Swiss and German prescription rules: a crucial but underestimated consideration when agreeing to a choice-of-law clause
Swiss and German law recognise the institution of prescription (Verjährung), a seemingly inconspicuous but crucially significant topic in practice because the legal effects of this are severe. Upon the expiration of the prescription period, in general, the debtor can prevent the enforcement of a legally valid claim.
The prescription regimes of both countries are similar in structure, yet differ considerably in details. This article describes the main prescription provisions in Swiss and German contract law, showing how each rule can significantly affect the enforceability of an arising claim. This article highlights practical distinctions, namely the beginning and ending of the prescription period, contractual modifications and waivers of the defence of prescription, and how legal actions (e.g. interruption or suspension) affect it. Ultimately, this article emphasises that understanding and carefully selecting prescription rules is crucial when drafting contracts by giving a brief comparison between the two countries prescription regimes.
Introduction
In both Swiss and German law, the prescription (Verjährung) of any contractual claim is governed by the law applicable to the contract. When agreeing on a choice of law clause, the parties should always keep the applicable prescription rules in mind. The significance of the applicable prescription rules is often underestimated, even though these rules can be decisive for the enforceability of a contractual claim.
This article focuses on the general prescription period for contractual claims and in both legal systems addresses the following: (A) the duration of the prescription periods; (B) the validity of contractual agreements on and waivers of the prescription; (C) the commencement and calculation of the prescription period; (D) their interruption and suspension; and (E) the legal consequences of prescription. Thereafter, the article illustrates the key similarities and differences in the prescription regimes of Switzerland and Germany and demonstrates what needs to be considered when choosing one or the other jurisdiction based on the enforceability of a claim.
Prescription in Swiss Law
Duration of the prescription period
In Switzerland, the ordinary statute of prescription periods for contractual claims is set out in the Third Title of the General Provisions of the Swiss Code of Obligations (CO). As a rule, all contractual claims are prescribed after ten years, unless federal civil law provides otherwise (art. 127 CO). Art. 128, art. 128a, and art. 139 CO, however, contain general exceptions to the ordinary statutory prescription period of art. 127 CO. In particular, Swiss law provides for a shorter regular prescription period of five years for certain cases in commercial transactions, such as claims for commercial rent and interest on capital.
Additionally, the remaining provisions of the Swiss CO (especially the special types of contractual relationships in art. 184 et seqq. CO) provide for various special deviations from these ordinary statutory prescription periods. In this context, the most important exceptions include the prescription period of two years for warranty claims regarding the sale of movable items (art. 210 para. 1 CO) and claims of customers due to defects in a movable work (art. 371 para. 1 sentence 1 CO). For items that have been incorporated in an immovable work, the prescription in each case is five years (art. 210 para. 2 CO; art. 371 para. 1 sentence 2 and para. 2 CO). However, the seller or customer may not invoke the prescriptive period if it is proven that he wilfully misled the buyer (art. 210 para. 6 CO; art. 371 para. 3 CO).
Agreements on and waiver of the prescription
As the prescription periods set out in the Third Title of the General Provisions of the Swiss CO are mandatory provisions, contractual alternations are not permissible under Swiss law (art. 129 CO). However, the prescription periods outside of these may be extended (and in certain cases also shortened) by an agreement between the parties if the provision is not compulsory in nature. Nevertheless, the parties cannot exceed the general statutory prescription period of ten years.
The debtor may waive the right to object on the grounds of prescription (Verjährungseinredeverzicht) for a maximum period of ten years (art. 141 para. 1 CO). The waiver must be made in writing (art. 141 para. 1bis CO). While Federal Supreme Court case-law made it possible to waive the defence of prescription after the conclusion of a contract, the revision of Swiss prescription law on 1 January 2020 allows a debtor to waive the defence of prescription at the earliest from the start of the prescriptive period. Furthermore, waivers containing a longer period than ten years are partially void and only valid for the maximum period of ten years (see art. 20 para. 2 CO).
The waiver of the prescription defence can also be made with regard to all prescription periods and is, in contrast to art. 129 CO, not limited to the general statutory prescription periods of the General Provisions of the Swiss CO.
Commencement and calculation of the prescription period
In general, the prescription period commences as soon as the debt is due (art. 130 para. 1 CO). Where a debt falls due on notification, the prescriptive period commences on the first date the notice is admissible (art. 130 para. 2 CO).
For certain types of contracts, the law specifies exactly when the prescription period begins. In a sales contract, for example, the prescription period for warranty claims for movable items starts upon delivery to the buyer (art. 210 para. 1 CO). In a contract for work, the period for defect claims begins upon acceptance of the work (art. 371 para. 1 CO).
When computing prescriptive periods, the date on which the prescriptive period commences is not included and the period is not deemed to have expired until the end of its last day (art. 132 para. 1 CO). For periods measured in months or years, a special rule applies: the period ends on the day of the final month that corresponds to the beginning date of the period. If this day does not exist in the final month, the period ends on the last day of that month (art. 132 para. 2 CO together with art. 77 para. 1 CO).
Interruption and suspension of the prescription period
Art. 135 CO states that the prescription period is interrupted in these instances: (i) if the debtor acknowledges the claim (particularly if interest payments or partial payments are made); or (ii) by debt enforcement proceedings, an application for conciliation or the submission of a statement of claim or defence to a court or arbitral tribunal or a petition for bankruptcy. In particular, the prescription period does not begin to run or is suspended during settlement negotiations or other out-of-court dispute resolutions. The suspension only applies if the parties agree to it in writing beforehand. In contrast to the unilateral waiver of the defence of prescription, both parties must sign to suspend the running of the prescription period. Once the reason for the interruption ceases to apply, the prescription period begins anew (art. 137 para. 1 CO).
In addition to interruption, Swiss law recognises grounds that lead to prevention or suspension of the prescription period. The prescription period does not commence and if it has begun, can be suspended for as long as the debtor has the usufruct of the claim, for as long as the claim cannot be brought before a court for objective reasons, and for the duration of settlement talks, mediation proceedings or any other extra-judicial dispute resolution procedure, provided the parties agree on this in writing (art. 134 CO). The period resumes at the end of the day when the cause of prevention or suspension ceases to apply. Unlike interruption, it does not start anew.
Legal consequences of the prescription
The occurrence of prescription does not mean that the claim is extin-guished. The claim continues to exist, but cannot be enforced through the courts if the debtor invokes the prescription by raising what is known as the defence of prescription (Verjährungseinrede). Importantly, the court may not apply the prescription defence on its own accord but only if the debtor explicitly asserts it (art. 142 CO). If a prescribed claim is voluntarily fulfilled, the debtor cannot reclaim the performance already rendered.
Prescription in German Law
Duration of the prescription period
In German law, the standard prescription period is three years (sec. 195 of the German Civil Code (CC)). However, claims to the transfer of ownership of land and to the creation, transfer or cancellation of a right to a plot of land or to a change of the subject-matter of such a right and entitlements to consideration are prescribed after ten years (sec. 196 CC).
In addition, certain claims of particular importance are prescribed only after 30 years, such as claims to surrender based on ownership, other rights in rem or claims under enforceable settlements or enforceable documents (see sec. 197 CC and sec. 199 para. 2 CC).
Like the Swiss CO, the German CC provides for various special prescription periods for certain types of contracts. Warranty claims regarding defects in a movable item under a sales contract (sec. 438 para. 1 no. 3 CC) and claims of customers due to defects in a movable work (sec. 634a para. 1 no. 1 CC) generally becomes statute-barred after two years. In relation to a building, such claims prescribe after a period of five years (sec. 438 para. 1 no. 2 CC; sec. 634a para. 1 no. 2 CC).
The contractual shortening or extension of the prescription period is generally permissible. In cases of liability for intent, however, the prescription period may not be eased in advance by legal transaction (sec. 202 para. 1 CC). Once the claim has arisen, the prescription period for liability for intentional damage may also be shortened. There are no general minimum prescription periods in the CC, and the parties may not exceed the 30-year statutory period (sec. 202 para. 2 CC).
Agreements on and waiver of the prescription
With the abolishment of the prohibition of aggravating prescription agreements, waivers of the defence of prescription before the expiry of the prescription period are also permitted, within the framework of sec. 202 para. 2 CC. According to this provision, the waiver is possible up to a period of 30 years from the start of the statutory prescription period.
In contrast to Switzerland, German law does not allow agreements on the waiver of the defence of prescription only when prescription already has occurred but allows such agreements already before the statute of prescription comes into effect. As the debtor is already sufficiently protected by the fact that agreements extending the prescription period can only be made with his consent, waivers prior to the commencement of the prescription are also permissible.
If the debtor declares a waiver of the prescription without specifying a duration, the prevailing opinion in German law states that the maximum period of 30 years pursuant to sec. 202 para. 2 CC applies.
Commencement and calculation of the prescription period
In general, the standard prescription period commences at the end of the year in which the claim arose, and the creditor became aware of the circumstances giving rise to the claim and of the identity of the debtor or would have obtained such knowledge if they had not shown gross negligence (sec. 199 para. 1 CC).
For claims not subject to the standard prescription period, the period begins when the claim arises, unless otherwise provided by law. For a sales contract, the prescription period for defects in a movable item commences upon delivery of the purchase object, in case of a plot of land upon delivery of possession (sec. 438 para. 2 CC). For contracts to produce a work, the prescription period for claims for defects in both movable and immovable works begins on acceptance (sec. 634a para. 2 CC).
According to sec. 187 CC, the day on which the event or point in time occurs is not included in the calculation of the period if the prescription period commences on the occurrence of an event or at a point in time falling in the course of a day (para. 1). If, however, the beginning of a day is the determining point in time for the commencement, this day is included in the calculation of the prescription period (para. 2).
Interruption and suspension of the prescription period
According to sec. 212 para. 1 CC, the prescription period recommences if the debtor acknowledges the claim towards the creditor by making a partial payment, paying interest, providing security, or if a judicial or official act of execution is undertaken or applied for. If, however, the act of execution is revoked or the application for is not granted or is withdrawn beforehand, the renewed commencement of the prescription period will be deemed not to have occurred (sec. 212 para. 2 and 3 CC).
In addition to interruption (recommencement), various circumstances can lead to the prevention of the suspension of the prescription period. Sec. 203 et seqq. CC state various reasons that a suspension may occur. Importantly, the initiation of legal proceedings, including the filing of a lawsuit (Klageerhebung) and the service of a payment order (Mahnbescheid) constitutes a reason for suspending the prescription period (sec. 204 para. 1 no. 1 and 3 CC).
During the suspension, the prescription period is interrupted, meaning the time of the suspension does not count towards the total time. If the grounds for suspension are legal proceedings, the suspension ends six months after the conclusion of the proceedings or the last procedural act, unless proceedings are continued (sec. 204 para. 2 CC). Like in Swiss law, after the ground for suspension ceases to apply, the prescription period resumes.
Legal consequences of a prescription
After prescription occurs, a contractual claim does not lapse and continues to exist. From that point onwards, however, the debtor is entitled to refuse performance (sec. 214 para. 1 CC). For the statute of prescription to be considered, the debtor must expressly invoke it by raising what is known as the defence of prescription. As in Swiss law, this is a procedural defence instrument. The court does not consider the statute of prescription ex officio. If the debtor voluntarily fulfils a time-barred claim, he cannot reclaim the payment made (sec. 214 para. 2 CC).
Differences between Swiss and German prescription rules – considerations when agreeing on a choice of law clause
Swiss and German prescription rules are broadly comparable. There are, however, significant differences to be considered when choosing for one or the other prescription regime.
Regarding the general duration of the prescription period for contractual claims, the ten-year general statutory prescription period is much longer in Switzerland than it is in Germany, where the standard period is only three years. Both countries, however, foresee special prescription periods (e.g. for the warranty claims or the defect of a work), which are broadly aligned.
Substantial differences arise concerning the contractual modification of the prescription period. Swiss law strictly limits the parties' autonomy in this respect: contractual alternations of the statutory prescription periods within the Third Title of the General Provisions of the Swiss CO are not permitted. The law only allows for modifications outside of this Title, but such modifications may not exceed the standard ten-year period. In contrast, German law permits almost any agreement that deviates from the statutory prescription period, provided there are no intentional breaches of duty involved, and the maximum period of 30 years is observed.
Furthermore, the defence of prescription under Swiss law can only be validly waived in writing and after the statute of prescription has already occurred, while German law grants the parties significantly broader contractual freedom. The statutory prescription period can, in principle, be shortened or extended, subject to a maximum of 30 years. Waivers of the defence of prescription are valid even before the commencement of the statute of prescription, provided they comply with the 30-year limit. In this regard, Swiss law is more restrictive than its German counterpart.
The two systems also diverge in determining the commencement of the prescription period. Under Swiss law, the period generally begins when the claim becomes due. For warranty claims, this is the date of delivery of the goods or acceptance of the work. German law on the other hand links the commencement of the standard three-year period to the end of the year in which the claim arose, and the creditor became or should have become aware of it. The German rule thus integrates a subjective element that often postpones the beginning of the prescription period, enhancing creditor protection. Consequently, prescription periods in Switzerland must be monitored more closely, as they may expire during the calendar year, while in Germany, for most standard contractual claims, prescription periods only need to be checked at the end of the year when appropriate measures to suspend or interrupt prescription can be taken.
Both legal systems allow for grounds for an interruption, but the reasons for interruption differ. In both systems, acknowledgment by the debtor causes the prescription period to start anew. Likewise, both legal systems recognise grounds for suspension. Compared to Swiss law, German law, however, shows significantly more grounds. While negotiations suspend the prescription period immediately, under Swiss law the parties need to agree on this in writing. Furthermore, suspension under Swiss law ends as soon as the reason for suspension ceases to exist while frequently a fixed additional period of six months applies under German law, especially after the conclusion of judicial proceedings.
The most significant difference here, however, is that filing a lawsuit interrupts the prescription period under Swiss law, but not under German law. In Germany, filing a lawsuit merely suspends the prescription period. The same applies to enforcement proceedings. In Switzerland, initiating enforcement proceedings for monetary claims leads to an interruption of the prescription period. The payment order procedure in Germany only suspends the prescription period. It does not start anew.
Finally, the legal effects of prescription are virtually identical in both jurisdictions. The occurrence of prescription does not extinguish the claim. It merely renders it unenforceable in court if the debtor invokes the defence of prescription. Courts do not consider this defence ex officio, and if the debtor voluntarily performs despite the claim being time-barred, the payment cannot be reclaimed.
In summary, Swiss law provides for a long statutory prescription period of ten years and restricts contractual flexibility especially for the waiver of the defence of prescription, prioritising legal certainty and protection against premature loss of claims. German law, conversely, operates with a much shorter statutory prescription period and greater flexibility and a more contractual freedom when agreeing on the scope and enforceability of prescriptive rights.
When drafting contractual clauses, it is crucial to keep these prescription rules in mind, especially when agreeing on a choice-of-law clause. This choice can significantly impact practical outcomes. Therefore, contract drafters should carefully analyse their client's contractual roles and interests when considering the most advantageous prescription provisions.
