This kind of selection of law occurs relatively often in international business transactions for a variety of reasons. Commercial contracts require contractual limitations on damages because they help parties better assess and control the business risks associated with a commercial transaction.

We will clarify how Swiss law addresses contractual limitations on damages, focusing on which liabilities cannot be excluded or limited. Each business transaction has risks for which the parties may be held accountable, such as project delays or product non-conformity.

Without an effective limitation of liability provision, there is no financial ceiling on the damages that may be collected – with the exception of statutory restrictions. It is vital, then, to ensure that business contracts include some type of restriction and that these restrictions are effective. Clauses limiting liability may take a variety of forms.

Certain provisions aim to completely exclude responsibility. For example, some restrict culpability by capping the number of damages that may be awarded, excluding certain types of losses, limiting warranties and certain remedies, or imposing short statutes of limitations on claims.

Which liability restrictions are recognized by Swiss law?

Swiss contract law is heavily predicated on the notion of contract freedom, and there is wide room for contractual responsibility restriction (including exclusion).

However, liability limits are not permissible indefinitely. Using the limitation of responsibility in terms of maximum sums (financial caps) as an example, the following statutory limits apply under Swiss law:

Any arrangement entered into in advance that purports to restrict responsibility for an illegal purpose or gross negligence is invalid (although such an agreement might be entered into retrospectively). If the restriction of responsibility occurs in connection with state-licensed commercial activity (e.g. banks), the preceding limitation of liability for mild negligence may also be invalid, at the court’s discretion.

Limitation of responsibility is not recognized in principle for death or personal harm. Additionally, limitation of responsibility is prohibited by some parts of the Swiss Code of Obligations (e.g., in connection with purchase contracts, employment contracts, and service contracts) and by certain specific legislation, such as the Swiss Product Liability Act. Contracts with consumers and general terms and conditions are subject to stricter restrictions.

What are the implications of statutory liability restrictions being exceeded?

Contractual caps on damages in excess of the statutory limits are ineffective. Unless they affect a non-essential aspect of the contract, provisions that go beyond the statutory limitations may be removed to the extent authorized by Swiss law (so-called partial ineffectiveness of severability).

To avoid providing incentives for parties to incorporate excessive restriction provisions, however, there are an increasing number of voices advocating for complete ineffectiveness, particularly with regards to consumers and general terms and conditions.

What else must be considered while designing liability limitations?

Liability limitations are never universal. Each agreement is extremely reliant on the facts relating to the parties’ connection (the parties’ roles, industry, the value of the deal, the deal’s significance, etc. ), the risks involved with the transaction (scope, probability, expenses, etc. ), and the agreement’s other provisions. As a result, it is impossible to understand or negotiate limitations of liability in isolation from other crucial agreements (such warranties, indemnity, and so on).

A party wanting to incorporate a limitation provision in a contract should thus carefully analyze the transaction at hand, read the whole contract, and examine the relevant law’s statutory limitations and the destiny of clauses that exceed those limitations.

If you would like to discuss more on this topic, please reach out!

Lexpro banner