Why are commercial contracts important in Switzerland?

Switzerland is considered one of Europe's most reliable centers for trade, finance, logistics, technology, and investment. Cities such as Zurich, Geneva, Basel, Lausanne, and Zug are hubs where international companies, financial institutions, holding companies, technology startups, and asset management firms operate intensively. Therefore, domestic or foreign companies wishing to enter into commercial contracts in Switzerland must pay attention not only to the commercial terms but also to the legal framework of the contract.

Commercial contracts are fundamental legal documents that define the rights and obligations of the parties. Many commercial relationships, such as sales, distribution, agency, service, consultancy, software, license, franchise, supply, partnership, confidentiality, share transfer, or investment agreements, are governed by contractual provisions. Freedom of contract is a key principle in Swiss law; however, this freedom is not unlimited. Mandatory legal rules, the principle of good faith, public order, unfair competition, consumer protection, labor law, data protection, and competition law can directly influence contractual provisions.

The biggest mistake made when drafting a commercial contract in Switzerland is focusing solely on price, payment, and delivery terms. A well-prepared commercial contract, however, should clearly define the identities of the parties, their representation authority, applicable law, competent court or arbitration clause, place of performance, delivery method, payment schedule, consequences of default, limits of liability, warranty provisions, confidentiality obligations, intellectual property rights, grounds for termination, and dispute resolution methods.

Formation of Contracts in Swiss Law

In Swiss law, contracts are generally formed by the mutual and congruent declarations of intent of the parties. Offer and acceptance constitute the fundamental elements of a contract. A contract is considered formed if the parties agree on its essential points. While written form is not mandatory for most commercial contracts, it is important for ease of proof and legal certainty.

In international commercial relations, email, electronic signatures, quotation forms, order forms, proforma invoices, general terms and conditions, or correspondence can also determine the content of a contract. Therefore, companies trading in Switzerland need to pay attention not only to the signed main contract but also to pre-contractual correspondence and supplementary documents. In particular, quotation texts, price lists, payment plans, technical specifications, delivery schedules, and order confirmations may later become the subject of disputes.

The obligation of the parties to act honestly during contract negotiations is also important. One party misleading the other, concealing important information, or creating confidence that a contract will be concluded and then unfairly terminating negotiations can lead to liability under certain circumstances. Therefore, when conducting commercial contract negotiations in Switzerland, correspondence must be carefully handled, binding and non-binding statements must be distinguished, and confidentiality clauses must be established before the contract is signed.

The identities and representation authority of the parties must be verified

Before entering into a commercial contract in Switzerland, the legal status of the other party must be thoroughly examined. The other party may be an individual trader, sole proprietorship, limited liability company, joint-stock company, branch, holding company, foundation, cooperative, or foreign company. Each entity has a different liability regime and representation system.

At this point, the Swiss commercial register is of great importance. The commercial register provides information about the legal structure of companies, their headquarters, directors, authorized signatories, and method of representation. It should be checked whether the person signing the contract represents the company individually or jointly. One of the most common risks in practice is the signing of a contract on behalf of the company by an unauthorized person.

The following checks should be carried out, especially in high-value commercial contracts:

It should be checked whether the counterparty is registered in the commercial registry. The company name, address, and registration number should be verified. The identities of the authorized signatories should be determined. It should be examined whether the power of representation is individual or requires joint signature. It should be investigated whether the company is in liquidation, bankruptcy, or undergoing a similar process of insolvency. The company's active operation and financial standing should be assessed.

Contracts signed without these checks can later lead to serious problems in terms of collection, performance, authority, and responsibility.

The applicable law must be clearly defined

In Switzerland, one of the most important elements of commercial contracts is the applicable law. If one party is located in Switzerland and the other in Türkiye or another country, the contract must clearly state which country's law applies.

When the applicable law is not specified, the rules of private international law determine which law will apply in case of a dispute. This can create uncertainty for the parties. For example, in a supply contract between a Turkish company and a Swiss company, if it is unclear whether Swiss law, Turkish law, or the law of another country will apply to the contract, time and financial losses may occur if the dispute escalates.

The contract may include a provision of this type:

“This agreement shall be governed by and construed in accordance with Swiss substantive law.”

However, when choosing the applicable law, not only the commercial expectations of the parties but also the subject matter of the contract, the place of performance, the parties' headquarters, the dispute resolution method, enforceability, and peremptory legal rules should be considered. Furthermore, if the sale of goods is international, it should be separately assessed whether the CISG (United Nations Convention on the International Sale of Goods) is applicable.

CISG Implementation Should Not Be Ignored

Switzerland and Turkey are parties to the CISG. Therefore, when an international sales contract is concluded between a company located in Türkiye and a company located in Switzerland, the contract may be enforceable unless the parties have explicitly excluded the CISG.

The CISG contains specific provisions regarding the formation of contracts, delivery, defects, breach, indemnity, rescission, and many other issues in the sale of goods. Therefore, it may not be sufficient for the parties to simply state that "Swiss law applies." This is because even when Swiss law is chosen, the CISG may still be applicable to international sales of goods.

If the parties do not wish for the CISG to be applied, the contract must contain an explicit provision to the following extent:

“The parties agree that the United Nations Convention on the International Sale of Goods will not apply.”

Conversely, the application of the CISG can be beneficial to the parties in some cases. It can provide a predictable and uniform legal framework, particularly for companies engaged in international sales of goods. Therefore, the CISG should not be automatically excluded; an assessment should be made based on the specific nature of the contract.

The Competent Court or Arbitration Clause Must Be Clear

In commercial contracts, another issue as important as the applicable law is where the dispute will be resolved. Parties to a commercial contract in Switzerland may designate Swiss courts, a court in another country, or arbitration as the competent courts.

The jurisdiction clause must be clear, in writing, and unambiguous. For example, a provision such as "in case of dispute, the courts of Zurich have jurisdiction" can determine which court will hear the dispute between the parties. However, in international agreements, the Lugano Convention is important in terms of jurisdiction agreements and the recognition of foreign court judgments.

Arbitration is also a frequently preferred dispute resolution method in Switzerland. An arbitration clause may be considered, particularly in high-value, technical, international, or confidential commercial contracts. Switzerland has a strong reputation in arbitration. Geneva and Zurich are important cities in terms of international arbitration centers.

When drafting arbitration clauses, the arbitration institution, venue, number of arbitrators, language of arbitration, applicable law, costs, and enforcement of the award should be clearly regulated. Incomplete or ambiguous arbitration clauses can lead to jurisdictional disputes in the event of a dispute.

Payment, Currency and Exchange Rate Risks Must Be Regulated

In Switzerland, commercial contracts are generally denominated in Swiss Francs, Euros, US Dollars, or another currency agreed upon by the parties. However, exchange rate risk is a significant issue in international trade. In particular, fluctuations in the exchange rates of the Turkish Lira, Swiss Francs, and Euros in trade relations between Turkey and Switzerland can affect the economic stability of both parties.

Therefore, the contract must clearly specify the payment currency, payment date, bank charges, late payment interest, exchange rate differences, taxes, and deductions. Additionally, security mechanisms such as advance payments, interim payments, letters of guarantee, letters of credit, escrow, bank guarantees, or payment blocking can also be considered.

The following questions should be answered when preparing payment terms:

In what currency will the payment be made? When will the payment become due? Will interest be applied in case of delay? Who will be responsible for bank charges? Who will be responsible if any taxes, withholding taxes, or deductions arise? Will payment be received before the goods are delivered? In service contracts, will interim payments be made before the work is completed?

The lack of clear answers to these questions in the contract is one of the most frequent causes of commercial disputes.

Delivery, Performance and Incoterms Terms

In commercial contracts involving the sale of goods, export, import, and logistics, delivery terms are of vital importance. It must be clearly defined where, when, and under what conditions delivery will take place. Incoterms rules are frequently used in international trade. Delivery terms such as EXW, FCA, FOB, CIF, DAP, and DDP have different outcomes in terms of transportation, insurance, customs, risk transfer, and cost sharing.

General statements in the contract, such as "delivery is the seller's responsibility" or "shipping is the buyer's responsibility," may not suffice. Instead, it should clearly state which Incoterms rule applies, which year's version, and for which delivery location. For example, a clear clause such as "DAP Zurich, Incoterms 2020" reduces ambiguity between the parties.

The delivery terms should also regulate packaging, transport insurance, customs procedures, export permits, import documents, quality control, inspection period, underdeveloped or late delivery, and the transfer of risk of damage.

Defect, Warranty and Liability Clauses

In commercial contracts, defective goods or inadequate services frequently create disputes. In Swiss law, the liability of the seller, contractor, or service provider can vary depending on the type of contract. Therefore, warranty periods, notification of defects, inspection obligations, repair, replacement, price reduction, compensation, and rights to terminate the contract must be clearly regulated.

Especially for technical products, machinery, software, medical devices, chemical products, construction materials, or high-value commercial goods, warranty clauses must be written in detail. The parties need to understand the difference between "commercial warranty" and "legal liability." Completely waiving liability in a contract may not always be valid. Limitations such as gross negligence, fraud, intent, personal damages, mandatory provisions, and public order must be considered.

If liability limitations are to be established, it must be clearly defined which damages are excluded, whether indirect damages can be claimed, whether loss of profit and production losses can be compensated, and what the total liability limit is. Vague liability provisions may not yield the expected result before a court or arbitration panel.

Privacy and Intellectual Property Terms

In Switzerland, confidentiality clauses are very important in commercial contracts. Parties may share trade secrets, customer lists, pricing policies, software code, technical drawings, production methods, financial data, investment plans, or strategic information during contract negotiations or execution.

Therefore, the confidentiality clause should not be left as merely a general statement. It must clearly define which information is confidential, who is subject to the confidentiality obligation, the purposes for which the information may be used, the conditions for transferring it to third parties, the duration of confidentiality, and the sanctions to be applied in case of breach.

From an intellectual property perspective, trademark, patent, design, software, copyright, know-how, and licensing rights should be regulated according to the nature of the contract. Especially in software development, consulting, design, R&D, technology transfer, and licensing agreements, it should be clearly stated who owns the resulting intellectual property. Otherwise, even as a result of a paid service, it may become debatable whether or not the intellectual property right has been transferred.

Non-Compete and Exclusivity Clauses

Non-compete and exclusivity clauses are frequently used in distributorship, agency, dealership, franchise, and partnership agreements. However, these clauses must be carefully drafted. One party being the sole authorized distributor in a specific region, having the right to sell to specific customers, a ban on selling competing products, or a post-contractual non-compete obligation can have significant commercial consequences.

Non-compete clauses should be proportionate in terms of duration, territory, and subject matter. Excessively broad non-compete clauses can create problems under competition law and the principle of good faith. Similarly, exclusivity clauses should be regulated in conjunction with sales targets, performance criteria, minimum purchase obligations, reporting, inventory management, marketing activities, and termination conditions.

For example, if a Swiss company grants exclusive sales rights to a distributor in Türkiye, it must be clearly defined in which region the distributor is authorized to sell, the scope of online sales, whether sub-dealerships can be established, minimum sales targets, and whether the exclusivity will end if the targets are not met.

Tax, VAT and Customs Risks

Commercial contracts not only create private law relationships; they can also give rise to tax, VAT, customs, transfer pricing, and accounting consequences. In Switzerland, companies may face different tax regimes depending on the canton. In international trade, double taxation agreements, withholding tax at source, service invoices, royalty payments, license fees, consulting income, and intra-group transactions must also be considered.

The contract must clearly state whether the price includes or excludes taxes. It should specify which party is responsible for VAT, customs duties, import costs, bank charges, withholding tax, or similar deductions. In particular, for service contracts, license agreements, and consultancy agreements, the country where the payment will be taxed should be specifically examined.

Inadequate tax provisions can disrupt the economic balance of a contract. One party may expect net payment while the other withholds taxes. Therefore, tax and legal advice should be sought together in international commercial contracts.

Termination of the Contract and Consequences of Default

A well-prepared commercial contract should regulate not only how the relationship begins, but also how it ends. Termination clauses are one of the most critical parts of a commercial contract. Whether for a fixed term or an indefinite term, termination should clearly define circumstances such as ordinary termination, termination for just cause, termination due to breach, default, impossibility of performance, bankruptcy, change of control, license breach, or breach of confidentiality.

In the event of termination, issues such as ongoing orders, inventory, return obligations, payment obligations, confidentiality obligations, non-compete clauses, customer transfer, data return, and intellectual property use must be clarified between the parties. Otherwise, the termination of the contract may become the beginning of new disputes.

In default provisions, it should be regulated whether a warning is required, whether an extension of time will be granted, interest on delay, penalties, compensation, rights to terminate the contract, and rights to suspend performance. Especially in supply chain contracts, late delivery may not only mean the delayed arrival of goods; it can lead to consequences such as production stoppages, customer loss, penalties, and reputational damage.

Force Majeure and Adaptation Provisions

Pandemics, wars, embargoes, energy crises, raw material shortages, logistical disruptions, natural disasters, and sudden legislative changes have increased the importance of force majeure and adaptation clauses in commercial contracts. In Switzerland, the concept of force majeure must be regulated in a concrete and detailed manner when drafting commercial contracts.

The force majeure clause should clearly state which events constitute force majeure, the parties' notification obligations, the duration for which performance will be suspended, how costs will be shared, and whether the contract will terminate in case of prolonged impossibility.

Price adjustment provisions are also important. In long-term supply, construction, energy, manufacturing, or service contracts, extraordinary increases in raw material prices, exchange rates, freight, taxes, labor costs, and energy costs can disrupt the balance of the contract. Therefore, the parties should include price revision mechanisms, indexation, renegotiation, and adjustment provisions in the contract.

General Terms and Conditions and Standard Contracts

In Switzerland, many companies use terms of sale, terms of use, terms of supply, or general terms of business. However, for general terms of business to be part of a contract, the other party must be aware of and accept them. It should not be assumed that general terms and conditions found on a website are binding in all cases.

The problem known as "battle of forms" can arise, especially when both parties use their own general terms and conditions. The buyer's purchase terms may conflict with the seller's sales terms. In this case, determining which terms apply can become debatable depending on the specific circumstances of the situation.

Therefore, in commercial contracts, general terms and conditions must be explicitly included in the contract, it must be stated which document takes precedence in case of conflict, and a priority order must be established between the main contract and its annexes.

Language, Translation, and Document Priority

Switzerland is a multilingual country. German, French, Italian, and Romansh are among the official languages. English is widely used in international commercial contracts. However, if a contract is prepared in more than one language, it must be clearly stated which language version will prevail.

For example, in a contract prepared in Turkish and English, it should be clearly stipulated which text will prevail in case of a conflict between the two texts. Otherwise, even a simple translation difference can turn into a dispute worth millions of francs.

The contract should also establish a priority order among the annexes. It should specify which document will take precedence in case of any conflict between the main contract, technical specifications, order form, general terms and conditions, price list, delivery schedule, and confidentiality protocol.

The Importance of Legal Support When Drafting Commercial Contracts in Switzerland

Drafting a commercial contract in Switzerland is not simply a matter of writing a few clauses. The commercial purpose of the contract, the countries of origin of the parties, the payment model, the method of delivery, the applicable law, the choice of court or arbitration, tax implications, intellectual property rights, and enforceability must all be considered together.

For Turkish companies in particular, contracts with Switzerland may require a simultaneous consideration of both legal systems. The fact that a contract is subject to Swiss law does not completely eliminate the need for enforcement or execution in Türkiye in the event of a dispute. Similarly, consideration should be given beforehand to how judgments rendered in Türkiye or Switzerland will be implemented in the other country.

Contracts prepared without professional legal assistance may initially seem cost-effective, but can lead to much higher costs when disputes arise. Therefore, contract review and legal risk analysis are essential for high-value, long-term, or international commercial contracts.

Conclusion

In Switzerland, commercial contracts must be considered under numerous headings, including applicable law, competent court, arbitration, power of representation, payment, delivery, defects, warranties, liability, confidentiality, intellectual property, non-compete clauses, taxes, and termination provisions. While freedom of contract is strong in Swiss law, it is important to remember that this freedom is limited by mandatory legal rules and international regulations.

A well-prepared commercial contract is not merely a document outlining the parties' obligations; it is also a strategic tool that secures the commercial relationship, reduces the risk of disputes, and protects the economic interests of the parties. For companies entering into commercial contracts in or connected with Switzerland, it is crucial to conduct legal due diligence, verify representation authority, clarify payment and delivery terms, correctly identify dispute resolution mechanisms, and assess tax implications before signing the contract.

Therefore, in Switzerland, commercial contracts must be evaluated on a case-by-case basis. Standard contract texts may not always suffice. Professional contracts, prepared taking into account the parties' commercial objectives, industry characteristics, and international connections, both prevent disputes and strengthen the sustainability of the commercial relationship.