The Swiss Federal Supreme Court extended in a recent decision the right of shareholders who do not have the status of a principal party to allow appeals against unfavourable court decisions. The decision is of importance because it applies equally to other situations where a court decision based on the substantive legal relationship has a direct impact on the legal position of a third party.
History of the case
A company limited by shares (Aktiengesellschaft) suffered from internal disputes among the shareholders to the extent that it was not possible to elect even a single member to the board of directors. Under Swiss law, the lack of a required corporate body, such as the board of directors, constitutes a defect in the organisation of the company. Pursuant to art. 731b para. 1 Code of Obligations (CO), any shareholder or creditor or the commercial registrar has in such a situation the right to request the court to take the required actions. Hence, two creditors of the company demanded that the court reverse the corporate stalemate through an auction sale of all shares of the company among the existing shareholders.
One shareholder opposed against the idea of a “forced” auction of his shares and intervened as an accessory party in the proceedings at first instance. According to art. 74 of the Swiss Civil Procedure Code (CPC), a person who shows a credible legal interest in having a pending dispute decided in favour of one of the parties may intervene at any time as an accessory party and for this purpose submit to the court an intervention application. Procedural interventions are made to support a principal party. Therefore, any procedural acts of the intervenor which are contradictory to those of the principal party are not be taken into consideration (art. 76 para. 2 CPC). However, the intervention is not without risk for the intervenor as an unfavourable result for the principal party is, subject to exceptions, also binding for the intervenor in subsequent proceedings. In the present case, the shareholder intervened in favour of the company and against the two creditors.
The principal parties, i.e. the company administered by an official receiver and the two creditors, eventually concluded a settlement in which it was agreed to hold an auction to sell the company’s shares. The first instance issued a decision ordering all shareholders to deposit their share certificates for the auction. The opposing shareholder did not agree with the first instance’s decision and challenged it before the court of appeal. The appellate instance rejected the shareholder’s appeal as not legitimate. The reason behind the decision was that the shareholder was merely an “auxiliary” who could only support one of the main parties and not act against the main party’s interests.
The Swiss Federal Supreme Court’s considerations
Subsequently, the highest court had to decide whether or not art. 76 para. 2 CPC applies in the present constellation. A literal interpretation of the law would result in the confirmation of the appellate body’s rejection decision, as the appeal was directed also against the company.
Interestingly, the Federal Court based its considerations mainly on an almost forgotten procedural instrument called “streitgenössische Nebenintervention” (combining certain aspects of the intervention with the joinder of parties) which was common in the certain cantonal civil procedure codes2.
The court came to the conclusion that if a decision has a direct impact on the intervenor’s legal position towards the principal parties, the intervenor must have the right to challenge this decision, even if that means to act against the interests of the principal party. Obviously, the company had an interest to remedy the stalemate and to elect a board of directors. In contrast, the shareholder had an interest not to be forced to deposit his share certificates which would then have been sold during an auction. The Swiss Federal Supreme Court concluded that the limitation of art. 76 para. 2 CPC is not applicable in this instance.
The Swiss Federal Supreme Court’s decision goes beyond the specific case where a required corporate body does not exist. From a procedural perspective, this decision is relevant for other situations where based on the substantive legal situation, a given set of facts may affect the legal relationship of multiple parties, in particular for corporate litigations which have a direct impact on all shareholders. Further examples in this respect are the challenge of resolutions of the general meeting (art. 706 CO) or the action for dissolution of a company limited by shares (art. 736 cipher 4 CO).