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3 May 2023 The essentials of Swiss contract law: Limitation of Liability (no. 3)

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

General Rule: not possible to exclude liability for intent and gross negligence

Almost every contract provides for certain provisions limiting a party's liability. Different jurisdictions regulate the admissibility of liability limitations in different ways. In practice, there are regularly interpretation and admissibility disputes with regard to liability limitations, especially in an international context (for example in cases where a far-reaching "U.S.-style" provision is inserted in a contract governed by Swiss Law).

Pursuant to mandatory Swiss Law, any agreement purporting to exclude or limit liability for unlawful intent or gross negligence in advance is void (Art. 100(1) of the Swiss Code of Obligations ("CO")).

This rule is not at the contracting parties' disposition. Thus, the parties to a contract cannot provide for any limitation of liability that goes beyond the statutory threshold. As a consequence, agreements governed by Swiss Law can only exclude a party's liability for minor or medium negligence.

The rules on the limitation of liability only refer to agreements that exclude or limit liability in advance, i.e. before the occurrence of the harmful event, for which liability is to be excluded. After the occurrence of the harmful event, the damaged party is free to cancel any liability caused by such injury.

Types of damage and liability caps

The mandatory rule applies regardless of the "nature" of the losses in question. For example, if one party had to compensate the other party for lost profits (which is possible under Swiss law), an exclusion would be inadmissible where the losses were the result of gross negligence or intent.

Furthermore, there is an ongoing academic dispute about whether contracting parties can exclude or limit liability for personal injuries under Swiss Law. The prevailing opinion in the legal doctrine is that the exclusion or limitation of liability for personal injuries is inadmissible. The more liberal (minority) opinion holds that, unless special statutory provisions state otherwise, parties can, in principle, exclude or limit liability for personal injuries – as long as these are not the result of unlawful intent or gross negligence. Representatives of the minority opinion concede, however, that it may be necessary, on a case-by-case basis, to limit the extent to which the exclusion of liability for personal injuries is possible.

Special rules for certain contract types

As it is often the case, there are a few exceptions to the principle that a limitation of liability is admissible for minor or medium negligence. Most importantly, Swiss law provides for some special rules with respect to individual types of contracts.

In sale and purchase agreements, for example, the parties often limit the seller's liability for defects of the purchased goods. The approach for this type of contract is more liberal. Indeed, under a sale and purchase agreement governed by Swiss Law, a contractual exclusion or limitation of the seller's liability for defects of the purchased goods is only invalid if the seller has fraudulently concealed or not disclosed the defects from the buyer (Art. 199 CO). "Fraudulently" means that the seller has concealed or not disclosed a defect of which it is aware, even though it is obliged to disclose it by law, contractual agreement or the principle of good faith. Therefore, and in contrast to the general rule outlined above (i.e., that any agreement excluding or limiting liability for unlawful intent or gross negligence is void), the seller can exclude its liability for defective goods for gross negligence.

Consequences of unlawful contractual provisions?

Liability clauses that violate the principles described above have unlawful content and are void (Art. 20 CO). It is regularly disputed whether clauses that go beyond what is admissible are to be considered void in their entirety or only to the extent that they exceed the permissible level of fault.

If one follows the first view (complete invalidity), the clause as a whole would have to be considered non-existent, and the breaching party would also be liable for slight or medium negligence. In contrast, the second view (partial invalidity) has the consequence that a clause excluding liability for gross negligence and intent is still valid in the case of minor or medium negligence.

In our experience, the courts in Switzerland generally follow the second and more pragmatic approach and interpret the provisions limiting a party's liability in such a way that they remain valid to the extent they are permissible. Particular caution should be exercised, however, in the case of consumer contracts, where the courts are more likely to follow the first opinion and declare liability clauses invalid in their entirety.

In any case, it is advisable to adapt any liability clause in contracts to the Swiss requirements when deciding to apply Swiss law to a contract.

We have also published a podcast episode on this topic. If you have any questions on how to implement a limitation of liability or as to whether a specific limitation of liability is permitted under Swiss law, please do not hesitate to contact our team.

Other articles in the series:

Authors: Christian Oetiker, Pascal Burgunder, Selim Keller