Commercial/civil law – substantive

Rules and industry standards

Describe any industry-standard form contracts used in the energy sector in your jurisdiction.

Most energy providers will use standard terms and conditions when entering into contracts with consumers or SMEs. The content and form thereof will vary depending on the energy sector but common features are often the indefinite term of the agreement and the influence of the source of the consumed energy (fully or partly renewable) on the contractual prices.

With regard to B2B contractual relationships, standard form contracts are regularly published by each industry’s governing body. As a matter of example, the association of Swiss electricity companies (VSE/AES) has issued a set of 13 standard form contracts covering most of the field of electricity production and distribution. Similarly, the Association for Wood Energy (AWE) published several templates in connection with wood energy (heat supply, access to heating networks).

What rules govern contractual interpretation in (non-consumer) contracts in general? Do these rules apply to energy contracts?

The rules of the Swiss Code of Obligations (CO) and the corresponding case law govern the contractual interpretation under Swiss law.

Under Swiss law, contractual interpretation is based on the real and common intention of the parties at the time when they entered the contract. To determine what the real and common intention of the parties is, a judge may consider all the circumstances of the case at hand, including pre- and post-signing behaviour of the parties. In particular, the intention of the parties and thus the true nature of the contract may differ from the contractual wording.

In cases where the real and common intention of the parties cannot be established, the judge must interpret the parties’ declarations according to the principle of good faith (ie, how a reasonable person in the situation of one of the parties would have understood the declaration of the other party).

These general rules also apply to energy contracts governed by Swiss law.

Describe any commonly recognised industry standards for establishing liability.

Guidelines and recommendations issued by each industry’s governing body may be considered by the courts in order to establish if a breach of a duty of care has occurred. This may even be the case if the guideline or standard in question has not been explicitly included in the contract. These guidelines or standards are specifically issued in connection with a given aspect of a particular energy segment. For instance, the Association of Swiss Wastewater and Water Protection Experts issued a series of technical guidelines with regard to wastewater discharge into water bodies in rainy weather. Another example is the directive on the safety of dams issued by the competent surveillance section of the Swiss Federal Office of Energy.

With regard to liability, the relevant benchmark is set by the parties to the contract and, alternatively, by the general legal rules on contractual liability. As a general rule and unless the parties agree otherwise, a party will be held liable for a breach of contract caused negligently.

Negligence is defined under Swiss law as the failure to act in accordance to the level of care commonly required under the given circumstances. In turn, gross negligence means that the breaching party acted in disregard of the most basic duty of care or out of indifference. Under Swiss law, any attempt to exclude liability for gross negligence by means of contract will be deemed void and thus ineffective.

It must also be noted that most statutes relating to the energy sector contain specific provision regarding tort liabilities and damages in connection with such industries. These are usually stricter than the aforementioned standards. For example in the case of nuclear exploitation, the operator will be liable without limitation for any damages from a nuclear origin caused by nuclear substances on the installation unless he or she can prove that the damage was caused intentionally or through gross negligence by the victim. With regard to electricity installations, the operating party will be liable for any damage to a person or a thing unless he or she proves that the damage in question is due to force majeure, wilful misconduct or gross negligence of a third party or the victim.

Performance mitigation

Are concepts of force majeure, commercial impracticability or frustration, or other concepts that would excuse performance during periods of commodity price or supply volatility, recognised in your jurisdiction?

Swiss law and Swiss courts generally do recognise force majeure. In accordance with article 119, paragraph 1 of the CO, an obligation is deemed extinguished when its performance is made impossible by circumstances not attributable to the obligor.

However, article 119, paragraph 1 of the CO generally only applies to events that are completely beyond the control of the concerned party (eg, in the case of an earthquake, a flood, etc) and only if the performance has become strictly impossible. During periods of commodity price or supply volatility it may be that the performance of the obligation becomes more expensive and more time-consuming but, unless the commodity in question does not exist anymore, the debtor always has the possibility to perform. As a result, article 119, paragraph 1 of the CO is not applicable to periods of commodity prices or supply volatility. Therefore, if the parties wish to extend the effects of force majeure to circumstances such as market volatility, they may define and draft a clear clause about such considered cause majeure events and the consequences thereof.

If the parties did not include any mechanism to adapt the contractual provisions to unexpected and substantial market volatility, the general principle of clausula rebus sic stantibus may apply. Accordingly, if exceptional circumstances that the parties did not contemplate when entering the contract occur, a party may request the courts to adapt the obligation in question to reflect what the parties would have agreed upon in good faith had they known about these exceptional circumstances at the time that they entered into the contract.

Nuisance

What are the rules on claims of nuisance to obstruct energy development? May operators be subject to nuisance and negligence claims from third parties?

With regard to the construction and development of the project, anyone who is directly affected by an administrative decision (such as an authorisation to build a new energy complex) and has an interest in the decision being cancelled or modified may appeal the initial decision. Unless the court specifically orders so, the appeal has a suspensive effect and the construction cannot take place.

From a private law aspect, landowners are obliged to refrain from any nuisance detrimental to neighbouring properties. In particular, all harmful effects that are not justified by the location and character of the land or by local custom such as air pollution emissions of noxious vapours, noise, vibrations, radiation or the deprivation of sunlight or daylight are prohibited. If this is not respected, then the affected person is entitled to sue the landowner or the plant operator for indemnification or for protection against imminent damage.

Liability and limitations

How may parties limit remedies by agreement?

Parties may limit remedies by agreement. In particular, the law governing the contract for work and services (article 363 et seqq CO) and the agency (article 394 et seqq CO) - two recurring forms of contracts in the energy sector - are very flexible, enabling the parties to a contract to limit (or modify) remedies. However, an agreement to waive liability for gross negligence or unlawful intent is null and void if concluded in advance. The courts would generally treat the contractual provision in question as excluding liability for negligence and thus reduce the scope of the liability exclusion clause to the extent permitted by law.

Contractual penalties may be included in energy contracts. If that is the case, the party activating the penalty will only be able to request the execution of the contract or the payment of the penalty, unless the parties have contracted differently.

As to liquidated damages, there are no specific regulations under Swiss law. However, they are perfectly admissible and subject to the same judicial review as contractual penalties as per article 163(3) of the CO. As such, grossly inadequate liquidated damages may be reduced at the discretion of the judge.

Is strict liability applicable for damage resulting from any activities in the energy sector?

There are no specific provisions governing strict liability for the energy sector as a whole. Instead, the relevant act depending on the pursued activity must be considered. Strict liability of plant operator or electricity providers is to be found in the legislation pertaining to the nuclear and the electricity industries.