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30 August 2023

The essentials of Swiss contract law: Incorporation of General Terms and Condition (no. 6)

This blog series gives a short and compact overview on the essential elements of Swiss contract law.

General terms and conditions ("GTCs") play a crucial role in today's contract law practice. In Swiss law, GTCs are defined as pre-formulated contractual provisions intended to apply to a large number of contracts. By incorporating GTCs, a contract can be streamlined and focused on its core elements. GTCs can enhance contract comprehensibility and readability. However, effective incorporation of GTCs into a contractual relationship is essential. In the following, we briefly explain the key requirements for the valid GTC incorporation under Swiss law (excluding CISG).

Starting point: general principles of contract formation

Swiss law occasionally refers explicitly to GTCs (e.g., in relation to insurance or consumer contracts (see Art. 2(2) of the Federal Act on Insurance Contracts). However, unlike most EU countries, Swiss law lacks a comprehensive regulation on GTCs. Consequently, the general principles governing contract formation and interpretation apply as a starting point, as detailed in the corresponding episode of our blog and podcast series.

Incorporation by reference

According to Art. 13(1) CO, there are no specific requirements regarding the form of incorporation of GTCs unless mandatory law requires a particular form for the specific contract or the parties have agreed on such form. Therefore, in most cases, the reference to the GTC is not required to be contained in a written document and/or that a document referring to the GTC is duly executed.

GTCs are commonly incorporated by reference in the main contract. For a valid incorporation by reference, Swiss law mandates two requirements: (1) an explicit reference to the standard terms prior to or at the time of conclusion of the contract and (2) a reasonable opportunity for the counterparty to access the GTCs.

The first requirement is met if the counterparty has an opportunity to familiarize themselves with the relevant GTCs before or at the time of the conclusion of the contract. Hence, a mere confirmation of the GTCs after the conclusion of a contract is insufficient.

GTCs are considered "reasonably accessible" if they can be accessed without major obstacles, are comprehensible, and legible. These factors should also be considered when determining the visual presentation of GTCs including issues such as font and letter size.

In electronic communication, a reference to a website where the standard terms can be accessed is sufficient. The counterparty should be able to download and save the standard terms to ensure valid incorporation. If the GTCs are not available or are difficult to access, there is a risk that in a dispute, a court will find that they have not been validly incorporated.

Rule of unusualness

The party to whom the GTCs are duly proposed and made available agrees to them as a whole, with or without precise knowledge of their content. If a party actually reads, understands, and accepts the entire GTCs, this is commonly referred to as a "full incorporation", to which the general rules of contract interpretation apply.

In contrast, if a party accepting GTCs is not fully aware of their content, has not paid attention to them, or has not comprehended them in detail, such incorporation is referred to as "global incorporation" of GTCs. Global incorporations are the default situation in GTCs and presumed when there is no indication of a full incorporation. In the case of a global incorporation, the rule of unusualness comes into play. According to this rule, unusual clauses that are disadvantageous to the accepting party are not incorporated into the contract and do not become part of it.

Swiss courts interpret the concept of unusualness restrictively, considering a clause objectively unusual only if its content is surprising and significantly alters the nature of the contract. Subjective unusualness exists if the counterparty could not reasonably expect the clause. The assessment of subjective unusualness is based on the accepting party's perspective at the time of contract conclusion.

A clause within GTCs may also be considered unusual due to its placement within the GTCs or if it deviates significantly from the content of the contractual negotiations. The more a clause affects the counterparty's position, the more likely it is to be classified as unusual by the court. Therefore, it is advisable to highlight unusual provisions in GTCs (e.g., by using bold font). However, depending on the specific clause, this may not be sufficient. Unusual but essential clauses should always be included in the wording of the individual main contract.

Battle of forms

In many cases, both parties seek to include their own GTCs into a contract. When both sets of GTCs are incorporated by reference and certain clauses contradict each other, this results in a "battle of forms",. The determination of which GTCs apply in a battle of forms is guided by the general rules of contract interpretation.

If the contradiction in the GTCs relates to an essential aspect of the contract, this means that there is no valid consensus between the parties and the contract as a whole was not validly formed. If the contradiction concerns a non-essential aspect of the contract, the contract as such is still formed, but only those clauses of the GTCs that are not contradictory are validly incorporated and apply. Contradictory GTC clauses are disregarded (known as the "knockout theory"). Any gaps in the contract are filled either by referring to statutory law or by judicial interpretation.

Individual agreements take precedence

Finally, individual agreements that deviate from GTCs always take precedence. If the parties have incorporated GTCs, but entered into contradictory individual agreements (either orally or in writing), the individual agreements prevail. Having said this, in the case of an oral agreement contrary to the GTCs, the objecting party may face difficulties in proving the deviation from the GTCs.

For the sake of completeness, please note that the inclusion of GTCs may be governed by the CISG instead of the CO, depending on the subject matter of the contract. Moreover, there are additional special features concerning the interpretation of GTCs that need to be considered.

We have also published a podcast episode on this topic, in which we explain the requirements for a valid incorporation under Swiss Law.

If you have any questions or require further information on GTCs, fell free to contact any member of our team.

Other articles in the series:

Authors: Christian Oetiker, Pascal Burgunder, Selim Keller

Categories: Litigation and Arbitration, Blog