A Swiss View on Covid-19 and Force Majeure
How the impact of Covid-19 on a contractual relationship is dealt with under Swiss law depends primarily on the language of the contract. If it contains a specific "force majeure" clause dealing with a pandemic, that clause applies. Of course, such explicit clauses have not been widely agreed prior to the pandemic. In this case the contract has to be construed in order to determine the intent of the parties, and the Swiss Code of Obligations (CO) applies if it is found that the parties have not made a provision dealing with the impact of a pandemic.
The Swiss Code of Obligations (CO) does not contain a definition of "force majeure." The closest approximation to this term is found in Article 119 CO, which allows claims to be mutually terminated where its performance is impossible due to circumstances not attributable to the obligor (such as an official export ban). An example: A landlord (owner) of an event hall can no longer rent it out to a concert promoter because of the event ban. In this case, the performance of the contract by the landlord of the hall would be impossible. At the same time, the landlord loses his claim to remuneration.
Matters are less clear if parties are not directly affected by the government ban of events. They cannot invoke Article 119 CO. In such cases, a distinction is made between a loss of purpose (e.g., the rental of sound equipment for the concert) or an impossibility of use (e.g., of the catering company's drinks). Especially if a service was rendered after conclusion of the contract but before the prohibition came into force, this speaks for the existence of impossibility of use.
In the case of a loss of purpose, legal scholars are in disagreement as to whether remuneration is owed, or the service can be canceled without compensation. In the case of impossibility of use, the service provider (obligor) has various legal remedies if its counterparty refuses to accept services without good cause, including termination or withdrawal from the contract. The counterparty will be liable for damages.
Since a classification of contractual agreements which are only indirectly affected is not always clear it is highly advisable to reach out to the other party and try to find an amicable solution. Litigation in Switzerland is expensive, time consuming and therefore bares considerable risks.
This article was written by RA Yves Gogniat.
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