Is third-party litigation funding permitted? Is it commonly used?
The Swiss Federal Supreme Court held in 2004 that litigation funding by third-party funders is permissible in Switzerland if the funder acts independently of the client’s lawyer (decision BGE 131 I 223). The Court stated that it could even be advantageous for a claimant to have his or her claim assessed by an independent expert who intends to cover the financial risk of the envisaged litigation process and who is thus complementing the claimant’s lawyer’s view.
In 2014, the Court expressly confirmed its earlier decision. It further concluded that, in the meantime, litigation funding has become common practice in Switzerland, and it held that it is part of the lawyer’s professional conduct as provided by the Federal Act on the Freedom to Practise in Switzerland (BGFA) to inform claimants about a potential litigation funding option as the circumstances require (Supreme Court decision 2C_814/2014).
Thus today, litigation funding in Switzerland is an accepted practice and has been judicially endorsed by the Federal Supreme Court twice in recent years. In light of its rather comprehensive and detailed legal analysis, the Court established in Switzerland quite a clear and favourable environment for third-party litigation funding.
Nevertheless, third-party litigation funding is still not broadly used in Switzerland. The reasons for this might be the relatively late establishment of litigation funders in Switzerland compared with other jurisdictions and, notwithstanding the Swiss Federal Supreme Court’s verdicts, a certain reluctance for the option of third-party litigation funding on the part of some Swiss lawyers.Restrictions on funding fees
Are there limits on the fees and interest funders can charge?
There is no explicit limit on what is an acceptable compensation for the funder’s services. However, as a general rule stated by the Swiss Penal Code (article 157), a third-party funding agreement - as any other agreement under Swiss law - must not constitute profiteering (ie, exploitation of a person in need).
The Federal Supreme Court has not explicitly stated a limit, but has indirectly approved the common practice in Switzerland with success fees ranging from 20 to 40 per cent of the net revenue of the litigation process. In its legal analysis, the Court cited a source who described a success fee of 50 per cent as ‘offending against good morals and thus illegal’, however, without confirming or even commenting on this opinion.Specific rules for litigation funding
Are there any specific legislative or regulatory provisions applicable to third-party litigation funding?
There are no specific provisions in the Federal Code of Civil Procedure (CCP) or in any other Swiss legislation. However, the Federal Supreme Court held that a range of existing general provisions in various parts of the Swiss legislation (eg, article 27 of the Civil Code, article 19 of the Code of Obligations and article 8 of the Unfair Competition Act) would be applicable should a litigation funding agreement violate certain principles of Swiss law.
With regard to regulatory provisions, the Court explicitly stated that third-party litigation funding cannot be regarded as an insurance offering as defined by the Swiss Insurance Supervision ACT (ISA). Furthermore, the core offering of a funder does not, in general, fall under the Swiss financial market laws (eg, Banking and Insurance Acts, the Anti-Money Laundering Act and the Collective Investment Scheme Act). However, depending on the funding structure, funders might qualify as asset managers of collective investment schemes and must be authorised by the Swiss Financial Market Supervisory Authority (FINMA).
In light of the rules pertaining to lawyers’ professional conduct in Switzerland, which do not allow for lawyers to be paid on the basis of contingency fees only, it has to be kept in mind that any funding agreement that directly or indirectly results in such a contingency fee model for the involved lawyer would violate the respective provisions.Legal advice
Do specific professional or ethical rules apply to lawyers advising clients in relation to third-party litigation funding?
The lawyer’s professional conduct in Switzerland is provided in article 12 of the BGFA. According to the Federal Supreme Court decisions mentioned in question 1, the lawyer’s independence in acting on behalf of the litigant is crucial; this also applies to cases involving a third-party funder. However, the Court also stated that by a clear separation of the roles between the lawyer and the funder, a lawyer who advises his or her clients in relation to a funder has no conflict of interest in principle. In addition, the Court held that it is part of the lawyer’s professional conduct to support his or her clients in negotiations with the funder; obviously, always advising in the interest of the client.Regulators
Do any public bodies have any particular interest in or oversight over third-party litigation funding?
The Federal Supreme Court clarified this question with regard to the point that litigation funding is not deemed to be an insurance offering as defined by the ISA and is thus not regulated by FINMA (see question 3). As the core offering of a funder generally does not fall under the Swiss financial market laws, there is no known interest of the Swiss financial regulator to oversee litigation funding reported.
In its 2013 report on collective redress, the Swiss Federal Council suggested promoting litigation funding in Switzerland in general, without pointing at a specific need for regulation or oversight.