FORCE MAJEURE UNDER SWISS CONTRACT LAW

According to Swiss case law, force majeure events are extraordinary “external” events related to elemental forces or actions of third parties that?are unexpected and unforeseeable to both parties, and that cannot be prevented by applying due care. In line with the principle of freedom of contract, the parties are free to determine the events that shall be considered events of force majeure, and to determine the consequences of force majeure. It is common practice for parties to include a definition of force majeure in the construction contract, which often refers to a list of events that shall be considered force majeure and the consequences thereof.???

Even though Swiss courts recognise the concept of force majeure, a general force majeure defence as such does not exist under Swiss law. The concepts that are most similar and that are normally relied on when arguing force majeure under Swiss law are impossibility of performance (in particular impossibility to perform after the contract was formed, ie, subsequent impossibility) and hardship due to significantly changed circumstances (referred to as clausula rebus sic stantibus).???

Impossibility of performance is frequently referred to by contractors who are prevented temporarily (or, sometimes, permanently) from carrying out the works. The consequence of this defence is that the contractor is not in breach of the obligations that are impacted as long as the impossibility lasts (article 119(1) CO). Impossibility is not a cause of action that entitles the contractor to claim for time or money, unless the the impossibility was caused by the employer through its own fault.

With regard to significantly changed circumstances, relief may be granted under the concept of clausula rebus sic stantibus if the circumstances in a given situation change in such way that performance would become excessively burdensome for one party. In such cases, the affected party may request that the terms of the contract be amended or even declare the contract terminated if a mere adjustment is not a sufficient remedy. The prerequisites for such an adjustment or termination are: (i) a change of circumstances occurred after the contract became effective; (ii) the change of circumstances renders the transaction grossly disproportionate; (iii) the change of circumstances was not reasonably foreseeable; and (iv) the change of circumstances is not attributable to the party availing itself of the clausula doctrine. According to legal commentary and the Swiss Supreme Court's case law, the threshold for obtaining relief in a situation of hardship based on changed circumstances under the concept of clausula rebus sic stantibus is high.

Swiss law does not generally determine the spheres of risk of parties to a construction contract with regard to force majeure events. The parties are free to allocate the respective risk spheres in the contract, and they generally do so. If the parties do not regulate force majeure in their construction contract, force majeure events may be considered based on specific statutory provisions related to construction contracts in the Swiss Code of Obligations. In the case of destruction of the works prior to the delivery to the employer, the contractor is not entitled to receive any payment or reimbursement for costs (article 376 CO). In cases where the performance of the works becomes impossible due to extraordinary circumstances that lie in the employer’s sphere of risk, the employer must pay the contractor for the work already performed (article 378 CO). If such impossibility is the fault of the employer, the employer is liable for damages. Conversely, article 378 CO does not apply if there is a contributing culpability of the contractor, for instance, for having omitted to draw the employer’s attention to certain risks. Further, force majeure events may constitute grounds for increasing the contract price or for termination in case of lump-sum contracts (article 373(2) CO).?

-courtesy Global Arbitration Review