SWITZERLAND Law and Practice Contributed by: Philippe Reich, Meera Rolaz, Kaspar Projer, Samantha Salsench and Anna Zellweger, Baker McKenzie Switzerland AG
Judgment of 6 August 2021 of the Swiss Federal Supreme Court (4A_659/2020) In its judgment of 6 August 2021 of the Swiss Fed - eral Supreme Court (4A_659/2020), referred to in 3.1 Significant Court Decisions or Legal Developments , it was held that the US designation of the beneficial owner of the holder of certain Swiss bank accounts exempted the relevant Swiss bank from having to implement the instructions issued by the account holder that would entail transactions in breach of US sanctions, (i) pursuant to a right granted in the con - tract with the account holder, which authorised the Swiss bank to refuse performance that did not comply with regulations or practices of stock exchanges or other trading venues, which was to be interpreted as including OFAC regulations, and (ii) pursuant to the CO, which authorised the Swiss bank to refuse perfor - mance 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 the 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 wheth - er 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 con - tract was actually impossible. Rather, for procedural reasons (because the appellant did not sufficiently dis - pute 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). Judgment of the High Court of Canton Aargau (Civil Court, 4th Chamber) of 24 January 2025 (ZSU.2024.159) In its judgment of 24 January 2025, referred to in 2.2.3 Civil Enforcement Action , the High Court of Canton Aargau held that the respondent’s claim for seizure relating to the litigation compensation from the arbi - tration proceedings between the parties before the LCIA had lapsed due to subsequent objective impos - sibility in the sense of Article 119 paragraph 1 CO. This was because the company deemed to control the respondent had been listed in Annex 8 to the Ukraine Ordinance, which subjected the respondent to the prohibition to transfer or make funds available under Article 15 paragraph 2 in conjunction with paragraph 1 lit. c of the Ukraine Ordinance. The High Court held that the statutory payment prohibition constituted a case of legal impossibility and was of unforeseeable duration, especially since the war between Russia and Ukraine is still ongoing. The High Court stated that
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