The Principality of Liechtenstein has been an international financial centre for a long time. Now, due to the Liechtenstein Rules, it has an opportunity to become an international arbitration centre.
Situated on the east bank of the Alpine Rhine, the Principality of Liechtenstein is one of the smallest countries in continental Europe. It covers an area of 160 km2 and has 38 000 inhabitants. In Europe, only the Principality of Monaco, the Republic of San Marino, and the Vatican City are smaller in terms of territory and population.
Liechtenstein borders the Austrian Bundesland Vorarlberg to the east, and the Graubünden and Sankt Gallen cantons to the south.
Despite its small scale, Liechtenstein is one of the world’s wealthiest countries. Due to low taxes and a liberal policy with respect to bank deposits, it is considered one of the most favourable tax jurisdictions in Europe. Numerous legal entities incorporated under local law, often with foreign capital, are registered in Liechtenstein. According to the current Principality of Liechtenstein government statistics, the most popular legal forms are the joint-stock company (Aktiengesellschaft), a private establishment (Anstalt), an unregistered fund (nicht eingetragene Stiftung), and also a registered trust (eingetragenes Treuunternehmen).
Of course, the history of Liechtenstein goes back a lot further, but the brief history presented here starts on 23 January 1719, when the county of Vaduz and lordship of Schellenberg were united by Emperor Charles VI of Habsburg and elevated to the status of principality. This created the principality named Liechtenstein, which became part of the Holy Roman Empire of the German Nation. The name comes from Liechtenstein castle, which was the Liechtenstein family home (von und zu Liechtenstein), situated in the town of Maria Enzersdorf near Vienna. On 12 July 1806, Napoleon recognised the country as a founding member of the Confederation of the Rhine, which meant that the Principality of Liechtenstein gained sovereignty de iure, but remained under the substantial influence of Napoleon.
Subsequently, the Congress of Vienna confirmed the country’s sovereignty, and it was intended to join the German Confederation. However, article 13 of the Federal Act required a constitution to be adopted; it was adopted by Johann I Joseph, Prince of Liechtenstein, Duke of Troppau and Jägerndorf. The first constitution of the Principality of Liechtenstein, which gave absolute power to the prince, came into effect on 9 November 1818 and lasted until 1862, when Prince Johann II of Liechtenstein passed a second constitution to modernise the country. Meanwhile, the monarch retained most of his executive power and certain judicial powers. Out of three court instances, only the first instance was within the principality. The others were in Austria, specifically in Innsbruck and Vienna. Courts operated according to Austrian codes, the Civil Code of 1812 and Criminal Code of 1852.
The 1862 constitution remained in effect, with some minor changes, until the outbreak of World War I. Liechtenstein remained neutral during the conflict, which was a troublesome position due to its union with Austria-Hungary. The principality broke off the relationship with this ally and dissolved the customs treaty in 1919. In 1921, Liechtenstein adopted the constitution that is in force today. In 1924, the country joined the Swiss customs union. Liechtenstein also formed a monetary and postal union with Switzerland.
Organisation of the common courts
Since 1922, the organisation of common courts in the Principality of Liechtenstein has been regulated by the Judicial System Act (Gerichtsorganisationsgesetz). In the common court system there are three instances in civil and criminal cases. Under Art. 1 of the Judicial System Act, there are three common courts based in the country’s capital, Vaduz: the district court (Fürstliches Landgericht) (court of first instance), the appeal court (Fürstliches Obergericht) (court of second instance) and the Supreme Court (Fürstlicher Oberster Gerichtshof) (court of third instance). In addition to the common courts, there are two more public law tribunals seated in Vaduz, and these are the Constitutional Tribunal (Staatsgerichtshof) and the Administrative Tribunal (Verwaltungsgerichtshof). All court judgments in the Principality are pronounced “in the name of the Prince and the People” (im Namen von Fürst und Volk).
The opening up of the Principality of Liechtenstein to arbitration
On 1 November 2010, a new law on arbitration tribunal proceedings came into force in Liechtenstein. These were new regulations (§§ 594 et seq. of the Civil Procedure Code of the Principality of Liechtenstein), largely based on the Austrian Arbitration Proceedings Act (Schiedsrechtsänderungsgesetz) of 2006, based in turn on the UNCITRAL Model Law on International Commercial Arbitration.
Nevertheless, lawmakers in Liechtenstein included certain special details of their own in arbitration proceedings in the Principality of Liechtenstein, to make it more attractive. For example, the grounds for the competent common court to overturn an arbitral award issued in Liechtenstein have been significantly limited – they are comparable to the grounds listed in the New York Convention on Recognition and Execution of Arbitration Awards of 10 June 1958. Only the appeal court (Fürstliches Obergericht) can overturn an award of this kind, and there is no instrument of appeal to a higher instance. There is only the possibility of filing an appeal with the Constitutional Tribunal (Staatsgerichtshof), if rights guaranteed by the constitution of the Principality of Liechtenstein, or, as applicable, by the European Convention on Human Rights, have been breached. This detail means that arbitration proceedings are conducted considerably more quickly, because a claim to have an arbitral award quashed can be adjudicated upon within a few months.
The Principality of Liechtenstein took another important step towards a more efficient arbitration system by ratifying the New York Convention described above on 7 July 2011. Poland ratified the convention on 19 July 1961. Since Liechtenstein ratified the New York Convention, the recognition and enforcement of foreign arbitral awards of any of the 159 signatory countries has been guaranteed in Liechtenstein according to the rules in that convention. Thus it was not until this step was taken that arbitration in the country took on true meaning, because since the New York convention was ratified, enforcement of arbitral awards has been assured in state territory of the Principality of Liechtenstein, where one of the parties to a dispute may have its seat and assets with respect to which the successful party can subsequently satisfy its claims with the assistance of a Principality of Liechtenstein enforcement officer.
The up-to-date Liechtenstein Rules
Due to the rapid development of arbitration law in Liechtenstein, a set of rules to govern arbitration was deemed to be required. In May 2012, the local chamber of commerce and industry (Liechtensteinische Industrie- und Handelskammer (LIHK)) adopted the “Liechtenstein Rules”. These are rules on procedure before arbitration tribunals in the Principality of Liechtenstein. The rules were drawn up by lawyers experienced in arbitration procedure, from the Liechtenstein Arbitration Association (Liechtensteinischer Schiedsverein). The rules are an intelligent addition to the completely revised Principality of Liechtenstein Arbitration Proceedings Law, which combines the strong points of other tried and tested rules, in particular the globally recognised UNCITRAL Arbitration Rules and Swiss Rules.
The 2012 Liechtenstein Rules stand out due to the precise, clear, and unequivocal wording and explicit requirement to keep the arbitration proceedings confidential. It is also shorter than other arbitration rules, containing only 32 articles (the UNCITRAL Arbitration Rules contain 43 articles, and the ICC Rules of Arbitration – 41). It places particular emphasis on smooth and pragmatic handling of the proceedings.
The obligation to keep the arbitration proceedings confidential is a very important aspect of arbitration, which is not provided for in a satisfactory manner in other rules. The UNCITRAL Arbitration Rules do not make any mention of this obligation, providing only that third parties are excluded from hearings, and that there are certain conditions for publication of arbitral awards (art. 28(3) and art. 34(5) of the UNCITRAL Arbitration Rules). In turn, under the ICC Rules of Arbitration, the parties can file motions for orders to be issued by the arbitration tribunal requiring that the arbitration proceedings be kept confidential (art. 22(3) of the ICC Rules of Arbitration).
The Liechtenstein Rules however contain detailed and extensive provisions on confidentiality of arbitration proceedings. Confidentiality is protected even from the moment the prerequisites for selection of an arbiter on the panel are determined. Only persons who are bound by confidentiality by statute and statutory privilege under the laws of the Principality of Liechtenstein can be appointed (art. 6(1) of the Liechtenstein Rules). Written evidence (statements) is submitted as required under the Principality of Liechtenstein Civil Procedure Code, and thus this is quite restrictive compared to the Anglo-Saxon procedural traditions (first sentence of art. 18(2) of the Liechtenstein Rules). Moreover, the arbitration tribunal has an obligation to order, if requested by a party submitting written evidence, that the other party may not be provided with the documents. The documents are available for viewing only at the seat of the arbitration tribunal or other appropriate location, provided that the party making that request demonstrates in a credible manner that it has an interest in keeping the contents of the evidence confidential (second sentence of art. 18(2) of the Liechtenstein Rules). In particular, an arbitration tribunal can order an expert witness, subject in turn to statutory privilege, to review the written evidence and submit a report on the contents, without the written evidence being submitted to the arbitration tribunal or the other party (fourth sentence of art. 18(2) of the Liechtenstein Rules). Importantly, all of the participants in the arbitration proceedings are subject to strict confidentiality (art. 29(1) et seq. of the Liechtenstein Rules). This obligation can even be secured by a contractual penalty of CHF 50 000 (art. 29(7) and (8) of the Liechtenstein Rules). No other arbitration tribunal rules provide for such strict confidentiality requirements. For this reason, the Liechtenstein Rules are especially valuable to parties seeking a high level of discretion regarding their participation in arbitration tribunal proceedings.
The option of conducting arbitration proceedings locally might be important from the point of view of the financial centre in the Principality of Liechtenstein, with the reputation of a financial bastion in the Alps. The turning point was the updating of the procedural regulations in the Principality of Liechtenstein Civil Proceedings Code, and subsequently ratification of the New York Convention on Recognition and Execution of Arbitration Awards of 10 June 1958.
The crucial moment, however, was the formulation of precise arbitration tribunal rules, restrictive in particular with respect to confidentiality. The Liechtenstein Rules have made arbitration proceedings in the Principality of Liechtenstein a viable alternative. The rules accommodate the particular situations that arise in the Principality of Liechtenstein and the associated characteristic legal structures that are unknown in other jurisdictions.
It is worth observing the rate and the scale in which arbitration is in fact developing in this small and country of specific nature, situated between Austria and Switzerland, in the heart of Europe.
Harald Marschner, attorney-at-law, Rechtsanwalt, Dispute Resolution and Arbitration practice, Wardyński & Partners