Lugano Convention or PILA: which Law applies to international disputes?

Anyone who enters into a contract with a party domiciled abroad, seeks to enforce a claim, or wishes to enforce a foreign judgment in Switzerland will quickly encounter two sets of rules: the Lugano Convention (LugÜ) and the Swiss Federal Act on Private International Law (PILA).

Both sets of rules address similar questions, but they must be clearly distinguished from one another. Which set of rules applies depends on the specific question at issue and the foreign state with which the matter is connected.

Overview of the Lugano Convention

The Lugano Convention is an international treaty between the EU, Norway, Iceland and Switzerland. It generally applies to civil and commercial matters. Excluded in particular are tax and customs matters, administrative matters, certain areas of personal status and family law, bankruptcies and compositions, social security, and arbitration (Art. 1 Lugano Convention). The Lugano Convention governs the international jurisdiction of the courts of the contracting states, as well as the recognition and enforcement of judgments (Arts. 2 et seq. and Arts. 33 et seq. Lugano Convention).

Overview of the PILA

In contrast, the PILA is a Swiss federal statute. Among other things, it governs local and international jurisdiction, the recognition and enforcement of foreign judgments, and the determination of the law applicable to international matters (Art. 1 para. 1 and Art. 2 PILA; Art. 25 et seq. PILA). It also contains provisions on bankruptcy and composition agreements, as well as arbitration. The PILA therefore has a broader scope of application than the Lugano Convention.

The PILA is subsidiary to international treaties such as the Lugano Convention insofar as those treaties govern the same matter (Art. 1 para. 2 PILA). Under both the Lugano Convention and the PILA, foreign judgments are generally not reviewed on their merits. Grounds for refusing recognition may include a manifest violation of Swiss public policy (ordre public) or improper service of the claim (Art. 34 nos. 1 and 2 Lugano Convention; Art. 27 PILA).

When Does Each Apply?

The PILA applies in particular when a matter is connected to a state outside the Lugano Convention area or when it is necessary to determine which law applies to a matter connected to a Lugano Convention state. However, the relationship between the Lugano Convention and the PILA is not always a strict case of “either/or”: both sets of rules may apply in the same case and govern different questions.

Example

A German company brings an action against a Swiss corporation domiciled in Zurich, seeking payment under a sales contract. The parties have not made a choice of law in the contract. In this case, both the Lugano Convention and the PILA apply.

First, the Lugano Convention determines which courts have international jurisdiction. Since Germany and Switzerland are contracting states to the Lugano Convention and the matter concerns a civil or commercial dispute, the Swiss courts have international jurisdiction (Art. 1 para. 1 and Art. 2 para. 1 Lugano Convention).

Next, Swiss law, i.e. the PILA, determines which court within Switzerland has jurisdiction. In contractual disputes, Art. 112 para. 1 PILA establishes jurisdiction at the domicile of the defendant, which in this case is Zurich (Art. 112 para. 1 PILA).

The substantive law applicable to the sales contract is also determined in accordance with the relevant provisions of the PILA (Art. 1 para. 1 lit. b PILA). The fact that the Swiss courts have international jurisdiction does not mean that they must necessarily apply Swiss contract law. This may vary from case to case.

The court in Zurich issues a judgment that the German company wishes to enforce in Germany. The Lugano Convention governs cross-border recognition and enforcement. The judgment is generally recognised without the need for a separate recognition procedure (Art. 33 para. 1 Lugano Convention). However, a declaration of enforceability is generally still required for enforcement (Art. 38 para. 1 Lugano Convention).