Swiss law is commonly used for construction contracts and is generally considered to be a safe option for good reason. But Swiss law does have some particularities that international parties might not expect. This article sets out five points that international parties should look out for when signing a Swiss law construction contract. With some forethought, parties can opt to contract out of these particularities or adequately address the allocation of risk that they entail.
From 1 January 2020, the Swiss Financial Institutions Act and the Swiss Financial Services Act will become law and introduce a regulatory regime for trustees operating in Switzerland, obliging them to obtain an authorisation to carry out their activities. The new regime should reinforce the general reputation and competitiveness of Switzerland as a financial centre and boost the Swiss trust industry's quality, integrity and accountability.
Estimated at $67.4 billion, the art market has become a global playing field for ultra-high-net-worth and high-net-worth individuals to invest their assets. Yet, lack of harmonisation of national legislations on the protection of cultural property may hamper collectors' pleasure in moving their art around the world. In a recent decision, the Swiss Supreme Court clarified the requirements to be met by countries of origin when requesting the return of artworks allegedly illicitly exported by their legitimate owners, thus absent any issues of ownership.
While trusts have not been incorporated into the Swiss legal system, Switzerland ratified the Hague Trust Convention with effect from 1 July 2007 and adapted its conflict of laws provisions – in particular, Articles 149(a) to 149(e) of the Private International Law Act. As a result, foreign trusts are fully recognised and implemented under Swiss law. Although discussed controversially, legislative initiatives to introduce trusts into the Swiss legal system are ongoing.
The 2019 Conditions of Contract for Underground Works (Emerald Book) is a new standard form specifically for underground works that is the result of a lengthy collaboration between the International Federation of Consulting Engineers and the International Tunnelling and Underground Space Association. The Emerald Book contains several features aimed at addressing geotechnical uncertainty, including geotechnical baseline reports and mechanisms to adjust the time for completion and contract price.
New Swiss arbitration rules that are intended specifically for construction disputes contain several notable changes that may foreshadow the evolution of international construction arbitration procedures. Some or all of these innovations, which are aimed at improving efficiency and facilitating settlements, may prove to find widespread adoption among parties negotiating international construction contracts and arbitral institutions revising their rules.
Terminating a construction contract is the last resort for employers frustrated by delays, defects or other problems. Three recent Supreme Court cases illustrate some of the pitfalls of termination for employers. In all three cases, the employers' attempt to terminate for cause was construed as termination for convenience, exposing the employers to significant liability towards the contractors, including for lost profits.
Clauses that require a contractor to obtain the employer's pre-approval of the cost of any additional works are increasingly common in lump-sum construction contracts. According to a recent Federal Supreme Court decision, these pre-approval clauses will be applied strictly, subject to certain exceptions. In its decision, the court enforced such a clause to deny a contractor's claim to recover the cost of additional works performed by a subcontractor.
A recent decision by the Swiss Federal Supreme Court ruled that a contractor's duty of loyalty continues even after termination by the employer. When the contractor stops its works for any reason, it has the duty to take all necessary measures to prevent any harm to the employer and must provide to the employer all relevant information about the works.
The Supreme Court has for the first time interpreted the provisions on the pricing of change orders in the most widely used Swiss standard form contract, the SIA Norm 118. But the decision also has wider ramifications for Swiss law construction contracts. It makes clear that it should be assumed that parties to a lump-sum contract intended to contractually regulate the effect on the contract price of a unilateral change order, even if the terms of the contract are ambiguous.
Construction lawyers are frequently called on to draft or interpret extension of time clauses. But the questions of what should be in these clauses, and why they are typically included in construction contracts in the first place, receive little attention. When drafting an extension of time clause, parties will want to carefully consider whether and how to address a number of specific issues.
Swiss courts and arbitrators have addressed the interface between force majeure clauses and regulatory changes, and how they impact on the contractor's entitlements. Clauses addressing unforeseen circumstances will be construed in line with the parties' actual intentions. If they cannot be established from the text and surrounding circumstances and evidence, the tribunal will construe the clause objectively, regarding how it can be understood in good faith.
Employers should keep a watchful eye on contractor variations and ensure that they do not modify any important quality or original requirements specified in the contract. Whatever the length of the contract, the employer is duty bound to notify any deviation from the contract on final inspection. However, the courts will not protect a contractor which has fraudulently concealed a defect or prevented the employer from discovering a defect.
Employers typically have the power to vary works, including by making changes to the sequence or timing of their execution. Sometimes, these variations do not entitle the contractor to additional remuneration. However, as confirmed by a recent Federal Supreme Court decision, even a change order that is permitted under a contract could result in a breach of the employer's ancillary obligations and therefore give rise to a right to compensation.
Many construction contracts provide that the contractor must submit daily, weekly or monthly progress reports, which then serve as a basis for invoices or applications for payment certificates. In some cases, the contract provides that these progress reports must first be approved by the employer. A recent case before the Supreme Court demonstrates that, in certain circumstances, such approval may be implied through the employer's silence.
In mid-2014 the Supreme Court ruled that the requirement in the International Federation of Consulting Engineers Conditions to submit a dispute to a dispute adjudication board was a mandatory precondition for arbitration, but avoided the question of what the consequence for failing to comply should be. In a recent decision that is particularly important for international construction contracts, the court provided welcome guidance on a question that often arises in construction disputes.
A lump-sum contractor may be entitled to additional remuneration if its work is rendered more difficult due to a fault of the employer. But what happens if the contractor is aware of the employer's fault? A lump-sum contract will not protect employers from having to pay additional remuneration to the contractor for costs that the latter has incurred due to a fault of the employer or its representatives.
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.