As the COVID-19 spreads rapidly around the globe and countries take measures to deal with the crisis, it’s not just the health consequences that weigh heavily. With the economic impact also already clearly visible, we examine some common scenarios from the perspective of Swiss commercial law.
One of the main questions from a commercial law perspective is what happens if the parties cannot perform or if either party is in default due to the outbreak of the COVID-19. The following discussion refers to scenarios under Swiss Law.
Events of "force majeur" are in general incidents which are beyond reasonable control of one party and which cannot be averted with the utmost care. Swiss law does not contain a definition of force majeur, but the concept is recognized in case law and in the Swiss legal doctrine. In general, the following events are recognized as force majeur: War, revolution, terrorism and natural disasters. The force majeur clauses often also contain options for action and provisions on the effects of force majeur such as termination rights or granting of grace periods etc.
Whether the effects of COVID-19 constitute a case of force majeur cannot be answered in general terms. If the force majeur clause in question mentions a pandemic explicitly and causality can be established, such clause should apply to the current situation. However, force majeur clauses often contain only exemplary and non-exhaustive enumerations, leaving considerable room for interpretation. In any case, each contract will have to be interpreted individually to establish whether the effects of COVID-19 fall under force majeur.
In the absence of a force majeur clause, the provisions of Swiss Law apply. If the performance of one party becomes permanently impossible due to circumstances for which the party is not responsible, the obligation is deemed extinguished. Unless the contract contains a fixed date for the performance, the consequence of the COVID-19 will merely delay the performance without rendering it impossible. If one party is in default, the other party has three options: 1) insist on the performance and claim for damages, 2) waive the performance and claim for damages or 3) terminate the agreement.
With regard to sales contracts the transfer of risk has to be considered in particular: Unless special contract clauses justify an exception, the benefit and risk of the object are transferred to the purchaser upon conclusion of the contract. If for example the goods are stuck somewhere in the supply chain the benefits and risks could already lie with the purchaser of the goods. This means that the seller is no longer liable in case its performance becomes impossible or in case of default, as the benefit and risk have already passed to the purchaser.
The parties are obliged to inform each other as soon as possible about particular circumstances such as default, due to the principle of good faith. The early notification may reduce damages, as the counterparty is given more time to find alternatives.