The Federal Supreme Court has limited an owner's right to terminate a contract in case of delays attributable to the contractor. The owner's interest in terminating the entire contract must be worthier of protection than the contractor's interest in keeping it in place for the works that are on time. Owners should avoid setting unreasonably short time limits to remedy delays and contractors should object immediately to unreasonably short grace periods.
In a recent decision the Supreme Court clarified the relevance of the Swiss Society of Engineers and Architects' standards for planning and construction in relation to the owner's third-party liability. The court held that an increase of technical norms indicates an increased risk arising from the respective work, against which the owner must take all reasonable and adequate protective measures.
The Federal Supreme Court recently analysed whether dispute adjudication board (DAB) proceedings are a precondition that must be met before resorting to arbitration under the International Federation of Consulting Engineers (FIDIC) Conditions of Contract. The court recalled that the introduction of the DAB in the FIDIC conditions was to allow for an efficient resolution of disputes arising during construction works.
Sanctions imposed by the Swiss government are of particular importance to the international construction industry. Construction contracts governed by Swiss law may be deemed null and void if they are in breach of sanctions, regardless of whether the parties have any link to Switzerland. Construction practitioners should therefore note a new ordinance imposing commercial and financial restrictions against Russian interests in relation to Ukraine.
An owner refused to pay for alleged additional work, claiming that it had not been aware of any changes. The contractor sued the owner claiming the amount it quoted for the new work. The Supreme Court accepted that an owner could be ordered to pay a contractor for the value of the work as a whole. The case highlights the clash between contractual requirements of form and good-faith reliance on the other party's conduct.
Switzerland has adopted a number of sanctions against Iran. These sanctions may affect construction contracts if, among other things, one of the parties is blacklisted or the construction contract concerns works falling under the restrictions imposed by the sanctions. Any breach of the sanctions would be considered to be illegal and entail the nullity of the contract.
The statutory time limit for warranty claims has been extended from one to two years. The two-year time limit is mandatory only for consumer contracts. Contracts between businesses may still provide for shorter limitation periods for warranty claims. In addition, a recent revision of the Unfair Competition Act allows tribunals to invalidate general terms and conditions that are unfair towards consumers.
The Federal Supreme Court recently confirmed that a main contractor can align the contractual time bars for warranty claims against its subcontractors with the time limits applying to warranty claims that the owner has against the main contractor. This decision is relevant for both main contractors and subcontractors involved in large construction projects.
The controversial issue in a recent court of appeal case was whether the contractor still had a claim for compensation, despite its failure to submit progress reports and have them signed by the owner. The court ruled that in the absence of the contractually agreed progress reports, the contractor was still entitled to compensation but should establish (the amount of) its claim by other means of evidence.
The Supreme Court recently confirmed that an owner may rescind a contract for works if the contractor is in default. Before doing so, the owner must put the contractor on notice and grant it a reasonable grace period. In the present case, the contractor failed to reach agreed-upon output requirements and its delivery of the works was late. The court held that no prior notice or grace period was required in these circumstances.
It is expected that the upper house of the Swiss Parliament, the Council of States, will approve an amendment to the Code of Obligations which will align Swiss law on warranties with the UN Convention on Contracts for the International Sale of Goods and the EU Sale of Consumer Goods Directive. Since the rules on warranties applicable to the sale of goods under Swiss law also apply to contracts for works, the extension of the time limit will also impact on Swiss construction law.
The scope of liability between owner and contractor with regard to subsoil conditions that affect the location where works are performed is often a source of dispute. The Supreme Court recently applied the duty of care in a case where a contractor's equipment was damaged by obstacles on the ground. The court's findings may be applied to construction contracts in general.
Contracts for works are regulated by Articles 363 to 379 of the Code of Obligations. The interface between these specific provisions and those applicable to all contracts under the General Part of the code raises thorny issues, as was illustrated by a recent Federal Supreme Court decision in which the court had to deal with the remedies available to the owner in case of the contractor's default.
In two recent decisions, the Federal Supreme Court has reaffirmed a number of rules regarding defect notices. While neither judgment overturned or modified existing precedent, the principles underlying the court's findings are of paramount importance for contracts governed by Swiss law.
The Gotthard Base Tunnel is part of the Sfr20 billion AlpTransit project to build a new rail link through the Alps, with the objective of creating a direct and level route for high-speed passenger and freight trains. The Gotthard tunnel project was one of the first in Switzerland where foreign contractors were admitted to bid, and they were actually awarded many of the lots.
Many of the international arbitrations conducted in Switzerland relate to construction and engineering contracts and contracts for the supply of equipment for industrial plants and construction projects. A Federal Supreme Court decision sheds light on an award that dealt with the relationship between statutory and contractual grounds for termination of a works contract where the failure of performance tests was alleged.
In a recent case before the Geneva Court of Appeal concerning a delay in the completion of a sophisticated building management system, the court provided some clarification on the relationship between the contractor's right to interim measures of protection and the owner's right to replace the original contractor in case of defective performance or delay.
A recent Supreme Court decision confirmed the opinion that, in the event of the discovery of a defect with uncertain liability between multiple contractors, the owner must establish not only the existence of a defect, but also which contractor is contractually liable for that defect. Only at that point does the time limit to notify defects commence.
A recent case demonstrated that, in disputes over a consortium member's refusal to pay for supplies additional to those stated in the building contract, a contractual veto right is not unlimited. The case showed the member's right to refuse to provide additional supplies without additional payment, although it is unlikely that a veto right could allow a party to refuse to provide such supplies where additional payment has been offered.
Bank or parent company guarantees can be used in construction projects to guarantee payment by the employer, delivery of the project, performance of the works or that a party keep a tender offer open during a certain period, among other things. In 2008 the Swiss Supreme Court rendered three important judgments dealing with disputes arising from these guarantees.