Under Swiss law, there is no statutory definition of "force majeure". In the absence of an explicit "force majeure" clause in a contract, the legal consequences will depend on whether the impossibility to fulfill a contract exists only for a limit period of time, or permanently. With respect to the Coronavirus pandemic, for most contracts, the impossibility to fulfill will last only for a limited period of time.
Where impossibility of performance only lasts for a limited amount of time, the default provisions of Articles 107 to 109 of the Swiss Code of Obligations will apply.
Articles 107 to 109 provide that, in cases where a party is in default, the other party may set an appropriate time limit for the performance to be fulfilled. If there is no performance by the defaulting party during this time period, the other party may withdraw from the contract.
No time limit needs be set:
- where it is evident from the conduct of the defaulting party that a time limit would serve no purpose;
- where performance has become pointless to one party as a result of the other party’s default; and
- where the contract makes it clear that the parties intended that performance will take place by or before a precise point in time.
Where a party withdraws from an agreement, any payment or other performance already made must be returned to the other party. However, no compensatory damages will be owed by the defaulting party where the defaulting party was not at fault. This will likely be the case where a party is unable to fulfill its obligations under a contract due to the Coronavirus situation.
Where performance of the contract becomes permanently impossible, for example if an event on a particular date can no longer take place due to a prohibition by the authorities, then Article 119 of the Swiss Code of Obligations will apply. The parties’ obligations under the contract will be void and the parties will also be released from future obligations they have yet to fulfil. However both parties must return any benefits they have received from the contract to the other party.