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Introduction

As the Coronavirus (Covid-19) epidemic continues to spread in Europe, the Federal Council has decided to classify the situation as an extraordinary situation according to the Federal Act of 28 September 2012 on the control of transmissible diseases in Humans (Epidemics Act, LEp), which implies that employers are required to take additional protective measures and develop a pandemic plan[1]. In order to contain the spread of the new Coronavirus in Switzerland, gatherings of more than five people have been banned and all establishments accessible to the public have also been closed, such as shops and restaurants, with the exception in particular of food and pharmacies. This shut down is not without consequences for market players: many companies will have difficulty honouring their contractual obligations and may face a severe and sudden lack of liquidity. These problems are due to a lack of work force, quarantine measures, or a reduction in the flow of orders, among other things.

Epidemics and pandemics may constitute cases of force majeure, depending on the circumstances. If an event of force majeure is triggered under contractual arrangements, the parties are released temporarily or even permanently in certain cases from their contractual obligations, without being exposed to the risk of the other party claiming damages.

The definition of force majeure

In the legal tradition of the civil law countries, force majeure is an extraordinary unforeseeable, insurmountable external event that interrupts the causal link between the breach of contract and loss. Its legal effect is therefore independent of the drafting of the contract[2]. This event must occur between the time the obligation arises and its performance[3]. Circumstances not imputable to the debtor must occur after the creation of a valid obligation and prevent performance of that obligation[4]. The contract shall define what the parties mean by force majeure. In countries with a civil law tradition, force majeure is often expressed in general terms and the clause is of a general and abstract nature, whereas in contracts in common law countries, such as the UK, United States and Australia, force majeure is often defined by an exhaustive list of cases[5]. While using the term in a general sense has the advantage of not being exhaustive, it does not provide the precision of the common law approach and vice versa[6]. However, the difficulty of being exhaustive lies precisely in the complexity of foreseeing events which are by definition unforeseeable.

The concept of force majeure in Swiss law

In the Swiss legal system, the notion of fault is a condition of liability. Indeed, under Swiss law, there is no liability without fault. The basis for this concept can be found in Art. 97 of the Swiss Code of Obligations (below: CO) : “ An obligor who fails to discharge an obligation at all or as required must make amends for the resulting damage unless they can prove that they were not at fault.“

Conversely, in common law countries, the basic principle is that of causal responsibility, independent of any fault. This is why contracts under common law very often include a force majeure clause.

It is therefore legitimate to question the relevance, in contracts subject to Swiss law, of the existence of a force majeure clause.

Additionally, the Swiss legal system makes it possible to apprehend force majeure without a force majeure clause in the contract. Indeed, although it does not explicitly deal with force majeure, Art. 119 para. 1 CO regulates cases of impossibility to perform without fault on its part, which corresponds to the concept of force majeure: “An obligation is deemed extinguished where its performance is made impossible by circumstances not attributable to the obligor.”

The conditions of Art. 119 para. 1 CO

In order for the conditions of Art. 119 CO to be fulfilled, the impossibility of fulfilling the contractual obligation must be subsequent to the conclusion of the contract and independent of any fault of the debtor[7].

a) Impossibility to perform

The debtor’s performance must be impossible to perform. This performance must be individualised, otherwise a comparable performance will be due to the debtor. Performance is impossible if the thing perishes, if the debtor who is bound to perform personally is no longer in a position to do so, or if the work can no longer be performed[8]. It is not relevant whether the impossibility results from factual circumstances such as fire or earthquake, or from legal circumstances such as an administrative prohibition. Nor is it relevant whether the impossibility is due to a natural event or to the act of a third person such as the thief[9].

b) Subsequent impossibility

The impossibility of performance must be due to a cause subsequent to the conclusion of the contract. If the impossibility already exists at the time of the conclusion of the contract, the contract is null and void according to Art. 20 CO.

c) A lack of fault

The impossibility must arise from a fact independent of the debtor. The debtor must not be faulty for the occurrence of the case of impossibility.

The consequences and effects of force majeure

The force majeure clause, in order to be effective, must not only provide for an exemption of a party from liability[10].

Indeed, the clause must provide for the consequences of the non-performance of the obligation, such as the outcome of the counter-performance, the liquidation of the contractual relationship, the cancellation, termination or suspension of the contract. Generally, the force majeure clause includes the setting of an additional period of time, at the end of which the contract may be terminated. In order to avoid any imprecise notion, it is necessary to fix precisely a period at the end of which the parties are entitled to withdraw from the contract[11]. Indeed, to take the example of the Swiss Code of Obligations, the latter merely releases the debtor from all liability, but does not provide for anything as to the outcome of the contract.

Upon Art. 119 para. 1 CO being triggered, the contractual obligation of the debtor is extinguished and the debtor is released from the performance he owes. The debtor is not obliged to compensate the creditor for the damage caused, provided that he does everything in his power to mitigate the damage in accordance with the rules of good faith[12].

Conclusion

The current pandemic is, in our view, a case of force majeure because it is an extraordinary, unforeseeable, insurmountable external event that is independent of any fault.

Moreover, if containment or quarantine measures are ordered by the authorities, or if the population is encouraged to stay at home by official directives, these elements tend to indicate that we are in the presence of a case of force majeure[13].

However, it is necessary in all events to review the actual wording of the force majeure clause, to ensure that it does not exclude the events in which we currently find ourselves.

What should you do if you wish to enforce a force majeure clause?

  • The first thing is to check whether there is a force majeure clause in the contract and how it is drafted, based on the framework and limitations set out above.

  • If this clause contains a notification obligation, inform your partner directly of the impossibility of performing.

  • Document and retain evidence of inability to provide the service.

  • Finally, you might be entitled to rely upon Art 119 CO even if a force majeure clause is not expressly contained in the agreement. We can guide you in determining whether the clause is relevant or not.

Footnote references:

[1]  « Considérations quant aux répercussions possibles du Coronavirus (Covid-19) », Union suisse des arts et métiers, https://www.sgv-usam.ch/fr/grands-axes-politiques/march%C3%A9-du-travail/sous-page/consid%C3%A9rations-quant-aux-r%C3%A9percussions-possibles-du-coronavirus (consulté le 26 mars 2020).

[2] Marchand, Sylvain, Clauses contractuelles du bon usage de la liberté contractuelle, Bâle : Helbing Lichtenhahn, 2008, p. 205.

[3] Tercier, Pierre, Précis de droit des obligations, 4th édition, Zurich 2009, p. 302.

[4] Tercier, p. 302.

[5] Marchand, Sylvain, Clause de force majeure et clause de hardship – Partie 2, https://fr.coursera.org/lecture/contrats/clause-de-force-majeure-et-clause-de-hardship-partie-2-rc4xM (consulté le 26 mars 2020)

[6] Marchand, p. 206/207.

[7] Tercier, p. 305.

[8] Tercier, p. 304.

[9] Tercier, p. 304.

[10] Marchand, p. 207.

[11] Marchand, Sylvain, p. 207.

[12] Tercier, p. 306.

[13] « Le Coronavirus comme cas de force majeure ? », BDO Suisse, 28 février 2020, https://www.bdo.ch/fr-ch/publications/articles/le-coronavirus-comme-un-cas-de-force-majeure (consulté le 26 mars 2020).

Alexandre Merlo
Alexandre Merlo
Junior Associate