An extract from The International Arbitration Review, 11th Edition
Introductioni General background
The Principality of Liechtenstein is a comparatively small state in the middle of Central Europe. Its most important economic sectors in terms of contribution to GDP are industry and the services sector, in particular the financial services sector. With respect to the latter, 14 banks, 38 insurance companies, 109 asset managers, 152 trust companies and 209 lawyers were registered in Liechtenstein at the end of 2018. Moreover, at the end of 2017, 21,105 foundations, trusts and establishments were either registered or deposited with the Liechtenstein Commercial Register.
Liechtenstein's economic success story is in particular attributable to its geographic location in the heart of Europe, its vicinity to Switzerland, with which it has entered into a customs and currency union, its membership of the European Economic Area, its highly developed banking and financial sector, its rapidly developing tax treaty network and its liberal company and tax legislation, which is in full compliance with the European standards.
The most important piece of Liechtenstein company legislation is the Persons and Companies Act (PGR), which was enacted in 1926. The PGR introduced, among other things, the foundation, the establishment and the Anglo-Saxon trust into Liechtenstein law. In 1928, provisions on business trusts were enacted, modelled on the basis of the Massachusetts Business Trust. In 2009, the law on foundations was completely revised.
The importance of the industrial and financial services sectors, and in particular of legal and fiduciary service providers who advise, represent or administer thousands of legal entities and trusts the vast majority of which do have a nexus to at least one foreign jurisdiction, was also one of the main drivers with respect to the development of the Liechtenstein law on arbitration.ii Rules on civil procedure and recent reform of the law on arbitration
The Liechtenstein law on arbitration forms part of the Liechtenstein Code of Civil Procedure (Liechtenstein CCP). The rules on arbitration are set out in Sections 594 to 635 of the Liechtenstein CCP (see the detailed description of the structure of the law below).iii General introduction
The Liechtenstein CCP was enacted in 1912. Its provisions were modelled upon the corresponding provisions of the Austrian Code of Civil Procedure (Austrian CCP), the origin of which dates back to 1895. Since then, the provisions of the law on arbitration have only been amended once. As the Liechtenstein CCP is modelled upon the Austrian CCP, Austrian case law and Austrian legal literature are usually referred to in decisions taken by the Liechtenstein courts in relation to the Liechtenstein CCP.
Liechtenstein has for many years abstained from entering into bilateral or multilateral agreements on the recognition and enforcement of foreign judgments or arbitral awards, with the exception of Austria and Switzerland with which Liechtenstein has concluded bilateral agreements to that effect. The primary reason for such abstention was the concern that the conclusion of such agreements could jeopardise the asset protection and estate planning business of fiduciary service providers.
With a view to overcoming this isolationist attitude, the government in its programme for the legislative period from 2005 until 2009 deemed it imperative to consider the accession of Liechtenstein to the New York Convention. However, as a precondition for the accession, the government deemed a reform of the Liechtenstein law on arbitration to be indispensable. The reform should be based on the UNCITRAL Model Law on International Commercial Arbitration of 1985, as amended in 2006. The new rules should be applicable to both national and international arbitral proceedings, and should not only govern traditional commercial disputes.
Liechtenstein's endeavours gained momentum following the reform of the Austrian law on arbitration. The Austrian parliament had amended the corresponding provisions of the Austrian Code of Civil Procedure, which were themselves modelled upon the UNCITRAL Model Law. The reform of the Austrian CCP had entered into effect on 1 July 2006.
The revised Liechtenstein law on arbitration finally became effective on 1 November 2010. The main features of the reform included:
- the new regulation of the (objective) arbitrability of disputes;
- the introduction of a provision on the effects of the pendency of arbitral proceedings;
- the creation of new rules on the power of the arbitral tribunal to order interim or protective measures and on its authority to rule on its own jurisdiction by way of an arbitral award;
- the revision of the grounds for the nullification of arbitral awards; and
- the introduction of protective provisions for disputes involving consumers and for employment law matters.
As for the structure of the new Liechtenstein Arbitration Law, the new provisions are contained in Section 8 of the Fifth Part of the Liechtenstein CCP (Sections 594 to 635).v National and international arbitration
As a matter of principle, the Arbitration Law applies to all arbitral proceedings if the seat of the arbitration is in Liechtenstein. The Arbitration Law does not make a distinction between international and national arbitration. However, Section 594 Paragraph 2 of the Liechtenstein CCP provides that some provisions of Section 8 of the Fifth Part of the Liechtenstein CCP will also apply if the seat of the arbitration is not in Liechtenstein or has not yet been determined.
Among these provisions are those governing:
- the intervention of the ordinary courts (Section 595 Liechtenstein CCP);
- the receipt of written communications (Section 597 Liechtenstein CCP);
- the form of the arbitration agreement (Section 600 of the Liechtenstein CCP);
- arbitration and substantive claims before the ordinary court (Section 601 of the Liechtenstein CCP);
- arbitration and interim measures by the ordinary court (Section 602 of the Liechtenstein CCP);
- the power of the arbitral tribunal to order interim measures (Section 610 Paragraph 3–6 of the Liechtenstein CCP);
- the assistance by the ordinary court in taking evidence (Section 619 of the Liechtenstein CCP);
- the declaration of the existence or non-existence of an arbitral award (Section 629 of the Liechtenstein CCP); and
- the assertion of grounds for nullification in other proceedings (Section 630 of the Liechtenstein CCP).
Among the new provisions on arbitration, the provision of Section 599 of the Liechtenstein CCP on the arbitrability of disputes deserves particular attention.
Pursuant to Section 599 of the Liechtenstein CCP, any claim involving an economic interest in relation to which the ordinary courts would have jurisdiction may be the subject matter of an agreement to arbitrate. An arbitration agreement the subject matter of which does not involve an economic interest nevertheless has legal effect to the extent that the subject matter can be resolved by way of a settlement.
Family law matters and claims under apprenticeship contracts pursuant to the Law on Vocational Training are not arbitrable (Section 599 Paragraph 2 of the Liechtenstein CCP).
Section 599 Paragraph 3 of the Liechtenstein CCP finally provides that the jurisdiction of the Liechtenstein courts in proceedings that can only be initiated on the basis of mandatory provisions of Liechtenstein law ex officio, or upon application or notification by the foundation supervisory authority or the public prosecutor, may not be waived by an arbitration clause in the statutes or similar constitutional documents of a corporate entity or a foundation or trust.
Against the background of the above, it is undisputed that all commercial disputes are arbitrable. The issue is, however, whether and to what extent non-commercial disputes involving corporations, foundations or trusts are also arbitrable in principle.
With respect to corporations, Article 114 Paragraph 2 of the PGR provides that the legal venue for the adjudication of disputes between a corporation and its members (i.e., shareholders) in relation to their membership in the corporation, as well as for the adjudication of disputes involving creditors' claims in relation to directors and officers liability, dissolution or the like, is the place in which such corporation is domiciled, even if the statutes of such corporation provide for arbitration. The Liechtenstein Supreme Court has held that disputes referred to under Article 114 Paragraph 2 PGR are also arbitrable, a legal position also supported by legal literature. It is the general view that the only limit imposed by Article 114 Paragraph 2 PGR is that whenever the statutes of a corporation provide for arbitration, the seat of the arbitration must be where the corporate entity has its domicile.
In relation to disputes involving Liechtenstein trusts, the relevant provisions of the PGR do not contain an express provision on the arbitrability of disputes involving Liechtenstein trusts. However, Article 931 Sub-paragraph 2 PGR provides for the mandatory jurisdiction of an arbitral tribunal to arbitrate disputes between the settlor, trustee and beneficiaries of the trust. From that, part of legal literature concludes that it must all the more be permitted to agree on the jurisdiction of an arbitral tribunal in matters that relate to Liechtenstein domestic trusts.
As for disputes involving Liechtenstein foundations, the Liechtenstein Supreme Court has held that claims aiming at the dismissal of members of a foundation council (the supreme body of a Liechtenstein foundation) are not arbitrable. While this judgment has been widely discussed and also criticised in legal literature, it is the Liechtenstein courts' position that claims aiming at the instigation of supervisory measures are not arbitrable. Such claims not only include claims for dismissal of members of foundation bodies but also claims seeking to declare resolutions made by the foundation council as being invalid. All other disputes between foundation participants and the foundation and among foundation participants in relation to the foundation are in principle arbitrable, including disputes on information rights of beneficiaries, the interpretation of foundation deeds and claims by the foundation against its bodies.vii Judicial assistance in evidence gathering for arbitration proceedings
Pursuant to Section 595 of the Liechtenstein CCP, a court may only become active to the extent provided in the section of the Liechtenstein CCP governing arbitral proceedings. In relation to the gathering of evidence, Section 616 of the Liechtenstein CCP provides that it is the arbitral tribunal that has the authority to decide on the admission of evidence, on the respective procedure and the free assessment of its outcome.
The arbitral tribunal, one specifically authorised member of such arbitral tribunal or a party with prior consent of the arbitral tribunal may apply to the court for the court to become active in matters that the arbitral tribunal is not authorised to deal with (Section 619 of the Liechtenstein CCP). Such requests for legal assistance include applications to the local court to apply to a foreign court or authority to conduct the requested measure.viii The ratification of the New York Convention
On 7 July 2011, Liechtenstein ratified the New York Convention. It entered into force on 5 October 2011. Liechtenstein's neighbouring countries, Austria and Switzerland, both of which host important arbitration centres, had acceded to the Convention in 1961 and 1965, respectively. By acceding to the New York Convention, Liechtenstein sought to make itself more attractive as a seat for arbitral proceedings, in particular given its other competitive advantages.
Liechtenstein has, however, made a reservation in the context of its accession to the Convention in that it will only apply the Convention to the recognition and enforcement of arbitral awards that were made in another contracting state on the basis of reciprocity. As long as the condition of reciprocity is fulfilled, Liechtenstein will recognise and enforce arbitral awards made in another contracting state irrespective of whether the substance of the underlying dispute was of a commercial or non-commercial nature.
As a result of the accession to the Convention, the historical protective measures that had been implemented by Liechtenstein to provide shelter against the recognition and enforcement of foreign arbitral awards ceased to be effective.ix The Liechtenstein Rules
Despite the enactment of the revised law on arbitration and the accession to the New York Convention, Liechtenstein still did not offer the possibility to resolve arbitral disputes in the context of institutionalised arbitral proceedings.
To overcome this deficiency, a number of Liechtenstein attorneys experienced in both litigation and arbitral proceedings established the Liechtenstein Arbitration Association.
The purposes of the Liechtenstein Arbitration Association as set out in its articles of association include, among others, the 'further development and promotion of arbitration in Liechtenstein and of arbitration under Liechtenstein law', the 'preparation of rules of arbitration', and the 'examination of laws and proposed amendments'. With the assistance of Swiss special counsel, members of the Liechtenstein Arbitration Association drafted the Liechtenstein Rules (Rules) on arbitral proceedings that were then formally introduced by the Liechtenstein Chamber of Commerce and Industry (LCCI).
If the Rules are made applicable by parties to arbitral proceedings that do have their seat in Liechtenstein, the LCCI assumes the role of the arbitral institution administering arbitral proceedings conducted under the Rules. The LCCI appoints a secretary for arbitration and two deputies. The secretary, together with the two deputies, form the secretariat. For specific arbitral proceedings, a commissioner must be appointed by the secretariat upon the request of a party. The commissioner assumes responsibilities under the Rules whenever the Rules have assigned a specific task to him or her. His or her decisions are of an administrative nature only and are not subject to appeal (Article 32.5 of the Rules).
While Liechtenstein cannot effectively compete with other arbitration centres like London, Zurich, Vienna, Singapore or Hong Kong, its clear objective was to create a set of arbitration rules flexible enough to be attractive for both the resolution of traditional international commercial disputes, and for the resolution of disputes involving beneficial or other interests in Liechtenstein structures such as foundations, trusts and establishments, and to create a niche that has thus far not been occupied by any other arbitration centre.
The Rules were primarily modelled on the UNCITRAL Arbitration Rules and on the Swiss Rules from which, however, they deviate in some respects.
For example, the Rules do not contain provisions on introductory proceedings. Therefore, they also do not contain provisions on terms of reference. Furthermore, third parties can only be joined in arbitral proceedings conducted under the Rules with the consent of all parties to the arbitral proceedings (deviation from Article 4.2 of the Swiss Rules). There is also no joinder of proceedings against the will of all parties (deviation from Article 4.1 of the Swiss Rules).
A further procedural feature of the Rules is that the provisions on discovery have been streamlined to avoid extensive US-style discovery in arbitral proceedings. Instead, the Rules make reference to the much more restrictive provisions of the Liechtenstein CCP (Section 303 et seq. Liechtenstein CCP).
The Rules in 16.3 also contain a very pragmatic approach to set-off defences. While the arbitral tribunal in principle has jurisdiction to hear such a defence, it may refuse to do if to hear such defences would delay or complicate proceedings, or if justifiable interests of the other party so require.
Furthermore, after the arbitral tribunal has constituted itself, the parties may not apply for injunctive or interim relief with a court unless the arbitral tribunal consents. This is a precautionary measure to prevent the circumvention of confidentiality provisions by the parties.
One unique feature of the Rules is their provisions governing confidentiality, as the Rules have been drafted with a view to also be applied in relation to disputes involving fiduciary structures such as foundations, trusts or establishments, in which confidentiality is usually of utmost importance.
The main features of the provisions on the preservation of the principle of confidentiality in arbitral proceedings under the Rules can be summarised as follows.
First, Article 6 of the Rules imposes certain eligibility conditions on arbitrators. In principle, only a person who is subject to certain professional confidentiality obligations (such as lawyers, professional trustees that are regulated under Liechtenstein law, patent lawyers or auditors) may be appointed to serve as an arbitrator. The parties to arbitral proceedings may, however, waive this condition. If nominated, a nominee has to confirm that he or she satisfies this eligibility condition.
Article 29 of the Rules deals with specific confidentiality aspects in no less than eight paragraphs. First, the scope of the confidentiality obligation extends to all awards and orders, all materials submitted and all facts made available by other participants in the arbitral proceedings. The confidentiality obligation extends to the parties themselves, their representatives, experts, the arbitrators, any commissioner, the secretariat and their auxiliary personnel. Again, however, the parties may waive these confidentiality obligations. Second, the arbitral tribunal in cases of specific needs for confidentiality may make documents accessible to an expert 'without granting the other parties access to these documents' (Article 29.3 of the Rules).
Furthermore, pursuant to Article 29.4 of the Rules, the parties, their representatives, the arbitrators and any commissioner shall take appropriate organisational measures to safeguard the confidentiality of the arbitral proceedings, including, for example, encryption of email correspondence.
The obligation to preserve confidentiality does not terminate upon the conclusion of the arbitral proceedings. Violations of confidentiality in arbitral proceedings under the Rules results in a contractual penalty of 50,000 Swiss francs being payable for each violation (Article 29.7 of the Rules). A provision on such contractual penalties in the rules of arbitration is not only innovative but also unique.
As an additional feature, the Rules do contain a number of sample arbitration clauses: not only arbitration clauses for contractual disputes, but also arbitration clauses for disputes involving trusts, foundations and companies.