In its decision of 8 December 2023, the Swiss Federal Supreme Court (“SFSC”) deliberated on the reservation of Swiss public policy (case no. 4A_11/2023 [in French]).
Factual background
In the case at stake, a Swiss watch manufacturer (the respondent before the Commercial Court of the Cantonal Supreme Court of Berne and defendant before the SFSC) purchased packaging material for watches and jewellery from a supplier domiciled in Hong Kong. The supplier (the claimant before the Commercial Court and appellant before the SFSC) had gradually bribed employees working for the Swiss watch manufacturer during the period from 2010 to 2015. In total, the bribes amounted to HKD 5,876,369.28 (equivalent to around CHF 700,000.00). Unaware of the bribery scheme between the supplier and its own employees, the watch manufacturer placed further orders with the Hong Kongese supplier. In the sequel, it partly refused to accept and consequently refused to pay the delivery. The value of the delivered but not returned goods amounted to HKD 2,570,180.00.
In addition to criminal proceedings against the alleged corrupt employees in the canton of Neuchâtel, a dispute arose between the watch manufacturer and the supplier concerning the last order and the corruption damage. In essence, the supplier claimed full payment of the last order. On the other hand, the watch manufacturer filed a counterclaim for compensation for the corruption damage.
Hong Kong law was confirmed to be applicable by the Commercial Court. The Commercial Court thus ordered a legal expert report that showed that Hong Kong law among others provides that the injured party is entitled to payment of the bribes not only from the corrupt trustee, but also from of the corrupt seller, irrespective of the losses it has suffered. Therefore, the Commercial Court determined that the watch manufacturer was entitled to receive a total amount of HKD 5,876,369.28, which corresponds to the amount of the bribes given to the employees. However, the Court subtracted the value of the goods that the watch manufacturer had received and not returned, amounting to HKD 2,570,180. C
The supplier then filed an appeal against this decision with the SFSC, arguing, inter alia, that the judgment of the Commercial Court led to an unjust enrichment of the buyer and thereby violated the reservation of Swiss public policy. The main question before the SFSC was thus whether the application of provisions of Hong Kong led to a result that is incompatible with Swiss public policy (so-called ordre public) and therefore shall be excluded.
The Swiss public policy exception is an exceptional remedy that requires vigilant application
The international private law in some cases requires the judge of the competent forum to apply foreign law. However, as the content of this legislation is not known in advance, it is certainly possible that it contains provisions that could clash with the fundamental values of the lex fori. In this context, the reservation of public policy might be one of the most common techniques to prevent those rules from taking effect. In Switzerland, pursuant to art. 17 of the Swiss Private International Law Act (“PILA”), ‘the application of provisions of foreign law is excluded if such application leads to a result that is incompatible with Swiss public policy’.
According to the reasoning of the SFSC, the principle of the prohibition of enrichment of the injured party, according to which compensation shall never lead to the enrichment of the injured party, is of fundamental importance in Switzerland. It is therefore a matter of Swiss public policy within the meaning of art. 17 PILA. However, under Hong Kong law, admitting that the damaged party is entitled to the equivalent of the bribery amount implies a presumption that the damage suffered equals this sum, akin to how Swiss law allows for estimating damages when the exact amount cannot be determined. The Commercial Court’s conclusion, supported by evidence that the seller’s corruption led the buyer to unwittingly fund the illicit profits of the corrupt employee, aligns with principles against unjust enrichment and is not contrary to Swiss public policy. Also, the Commercial Court had deducted the value of the delivered goods from the corruption damages, which ultimately did not lead to any (unjust) enrichment of the injured party. Therefore, the public policy was not violated in this regard.
Concluding remarks regarding reservation of Swiss public policy
The foundational premise for interpreting international private law lies in the concept of diversitas legum, which stipulates that the law invoked by the pertinent reference provision (typically most closely connected to the case’s factual circumstances) should be applied. Private international law intentionally embraces solutions that diverge from the Swiss legal system and its underlying principles, thereby achieving one of the core objectives of conflict of laws. Indeed, prevailing legal doctrine and jurisprudence advocate that the reservation of Swiss public policy shall only be applied with restraint. As the SFSC had pointed out in an earlier decision[1]:
“It is even more restrictive to accept the exception to public policy if the case does not actually have any connection with Switzerland. […] [T]here is no reason to impose Swiss concepts on relations which, according to Swiss private international law, are subject to foreign law. In principle, the reservation of public policy could only be invoked in the event of a violation of an almost permanent and universal rule of law.”
In light of this precedent, the SFSC affirmed the prevailing legal doctrine and jurisprudence, emphasizing that the reservation concerning Swiss public policy should be regarded as an exceptional remedy, necessitating vigilant application.
[1] SFSC 125 III 443 p. 448 (convenience translation from the French language; emphasis added by the authors).
