Limiting liability

Prohibition on exclusions and limitations

What liabilities cannot be excluded or limited by a supplier in a contract?

According to article 100 of the Code of Obligations (CO) and based on the freedom of contract, a limitation of liability is valid in principle, except for damage caused by wilful intent or gross negligence, for which a waiver would be null and void.

Exceptions may apply if the business conducted by the supplier is licensed by the state (for example, in the case of the supply of energy), in which case a judge is free to regard an agreed exclusion for ordinary or slight negligence to be void.

Similarly, for the supply of goods, an exclusion of liability is not valid if the supplier at the time of delivery was aware of any defect of the delivered goods.

Financial caps

Are there any statutory controls on using financial caps to limit liability for breach of contract?

If, and only to the extent, it is lawful to waive liability entirely, it is also possible to agree on financial caps.

The CO does not explicitly provide for the possibility of liquidated damages, but, in articles 160 to 163, it regulates the principles applicable to contractual penalties. In practice, liquidated damages and contractual penalties are treated similarly.

The difference between the two concepts is that a contractual penalty does have a punitive function. Consequently, it is not a requirement that the party entitled to receive a penalty payment has actually suffered damage at all. If the entitled party can prove that the actual damage suffered is higher than the amount of the agreed penalty and if the debtor is at fault, the creditor will be allowed to claim the excess amount.

Liquidated damages have no punitive function. Their purpose is to compensate for anticipated damage. The creditor must prove the existence of actual damage, but not its amount. Typically, liquidated damages clauses also function as a contractual limitation of liability (financial caps). Therefore, the creditor will only be able to claim additional damages in cases of unlawful intent or gross negligence.

Both liquidated damages and contractual penalties are commonly used under Swiss law. However, pursuant to article 163, paragraph 3 of the CO, a judge may at his or her discretion reduce the amount of a contractual penalty or of liquidated damages if he or she considers such amount to be excessive.

Indemnities

Are there any statutory controls on indemnities used to cover liability risks in contracts?

Swiss law provides no general statutory controls for indemnification clauses to cover liability risks in contracts.

However, in analogy to article 100 of the CO, such an indemnification clause would not be considered applicable in the case of gross negligence or wilful intent of the indemnified party.

Liquidated damages

Are liquidated damages clauses enforceable and commonly used in your jurisdiction?

The CO does not explicitly provide for the possibility of liquidated damages, but, in articles 160 to 163, it regulates the principles applicable to contractual penalties. In practice, liquidated damages and contractual penalties are treated similarly.

The difference between the two concepts is that a contractual penalty does have a punitive function. Consequently, it is not a requirement that the party entitled to receive a penalty payment has actually suffered damage at all. If the entitled party can prove that the actual damage suffered is higher than the amount of the agreed penalty and if the debtor is at fault, the creditor will be allowed to claim the excess amount.

Liquidated damages have no punitive function. Their purpose is to compensate for anticipated damage. The creditor must prove the existence of actual damage, but not its amount. Typically, liquidated damages clauses also function as a contractual limitation of liability (financial caps). Therefore, the creditor will only be able to claim additional damages in cases of unlawful intent or gross negligence.

Both liquidated damages and contractual penalties are commonly used under Swiss law. However, pursuant to article 163, paragraph 3 of the CO, a judge may at his or her discretion reduce the amount of a contractual penalty or of liquidated damages if he or she considers such amount to be excessive.

Law stated date

Correct on

Give the date on which the information above is accurate.

May 2020