Indirect and consequential loss clauses under Swiss Law
Martin Strobel, Lawyer
More and more contracts under Swiss law are written in English since international business grows. The difficulty with drafting such contracts is to using terms for Swiss law concepts, which originate from common law notions. The use of such common law notions may fulfil certain expectations of the parties involved (e.g. finding the same terms in all international contracts) but on the other hand includes the risk that such language may be interpreted differently with a Swiss law background.
One of the best example to show this is the regularly used clause dealing with the exclusion of “indirect or consequential damages”. The clause may (in a simple version) read as follows: “Neither Party shall be liable to the other Party for any indirect or consequential damages whatsoever.” The obvious intention of such language is to exclude the seller’s participation in the economic risk of the buyer, which concept is as such widely accepted in the industry. One or perhaps the most important question in connection with such a clause is whether seller’s liability for loss of profit of the buyer is excluded. This question is answered differently under common law and Swiss law. Whilst under common law – always subject to the wording in the contract and the specific circumstances – loss of profits is recoverable as a direct loss, under Swiss law the situation is more complex. Depending on the basis of a claim (tort, contract, defects in work) the terms “indirect” or “consequential” have defined meanings which is not the case under common law. The general rule under Swiss law whereby liability is limited to losses which have an adequate link with the damaging event (therefore loss of profit resulting from a defect is considered as indirect damage) may be overruled by such definitions.
The wording of such an exclusion clause has to be carefully drafted. It seems that in most cases it makes sense to refer to specific categories of damages or losses and to not only rely on the wording mentioned above.