LIECHTENSTEIN: An Introduction to Dispute Resolution

Introduction 

As an international financial centre, Liechtenstein is an important port for assets of international clientele. It does therefore not come as a surprise that the better part of dispute resolution in Liechtenstein relates to matters of financial nature with an international twist to it. In this field, asset tracing and recovery cases, disputes relating to private assets structures (such as foundations or trusts) and white-collar crime matters play an important role. Liechtenstein has a well-established and highly developed court system and due to Liechtenstein's very international financial sector, Liechtenstein courts are experienced in handling cross-border disputes, which proves to be an advantage in litigation involving assets located in Liechtenstein from clients abroad.

Asset Tracing and Recovery 

While the enforceability of foreign judgments is very limited and, as a civil law jurisdiction, Liechtenstein is not familiar with information-gathering tools such as discovery and disclosure procedures known to many common law jurisdictions, Liechtenstein law nevertheless provides for a number of legal tools which, if deployed the right way, may prove very effective in asset tracing and recovery cases. These tools include (i) injunctive relief, (ii) ordinary civil proceedings, (iii) enforcement of arbitral awards as well as (to limited extent) foreign judgments. In addition, criminal proceedings do also play an important role in asset tracing and recovery cases.

In many asset tracing and asset recovery cases, time is of essence. Therefore, the first step often is to apply for injunctive relief in order to preserve assets and secure future enforcement. In Liechtenstein, injunctive relief is available to prevent irreparable damage or a change in circumstances that might frustrate or significantly complicate enforcement of a claim or right at a later stage. In such cases, injunctive relief can be granted in the form of conservatory measures in order to preserve the matter in dispute or otherwise secure future enforcement pending conclusion of the main proceedings, for example by means of freezing orders, attachments or restraint orders. It is in the court’s discretion to decide whether the circumstances of the case require that injunctive relief be granted on an ex parte basis or whether the respondent should be heard in advance. Injunctive relief is usually granted on an ex parte basis within 24 to 72 hours upon receipt of the application in cases of great urgency or where there is a risk that the effectiveness of the relief would otherwise be impaired.

As mentioned, most foreign judgments are not enforceable in Liechtenstein. Thus, even if there is a foreign judgment in favour of a damaged party, the damaged party will in most cases nevertheless have to initiate fresh proceedings in Liechtenstein in order to enforce against assets located in Liechtenstein. Notably, Liechtenstein courts assume jurisdiction over any defendant who holds assets in Liechtenstein. There are a number of legal grounds under substantive Liechtenstein law which are of particular relevance in the context of asset tracing and asset recovery:

• As a matter of Liechtenstein civil law, a person who has suffered financial damage can seek compensation from the person who unlawfully and culpably caused the damage.

• Further, a person who has been deceived or coerced by his counterparty into the conclusion of a contract can challenge the contract and request the modification or cancellation of the contract and seek the restitution of the alienated assets on the basis of unjust enrichment, or he can leave the contract unchallenged and seek compensation for the resulted damage.

• Where a debtor has sought to put assets out of the reach of his creditors by transferring the assets to a third party (eg, a foundation or a trust), the creditor may seek to challenge such transfer on the basis that the transfer was abusive or made gratuitously, or the creditor may seek to hold the third party liable on the basis of the concept of piercing the corporate veil.

Liechtenstein has entered into bilateral treaties with Switzerland and the Republic of Austria on the recognition and enforcement of judgments in civil matters. Further, Liechtenstein has ratified the Hague Convention on Child Support. Therefore, judgments of foreign courts which fall within the ambit of these treaties are directly enforceable in Liechtenstein (subject to the fulfilment of the conditions stipulated in these treaties). In other cases, fresh proceedings must be brought in Liechtenstein in which the foreign judgment can serve as evidence for the asserted claim. In addition, Liechtenstein is a party to the New York Convention. Therefore, foreign arbitral awards as well as cost awards from foreign arbitral proceedings are enforceable in Liechtenstein subject to the fulfilment of the conditions stipulated in the New York Convention.

Disputes Relating to Private Asset Structures 

By enactment of the Persons and Companies Act in 1926, the Liechtenstein legislator created an unequalled legal framework that provides unique possibilities for high net worth individuals seeking to structure their wealth. Not only is Liechtenstein the jurisdiction with the greatest tradition of and success with foundations for private purposes, it is also the only jurisdiction in mainland Europe to have adopted a comprehensive codified form of the Anglo-Saxon common law trust, thereby catering to the needs of settlors with civil and common law backgrounds alike.

In disputes relating to private asset structures, it must be noted that the Princely District Court is vested with broad supervisory powers over Liechtenstein trusts and foundations, such as the powers to appoint a supervisor, to order an audit, to give binding directions or to replace trustees or members of foundation councils. These powers guarantee the protection of the interests of the beneficiaries as well as the functioning of trusts and foundations. However, according to Liechtenstein case law, a court-ordered replacement of a trustee or member of a foundation council is considered an ultima ratio, which the court may only order if it concludes that the challenged person acted in a long-lasting and grave conflict of interests or severely violated fiduciary duties, thereby jeopardising the assets of the relevant trust or foundation, or endangering the fulfilment of its purpose.

In the context of a relationship between the beneficiaries of an asset structure and its administrators, a loss of confidence can occur. Liechtenstein case law, however, holds that a mere lack of trust on the side of the beneficiaries is not sufficient for the court to replace a trustee or member of a foundation council. However, in practice, situations in which the current beneficiaries do not get on with the persons who administer their family wealth turned out to be very unsatisfying for all concerned parties. In an attempt to address the problem, the Liechtenstein Chamber of Professional Trustees and Fiduciaries amended its Rules of Conduct and introduced an instrument to deal with conflicts between beneficiaries and professional Liechtenstein fiduciaries. According to these provisions, a loss of confidence in a professional Liechtenstein fiduciary by all parties involved in the relevant private asset structure (ie, settlor(s), beneficiaries, protector(s) and other trustee(s) or other member(s) of the foundation council, as the case may be) is sufficient ground to initiate a conciliation procedure before the Conciliation Body of the Chamber of Professional Trustees and Fiduciaries. In case of such a of loss of confidence, the Conciliation Body of the Chamber of Professional Trustees and Fiduciaries must assess whether the administration of a trust or foundation shall be transferred to a new fiduciary service provider if the current administrator of the private assets structure does not respond to the request to resign. The past years have proven that the procedure before the Conciliation Body of the Chamber of Professional Trustees and Fiduciaries has sufficient teeth. The rules of the Liechtenstein Chamber of Professional Trustees and Fiduciaries are an effective instrument to replace Liechtenstein fiduciary service providers who have lost the trust of the beneficiaries of a Liechtenstein trust or foundation.

White-Collar Crime 

Under Liechtenstein law, it is possible to pursue civil and criminal proceedings in parallel and such approach may make particular sense where only limited information and evidence is available. Often, information becomes available in the course of criminal proceedings (by means of seizure orders of documents from financial intermediaries) that can later be used to pursue for example a civil claim against a debtor. In addition, the prosecution authorities have the possibility to freeze assets, thereby preventing further dispositions of assets.

A person who has suffered financial damage as a result of a criminal offence (eg, fraud or embezzlement) can file a criminal complaint with the Liechtenstein prosecution authorities and seek the initiation of a criminal investigation and then join the investigation as a private party in order to seek compensation for the damage suffered.

A private party in criminal proceedings has a number of procedural rights (eg, the right to inspect the court files or the right to request the taking of evidence) and can submit evidence in support of the investigation. In case of a conviction, the court may award compensation for damages to the private party if it concludes that sufficient grounds can be established based on the findings in the criminal proceedings. If the criminal court concludes that such grounds cannot be sufficiently established, the private party is referred to the civil courts in order to pursue the civil claim there (ie, the private party is then required to file a civil action). Importantly, a civil claim does not become time-barred as long as an application for compensation in criminal proceedings is pending (ie, an application for compensation in criminal proceedings has the effect of suspending the limitation period).

In an attempt to address most recent developments, the Liechtenstein Criminal Procedure Code was amended in 2021, introducing the possibility to freeze virtual assets by way of transferring same to a wallet maintained by the Liechtenstein Police. By the introduction of these provisions, the legislator wanted to effectively curtail fraudsters' access to misappropriated virtual assets or virtual assets acquired with misappropriated fiat assets respectively in order to secure same for forfeiture. The law also provides for the possibility of liquidating frozen virtual assets prematurely if there is a risk of unforeseeable price losses in view of the assets' high volatility.

In terms of criminal matters, Liechtenstein heavily relies on mutual legal assistance. International mutual legal assistance in criminal matters is primarily governed by international and bilateral treaties, inter alia the European Convention on Mutual Assistance in Criminal Matters, the European Convention on Extradition and the European Convention on the Transfer of Proceedings in Criminal Matters. Further, the provisions of the Schengen Convention dealing with mutual legal assistance in criminal matters are also applicable in Liechtenstein. In addition, Liechtenstein has concluded bilateral treaties in criminal matters with a number of countries such as Austria, Belgium, Germany, Switzerland and the United States of America. In the absence of a treaty, the prerequisites for the provision of mutual legal assistance in criminal matters are set forth in the Liechtenstein Mutual Legal Assistance in Criminal Matters Act.