Coronavirus: A Force Majeure Event Under Swiss Law?

CORONAVIRUS: A FORCE MAJEURE EVENT UNDER SWISS
LAW?
INTRODUCTION
As the coronavirus epidemic continues to spread into Europe, businesses are

trying to assess the impact on both their human resources and their commercial
relationships with operators located in the most affected regions. The impact of
this epidemic is all the greater in Switzerland as Swiss companies have
traditionally built strong relationships with Asia, and the People’s Republic of
China (PRC) in particular. Recent evidence of this strong relationship can be
found in Switzerland’s signature on 29 April 2019 of a Memorandum of
Understanding with the PRC to increase collaboration between the two countries
as regards projects included in the Belt and Road Initiative – the PRC-led
massive development and investment effort aimed at recreating the ancient silk
road.1
Many states and corporations have taken drastic measures to contain the rapid
spread of the epidemic, and the corresponding confinement/quarantine measures
affect economic operators around the world. 2 In many instances, parties will
encounter difficulties whilst performing existing contracts: work force might be
unavailable, distribution networks disrupted, and orders cancelled. The question
is whether such epidemic and/or related government measures might in some
circumstances constitute a valid excuse for non-performance under the force
majeure doctrine. Contractual parties engaged in economic activities that may be
impacted by the recent coronavirus outbreak will have to assess whether their
contract specifically or implicitly addresses the issue of force majeure and
whether it covers coronavirus-related issues. Parties to such contracts should
carefully review governing law clauses, to ascertain under which law their
contractual obligations, including any force majeure clause, will be interpreted.
As many cross-border transactions and international contracts are governed by
1
http://country.eiu.com/article.aspx?articleid=1087995092
2
In Switzerland, see for e.g.: https://www.rts.ch/info/suisse/11127134-dizaines-d-evenements-
touches-par-l-interdiction-des-manifestations-de-plus-de-1000-personnes.html
Swiss substantive law, by agreement of the parties, Swiss law is of utmost
importance as regards these issues.
Here are our four key recommendations, under Swiss law, to tackling this
epidemic and its consequences efficiently (in addition to washing your hands
often!):
1 RECOMMENDATION NO. 1: CHECK FOR A FORCE

MAJEURE CLAUSE IN THE CONTRACT
Many contractual force majeure provisions will include a list of examples of

force majeure events. However, from previous experience, force majeure clauses
rarely include epidemic events on their own.
If epidemics are not explicitly listed in the force majeure clause, or otherwise
addressed in the contract, operators must analyse whether such epidemic cases
are covered by the general definition of force majeure events (which is to be
found in the force majeure clause) or under another category of circumstances
specifically mentioned. While the contract might not mention the epidemic,
emergency measures to address or contain an outbreak may be listed or covered
under general terms such as civil unrest, quarantines, lockouts, or governmental
injunctions.
2 RECOMMENDATION NO. 2: CHECK THE STANDARD OF

FORCE MAJEURE UNDER SWISS LAW
Under Swiss law, the debtor can be excused from liability for non-performance
if it can prove an absence of fault on its part. Such absence of fault is constituted
where the performance of the debtor’s contractual obligation becomes
“objectively” impossible by circumstances not attributable to the obligor.
In a nutshell, under Swiss law, an epidemic like the coronavirus-related one,
despite its possibly higher mortality rate, may not necessarily amount to an
objective impossibility. An objective impossibility requires that an entire
segment of the economy or all operators in a given category be affected. That
being said, should such an epidemic lead to state authorities issuing bans or
prohibitions with a direct impact on an operator (or a defined category of
2
operators) to perform a contract, then a much closer analysis should be
undertaken as to whether there would be an objective impossibility to perform.
3 RECOMMENDATION NO. 3: DOCUMENT YOUR

CORONAVIRUS-RELATED PERFORMANCE ISSUES
In principle, parties to Swiss law governed contracts must continue to perform

their obligations even though performance becomes more difficult or onerous
because of the epidemic. Likewise, they are entitled to expect that all other
parties to the contract continue to perform.
However, even in the absence of an event of force majeure affecting an entire
segment of the economy or a category of operators, the “subjective” impossibility
of one individual operator to perform a contract as a consequence of an epidemic,
might not be sanctioned by damages if no fault can be attributed to it. Ultimately,
it will depend on the terms and nature of the contract.
Thus, parties impacted by coronavirus-related restrictions on their activity and
their ability to perform their obligations should document their inability to
perform and liaise/communicate with their contractual partner(s), should
performance become impossible for them, even if impossibility is only
temporary. In the absence of a force majeure event, they might still be able to
rely on their non-faulty incapacity to perform to excuse themselves from liability
for non-performance.
4 RECOMMENDATION NO. 4: CHECK THE CONSEQUENCES

OF THE FORCE MAJEURE CLAUSE
The consequences of a force majeure event will depend on what has been
negotiated. Under Swiss law, in case of force majeure and unless otherwise stated
in the contract, both parties would be immediately released from their respective
obligations. In long-term international contracts, however, force majeure usually
has a suspensive effect, at least initially. Indeed, many force majeure clauses
stipulate that the right to terminate may only be exercised if performance remains
impossible at the end of a fixed time limit. Such force majeure clauses generally
suspend performance of both parties’ obligations. A drastic remedy for drastic
situations.

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CORONAVIRUS: A FORCE MAJEURE EVENT UNDER SWISS

As the coronavirus epidemic continues to spread into Europe, businesses are

1 RECOMMENDATION NO. 1: CHECK FOR A FORCE

Many contractual force majeure provisions will include a list of examples of

2 RECOMMENDATION NO. 2: CHECK THE STANDARD OF

3 RECOMMENDATION NO. 3: DOCUMENT YOUR

In principle, parties to Swiss law governed contracts must continue to perform

4 RECOMMENDATION NO. 4: CHECK THE CONSEQUENCES

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