Reasons for the attractiveness of Swiss contract law to international commercial actors

Doing some research for a new publication project, I came across Gilles Cuniberti’s article with the title The International Market for Contracts: The Most Attractive Contract Laws, published in the Northwestern Journal of International Law & Business, volume 34, issue 3, spring 2014, at pages 455 et seq. (to be found here: http://orbilu.uni.lu/bitstream/10993/30216/1/The%20Most%20Attractive%20Contract%20Laws.pdf).

At the basis of this very interesting article is an „empirical study of more than 4,400 international contracts concluded by close to 12,000 parties”, which was, pursuant to Cuniberti, “by far, the largest study of international contractual practices ever conducted“ (see G. Cuniberti, op. cit., at 457-458).

Interestingly, namely from the perspective of a Swiss law practitioner, the main conclusion to be drawn from Cuniberti’s above-mentioned empirical study „is that English and Swiss laws are, on average, three times more attractive to commercial parties than any other laws“ (see G. Cuniberti, op. cit., at 475).

In his article, Cuniberti tries to determine what the reasons are for the above-mentioned success of English and Swiss law. In essence, he concludes that such success cannot be explained by the qualities of English or Swiss law. Pursuant to Cuniberti, in essence, other reasons than the qualities of English or Swiss law must be responsible for their appeal to commercial actors in international contract negotiations.

The two quotes below shall illustrate Cuniberti’s above-mentioned assessment:

“To conclude, it is highly doubtful that the general features of the English law described in the Law Society’s brochure or of Swiss law described by Swiss practitioners can explain why those two contract laws are so often chosen by parties to international transactions.” (see G. Cuniberti, op. cit., at 500 in fine)

„As previously noted, I have been unable to identify any rule common to both Swiss and English law that could explain their particular success. On the contrary, English and Swiss law are markedly different with respect to a number of important issues, such as the manner of contract interpretation, the existence of an obligation of good faith, and the possibility of distinguishing legal and equitable ownership.“ (see G. Cuniberti, op. cit., at 509)

In his article, Cuniberti states that there are no publications that explain which qualities of Swiss law make it attractive to international commercial actors (see G. Cuniberti, op. cit., at 494-495):

“However, many individual Swiss practitioners write on Swiss law in a variety of publications and they often offer explanations for the success of Swiss law. Their most common argument is that Swiss law is perceived as ‘neutral.’ Another argument is that Swiss law is available in several languages. But, one can search high and low for references to the qualities of Swiss law that make it attractive to international commercial actors.”

While I do not know or rather doubt that Cuniberti’s above-mentioned statements is entirely accurate, I would like to share herein my own thoughts on the relevant question, i.e., what are the intrinsic qualities of Swiss law (i.e., not any extrinsic factors, such as, potentially, Switzerland’s success as a seat for international commercial arbitrations) that make it attractive to international commercial actors?

In my opinion, one principal quality of Swiss contract law, which is highly attractive to international commercial actors, is that it is based on certain fundamental principles that have constitutional status in Swiss law.

The first of these principles derives from Switzerland’s liberal economic order, which is enshrined in Art. 27(1) of its Constitution, which reads, in an English translation: “Economic freedom is guaranteed.”

Pursuant to several precedents of the Swiss Federal Tribunal (SFT), the above-mentioned fundamental constitutional right of economic freedom includes, inter alia, the principle of contractual freedom that, as has also been confirmed by various SFT precedents, includes the freedom of content, i.e., the freedom of the contracting parties to freely determine the content of their contractual relationship within the limits of the law. This principle is confirmed on a Swiss federal law-level in Art. 19(1) of the Swiss Code of Obligations, which, in an English translation, reads as follows: “The terms of a contract may be freely determined within the limits of the law.”

Swiss law does, of course, also know various limitations to the above-mentioned principle of contractual freedom, which, as mentioned, has constitutional status. But such limitations are mostly to be found in consumer protection constellations, where the idea of social protection, i.e., protecting the structurally weaker party, is a guiding principle. Conversely, this means that in international commercial contracts, which are mostly concluded by companies, mandatory social protection provisions are hardly relevant or only in exceptional cases. This means that international professional contracting parties have an applicable law with Swiss contract law, which leaves them, as a general principle, a wide margin of maneuver in shaping their contractual relationship.

The next basic fundamental principle of Swiss law is that it holds the principle of contract compliance very high. This principle expressed in the Latin phrase pacta sunt servanda qualifies as a core element of the Swiss legal system, i.e., is part of Switzerland’s ordre public, pursuant to various SFT precedents. On the basis of this principle, an international commercial contracting party may, in principle, assume that a contractually clearly agreed clause under Swiss contract law is binding.

The above is also reflected in the Swiss principles of contract interpretation. Contrary to what some foreign lawyers might think, in Switzerland too, not only does every interpretation of a contract begin with the wording of a contractual provision, but its interpretation in practice also ends with a clear wording. For example, if a contract governed by Swiss law clearly states that party A is obligated to deliver product X to party B, by a certain date, party A will, in principle, be subject to this obligation.

The example above is admittedly highly simplified. It shall only illustrate the relevant principle of contract interpretation that is clearly recognized under Swiss law: If the wording of a contractual provision sets out the content of an obligation very clearly, a contracting party will, in practice, normally not be able to dispense with this obligation by means of a creative interpretation of the contract.

To sum up the points made above, the intrinsic quality of Swiss law, which is highly attractive to international commercial actors, is that these actors can expect that under Swiss law, they can freely agree on their contractual relationship and that the agreement they make is binding.

The other fundamental quality of Swiss law is that the above-mentioned principles of contractual freedom and contractual compliance (pacta sunt servanda) is balanced by another fundamental principle with constitutional status: the principle of fairness.

Swiss law is therefore not content with the position that a contractual situation is tough and cannot be changed even if the sense of fairness and justice demands it, in the sense of the Latin proverb dura lex, sed lex, but the entire Swiss legal system is imbued with the overarching principle of fairness.

Provisions reflecting this idea of fairness can be found throughout the Swiss legal system, as set out, at the constitutional level, in Article 5(3) of the Federal Constitution of the Swiss Confederation, which, in an English translation, reads as follows: “State institutions and private persons shall act in good faith.”

At the Swiss federal legislative level, the above-mentioned principle is embodied in, for example, Art. 52 of the Swiss Civil Procedure Code (“All those who participate in proceedings must act in good faith.”) and Art. 2(1) of the Swiss Civil Code (“Every person must act in good faith in the exercise of his or her rights and in the performance of his or her obligations.”).

The beautiful and probably attractive aspect of Swiss law for international commercial actors is therefore that, on the one hand, it leaves the contracting parties with a great deal of freedom of design in relation to their contractual relationship, but, on the other hand, it cannot be misused to unilaterally give a party a one-sided advantage against the feeling of fairness and justice in blatant exceptional cases.

PHH, Zurich, 22 December 2017 (www.haberbeck.ch)

The information contained in this post is for general informational purposes only and is not intended to constitute legal advice. Readers of this post should not take any actions or decisions without seeking specific legal advice.

Rechtsgebiete: Allgemeines Vertragsrecht