Sanctions 2026

SWITZERLAND Law and Practice Contributed by: Philippe M. Reich, Kaspar Projer, Samantha Salsench and Anna Zellweger, Baker McKenzie Switzerland AG

million which was collateralised with deposited secu - rities. After the publication of the sanctions listing and shortly before the fixed advance fell due, the company instructed the bank to sell some of the USD securi - ties from the custody account and use the proceeds to repay the loan. The bank refused to carry out the instructions alleging that the beneficial owner of the company was an SDN and any transactions in USD in connection with the company were therefore pro - hibited. The bank demanded to remedy the existing shortfall or otherwise it would sell the shares that were not denominated in USD. In the first instance, the Commercial Court of the Canton of Zurich (in Judgment HG180215-O of 16 November 2020) held that OFAC sanctions were not directly applicable in Switzerland, but that the bank is obliged under Swiss banking supervisory law to refuse to carry out transactions that violate US sanc - tions laws. Furthermore, the company had no claim to fulfilment under contract law either, because the execution of the disputed instructions would make the bank’s position unreasonably difficult, as a result of the penalties that it could face. The Federal Supreme Court stated that the bank was able to rely on its General Terms and Conditions, thus on a contractual right of refusal, which author - ised the bank to refuse performance that was not in accordance with the regulations or practices of stock exchanges or other trading venues, which was to be interpreted broadly, thus also including OFAC regula - tions. The Federal Supreme Court stated, without going deeper into the discussion, that the bank would have had the right under statutory law (ie, the CO) to refuse performance due to unreasonableness, given the threat of penalties and possible exclusion from the US financial market. Thus, the case was subject to Article 119 CO on impossibility of performance. Judgment of 23 May 2022 of the Swiss Federal Supreme Court (4A_583/2021) In its judgment of 23 May 2022 (4A_583/2021), the Swiss Federal Supreme Court dealt with an appeal

against the judgment of the Commercial Court of the Canton Zurich of 7 October 2021 (HG180161-O). The appellant, domiciled in the UAE and acting as paying/ financial agent for the respondent, domiciled in Iran, stopped carrying out any activities under the relevant service contract from August/September 2013, after the entry into force of the UN sanctions against Iran in the UAE. In July 2013, the appellant issued an invoice for its claims for fees and expenses and retained around AED60 million from the monies received to cover its alleged claims. A fee dispute subsequently arose between the parties. The Commercial Court of the Canton of Zurich noted that the discontinuation of the appellant’s activity after August 2013 as a result of impossibility due to the implementation of the sanc - tions in the UAE justified a discretionary reduction of the retainer fees by three quarters from September 2013 until the end of the contract. The Swiss Federal Supreme Court held that the first instance court did not breach federal law, including Article 119 CO, by its discretionary reduction of the retainer fee by 75%. The Swiss Federal Supreme Court noted that it had to be assumed that the retainer fee was agreed between the parties with regard to all services to be provided, which is why a corresponding reduction had to be made if a service was cancelled due to impossibility. The reduction of 75% could be justified by the fact that the most important part of the service provision under the contract became impossible (see consid - eration 7). In this decision, however, the Swiss Federal Supreme Court was largely bound by the factual findings of the lower court for procedural reasons. Thus, the Swiss Federal Supreme Court did not have to decide whether the sanctions imposed on Iran actually constituted a case of objective or subjective impossibility within the meaning of Article 119 CO. The lower court – ie the Commercial Court of the Canton of Zurich, also did not have to decide whether the fulfilment of the contract was actually impossible. Rather, for procedural reasons (because the appellant did not sufficiently dispute this), the first instance court was able to rely on the allegation of permanent impossibility of fulfilment of the contract put forward by the respondent and therefore concluded that the requirements of Article 119 CO were met (see HG180161-O, consideration 4.2.3.4).

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