Helan Ammadia December 20 2022 When to apply statute of limitations in bankruptcy proceedings Lenz & Staehelin | Litigation - Switzerland Helan Ammadia Litigation IntroductionFactsDecisionCommentIntroductionIn bankruptcy proceedings, the schedule of claims may be challenged by filing an action pursuant to article 250(2) of the Swiss Debt Enforcement and Bankruptcy Act (DEBA) to contest the admission of another creditor or its ranking.In the case at hand, the claim that was subject to a challenge pursuant to article 250(2) of the DEBA was based on an English court judgment. The issue was whether the claim was already time-barred. The Federal Supreme Court confirmed that the question of the statute of limitations for the claim is governed by the law applicable to the claim (ie, English law). According to article 148(1) of the Swiss Private International Law Act (PILA), the statute of limitations for and extinction of a claim are governed by the law applicable to the claim.FactsIn the context of C's bankruptcy proceedings, the Bankruptcy Office in Zurich issued a schedule of claims on 15 January 2020. A was admitted as a creditor with a third-class claim in the amount of 10,070.87 Swiss francs. Bank B was admitted as a another creditor with a third-class claim in the amount of 437,466.80 Swiss francs.B's claim was based on the judgment of the Northampton Country Court in England of 10 July 2013, which was declared enforceable in Switzerland by the Zurich District Court on 23 July 2018. Thereafter, B initiated debt enforcement proceedings in Switzerland based on the English court's judgment. On 27 November 2018 B filed an action to set aside C's objection in these debt enforcement proceedings (the action). No final judgment has been issued regarding B's action as appeal proceedings concerning the action have been suspended. B again filed its claim in the bankruptcy proceedings on 15 October 2019.English law provides for a six-year (limitation) period for claims established in judgments. This period began on 10 July 2013 (ie, the date of the judgment).On 5 February 2020, A filed an application with the Zurich District Court of for the deletion of B's claim in the schedule of claims. A argued that B's claim was time-barred.In particular, A argued that B had failed to interrupt the six-year limitation period provided by English law. According to A, B's action could not interrupt the statute of limitations, as it had not been decided by a final judgment. Further, A alleged that at the time that B had filed its claims in the bankruptcy proceedings on 15 October 2019, the six-year period had already lapsed.After the Zurich District Court and the Upper Court of the Canton of Zurich dismissed A's claim and its appeal, A filed an appeal in civil matters with the Federal Supreme Court on 8 February 2021.DecisionThe Federal Supreme Court confirmed the judgment of the lower courts and dismissed the appeal insofar as it was admissible.(1)According to article 148 of the PILA, the limitation (as well as the extinction) of a claim is governed by the law applicable to the claim. Typically, the conflict of laws of the PILA regulates the applicable law in the proceedings. However, if the claim is established by a judgment, as was the case here, the question of the limitation of the effects of a judgment arises. This type of limitation is understood as the period after the expiration of which the enforcement of the judgment can no longer be enforced, as is provided for in most legal systems.The Federal Supreme Court linked the statute of limitations of a claim established by a foreign judgment, not to Swiss law,(2) but to the law of the state of the judgment.The Federal Supreme Court, as well as the leading doctrine, is of the opinion that the statute of limitations of a claim that has been established in a judgment (titled claim) is to be assessed according to the law of the state issuing the judgment. However, a prerequisite for the application is that the foreign (procedural) regulation pursues the same purpose as the corresponding Swiss limitation periods.The fact that debt enforcement and bankruptcy proceedings in Switzerland are governed by the lex fori is also not an obstacle to the application of the English statute of limitations law.The judgment of the English court of 10 July 2013 became enforceable on the same day, and from that day a six-year period began to run. By filing its action on 27 November 2018 (ie, by continuing the debt enforcement proceedings in Switzerland), B had made it clear that it intended to adhere to its claim. The relevant procedural act was deemed sufficient under English law to meet the deadline.Thus, contrary to A's arguments, the Supreme Court considered the filing of an action sufficient to comply with the time limit provided under English law for bringing an action. It rejected A's objection that an action must be decided on the merits in order to interrupt the limitation period under English law.CommentThe term limitation includes any loss of enforceability of a claim or of the claim itself due to the passage of time, irrespective of whether the applicable law qualifies the limitation as substantive or procedural in nature.In Switzerland, the statute of limitations is an institute of substantive law. In this decision, the Supreme Court confirmed that the relevant foreign law is applicable irrespective of whether the statute of limitations is of substantive or procedural nature under this law. Since, in this case, English law was the substantive law applicable to the claim asserted by B in the bankruptcy proceedings, it followed that English law was also applicable to the issue of limitation. Moreover, English law was also considered relevant for the question under which conditions the statute of limitations will be interrupted. This is also in accordance with article 148 of the PILA. The fact that the lex fori is applicable in bankruptcy proceedings is not an obstacle for the application of English law.There are good reasons to apply the limitation law of the state issuing the judgment as contradictions between recognition and thus, enforcement decisions should be avoided.For more information please contact Cyrill Kaeser or Helan Ammadia at Lenz & Staehelin by telephone (+41 450 80 80) or email ([email protected] or [email protected]).The Lenz & Staehelin website can be accessed at www.lenzstaehelin.com.Endnotes(1) Federal Supreme Court decision of 2 August 2022 [5A_110/2021].(2) Under Swiss law the limitation period would be 10 years (see article 137 (2) of the Swiss Code of Obligations).