Such choice of law happens relatively often in international commercial contracts for various reasons.
With contractual limitations on damages being critically important in commercial contracts, allowing parties to better assess and control business risks arising from a commercial transaction, Andrea Haefeli touches here on the contractual limitation on damages under Swiss law, i.e. what liabilities cannot be excluded or limited.
Why Limit Liability in Commercial Contracts?
Limitation of liability clauses can take a number of forms.
Every commercial transaction involves risks for which the parties may be liable, for instance, project delays or non-conformity of the delivered products. In the absence of an effective limitation of liability clause, there is – excluding legal limits under statutory law – no financial cap on the damages that could be recovered. It is, therefore, critical to ensure that commercial contracts contain some form of limitation and that these limitations are effective.
Limitation of liability clauses can take a number of forms. Some clauses seek to exclude liability altogether. Others put a limit on liability, for example, by capping the amount payable in damages, excluding certain types of damages such as consequential or indirect loss, restricting warranties and specific remedies, or imposing brief time bars on claims.
Contractual limitations on damages that exceed the statutory limits are not effective.
Which limitations of liability are accepted under Swiss Law?
Swiss contract law is strongly based on the principle of freedom of contract and there is considerable scope for contractual limitation (including exclusion) of liability. However, limitations of liability are not permitted without restriction.
Taking the example of the limitation of liability in terms of maximum amounts (financial caps), the following statutory restrictions apply from a Swiss law perspective:
- any agreement concluded in advance and purporting to limit liability for unlawful intent or gross negligence is void (however, it would be permissible to conclude such an agreement retroactively);
- if the limitation of liability arises in connection with commercial activities that are officially licensed by the state (e.g. banks), the prior limitation of liability for slight negligence may, at the court’s discretion, also be void;
- in principle, limitation of liability is not accepted for death or personal injury;
- furthermore, limitation of liability is not permitted under certain provisions of the Swiss Code of Obligations (e.g. regarding purchase contracts, contracts for work, and service contracts) or certain special laws such as the Swiss Product Liability Act.
Narrower restrictions exist for consumer contracts and general terms and conditions.
What are the consequences of limitations of liability exceeding the statutory limits?
Contractual limitations on damages that exceed the statutory limits are not effective. From a Swiss law perspective, clauses exceeding the statutory limits can be reduced to the extent permitted, provided that the clause in question affects a part of the contract which is not essential to the whole contract (so-called partial ineffectiveness or severability). However, with a view to avoid creating incentives for parties to include excessive limitation clauses, there are more and more voices arguing for full ineffectiveness, in particular regarding consumers and general terms and conditions.
What else must be taken into account when drafting limitations of liability?
Limitations of liability are never one-size-fits-all. Each agreement is highly dependent on the facts of the parties’ relationship (the parties’ roles, industry, the value of the deal, importance of the deal, etc.), the risks associated with the transaction (scope, likelihood, costs, etc.) as well as the other terms in the agreement. Limitations of liability often interact with other key provisions (e.g. warranties, indemnification, etc.) and cannot be read or negotiated in isolation.
A party intending to include a limitation clause in a contract should therefore carefully analyse the transaction at hand, read the entire contract and check the statutory limits and fate of clauses exceeding the statutory limits under the applicable law.
Contact details:
Andrea Haefeli
lic.iur., LL.M., Attorney at Law
Counsel
Direct phone: +41 58 658 56 71
andrea.haefeli@walderwyss.com
Walder Wyss Ltd.
Seefeldstrasse 123
P.O. Box, 8034 Zurich
Switzerland
Phone: +41 58 658 58 58
Fax: +41 58 658 59 59
Andrea Haefeli is a counsel at Walder Wyss Ltd., one of the leading Swiss commercial law firms. She advises clients in all areas of contract, commercial and corporate law. Andrea has a particular interest and legal expertise in sale and distribution law, general terms and conditions (GTC) as well as in IT contracts. She advises on such projects from the conceptual and negotiation phase to dispute settlement.
