In its decision of 6 May 2024, the Swiss Federal Supreme Court (SFSC) clarifies the conditions for a claimant to appeal an interim decision ordering it to provide security for the defendant’s costs due to appearing insolvent or having liquidity problems (case No. 4A_93/2024 [in German]; intended for official publication). The SFSC held that, in this case, a claimant must prove that it is unable to pay this security and thus the legal disadvantage of being denied access to the court is imminent.
Factual background
In 2021, the claimant filed an action against the defendant with the Civil Court of Basel-Stadt and requested that the defendant be obliged to pay CHF 34,434,096.91 plus interest. Upon submitting its response, the defendant requested that the claimant be ordered to provide appropriate security of at least CHF 2 million for any party costs, arguing that the claimant appeared to be insolvent. The Civil Court of Basel-Stadt granted this request and ordered the claimant to provide security in accordance with Article 99 of the Swiss Civil Procedure Code (CPC) in the amount of CHF 2 million, otherwise the claimant’s action would not be upheld.
The claimant appealed this decision to the Court of Appeal of Basel-Stadt, which dismissed the appeal in its interim decision. It ruled that, although the defendant had not shown that the claimant was insolvent within the meaning of Article 99, paragraph 1, letter b CPC, the defendant had credibly shown that the claimant had liquidity problems, raising considerable doubts as to the claimant’s ability to cover any of the defendant’s costs in connection with the proceedings (Article 99 paragraph 1 letter d CPC).
The claimant filed an appeal against the interim decision with the SFSC, arguing that the Court of Appeal of Basel-Stadt had erred in dismissing its appeal to reject the request for security for party costs. The main question before the SFSC concerned the appealability of this interim decision.
Interim decisions may only be appealed to the SFSC if they cause an irreparable disadvantage
The order to provide security for party costs in question was issued in an interim decision by the Court of Appeal of Basel-Stadt. Pursuant to Article 93, paragraph 1, letter a of the Federal Supreme Court Act (FSCA), an appeal against an interim decision is only admissible if it is likely to cause an irreparable disadvantage. An irreparable disadvantage within the meaning of Article 93, paragraph 1, letter a FSCA must be a disadvantage of a legal nature that cannot or cannot entirely be remedied, even by a subsequent favorable final decision. This provision is interpreted restrictively, particularly because parties are not deprived of any rights by failing to independently appeal an interim decision within the meaning of Article 93 FSCA, as they can raise their complaints in the appeal against the final decision (Article 93, paragraph 3 FSCA). Therefore, it is the responsibility of the party filing the appeal to prove that the conditions for the exceptional appealability of an interim decision have been met.
Interim decisions on the provision of security for party costs may only be appealed if the claimant is financially unable to provide security
According to a landmark decision of the SFSC,[1] a claimant may only appeal a decision ordering it to provide security for the defendant’s party costs if this decision denies the claimant access to court because the claimant is financially unable to pay the security. The question put before the SFSC in the present case was whether this also applies if the claimant appeals a decision ordering it to provide security for the defendant’s costs due to appearing insolvent or having liquidity problems. As the applicant pointed out, in this case, it would be impossible to establish the claimant’s right to appeal without contradicting its position that it is not insolvent or at least having financial difficulties — ultimately depriving claimants of their right to appeal interim decisions ordering them to provide security due to their financial situation.
The SFSC rejected this argument and affirmed that, in this case, the appellant will have to establish that it is unable to provide security. If the reason for ordering a claimant to provide security for the defendant’s cost is its financial situation, the claimant will not be able to appeal this decision arguing that the assessment of its financial situation was incorrect. However, according to the SFSC, this does not deprive a claimant of its right to appeal, since it may still raise other complaints, such as a violation of procedural rules.
In the present case, the appellant had expressly denied that it is unable to pay the requested security — as otherwise it would have admitted that the lower instances’ conclusion that it had liquidity problems was correct. Therefore, the SFSC concluded that the appellant had not established the necessary irreparable disadvantage of a legal nature within the meaning of Article 93, paragraph 1, letter a FSCA and was thus not entitled to appeal the interim decision regarding security for costs.
Impact of the SFSC’s decision
The SFSC’s recent decision makes it (almost) impossible for claimants to appeal a decision ordering them to provide security for costs due to their financial situation. In the present case, this is especially striking: the court of second instance explicitly held that the defendant had not credibly shown that the claimant appeared to be insolvent, as the court of first instance had concluded. Instead, the court of second instance relied on the catch-all clause of Article 99, paragraph 1 letter d CPC (other reasons giving rise to a considerable risk that the claimant will not pay a potential compensation for party costs), which grants courts significant discretion. Nevertheless, in the present case, the SFSC refused the claimant a possibility for judicial review of this factual assessment. In addition, the SFSC’s approach may also de facto restrict the ability of claimants ordered to provide security for costs for other reasons, such as not being domiciled in Switzerland (Article 99, paragraph 1, letter a CPC), to appeal such a decision. To appeal a decision ordering them to provide security for costs, claimants will have to show that they are unable to provide this security — which, in turn, would justify obliging them to provide security for costs based on another ground listed in Article 99 CPC.
[1] FSC 142 III 798 [in French].
