeking to obtain an ex parte civil freeze based on Swiss domestic law must provide prima facie evidence for the existence of a claim against the debtor as well as the location of the assets to be attached. In addition, the applicant must make a case, again on a prima facie basis, for the presence of specific grounds for attachment as listed in statutory law. In the overwhelming majority of cases, particularly in cross-border cases, the claimant relies for this purpose on the fact that the debtor does not have his domicile in Switzerland. If this is the case, the claimant can obtain a freeze if his or her claim is based on an enforceable judgment or on a written acknowledgment of debt.
If neither basis is available, the applicant must demonstrate that the claim against the foreign-domiciled debtor has a ‘sufficient link’ with Switzerland. In cases where an applicant’s claim is based on contract, a ‘sufficient link’ is assumed, inter alia, if the contract has been negotiated, or is to be performed, in Switzerland, or if the contract is governed by Swiss law or provides for dispute resolution in Switzerland; the creditor being domiciled in Switzerland will also be sufficient.
Nevertheless, the requirement of a ‘sufficient link’ with Switzerland poses a serious obstacle in many cases. It is established court practice that the mere presence of funds in Switzerland is not sufficient, nor is the transfer of the proceeds of a fraud committed abroad to a Swiss bank account. In the latter situation, it may be helpful for a victim to argue that the defrauded assets were the object of subsequent money-laundering activities in Switzerland. According to a recent landmark decision of the Federal Court, Switzerland’s highest court, rendered in 2003, the victim of a fraud has a claim in tort (also) against the money launderer. Money-laundering activities committed here should be sufficient to link such a claim with Switzerland; as required by the law.
In contrast to arguably the best-known freezing measure, the powerful English freezing order (formerly known as the Mareva injunction), a civil attachment under local law operates as an in rem Ñ as opposed to an in personam Ñ remedy, and serves to freeze only those assets belonging to the debtor that are identified in the attachment order. It does not enjoin the debtor from disposing of other assets, even if these are located within the territorial jurisdiction of the court that granted the attachment. However, an English freezing order or other provisional measure available in a foreign (European) jurisdiction may be imported to Switzerland under the Lugano Convention once the defendant has had the opportunity to be heard before the foreign court (Uzan v Motorola Credit Corporation [2003]). By contrast, whether or not the recognition and enforcement of interim or protective measures is also available outside the Lugano Convention i.e. for measures ordered by the courts of a non-member state, is a matter of controversy. There is no reliable published court practice on this issue.
Freezing measures may also be ordered in aid of foreign bankruptcy proceedings. On the petition of the trustee in the foreign bankruptcy or of a creditor, a Swiss court may order interim or protective relief, in particular the freezing of Swiss assets, as soon as an application for recognition of a foreign bankruptcy decree has been filed.
Furthermore, the freezing of assets may be obtained in a criminal investigation if the creditor asserts his rights as a victim of fraud or of other criminal conduct harming his ownership rights. Swiss prosecution and investigation authorities have the power to freeze assets that are either relevant as evidence in a criminal case or that are the proceeds of crime. Similar powers may be exercised in response to a foreign request for international legal assistance in criminal matters. Swiss penal authorities have jurisdiction if the offence was fully or partly committed in Switzerland or if the result of a criminal act occurred on Swiss territory. The proceeds of a crime can be frozen regardless of ownership rights that may in the meantime have passed to a third party.
An exception applies if the third party acquired the tainted assets in good faith and provided due consideration in return, or in cases of duress. The proceeds of crime that have been seized in the context of domestic Swiss criminal proceedings will ultimately be returned to the victim of the crime (this is also possible in principle if the criminal investigation is conducted in aid of foreign criminal proceedings). For this purpose, the victim will have to bring a private law claim for restitution based on ownership rights, or a tort claim in damages, which has its basis in the offence.
Last but not least, if the party concerned has reason to believe it might be the victim of a criminal offence against its property rights, an immediate de facto freeze of the funds may be obtained, without the involvement of Swiss courts or criminal authorities, on the basis of Swiss money-laundering legislation. All that is needed for this purpose is a letter to the bank in question, in which the bank is informed of the criminal origins of the funds and is provided with reasonable documentation supporting such an allegation.
Among the most important advantages of using criminal proceedings, as opposed to purely civil remedies, are the following:
- it is not necessary to prove that the creditor has a valid claim against the debtor;
- the investigation authorities have the power to trace and freeze all proceeds of crime on Swiss territory. By contrast, Swiss attachment courts exercise jurisdiction over a particular court district only. They have no powers to trace assets and cannot usually freeze assets formally owned by third parties; and
- criminal law freezes grant certain priority rights to plaintiffs (victims) which are not available to other creditors.
These advantages must be weighed against, inter alia, the following potential disadvantages of criminal freezes:
- not all of a debtor’s assets located in Switzerland can be attached (only the proceeds of crime);
- as a rule, the criminal proceedings must be finished before the assets can be released from the freeze. This can prove to be very time-consuming;
- a plaintiff’s claim for restitution or compensation may compete with claims for confiscation by the state;
- the premature launching of a criminal complaint may expose the plaintiff to various legal liabilities, e.g. for false accusation; and
- the victim of the fraud loses control over the proceedings.
The above considerations illustrate that choosing the best way forward in a given case can be a rather complex task.
Martin Bernet and Peter Burckhardt are partners at Schellenberg Wittmer in Zurich.