SWITZERLAND Law and Practice Contributed by: Philippe M. Reich, Kaspar Projer, Samantha Salsench and Anna Zellweger, Baker McKenzie Switzerland AG
Complementing the referred case law on the impos - sibility of performance under Article 119 CO in sanctions-related contexts, the following judgments provide important guidance on the circumstances in which a party may lawfully refuse performance pursu - ant to Article 20 paragraph 1 CO in the same context. Judgments of 28 April 2026 of the Federal Supreme Court (4A_535/2025 and 4A_537/2025) In 4A_535/2025, the claimant was a financial services entity wholly owned by a foundation established on behalf of the nephew of an individual who had been designated by OFAC since 2018 and subsequently listed by the EU, the UK and Switzerland in March 2022. The nephew served as the foundation’s pro - tector until April 2022 and was himself designated by OFAC in November 2022 due to his close personal and business ties to his uncle. In 4A_537/2025, the claimant was an entity incor - porated in 2018. Until February 2023, it was owned by the spouse of its original Chief Operating Officer (COO), who was the same nephew referred to in the first case. In both cases, the respondent was a FINMA-licensed securities firm engaged in the trading and custody of crypto-assets. While the respondent itself did not operate in the US market, its group maintained US connections, including licences and relationships with US counterparties. In November 2021, the parties entered into agree - ments governing the trading and custody of crypto - currencies. Following the nephew’s designation by OFAC in November 2022, the respondent blocked the claimants’ crypto-assets. When the claimants subsequently instructed the respondent in February 2023 to transfer those assets to external wallets, the respondent refused, relying on its obligations under applicable sanctions laws. The Federal Supreme Court held that the manda - tee’s duty to comply with the mandator’s instructions under Article 397 CO is not absolute. A mandatee is not required to follow unlawful instructions, and a right to refuse performance may arise from the obligations
and prohibitions imposed by the Ukraine Ordinance (consideration 3.2.1). Given the concrete indications that the assets were – at least indirectly – controlled by a sanctioned person, compliance with the claimants’ transfer instructions would have violated the Ukraine Ordinance and, by extension, the EmbA (see consideration 3.2.3). The court therefore held that the respondent was obliged to maintain the asset freeze and was entitled to refuse to follow the instruction received and, thus, perfor - mance under the relevant contractual arrangements (cf. Article 20 paragraph 1 CO). Accordingly, it found no breach of the respondent’s contractual duties under Article 397 CO (consideration 3.2.3). These judgments confirm that financial institutions may rely on Article 20 paragraph 1 CO to refuse cli - ent instructions that would result in violation of sanc - tions law and may therefore lawfully refuse contractual performance on that basis. The authors expect that the continuing extension of the Swiss sanctions framework combined with result - ing cases of (alleged) impossibility to fulfil contractual obligations may lead to further court decisions in the near future. It will be of particular importance to under - stand how the courts involved will approach the ele - ment of burden of proof which must be borne by the party arguing in favour of the impossibility to perform under the contractual agreement. 6.2 Enforcement The authors refer to 2.2.3 Civil Enforcement Action for case law explicitly dealing with the enforcement of judgments or arbitral awards on sanctions-based issues.
7. Designation, Compliance and Circumvention 7.1 Executive Body
In accordance with Article 2 paragraph 1 EmbA, the Federal Council is responsible for enacting restrictive measures, including designations. With regards to UN sanctions, the Federal Council automatically adopts the designations originating from the corresponding
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