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Security Deposit For Costs in Liechtenstein Civil Proceedings: Not To Underestimate
Date: 03/06/2024 Type: Articles Topic: Private Client | Trusts | Wills and Estates | Inheritance | Next Generation Wealth | Investment and HNWI’s | Tax |In Liechtenstein civil proceedings, the principle applies that the losing party in the proceedings must reimburse the winning party for the legal costs, fees and expenses incurred by it. As Liechtenstein is not a member state of the Lugano Convention, decisions by Liechtenstein courts on this reimbursement of costs cannot be enforced abroad without further ado. The procedural obligation to provide a security deposit for costs (so-called actuarial deposit; cautio iudicatum solvi) is therefore of crucial practical importance.
Natural persons who are not domiciled in Liechtenstein and act as plaintiffs (or appellants) before a Liechtenstein court are generally obliged to provide a security deposit in the amount of the costs expected to be incurred by the defendant if requested by the latter (sec. 57 Code of Civil Procedure, CCP). Such obligation does not apply if the decision on the reimbursement of costs can be enforced abroad, which is currently only the case in Austria or Switzerland. Legal entities generally are obliged to provide a security deposit, if they do not have assets in the amount of the expected costs, regardless of their registered seat (sec. 57a CCP).
In any case, the obligation to provide a security deposit presupposes an application of the defendant (or respondent). In other words: If no application for security deposit is filed, the court will not order such deposit. It should be noted that the application must be made at the start of the proceedings, before entering into disputes, to be in due time (sec. 259 CCP). If the requirements are met, the court will order the plaintiff to provide a security deposit and set a deadline for payment (usually four weeks). If the plaintiff does not provide the security deposit within this deadline, the action is deemed to be withdrawn and the proceedings are ended without the main action even being heard or decided.
The amount of the security deposit to be paid is based on the expected legal costs, fees and expenses. The proceedings are to be hypothetically depicted with the expected number of pleadings, the number and duration of negotiations, any hearings by way of legal assistance, any expert fees and court fees. The legal costs and fees are to be calculated according to a specified tariff. The costs and fees according to this tariff depend on the amount in dispute. As a rule, the higher the amount in dispute, the higher are the respective costs and fees.
In the most recent decision on this, the Princely Supreme Court (5 January 2024, CO.2023.1) clarified that the court must estimate the amount of the expected costs according to the tariff based on its free judicial conviction. The possibility that an application to supplement the security deposit can be made during the proceedings if the security deposit provided at the beginning of the proceedings is no longer sufficient is also no reason to decide on a deposit that is too low. In the case of a very high amount in dispute, it goes without saying that considerable legal costs are to be expected on both sides. In casu, with an amount in dispute of around CHF 138'988'459 the Supreme Court recognized that a security deposit of CHF 5 million was in any case proportionate, corresponding to only around 3.5% of the amount in dispute.
In cases where there is no obligation to provide security deposit at the beginning of the proceedings, but this changes during the proceedings, a so-called subsequent application can be filed (sec. 58 CCP). This is the case, for example, if a legal entity who is generally obliged to provide security deposit can no longer show any assets in the amount of the expected costs that are subject to enforcement. Then the defendant is allowed to apply for security deposit in the amount of all costs incurred since the beginning of the proceedings and the costs expected to be incurred in further proceedings (Ungerank in Schumacher (Ed.), Handbook Liechtenstein Civil Procedure Law, 11.69).
In the first decision issued in this regard, the Princely Court of Appeal (14 November 2023, 05 CG.2023.83, LES 2024, 70) has now clarified that this subsequent application is only possible if the requirements for the obligation to provide security deposit have changed (e.g. change of residence or change of assets subject to enforcement). However, if the defendant only incorrectly estimates the expected legal costs and expenses at the beginning of the proceedings, i.e. assumes that the expected costs and expenses will be low and that the plaintiff has sufficient assets for this and subsequently does not file an application for security deposit at the beginning of the proceedings, the defendant implicitly waives the security deposit. An application can no longer be filed during the proceedings. In casu, the plaintiff assumed at the beginning of the proceedings that the expected costs would only be around CHF 5'000, which the plaintiff was financially in a position to pay, but in fact the proceedings turned out to be more extensive and costly than expected and the legal costs amounted to around CHF 50'000.
Particularly in light of this recent case law, it is once again clear how important it is in Liechtenstein civil proceedings (i) to sufficiently examine the requirements for an application for security deposit at the beginning of each proceeding and (ii) to file any application in due time, i.e. before entering into disputes. Otherwise, the claim for a security deposit may be forfeited and, due to a lack of enforcement options, the costs of the proceedings will be borne by the defendant, even if he should win the case.
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Hannes Arnold - Gasser Partner
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