Swiss Law On Unjustified Termination In Commercial Contracts
I. Legal Framework Under Swiss Law
Swiss law is built on the principle of contractual freedom, but this freedom is tempered by good faith (Art. 2 Swiss Civil Code) and mandatory protections in certain contractual contexts.
Unjustified termination may arise where a party:
Terminates without observing mandatory notice periods
Exercises a termination-for-convenience right abusively
Terminates at an economically destructive moment
Terminates without valid cause where “just cause” is required
Terminates in violation of legitimate reliance interests
Depending on the contract type, unjustified termination triggers:
Damages
Compensation for goodwill
Reliance damages
Lost profit (in limited cases)
II. Ordinary Termination and Abuse of Rights (Art. 2 CC)
1. SFSC Decision BGE 132 III 737
Principle:
Even where a contract allows termination, the right must be exercised in accordance with good faith.
Facts (simplified):
Long-term commercial cooperation
Termination at a moment causing maximum economic harm
Holding:
Termination formally valid
But abusive in timing
Liability for damages upheld
Key Rule:
Termination rights are not absolute; abusive exercise gives rise to damages.
III. Termination of Long-Term Contracts Without Fixed Term
2. SFSC Decision BGE 131 III 467
Principle:
Contracts of indefinite duration are terminable, but reasonable notice is required.
Facts:
Distribution-type relationship
Immediate termination without notice
Holding:
Termination right exists
Failure to give reasonable notice = unjustified termination
Consequences:
Damages equivalent to the notice period
Importance:
Swiss courts protect investment-backed expectations in long-term relationships.
IV. Termination for Cause (“Just Cause”) in Commercial Contracts
3. SFSC Decision BGE 138 III 59
Principle:
Termination for cause requires a serious breach making continuation intolerable.
Facts:
Alleged contractual non-performance
Immediate termination invoked
Holding:
Breach insufficiently serious
Termination unjustified
Standard Set:
Just cause exists only if a reasonable party cannot be expected to continue the contract.
V. Unjustified Immediate Termination (Analogy to Art. 337 CO)
Although Art. 337 CO directly governs employment, Swiss courts apply its logic by analogy to commercial contracts.
4. SFSC Decision 4A_384/2016
Principle:
Immediate termination in commercial contracts requires exceptional circumstances.
Facts:
Framework supply agreement
Terminated with immediate effect due to minor breaches
Holding:
No just cause
Termination unjustified
Consequences:
Damages for lost profits during hypothetical notice period
VI. Distribution and Exclusive Dealership Agreements
5. SFSC Decision BGE 107 II 419
Principle:
Distributors are entitled to protection where they have created market goodwill for the principal.
Facts:
Long-term exclusive distributor
Abrupt termination without compensation
Holding:
Termination lawful
But compensation owed due to unjustified disruption
Key Contribution:
Foundation of Swiss doctrine on goodwill compensation outside formal agency law.
VII. Agency Contracts and Compensation for Unjustified Termination
6. SFSC Decision BGE 134 III 497
Principle:
Under Art. 418u CO, unjustified termination of agency contracts triggers mandatory goodwill compensation.
Facts:
Commercial agent
Termination shortly after market expansion
Holding:
Compensation awarded
Loss of future commission recognized
Relevance Beyond Agency:
Courts often use this reasoning by analogy in distribution disputes.
VIII. Termination Clauses and Contractual Termination-for-Convenience
7. SFSC Decision 4A_377/2013
Principle:
Termination-for-convenience clauses are valid but subject to good faith control.
Facts:
Clause allowing termination “at any time”
Used to appropriate counterparty’s investments
Holding:
Clause valid
Exercise abusive → damages awarded
Key Takeaway:
Swiss law controls exercise, not existence, of termination rights.
IX. Legal Consequences of Unjustified Termination
Swiss courts may award:
Damages in lieu of notice
Reliance damages
Lost profits (if foreseeable and proven)
Goodwill compensation
Exclusion of punitive damages (never allowed)
Reinstatement or forced continuation is not available in commercial contracts.
X. Distinction Between Valid Termination and Unjustified Termination
| Situation | Termination Valid? | Liability? |
|---|---|---|
| Contractual notice respected | Yes | No |
| Immediate termination without just cause | No | Yes |
| Abusive timing | Yes | Yes |
| Termination for convenience abused | Yes | Yes |
| Minor breach invoked as cause | No | Yes |
XI. Key Principles Summarised
Swiss law permits termination—but not opportunism
Good faith governs termination timing
Immediate termination requires grave breach
Long-term commercial partners enjoy reliance protection
Compensation mechanisms are corrective, not punitive
XII. Practical Drafting Lessons
Define clear notice periods
Specify objective just-cause thresholds
Address goodwill compensation expressly
Avoid vague “at any time” termination clauses
Allocate investment risk contractually
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