Force majeure under Swiss law - Requirements and consequences
Questions and answers in relation to COVID-19 in Switzerland
Is there legislation on force majeure in Switzerland?
Under Swiss law, there is no statutory definition of "force majeure". If there is no "force majeure" clause in a contract, the legal consequences depend on whether the impossibility to fulfill a contract exists only for a limit period of time, or whether the impossibility is permanent. With respect to the Corona Pandemic, for most contracts, the impossibility to fulfill will last only for a limited period of time.
In the case that the impossibility to fulfill the obligations only lasts for a limited time, the default provisions of Art. 107 to 109 of the Swiss Code of Obligations apply.
They provide that, in case a party is in default, the other party may set an appropriate time limit for the performance. If there is no performance during such limit, the other party may withdraw from the contract.
No time limit needs be set:
- where it is evident from the conduct of the party that a time limit would serve no purpose;
- where performance has become pointless to the other party as a result of the party’s default;
- where the contract makes it clear that the parties intended that performance take place at or before a precise point in time.
In case a party withdraws, any payment or other performance already made must be returned. However, no damage compensation is owed in case a party is not at fault. This will usually be the case where a party was unable to fulfill the contract due to the corona pandemic.
Where the performance becomes permanently impossible, for example because the event agreed for a certain date cannot take place due to prohibition by the authorities, Art. 119 of the Swiss Code of Obligations applies. The obligations under the contract are cancelled. The parties are released from their obligations not yet fulfilled and must return what they have already received.
Are the provisions mandatory or are parties free to regulate force majeure clauses? To what extent are the parties free to regulate such clauses?
All these rules are not mandatory. If there is a contractual rule different from the legal provisions, the contractual rule prevails.
In principle, the parties are free to agree on a rule which is in favor of one party.
However, Article 8 of the Swiss Act Against Unfair Competition provides that general terms and conditions in contracts with consumers shall not unfairly provide a significant and unjustified imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer. Terms in violation of this provision are invalid.
If a contract just says you can terminate for “force majeure”, without defining the term "force majeure": Is there any guidance/case law as to what this means?
"Force majeure" is an extraordinary and unforeseeable event which interferes from an external source and which cannot be avoided despite of utmost care, without putting into jeopardy the entire company and its viability. Events which must be taken into account by a company due to its frequency do not amount to force majeure.
According to a decision of the Swiss Federal Supreme Court (BGE 102 Ib 257), "force majeure" is an extraordinary and unforeseeable event which is not related to the business of the company, but interferes from an external source with inevitable force.
Is there a difference in all of this in B2B transactions versus B2C transactions?
Article 8 of the Swiss Act Against Unfair Competition provides that general terms and conditions in contracts with consumers shall not unfairly provide a significant and unjustified imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.
Is there a difference in judgement when the force majeure clause is laid down in a contract or in T&C’s?
The above-mentioned Article 8 of the Swiss Act Against Unfair Competition applies only to clauses laid down in general terms and conditions applicable to consumer contracts.
Are there any alternative remedies that a party could consider based on being unable to perform a contract due to the corona virus?
When the fulfillment of a contract is not entirely impossible, but has become extremely onerous, a party might be able to raise the exception of "clausula rebus sic stantibus".
It must be a situation which is not only extremely onerous, but was also unforeseeable when the contract was concluded.
Such an extreme and unforeseeable situation allows a party to request that the contract shall be renegotiated or terminated. The parties may agree on revised conditions, or agree to terminate respectively cancel the contract.
In case one party insists that the contract remains unchanged, the requesting party might seize the court. If the requirement to raise the exception of "clausula rebus sic stantibus" are fulfilled, the court may order an amendment to the agreement, or the termination respectively cancellation of the agreement.
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