Jusletter IT

The current worldwide coronavirus pandemic (COVID-19) has led to government lock-downs in many countries, also in Switzerland¹, applicable to the population, organisations and institutions to combat and reduce the risk of transmission of the coronavirus. Since then, many discussions arose around rights and obligations under, for instance, labour law² and lease law³. These discussions are also interesting for other contracts of continuing obligations, e.g. IT service and maintenance agreements. This article highlights possible arguments for force majeure under contract law.

IT service and maintenance agreements are typically bilateral agreements, meaning that each party is simultaneously obligee and obligor (debtor).⁴ Remuneration is not infrequently agreed and paid in advance with a fixed service fee per year of anywhere between 18% and 30% of the service, software and/or hardware provided. Can either party cease its performance obligations under the service and maintenance agreement due to circumstances beyond its purview without risking a claim from the other party due to breach of contract?

If you have a service and maintenance agreement in place, it is likely that it includes a contractual force majeure clause. Such clause could, for instance, read as follows:

«Neither party shall be liable for any failure or delay in the performance of its obligations under this agreement if such failure or delay is due to a force majeure event, such as without limitation, acts of God, fire, flood, natural catastrophe, power surges, acts of any government or of any civil or military authority, national emergencies, riots, vandalism, terrorism, war, insurrection, strikes, or any occurrence beyond the reasonable control of such party.»

Such force majeure clauses are often complemented with termination rights for one or both parties if the force majeure event lasts for, and exceeds, a defined period, for instance, 60 or 90 days.

In the above example, either party could claim under the contractual force majeure clause that it will not fulfil its obligations under the service and maintenance agreement, and will not be liable for breach of contract.

The applicability of the above force majeure clause is dependent of the actual act by the government. Whereas in certain countries the government issued curfews during this current pandemic, in Switzerland the Federal Council mainly issued a lock-down for publicly accessible establishments.⁵ Hence, if private companies were able to fulfil their contractual obligations during the lock-down while maintaining the governmental safety measures, the force majeure clause would likely not apply. The contractual subject-matter itself has no defect nor is it impossible to perform. To avoid contractual default, the service provider would need to duly (i.e. right time and right place) offer its services; the customer would need to grant the service provider (on-site/remote) access to the IT equipment (duty⁶)⁷ and would not have a right to reclaim the advance service fees (obligation). If the customer denied access to the IT equipment, then

• risk of loss would shift to the customer (e.g. art. 376 para. 1 CO);
• the customer would be in obligee’s default for not accepting the service offered (art. 91 CO) and automatically also fall into obligor’s default for paying the service⁸ (art. 95 and 107 et seqq. CO)⁹;
• the service provider would not fall into obligor’s default for not providing the service or any pre-existing obligor’s default would end with the obligee’s default (art. 91 CO)¹⁰, and would be released of its service obligation¹¹;
• the service provider could terminate the service and maintenance agreement (art. 95 CO).

However, the customer might have a right to reduced liability if it can justify the default was the result of an objective measure and occurred through no fault of its own (art. 99 para. 3 CO).

Furthermore, an obligation is deemed extinguished where its performance is made impossible by circumstances not attributable to the obligor (art. 119 CO). Hence, in bilateral agreements, the obligor thus released from its obligations is liable for the fees already received pursuant to the provisions on unjust enrichment (art. 62 et seqq. CO) and loses its counter-claim to the extent it has not yet been satisfied. This means the customer would need to return the services, which indeed seems difficult for services, and the service provider would need to repay the (advance) fees received.

Art. 119 CO requires the permanent impossibility. It is assumed if and once it becomes apparent that the obligation to perform will not revive prior to the end of the contract of continuing obligations. Hence, if the service agreement ended during the lock-down period, art. 119 CO is applicable. If the service agreement ends thereafter, art. 119 CO is not applicable.¹²

The continuing rights and obligations of contracting parties under force majeure clauses based on government acts remain subject to the degree of the act itself as well as contract interpretation. In case of a dispute between the parties to this effect, rather than having a court decide on the parties’ rights and obligations, a bilateral resolution and settlement between the parties will likely be more efficient and economic.

Daniel Ronzani