The Complex Commercial Litigation Law Review: Liechtenstein

Overview

In light of Liechtenstein's history, which has always been closely related to Austria's, it does not come as a surprise that Liechtenstein's legal system and the organisation of its courts depend heavily on Austrian law. Nonetheless, Swiss law has also left significant marks on Liechtenstein's legal system. Liechtenstein's summary proceedings for the recovery of debt are a typical hybrid of both legal systems; these proceedings originate from Austria and lead to proceedings implemented according to Swiss law; therefore, an in-depth examination of both legal systems is necessary.2

With regard to contract law in a wider context and commercial contracts in particular, generally Austrian law applies; nevertheless, it is essential to look into the individual provisions of the contracts to obtain certainty regarding which law applies.

The private law order provides the opportunity to freely shape legal relations with its environment according to will, within the bounds of good morals.

Contract formation

With regard to the conclusion of contracts, reference should be made to the general principles as well as the legal requirements set forth in Section 861 et seq. of the Civil Code (ABGB).

According to the general principles (Section 861 ABGB), a contract is concluded by the concordant declaration of will of (at least) two persons. The introductory declaration of intent is called an offer. This offer (promise) must be sufficiently defined in terms of content, and the applicant's willingness to commit must be sufficiently clear. As long as negotiations are pending and the offer has not yet been made or has neither been accepted in advance nor afterwards, no contract is established.

The offer must be accepted within the period that has been determined by the offeror. In lack of such period, an offer made to a person who is present or via phone from one person to another must generally be accepted immediately. An offer made to an absent person must be delivered in a reasonable time to receive a timely answer, failing which the offer expires.

The offer cannot be withdrawn prior to the expiry of the term of acceptance. It also does not expire if one party dies during the term of acceptance or becomes incapable of acting unless a different intent of the offeror is evident owing to the circumstances.3

Consent to a contract must be declared freely, seriously, determinedly and clearly. If the declaration is incomprehensible, fully undetermined or the acceptance is made subject to other determinations as those subject to which the promise has been made, no contract is established.

Whoever uses unclear expressions to take advantage of someone else, or undertakes a sham action, must provide satisfaction.4 In this context, for example, dissent and error have different consequences. In the case of dissent, no contract is concluded, but in the case of error a contract is concluded. A contract concluded in error must, therefore, be challenged.

In general, contracts can be concluded verbally, in writing or implied by the behaviour of the parties. For reasons of evidence, however, it is strongly advisable to always conclude contracts in writing. Under Liechtenstein law, there are very few formal provisions. Formal requirements are provided for gift contracts, property purchase contracts and, for example, contracts between spouses.

All of the above applies to commercial contracts as well as to other contracts.

Agreements (contracts) in favour of third parties are possible. If someone has been promised performance to a third party, he or she can demand that performance is delivered to the third party;5 however, if the third party rejects the right acquired in connection with the contract, the right is deemed not to have been acquired.6

As mentioned above, there are contracts in favour of, but not at the expense of, third parties. The latter contradicts the nature of private autonomy and are, therefore, inadmissible.7

Contract interpretation

When interpreting contracts, one should not adhere to the literal meaning of an expression but must determine the intention of the parties and the contract to be understood in line with due commercial practice.8 In the case of contracts that are only obligatory for one party, if in doubt, it is assumed that the obliged party wanted to assume the lesser rather than the more cumbersome burden. Regarding contracts that are obligatory for both parties, an unclear expression is interpreted to the detriment of the party who used such expression (Section 869 ABGB).9

A declaration of intent that has been declared to someone else as a sham, be it with or without his or her consent, is void. If another transaction is concealed in such a way, it should be assessed in accordance with its true nature. Objection to a sham transaction cannot be raised against a third party who acquired rights in reliance on the declaration.10

According to the case law of the Liechtenstein Supreme Court,11 contractual provisions are to be interpreted (with due caution) in such a way that they do not contain any contradictions and remain as effective as possible (favor negotii). The intended meaning and purpose – the 'intention to the parties' to be determined by teleological interpretation – rather than the words of a contractual provision are at the forefront of the interpretation.

The interpretation of contracts and written declarations should also take into account the declarations made by the contracting parties occasionally and the resulting intention. The interpretation should be measured against the 'recipient's horizon'. The legal consequences to be derived from the declaration are not judged on the basis of what the declarant wanted to say or what the recipient of the declaration understood by it, but on the basis of an objective assessment on the facts by a bona fide and circumspect person. The concrete circumstances, in particular the business purpose and the interest situation, must be taken into consideration here.12

According to rulings by the Liechtenstein Supreme Court, the mere actual conduct of the contracting parties directed against contractual provisions is insufficient to conclude that the contractual provisions have been amended by implication with the certainty required by Section 863 of the ABGB.13

However, when interpreting contracts, it is not strictly the literal meaning of the term that should be held responsible, but the intention of the parties to the contract. The contract must be understood in accordance with the practice of fair dealing.14

Dispute resolution

In general, Liechtenstein has a very efficient court system. The latest reform of the Code of Civil Procedure (LCCP) came into force on 1 January 2019 and aimed to enhance procedural efficiency.15 This project was a success. By enacting this reform, Liechtenstein civil procedure law follows the Austrian model more closely.

Located between Switzerland and Austria, Liechtenstein is not a common law country but a civil law country. Case law exists, but it does not play as important a role as it does in Anglo-Saxon jurisdictions.

As mentioned in Section I, Liechtenstein law is a hybrid of Austrian and Swiss law; nonetheless, the most common, and thus fatal, error committed by lawyers regularly dealing exclusively with either Austrian or Swiss law is to ignore Liechtenstein specifics, at least as far as procedural law is concerned.

Litigation in Liechtenstein is not always the first choice for foreign parties or their legal advisers. Most parties wish to seek justice in their home country, being unaware of the efficiency and competence of Liechtenstein lawyers and courts.

Compared with other jurisdictions, Liechtenstein justice is considerably swift. There is no rule stating that criminal cases must be granted priority. Once the relevant documents are filed, a hearing is scheduled within weeks. The median time from filing a lawsuit to receiving a judgment of first instance is 12 months. It may take longer if the case is complex or has an international aspect to it, if foreign courts or foreign law must be applied or if witnesses who live abroad must be heard in court. In the vast majority of civil cases, a final decision can be obtained within two or three years.

There is no specific commercial court in Liechtenstein. The following courts in Liechtenstein exercise jurisdiction in civil matters, including, inter alia, commercial contracts:

  1. first instance: district courts;
  2. second instance: superior courts; and
  3. final instance: the Supreme Court.

The first step for a plaintiff undertaking proceedings in Liechtenstein courts is to ascertain that the court has jurisdiction to hear the case. Presumably, as in most other jurisdictions, Liechtenstein courts first check on their duty and competence to accept the case. The case may easily be dismissed if the court has no jurisdiction. However, there are no minimum amounts in dispute or specific threshold requirements to bring a dispute before court. That means that nearly every contract dispute is litigable before courts.

As foreign judgments are usually not enforceable in Liechtenstein,16 plaintiffs must sue Liechtenstein residents before a Liechtenstein court because of the general forum at the domicile of the defendant.17 In addition, there are several other aspects that result in the jurisdiction of the Liechtenstein courts, such as the location of assets,18 an established jurisdiction of the main proceedings19 or, particularly with regard to contracts, the jurisdiction of the Liechtenstein courts based on the place of performance.20

Contracting parties may, by means of express agreement, submit to a specific court, which is not actually competent; however, the agreement must already be evidenced to the courts in a document in the claim. The agreement only has legal effect if it relates to a specific legal dispute or to the legal disputes arising from a specific legal relationship; however, matters that are beyond the jurisdiction of the courts cannot be brought to court by such an agreement.21

Owing to the principle of freedom of contract, parties may also agree to resolve disputes outside of the court process by alternative dispute resolution methods, such as mediation or arbitration. Liechtenstein as a jurisdiction is arbitration-friendly; thus, nearly every matter that could be subject to state court proceedings may be submitted to arbitration. Following the standards of the United Nations Commission on International Trade Law, nearly any pecuniary claim to be decided by state courts may be subject to arbitration agreements.22

Breach of contract claims

Three types of claims are distinguished:

  1. action for a declaratory judgment;
  2. action for performance (e.g., damages); and
  3. action for shaping the law.

The basic element of a claim for breach of contract is always a valid contract; however, culpable violation of contractual or pre-contractual obligations (culpa in contrahendo) also leads to a claim for damages.

In principle, what applies in general also applies to culpability: anyone who invokes a circumstance that is more favourable to him or her in the proceedings must prove that this circumstance has actually occurred. The aggrieved party must, therefore, also prove the fault of the tortfeasor (liable party); however, there is an exception to this rule.

A highly significant reversal of the burden of proof for culpa in contrahendo exists, for example, in the event of a breach of contractual or contract-like obligations.23 This means that it is not the aggrieved party who must prove that the tortfeasor is at default but the tortfeasor, who must prove that he or she is not at fault. The determination of the burden of proof in Section 1298 of the ABGB only applies to culpability – not to causality.24

In the event of a breach of contract, a party is, based on Sections 1293 et seq. of the ABGB, entitled to sue the other party or parties for damages.

Contracts can also be challenged on usury (Section 879, Paragraph 2, No. 4 ABGB) or owing to material imbalance (laesio enormis, Section 934 ABGB). A contract may also be contested on the grounds of error, cunning or threat.

In the event of defective performance of a contract, the affected party is entitled to the statutory warranty rights provided by Section 932 of the ABGB. According to the law, the transferee can demand rectification (repair or provision of the missing), the replacement of the asset, a reasonable reduction of the price or the rescission of the contract (redhibition).

A warranty claim must be asserted within three years if it relates to immovable assets and within two years if it relates to movable assets. Warranty law does not apply if assets are transferred outright, in the case of obvious defects or in the case of contractual exclusion.

In principle, warranty rights can be excluded contractually unless one of the contracting parties is a consumer; therefore, in the case of a consumer contract, warranty rights are obligatory. Contractually agreed warranty clauses can be made subject to a lawsuit as well.

Defences to enforcement

It is within the scope of normal practice that sometimes one of the contract parties, under certain circumstances, attempts to avoid any obligation to perform a contract or to avoid enforcement of contractual obligations. In addition, a party could try to challenge claims of breach of contract.

Under Liechtenstein law, there are several options to try to defend oneself against unjust enforcement of contractual obligations. In general, any party can object that no contract has been formed (e.g., unenforceable agreements, indefinite or missing essential terms). Further, it could be argued that the limitation periods are over, the contract was formed under duress, or there was a lack of consideration. It could also be argued that the contract violates public policy or is unenforceable because of fraudulent inducement, misstatement or misrepresentation.

Where contractual exclusions of liability have been agreed, it may be argued that the liability out of the contract is limited. This also regards punitive or consequential damages, contractual agreed limits on representation or other disclaimers.

Depending on the case, the objection of force majeure may also be taken up.

Fraud, misrepresentation and other claims

As mentioned in Section V, a party has several available applications beyond breach of contract claims. These claims vary from breach of the implied covenant of good faith to quasi-contractual claims, including promissory estoppel (e.g., pre-contractual relations or contractual accessory obligations).

Further, fraud, misrepresentation or tortious interference with contract gives rise to claims in addition to claims out of breach of contract. Contracts can also be challenged on usury (Section 879, Paragraph 2, No. 4 ABGB), owing to material imbalance (laesio enormis, Section 934 ABGB) or on the grounds of error, cunning or threat.

However, the most commonly asserted tort-based claims are based on Section 1293 et seq. of the ABGB. In this context, tort-based claims are also very relevant with regard to the piercing of the corporate veil.25

In accordance with rulings by the Liechtenstein Supreme Court, liability is governed by the provisions on liability arising from contracts; therefore, pursuant to Article 182(1) of the Persons and Companies Act (PGR), the respective body has the duty to ensure the preservation of the legal minimum capital of a legal entity to prove that it is free from culpability.26

In each case, the following criteria are required for the award of damages:

  1. damage (loss);
  2. unlawful behaviour (e.g., breach of contract, breach of law);
  3. culpability; and
  4. causal connection between culpability and unlawful behaviour.

In addition, creditors of contracting parties have the possibility of challenging legal transactions through the challenging order.27 If creditors are grossly disadvantaged by a contracting party, there is the possibility of criminal prosecution according to Section 157 of the Criminal Code.

Remedies vary, depending on the nature of the claim.

Remedies

There are several remedies with different ranges when it comes to a civil recovery action (Section 1323 et seq. ABGB); however, applicable remedies usually depend on the cause of action. According to Section 1323 of the ABGB, the first remedy is always restitution in kind if the cause of action allows it. If restitution in kind is not possible, damages may be awarded in cash.

Regarding a breach of contract, a party may seek fulfilment of the agreement (specific performance) or sue the other party for damages. The available remedies for a breach of contract, however, range from monetary compensation and damages to non-monetary remedies, such as specific performance, rescission and reformation of the contract.

The law also expressly states that contracting parties may reach a special agreement that, in the case of a contract that is not fulfilled, or that is fulfilled too late or not in a proper manner, a certain amount of money should be paid in compensation for the disadvantage (a contractual penalty).28 In general, it is up to the parties whether they agree on specific punitive or monetary damages. The obligation to pay such a contractual penalty presupposes a valid principal obligation.29

The amount of contractually agreed interest should, in principle, be determined by the parties, only being limited by the usury provisions;30 however, the general legal interest rate is 5 per cent.31 In commercial matters, the general legal interest rate is 8 per cent above the base interest rate.32 Default interest does not presuppose culpability; it must be paid if there is an objective delay in performance of the contract.33 Under Liechtenstein law, pre- and post-judgment interest is possible.

In this context, however, it is always necessary to examine why a contract was breached. This is commonly referred to as 'performance disruption'. This includes impossibility of performance, delay of performance, defective performance or breach of contract. Depending on whether the disruptions to performance occur accidentally or are attributable to one of the contracting parties, resulting damages should be compensated to different extents. In the case of actual indemnification, only damage actually suffered (positive damage) is subject to compensation, while 'full compensation' also includes lost profit (compensation of expected profit); however, in the case of breach of contract, for example, the scope of compensation is generally determined by the degree of culpability of the liable party.

In the case of slight culpability (slight negligence), only the damage actually suffered (positive damage) must be compensated.34 In the event of gross culpability (intent or gross negligence), full compensation must be provided. This means that the liable party must compensate not only the loss suffered but also the lost or expected profit.35

The success of court actions often depends on the effectiveness of interim remedies or provisional measures, conservatory measures or summary judgments taken before or instead of the main proceedings. Generally, for preventing (irreparable) injuries to the applicant, a party may obtain measures for interim relief from a court upon motion.

Article 277 of the Enforcement Act grants provisional remedies, such as security restraining orders and official orders.

Conclusions

Based on the principle of contractual freedom and private autonomy, Liechtenstein's contract law is very liberal; there are hardly any formal requirements. Even if formal requirements are stipulated (by law or by contract) they usually require written form or certified signatures. As long as it is not contrary to boni mores, anything can be subject to commercial contracts.

With regard to relevant developments, Liechtenstein law has not changed in this area for decades. This provides legal certainty. Further, the case law of the higher courts with regard to the formation of contracts, interpretation, etc., has remained quite constant and, thus, ensures certainty of the respective provisions.

In addition, Liechtenstein has been a member of the New York Convention since 2011. The forthcoming years will show which commercial disputes will increasingly shift from ordinary court proceedings to arbitral tribunals.

Footnotes

1 Thomas Nigg is a senior partner and Johannes Sander is a partner at Gasser Partner Attorneys at Law.

2 Johannes Gasser in Herbert Batliner and Johannes Gasser (eds.), Litigation and Arbitration in Liechtenstein, Switzerland, Stämpfli Verlag, 2013, p. 14.

3 Section 862 ABGB.

4 Section 869 ABGB.

5 Section 881 Paragraph 1 ABGB.

6 Section 882 ABGB.

7 See Austrian Supreme Court, RIS Justiz RS0084880; latest ruling: OGH 6 Ob 18/17s.

8 Section 914 ABGB.

9 Section 915 ABGB.

10 Section 916 ABGB.

11 For instance, OGH U 01.10.2004, 03 CG.2001.310, LES 2007, 150.

12 OGH U 13.01.2015, 02 CG.2002.4, LES 2006,138.

13 OGH U 06.07.2000, 05 C 303/98-53, LES 2000,148.

14 OGH U 01.07.1999, 04 C 260/98, LES 2000,169.

15 See Official Liechtenstein Legal Gazette LGBl 2018.207.

16 There are bilateral agreements with the neighbouring states, Austria and Switzerland, when it comes to the acknowledgement and enforcement of judgments in civil law matters, provided that the decisions are in compliance with certain prerequisites and formal requirements set forth in those agreements.

17 Section 30 Court Jurisdiction Act (JN).

18 Section 50 JN.

19 Section 47 JN.

20 Section 43 JN.

21 Section 53 JN.

22 Section 599 LCCP.

23 Section 1298 ABGB.

24 OGH U 5.11.1998, 03 C 311/94-44, LES 1999,191; OGH U 09.03.2012, 02 CG.2010.273, GE 2012,75.

25 Claims based on Section 1293 et seq. of the ABGB in connection with Article 218 et seq. of the PGR.

26 See OGH U 08.05.2008, 01 CG.2006.276, GE 2008,37; OGH U 02.10.2020, 04 CG.2013.430, LES 2020, 242.

27 Article 64 et seq. of the Act on the Protection of Rights.

28 Section 1336 ABGB.

29 Rudolf Welser and Brigitta Zöchling-Jud, Grundriss des bürgerlichen Rechts II14, Vienna, Manz Verlag, 2015, 23 et seq.

30 See Section 879 ABGB.

31 Section 1000 ABGB.

32 Article 336b of the General German Commercial Code (ADHGB), which also applies in Liechtenstein.

33 Welser and Zöchling-Jud, Bürgerliches Recht II14, 42; and Rudolf Reischauer in Peter Rummel and Meinhard Lukas (eds.), ABGB13334, Section 1333 ABGB, minute 6 (www.rdb.at).

34 Welser and Zöchling-Jud, Bürgerliches Recht II14, 363.

35 Welser and Zöchling-Jud, Bürgerliches Recht II14, 364.

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