Liechtenstein - Market Insights

Introduction

Liechtenstein has developed from a small agricultural country into an outstanding global player in international estate planning and is internationally renowned for its stable economy and its offering of tailor-made entities, such as trusts and foundations, providing a very strong basis for intergenerational asset structuring. Despite its modest size, Liechtenstein is a jurisdiction that sees a significant number of civil proceedings. Cross-border legal disputes arise frequently, especially in connection with legal entities. In the absence of enforcement agreements with states other than Switzerland and Austria, legal proceedings must therefore often be conducted before the Liechtenstein courts, as foreign judgments — other than those rendered in Switzerland or Austria — are not enforceable in Liechtenstein.

In light of its historical legacy, Liechtenstein has largely adopted its legal system from Austria and Switzerland. The Code of Civil Procedure (Zivilprozessordnung (ZPO)) was incorporated from Austria, which is why decisions of the Austrian Supreme Court are often referred to in judgments pursuant to the so-called “law in action” principle. Under this doctrine, adopted provisions are to be construed in line with their interpretation in the country of origin, unless compelling reasons dictate otherwise. The Liechtenstein Code of Civil Procedure has undergone only minor amendments in recent years, a circumstance that further supports legal certainty.

Dispute resolution

As previously noted, civil litigation arises with considerable frequency in Liechtenstein. Given that enforcement agreements are currently in place only with Switzerland and Austria, foreign court decisions are generally not enforceable in Liechtenstein. However, Liechtenstein has been a member of the New York Convention since 2011, ensuring the enforceability of arbitral awards in Liechtenstein. Consequently, a substantial number of disputes must be litigated before Liechtenstein courts, which presupposes that the Liechtenstein courts have international jurisdiction. Upon the filing of a claim, the Liechtenstein court will undertake a review to ascertain whether it has jurisdiction over the matter. If this is not the case, the court will dismiss the claim.

The principality of Liechtenstein has been observed to exercise international jurisdiction in the following circumstances:

• The national legal jurisdiction stipulates that the courts of Liechtenstein are deemed competent.
• The competence of the Liechtenstein courts has been established through the ratification of a valid agreement between the involved parties.
• The Liechtenstein courts are vested with jurisdiction pursuant to an international treaty.

Under the Jurisdiction Rules (Jurisdiktionsnorm (JN)), a distinction is drawn between general and special places of jurisdiction, with general jurisdiction being regulated in sections 30–36 of the JN. Section 30 of the JN stipulates that the Princely Court has jurisdiction for all lawsuits if the defendant has general jurisdiction in the Principality of Liechtenstein. In accordance with section 31 of the JN, the general place of jurisdiction of an individual is determined by their place of residence. The term “place of residence” refers to the location where an individual has established their permanent domicile, with this intention being either proven or circumstantial (section 31, JN). In the absence of an explicit stipulation to the contrary in a generally binding provision, the general place of jurisdiction for legal entities, in particular companies limited by shares, trusts or foundations, is determined by their registered office. In the event of doubt, the location where the administration is conducted shall be considered to be the registered office (section 36, JN). The following are examples of special places of jurisdiction: disputes concerning immovable property (section 38, JN), the place of jurisdiction of the joint litigants (section 46, JN), and the place of jurisdiction of the estate (section 50, JN).

It should be noted, however, that parties may also submit to the jurisdiction of the Princely Court even where that court would otherwise lack jurisdiction, by way of an express agreement. The agreement on the place of jurisdiction must relate to a specific legal dispute or to legal disputes arising from a specific legal relationship. In instances where the Princely Court, lacking in its own jurisdiction, is deemed competent by an agreement on the place of jurisdiction, it also attains competence if the defendant, having failed to raise the objection of lack of jurisdiction in a timely manner, engages in the oral proceedings on the merits of the case. In situations where there is uncertainty, a jurisdiction agreement merely establishes an alternative jurisdiction. Accordingly, the lawsuit may be filed either before the agreed forum or before the defendant’s general place of jurisdiction.

In the context of civil proceedings, provided that the jurisdiction of the Liechtenstein courts has been established, the following judicial authorities are of particular relevance:

• Princely Court (first instance court).
• Superior Court (second instance court).
• Supreme Court (third instance court).

Furthermore, a final and conclusive decision may be reviewed by the Constitutional Court of Liechtenstein (Staatsgerichtshof) for compliance with the Constitution by way of an individual constitutional complaint (Article 15 of the Constitutional Court Act (Gesetz über den Staatsgerichtshof (StGHG)).

Security deposit for litigation costs

Where natural persons not residing in Liechtenstein act as plaintiffs or appellants, they are, upon request of the defendant or respondent, required to provide security for the procedural costs, unless otherwise provided by applicable international treaties (section 57, ZPO). Consequently, the obligation to provide security does not apply in the following circumstances: if the natural person plaintiff has their habitual residence in Liechtenstein or if the Liechtenstein decision on legal costs can be enforced in the plaintiff’s country of residence (section 57, ZPO). This deposit is considered a form of security, and if the plaintiff succeeds in the case, he will be entitled to the repayment of the deposit. The purpose of this provision is to ensure the effective enforcement of a cost award in favour of the defendant, which would otherwise be significantly more difficult in the absence of an enforcement agreement with the plaintiff’s state of domicile.

This requirement is of particular relevance in Liechtenstein, given the country’s pronounced international orientation. The security deposit for legal costs is subject to different regulations for natural persons and legal entities. While the obligation to provide a deposit for natural persons is linked to their place of residence, domestic and foreign legal entities are treated equally. Where a legal entity assumes the role of plaintiff or appellant, the defendant or respondent is entitled to request security for legal costs, provided that the entity in question fails to demonstrate the existence of assets equivalent to the anticipated legal costs, which would be enforceable under a court decision ordering reimbursement of costs (section 57a, ZPO). If the legal entity can demonstrate assets equivalent to the estimated legal costs, which are subject to enforcement by such a court decision no security deposit is required.

If the security deposit is not paid, or not paid in full or in a timely manner, the court shall, at the request of the defendant, declare the action withdrawn by way of an order (section 60, ZPO). The security deposit for the defendant’s legal costs is, therefore, a matter of significant pertinence, as both foreign natural persons and domestic and foreign legal entities must, prior to the initiation of legal proceedings, be aware of the potential requirement to provide the deposit. Depending on the amount in dispute, this deposit may be substantial and may constitute a procedural obstacle if not provided within the prescribed time limits.

Conclusion

Liechtenstein is a country of significant international importance due to its well-established estate planning framework, its stable economy, and the availability of tailor-made legal entities, such as trusts and foundations, which provide a solid and strong basis for intergenerational asset structuring. This has, in turn, resulted in a recurring pattern of civil litigation. The enforcement of foreign court decisions is generally not possible in Liechtenstein due to the lack of enforcement agreements with countries other than Switzerland and Austria, which frequently necessitates that proceedings be conducted before the Liechtenstein courts. At the same time, Liechtenstein offers a well-established and efficient framework for civil litigation, characterised by clear procedural rules and a high degree of legal certainty.

It is imperative for both natural persons residing abroad and legal entities based in Liechtenstein or abroad to be aware that a security deposit is frequently required to cover the defendant’s legal costs, which may be substantial where the amount in dispute is significant.