Judgment of the Federal Supreme Court of 4 March 2024
Case Reference : 4A_459/2023

Facts

In 2012, C. (the “Buyer”), a Russian national residing in Spain, granted B. Ltd. (the “Seller”), a Switzerland-based company represented and fully owned by A, a loan of EUR 380,000. In 2013, an additional EUR 85,000 was loaned, bringing the total to EUR 465,000. The loan was subsequently converted into a sale contract under which the Seller would deliver 14 kg of gold sourced from Ghana to the Buyer (“the Sale Contract”). This gold was part of a larger 55 kg shipment, with the export documentation listing the Seller’s branch office as the destination.

According to the Buyer, the Seller did not fulfill its obligation to deliver the gold as stipulated in the contract. The gold was allegedly stolen during transit in Ghana. The Buyer argued that the risk had not been transferred to him because the contract, which was not a shipment contract, constituted an obligation to deliver to a specified location. Consequently, the Buyer sought reimbursement of the purchase price.

The Seller countered by asserting that the agreement was indeed a shipment contract (‘Versendungskauf’) and that the Buyer was responsible for arranging transportation. It argued that it was discharged of its contractual obligations once it had handed the gold over to E. Ltd. (the “Carrier”), a carrier in Ghana.

The Court of First Instance ruled in favor of the Buyer, awarding EUR 496,700. Upon appeal, the Cantonal Court of Zurich amended this judgment, reducing the awarded sum to EUR 465,000, holding that the purchase price did not include accumulated interest.

Issue

The key issues brought before the Federal Supreme Court were:

1. Whether the risk of loss had passed to the Buyer under the CISG, and whether the Seller was liable for the undelivered gold.
2. Whether A was jointly liable alongside the Seller under a joint and several liability arrangement.

Decision

1. Risk Transfer under the CISG

Under Articles 31(a) and 67(1) of the CISG, when it comes to contracts involving the transportation of goods, risk generally passes to the buyer once the seller delivers the goods to the first carrier for transmission. However, this general rule only applies when the seller is not obligated to deliver to a specified location (“Bringschuld”).

The Court dismissed the argument brought forth by the appellants (the Seller and A.) that the risk had been transferred to the Buyer upon the alleged delivery of the gold to the Carrier in Ghana. While the Court did not definitively determine whether this constituted a “Bringschuld” requiring delivery to Switzerland, it upheld the Cantonal Court’s reasoning on the issue of risk transfer based on multiple factors:

• The export documentation clearly distinguished between the portion of gold destined for the Seller and that for the Buyer;
• The commercial logic favored delivery to the Seller’s Swiss branch, as the majority of the gold (41 kg out of 55 kg) was intended for the Seller, while only 14 kg was for the Buyer;
• Delivery documents specifically indicated the Seller’s Swiss branch address as the destination.

Given that the appellants failed to demonstrate that the gold had been properly handed over to the Carrier for delivery to the Buyer, the Court found that the risk had not been transferred to the Buyer at the moment when the gold was allegedly stolen in Ghana. Thus, the Buyer retained the right to terminate the contract and request the reimbursement of the purchase price.

2. Joint Liability

The Court examined the issue of joint liability under Article 143 of the Swiss Code of Obligations (SCO), which requires a declaration of intent by the debtors to establish joint liability. The handwritten loan agreement of August 23, 2012 was crucial in determining the existence of such liability:

• The contract listed ‘A. + B. Ltd.’ as the borrowers, with the ‘+’ symbol indicating an association between the two;
• A. had signed twice – once in his personal capacity and again as a representative of B. Ltd.

Moreover, A.’s subsequent behavior supported this conclusion, using phrases such as ‘we’ in communications regarding the loan, declaring the loan as personal debt in his 2013 tax return, and referring to ‘my personal liability’ in later correspondence. Based on these findings, the Court determined that there was mutual intent to establish joint liability, rendering both A. and the Seller liable for EUR 465,000.

3. Novation Argument

While this argument is not the primary one, it is worth noting that regarding the novation claim under Article 116 SCO, the Federal Supreme Court dismissed the appellant’s contention that A.’s conversion of the loan into a sales contract was intended merely to establish a new obligation for the Seller. The Court briefly addressed this point, noting that A. bore the burden of proof for this claim. Since joint liability had already been established for the original loan and its increase, the Court found no convincing reason why the creditor would have agreed to relinquish this joint liability during the conversion process.

Key takeaway

In international sales contracts under the CISG, the explicit specification of delivery terms is essential to determine the time of risk transfer. The Court reiterated that in case of ‘bringschuld’ obligation exists, the risk remains with the seller until the goods reach the designated delivery point.

The joint liability of individuals and corporate entities under the SCO may arise from both explicit contract language and the broader context of the parties’ conduct. Signing documentation in both personal and corporate capacities can lead to personal liability.

Comments

This judgment provides insights into two key aspects: risk transfer principles under the CISG and joint liability under the SCO.

Regarding risk transfer, the Court’s analysis emphasizes two elements under Article 67(1) CISG:

1. The actual physical handover of goods to the first carrier;
2. Evidence that this handover was specifically intended for delivery to the buyer in accordance with the contract.

The burden of proof falls squarely on the seller,[1] who must provide concrete evidence that demonstrates both the physical handover and its intended purpose. Courts have established that ‘delivery’ requires the carrier to physically take charge of the goods, which includes its proper loading onto the means of transport.[2] Even when goods are physically handed over to the carrier, risks may not transfer if the seller fails to provide proper transportation documentation within contractual deadlines. A mere copy of the seller’s documentation indicating delivery to unspecified persons is insufficient proof.[3] In contrast, when proper documentation is provided and the buyer is duly notified, as demonstrated in a recent Dutch case, courts will recognize the transfer of risk upon delivery to the first carrier.[4] This aligns with the general principle that the party claiming the benefit of risk transfer must prove the facts giving rise to such transfer (Art. 8 SCC).

The outcome in this case would have been identical whether the Court applied the CISG or the domestic provisions of the Swiss Code of Obligations. Article 67(1) CISG and Article 185(2) SCO, both establish similar rules for risk transfer in sales involving carriage, requiring delivery to the carrier and imposing comparable evidentiary standards.

This dispute could have been avoided through appropriate Incoterms rules. The incorporation of either DPU (Delivered at Place Unloaded) or DDP (Delivered Duty Paid) terms would have provided clear allocation of risks and responsibilities throughout the gold shipment from Ghana to Switzerland because these rules explicitly place delivery obligations on the seller until the destination is reached. However, recent case law emphasizes that merely designating an Incoterm is insufficient; sellers must fulfill all related documentary obligations for effective risk transfer.[5]

Turning to the second key issue, the Court’s analysis of joint liability under Article 143 SCO reflects the principles of solidarity under Swiss law. A solidary obligation means that the creditor can demand the entire performance or part of it from each joint debtor individually (Art. 144(1) SCO), and all debtors are bound by it until the entire claim is satisfied (Art. 144(2) SCO). This mechanism aims to strengthen the creditor’s position by making multiple assets available to satisfy the debt. Importantly, joint liability does not create a single claim against multiple debtors. Rather, there exist as many identical claims as there are debtors, with the complete performance by one debtor releasing all others.

The Court’s interpretation aligns with established principles that such agreement need not use specific terminology like ‘joint and several’ or ‘joint debtors’. Instead, in line with Article 18 SCO, what matters is the actual intention of the parties. Where this cannot be determined, circumstances must be interpreted according to the principle of trust.

The Court found several elements establishing joint liability. While noting that the ‘+’ symbol connecting the debtors’ names was a significant indicator, it was far from the sole determining factor. The Court examined multiple elements, including: the dual signature of A. (both in his personal capacity and as a corporate representative), his subsequent tax declarations treating the loan as personal debt, his subsequent correspondence referring to ‘personal liability,’ and the use of the plural pronoun (‘we’) in communications regarding the agreement’s modification.

The Court’s analysis is particularly instructive in two respects. First, it confirms that the mere fact of jointly concluding a contract is insufficient to establish solidarity – unequivocal behavior indicating such intent is required. Second, it demonstrates how multiple contextual elements, while perhaps individually insufficient, can collectively establish joint liability.

Other sources presenting the case 

N/A

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[1] Landgericht Darmstadt, Germany, 21 March 2013, Internationales Handelsrech 2014, CISG-online 2446.

[2] See e.g. Landgericht Bamberg, Germany, 23 October 2006, CISG-online 1400.

[3] Landgericht Darmstadt, Germany, 21 March 2013, Internationales Handelsrech 2014, CISG-online 2446. The court held that mere copies of seller-generated documents indicating delivery to unspecified persons are insufficient proof. Proper documentation must include the carrier’s stamp and specifically identify the authorized person who received the goods. This demonstrates the high standard of proof required for effective transfer of risk under the CISG.

[4] Rechtbank Rotterdam, Netherlands, 9 March 2022, CISG-online 5868.

[5] Audiencia Provincial de Barcelona, Spain, 25 October 2018, CISG-online 5352. The court emphasized that under CIP terms, the seller must not only arrange insurance but also provide the buyer with the necessary documentation to claim directly from the insurer, the absence of which the risk transfer may not be effective despite the Incoterm designation.

Judgment of the Federal Supreme Court of 16 April 2020
Case Reference : 4A_449/2019

Facts

A client (the Client) and a bank offering corporate finance services (the Bank) entered into an agreement (the Agreement), according to which the Bank had to assist the Client sell two companies (the Companies) owned by the latter (M&A advisory services). The Agreement provided that the Bank was entitled to a success fee amounting to 4% of the selling price if the transaction was completed (original text [in French]: “[…] si la transaction est menée à bien”) (Art. 4 para. 4 of the Agreement). The parties had also agreed on an exclusivity clause (Art. 6 of the Agreement) whereby the Client shall be obliged to inform the Bank of any and all contact already initiated or established with prospective buyers and to redirect them to the Bank.

The Agreement had also provided that, in the event the Agreement was terminated by the Client without fault of the Bank, the latter would receive the success fee if the indication given or the negotiation and the work carried out by it contributed to the conclusion of a purchase agreement within 24 months following the termination of the Agreement (Art. 7 para. 3 of the Agreement).

Following the conclusion of the contract, the Bank had provided the Client with a list of companies that could be interested in acquiring the Companies, as well as with a publication consisting in a ranking of French companies providing digital services (the Top List). Subsequently, the Bank had contacted a couple of potential buyers and later arranged a meeting between one of them and the Client. On the date the meeting was set to take place, the Client terminated the Agreement with immediate effect, stating personal and economic reasons. Later, it was discovered that two days before the meeting was set to take place, the Client had sold the Companies at a purchase price of around EUR 9 million to Group D (the Buyer), a company that was listed on the Top List. This sale had been conducted through another broker (other than the Bank) with whom the Client had also concluded a brokerage contract providing for a 4% success fee. The Client admitted that it had not informed the Bank that the Buyer was interested in purchasing his companies and that he had deliberately not informed the Bank about the negotiations led by the other broker with it.

The Bank claimed payment of the success fee, which the Client refused to pay. In the context of the Bank’s legal action against the Client, the Bank argued that according to the exclusivity clause (Art. 6) and Art. 7 of the Agreement, it was entitled to the success fee irrespective of a causal link between its actions and the transaction in question. The Client, on the other hand, argued that the parties did not waive the requirement of such a causal link.

The Cantonal Court of Appeal found that the Client had violated the exclusivity clause and, as a result thereof, ordered the Client to pay the Bank compensatory damages amounting to the payment of the agreed fee (i.e. approximately EUR 361,000). The Client appealed to the Federal Supreme Court.

Issue

The Federal Supreme Court had to determine the consequences of the breach of the exclusivity clause committed by the Client by interpreting the relevant provisions of the Agreement (namely Arts. 6 and 7 para. 3).

Decision

According to Art. 413 para. 1 of the Swiss Code of Obligations (“SCO”), the broker’s fee becomes payable as soon as the information he has given or the intermediary actions he has carried out result in the conclusion of the contract. It follows from this provision that there must be a causal link between some action on part of the broker and the conclusion of the intended transaction for the broker’s fee to be payable.

Art. 413 para. 1 SCO however is not a mandatory rule (i.e. parties can waive it by contract). Parties can decide to mitigate the random nature of the broker’s remuneration in a number of ways, namely:

• by waiving, completely, the causal link requirement between the broker’s activity and the conclusion of the transaction, the broker being entitled to his fee even though his actions did not contribute to the conclusion of the transaction by the client; or
• by agreeing upon an exclusivity clause whereby the client undertakes not to conclude brokerage contracts with third party brokers in relation to the intended transaction.

Regarding the consequences of a breach of the exclusivity clause, the Cantonal Court of Appeal interpreted the relevant contractual clauses (Art. 18 SCO) and found that the true intention of the parties (i.e. the subjective intention of the parties) could not be ascertained. Such finding had not been challenged and therefore could not be reviewed by the Federal Supreme Court. The latter could, however, review the interpretation of the contract by using the objective method of interpretation and could hence determine, in accordance with the good faith principle, which consequences the parties intended to attach to a breach of the exclusivity clause (i.e. the objective intention of the parties).

Based on the foregoing principles, the Federal Supreme Court held that Art. 7 para. 3 of the Agreement did not only apply in the event of termination of the contract, but also in case of a breach of the exclusivity clause. The Federal Supreme Court considered that the parties’ objective intention was that the success fee had to be paid only if the actions of the Bank directly or indirectly led to the intended transaction (as required by Art. 7 para. 3 of the Agreement), even in the event of a breach of the exclusivity clause.

It thus remained to be assessed whether the causal link requirement described in Art. 7 para. 3 of the Agreement was fulfilled. The contact between the Client and the Buyer had been facilitated by another broker than the Bank. The fact that the name of the Buyer was mentioned in the Top List made no difference since the Bank had neither direct contact nor any special relationship with the Buyer. Accordingly, the causal link requirement had not been fulfilled and the Federal Supreme Court dismissed the Bank’s claim.

Key takeaway

The judgment underscores the importance of defining precisely the consequences of a breach of an exclusivity clause in a brokerage contract, which is critical if the parties agreed on a success fee. Explicit language (which was missing in this case) indicating that such breach would trigger the client’s liability (irrespective of a causal link required [or not] for a success fee to be payable) should be included in the agreement in order to protect the interests of the exclusive broker.

Comments

The gross violation of the Agreement committed by the Client, which consisted in hiring a second broker as well as withholding information that the Buyer was interested in purchasing his companies, had no consequences.

Although the parties’ intention is decisive in the context of interpreting the contract, the result reached by the Federal Supreme Court is not fully convincing.

Relying on Art. 7 of the Agreement to determine the consequences of the violation of the exclusivity clause neither corresponds to the parties’ objective intention, nor is it plausible in light of the contract as a whole and the purpose pursued by the parties. Indeed, how can there possibly be a causal link between the conclusion of the purchase agreement with the Buyer and the Bank’s actions given that the Client did not refer this prospective buyer to the Bank (knowing that he had the contract obligation to do so pursuant to Art. 6 of the Agreement)? In other words, the causal link requirement under Art. 7 of the Agreement cannot be fulfilled in a situation (such as the one that occurred in this case) where there is a breach of the exclusivity clause. Accordingly, the payment of the success fee cannot depend on a causal link between the Bank’s actions and the intended transaction in the event of a breach of the exclusivity clause.

The court holding that it is necessary to show a causal link between the actions of the Bank and the conclusion of the contract ultimately makes it possible for the Client to prevent – by his conduct – the fulfillment of the condition (i.e. a causal link) entitling the Bank to receive its success fee. One could have (which was not done by the Federal Supreme Court) relied on Art. 156 SCO, a provision which constitutes a concretization of the general prohibition against an abuse of right (Art. 2 para. 2 of the Swiss Civil Code [SCC]) and which provides that “[a] condition is deemed fulfilled where one of the parties has prevented its fulfilment by acting in bad faith”. Applied to the case in question, this provision would have resulted in the Bank receiving the success fee, since the Client had, arguably at least, prevented the fulfilment of the condition for the payment of the success fee “by acting in bad faith” within the meaning of Art. 156 SCO (see the comment on this case by Markus Vischer, cited in Other sources commenting the case below).

When addressing the issue of a violation of an exclusivity clause, the Federal Supreme Court in an earlier ruling[1] provided two solutions. A breach of this clause can either lead to:

• the broker’s right to compensatory damages amounting to the payment of the agreed fee according to the general principles of contract law (Arts. 97 para. 1 and 98 para. 2 SCO); or
• the payment of the agreed commission.

The choice between either solution depends primarily on the intention of the parties.

In view of the foregoing, one might wonder why the Bank argued that a causal link was not required for the payment of a success fee rather than relying on the Federal Supreme Court’s earlier ruling and claiming a right to be paid the success fee either in the form of compensatory damages (by applying the relevant Swiss contract law principles), or directly (based on the objective intention of the parties – which, unfortunately, was wrongly construed in this case).

Other sources presenting the case

Strotz Vera/Galli Dario/Vischer Markus, Von wirkungslosen Vertragsklauseln, in: dRSK 21, published on September 21, 2020; Vischer Markus, BGer 4A_449/2019: Entschädigung im Falle der Verletzung der Exklusivitätsklausel, in: AJP 9/2020, 1200 ff., available at: https://www.walderwyss.com/user_assets/publications/VISCHER_MARKUS_AJP-9_2020_1200.pdf

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[1] See ATF 100 II 361, consid. 4.

Judgment of the Federal Supreme Court of 30 July 2020

Case reference : 4A_186/2020

Facts

The dispute concerned a share purchase agreement (the “SPA”) between Z (the “Seller”) and X. SA (the “Purchaser”) for shares of the company W. SA (the “Target Company”). At the time of the conclusion of the SPA on December 3, 2007, both parties were aware that the Target Company had an ongoing conflict with a former agent of the Target Company (the “Agent”) who had initiated court proceedings in which he claimed the payment of CHF 738,500 from W. SA. The risk of said dispute was reflected in Article 6 of the SPA as follows:

“In view of the potential procedural risk of the claim raised against [the Target Company] by [the Agent], the [S]eller shall undertake to secure this risk to the [P]urchaser by issuing of a first-rate bank guarantee of CHF 850,000, which shall be maintained until a final and enforceable judgment is rendered on the matter, but which shall be fully released by February 28, 2012 at the latest in any event and without any further condition.
In the event that [the Target Company] should lose in these proceedings, the said guarantee shall be released subject to the amount charged to W. SA”.^[1]

In execution of the SPA, the Purchaser paid the last installment of the sales price on July 30, 2008. The Parties signed a SPA closing protocol on the same day, by which they confirmed the obligation of the Seller to issue a bank guarantee. Upon instruction of the Seller, a bank issued a bank guarantee on the same day that was valid until February 28, 2012 (pursuant to Art. 6 of the SPA). The bank guarantee was released on that date.

The court proceedings initiated by the former Agent against the Target Company ended only on March 17, 2016 (i.e. over four years after the release of the bank guarantee). The Target Company was ordered to pay CHF 363,000 plus 5% interest as of September 30, 2001 and expenses amounting to CHF 39,000. On February 17, 2017, the Purchaser sued the Seller before the Court of First Instance claiming the payment of approximately CHF 880,000 on the grounds that the Seller had the contractual obligation to reimburse the costs of litigation with the Agent. The Court of First Instance rejected the Purchaser’s claim, which was later upheld by the Court of Appeal.

Issue

The Federal Supreme Court had to decide on the interpretation of Art. 6 of the SPA. In other words, it had to assess whether the Seller was no longer liable through the application of this contractual provision (which was the verdict reached by the Cantonal Courts). More specifically, the issue was whether Art. 6 of the SPA set a time limit for the liability of the Seller whereby the liability would expire when the bank guarantee was to be released (i.e. February 28, 2012).

Decision

The Federal Supreme Court was confronted with two vastly diverging interpretations of Art. 6 of the SPA. The Purchaser claimed that the Seller was obliged to reimburse him for any costs incurred in the proceedings against the former Agent without limit in time, and without being bound by the time limit for the release of the bank guarantee, which had to be released at the latest on February 28, 2012. The Purchaser claimed in this respect that the bank guarantee to be provided by the Seller was only intended to confirm the Seller’s ability to perform its obligation to reimburse the Purchaser until February 28, 2012. The Seller, on the other hand, claimed that Art. 6 of the SPA had to be interpreted as meaning that its sole obligation was to provide a bank guarantee until February 28, 2012, with no further obligation following the expiration date of the bank guarantee.

In its decision (reference ACJC/292/2020), the Court of Appeal (similarly to the Court of First Instance) came to the conclusion that the contract, in particular Art. 6 of the SPA, expressed the real and common intention of the parties pursuant to Art. 18 of the Swiss Code of Obligations (“SCO”). It reached this decision by taking into account the documents that the Parties had used during the negotiations that led to the SPA: the annexes to the SPA, a clause in the agreement stating that the SPA shall replace all previous written or oral agreements between the Parties, other sections of the SPA, the SPA closing protocol, as well as the expectations of the parties with regard to the likely outcome of the proceedings between the Target Company and the Agent.

In its decision, the Federal Supreme Court summarily confirmed the Court of Appeal’s judgment that Art. 6 of the SPA expressed the real and common intention of the parties (based on subjective contract interpretation which looks at facts) and that Art. 6 only required the Seller to provide a bank guarantee that was limited in time. The Federal Supreme Court further stated that the Purchaser had not pleaded that the Court of Appeal had applied the wrong method of interpretation and had simply used the appeal to reiterate its arguments from the proceedings before the Court of Appeal.

Key takeaway

This case constitutes an important reminder of the precision required when formulating guarantee provisions in share purchase agreements. In particular, parties (and their counsel) are strongly advised to clearly set out what shall be the term of the liability of the seller for any third-party litigation risks. In this case, the liability of the Seller was set out in such a way that it was interpreted to consist only in the issuance of a bank guarantee that was limited in time and to be released at the latest by a certain date, which was well before the litigation, whose risk was at the heart of the issue, had terminated.

The case further illustrates that whenever a lower court reaches the conclusion that a contract corresponds to the parties’ true and corresponding intent on the grounds of subjective interpretation, it is a question of fact and thus not a question of law. This means that the review by the Federal Supreme Court is extremely limited and that a reversal of a lower court judgment is highly unlikely.

Comments

Swiss contract law distinguishes between subjective and objective contract interpretation. According to this principle derived from Art. 18 SCO, a contract has to be interpreted primarily subjectively. This means that courts are held to give the contract the meaning that corresponds to the common inner will of the parties at the time the contract was concluded. Only where such common intent cannot be established, should Courts resort to interpret the contract objectively, i.e. determine how a reasonable party in the position of the parties to the contract could have understood the agreement. It is clearly established by the Federal Supreme Court’s caselaw that the question of whether or not the parties had a common inner will at the time the contract was concluded, is a question of fact that cannot be reviewed by the Federal Supreme Court except in cases of manifest error. In other words, the Federal Supreme Court can only review decisions where the Cantonal Courts have resorted to objective interpretation.

In this case, the Court of Appeal had applied a subjective interpretation and came to the conclusion that Art. 6.1 SPA corresponds to the “real common intention” of the parties. The Federal Supreme Court pointed out that the Purchaser had not criticized the “method of interpretation” applied by the Court of Appeal in principal, but merely reiterated its own prior arguments. This might be seen as a hint that the Federal Supreme Court would have potentially been willing to scrutinize the decision handed down by the Court of Appeal more thoroughly if the Purchaser had pleaded that the method of interpretation applied by said Court was misguided and that the contract should have been interpreted in an objective manner. In the case of an objective interpretation, there could have potentially been additional arguments made to challenge the decision of the Court of Appeal.

 Other sources presenting the case

Judith Rothen / Dario Galli / Markus Vischer, Leistungs- und Sicherungsversprechen in

Aktienkaufverträgen, in: dRSK, published on June 7, 2021, https://www.walderwyss.com/user_assets/publications/210607-Leistungs-und-Sicherungsversprechen-in-Aktienkaufvertragen.pdf

Christoph Brunner / Dario Galli / Markus Vischer, Die Rechtsprechung des Bundesgerichts zum Kaufvertragsrecht im Jahr 2020, in: Jusletter November 29, 2021

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[1] In the French original text « Compte tenu du risque procédural potentiel présenté par la demande en paiement formée contre W. SA par M.U., le vendeur s’oblige à garantir ce risque envers l’acquéreur par la remise d’une garantie bancaire de premier ordre à hauteur de 850’000 fr. qui sera maintenue jusqu’à droit jugé de manière définitive et exécutoire, mais qui sera totalement libérée au plus tard le 28 février 2012, en tout état et sans autre condition. Dans l’hypothèse où W. SA succomberait dans cette procédure, ladite garantie serait libérée à due concurrence des montants mis à sa charge […].»