SWITZERLAND Trends and Developments Contributed by: Pascal Hachem, Nadja Jaisli Kull and Aurélie Conrad Hari, Bär & Karrer AG
These challenges in the market squarely placed tra - ditional Swiss contract law concepts in the spotlight of international arbitrations governed by Swiss law. Specific performance, penalty clauses, adaptation of contracts – especially prices – to changed circum - stances, immediate termination of long-term supply agreements, impossibility of performance, allocation of insufficient supply among the customer base, allo - cation of procurement risk and the understanding of force-majeure all played prominent roles. This includ - ed – sometimes successful, sometimes unsuccess - ful – attempts to obtain specific performance through interim measures or emergency arbitration, pending the main dispute over the validity or applicability of existing price agreements. Often these disputes included some form of contractually agreed renego - tiation clauses and the question whether both par - ties had genuinely complied with such clauses where renegotiations had not led to an agreement to change the contract in question. Swiss contract law continues to regard contractual performance as the rule and intervention by courts and arbitral tribunals as the exception. Swiss law plac - es primary responsibility on the contracting parties to allocate commercial risks themselves. Consequently, supply shortages, increased transportation costs, labour shortages, or fluctuating commodity prices generally remain part of the ordinary entrepreneurial risk assumed by commercial parties. The claim for specific performance thus remains reliably available under Swiss law, even where rendering performance has become economically burdensome for the coun - terparty. It is for the parties to agree in their contracts the circumstances justifying adaptation of the contract and the ways in which the contract shall be adapted. In some cases, the question then arose as to whether such adaption clauses themselves could be adapted, if the adaptation of the contract per such clause in the view of one party did not sufficiently address the grav - ity of the change in circumstances. Consistent with the traditional position of Swiss law, it will be for the parties to make clear whether such adaptation of the adaptation clause shall be possible, otherwise it will occur only in the most extraordinary circumstances. Absent any explicit or implicit agreement by the par - ties, Swiss law sets high thresholds for judicial inter -
ference with agreed contract terms. Mere deteriora - tion of a contract’s profitability or a contract becoming loss-making is insufficient to justify judicial adaptation of the contract. The Swiss Supreme Court consistent - ly requires that there be a change in the fundamental economic framework in which the contract had been concluded, that this change occurs after contract conclusion, that this change was unforeseeable at the time of contracting or reasonably deemed excluded by the parties, and that this change fundamentally alters the agreed equilibrium between performance and counter-performance. Similarly, immediate termination of supply agreements is subject to a high threshold under Swiss law. Broad concepts such as “material breach”, absent a further agreed contractual definition, are typically interpreted restrictively under Swiss law. Failing an agreement on grounds for immediate termination, the terminating party must demonstrate that it could not be reason - ably expected to continue the contract due to the circumstances that caused it to declare termination. This standard is difficult to meet in practice, thus rein - forcing the notion that Swiss law reliably protects the written agreement and that it is for commercial parties to agree exceptions to this principle or otherwise be held to their word. Given the ongoing political and economic instability on the one hand, and the significant capital allocation to the build-out of artificial intelligence infrastructure – with its reliance on GPUs, memory, energy and cool - ing – on the other, we anticipate that disruptions of and challenges to supply chains will remain a con - stant subject matter in arbitration. In many of these instances damages will be insufficient to address the buyer’s needs and claims for specific performance will become even more frequent than they already are now. Conversely, sellers will find themselves more frequently overburdened with their procurement risk and thus may also more frequently have to look for adaption of the contract. Both issues meet where the quantity of goods the seller can procure is insufficient to satisfy all of the buyers in full. We expect to see this issue more frequently, and tribunals – absent agreed terms – will have to look to a multitude of circumstanc - es to determine whether it is first come, first serve for
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