Commercial law, contract law, loan contract,
choice of forum, fundamental error
April 14, 2025
In a decision 4A_331/2023 of January 6, 2025, the Swiss Supreme Court ruled on the following case, which we find interesting insofar as the principle of transparency was applied and, in this particular case, the principle of autonomy of the choice of forum agreement was not applicable, which led to the inadmissibility of the complaint in Switzerland.
The plaintiff/appellant was a company based in the Cayman Islands. Its managing director with individual signature was an Israeli asset manager domiciled in Geneva. He had power of attorney to manage the company’s bank accounts, for which he had repeatedly declared himself the beneficial owner. The appellant held the entire share capital of another limited company (F._ SA) based in Geneva (since deregistered), whose purpose was the management of private and institutional assets, and whose director with individual signature was E._.
The defendants/respondents were three: two of them were domiciled in Israel. They were partners in various business ventures, both in Israel and abroad.
On the basis of the loan and management agreement of June 28, 2005 concluded with the defendants/respondents, which contains a choice of forum, the plaintiff/appellant brought a lawsuit in Geneva against the respondents for repayment of the USD 500,000 (less two amounts) it had allegedly lent them.
Like the lower court, the cantonal court ruled that the claim was inadmissible on the grounds that the agreement in question, tainted by fraud and essential error to the detriment of the respondents, was null and void. The cantonal court first applied the principle of transparency. It then held that the loan and management agreement of June 28, 2005 was not binding on the respondents, as they were in a fundamental error at the time of entering into it (art. 23 and 24 para. 1 no. 2 and 4 of the Swiss Code of Obligations ; « SCO »). The respondents had also been victims of fraud (art. 28 SCO) and had validly invalidated the loan agreement by letter dated January 18, 2011. This letter was sent within the legal deadline (art. 31 SCO). In conclusion, the invalidation of the loan contract included the invalidation of the forum selection clause it contained, so that the Court of First Instance of the Canton of Geneva was incompetent ratione loci to rule and the claim had to be declared inadmissible.
The Swiss Supreme Court upheld the decision of the cantonal court. In particular, it found that the cantonal court had correctly ruled that the principle of transparency applied, so that the corporate veil could be lifted (recital 5.2). The Supreme Court has recalled that the application of the principle of transparency presupposes, firstly, that there is identity of persons, in accordance with economic reality, or in any case the economic domination of one subject of law over the other; and secondly that the duality is invoked in an abusive manner, i.e. to derive an unjustified advantage (ATF 144 III 541 consid. 8.3.2; 132 III 489 consid. 3.2; 121 III 319 consid. 5a/aa; 102 III 165 consid. II.1) (recital 5.1).
In recital 6, the Swiss Supreme Court confirmed that the cantonal court had rightly decided that the respondents had been the victims of a fundamental error when they entered into the disputed contract.
Finally, the Supreme Court emphasized (recital 8.) that the lower courts, followed by the cantonal court, had held that the principle of the autonomy of the choice of forum agreement was not applicable when, as in the present case, the contractual intent of one of the parties is vitiated by a defect in consent (see ATF 121 III 495 recital 6a; 119 II 380 recital 4a and references) and there is no Swiss forum provided for by the Federal Act on Private International Law (PILA). The appeal was therefore rightly declared inadmissible.
