Limitation periods play an important role in legal life: by virtue of lapse of time, a creditor will lose his or her right to enforce a claim before court. Although the rules governing the limitation of actions may, at first glance, seem unfair, they do, in fact, aim at providing legal clarity and safety in legal relationships. The claimant is incentivized at acting diligently and the debtor does not need to keep (paying) records beyond a certain period. Following ongoing discussions started in the Parliament back in 2011, the revised Swiss Code of Obligations introduced some novelties in that respect as of 1 of January 2020.
The present publication will outline certain of the new rules newly introduced and relating to limitation periods for claims in tort and contract law. It does not intend to be a comprehensive review, nor to tackle the limitation periods arising from criminal acts or omissions.
- Initial Situation: Complexity, lack of clarity, too short limitation periods
Limitation periods differ depending on the cause of action. Contractual claims are typically subject to a 10 years limitation period since the date of maturity, except for periodic payment claims such as rent or interests on capital and certain type of service contracts such as salary payments or doctors and lawyers fees which are subject to a statute of limitations of 5 years. In sale and purchase agreements, the defect warranty is usually time-barred only after 2 years.
Actions based on tort law are subject to a 1-year limitation period starting from the date the injured party becomes aware of the damages and the identity of the person who caused the damages (relative statute of limitations). Next to the relative limitation period, the Swiss Code of Obligations sets an absolute time limit of 10 years starting from the event causing the damages. This means that an injured party can see his claim in tort time-barred even without be aware of it. This absolute time limit has been subject to ongoing criticism as it does not protect victims of delayed damages. For example, asbestos-related cancers usually appear between 15 and 40 years after the end of the exposure to the damaging substance. In its decisions ATF 136 II 187 and 137 III 16, the Federal Tribunal had to rule on the case of a former mechanic whose asbestos caused cancer occurred 26 years after exposure to the damaging substance. The Tribunal federal ruled that his claims were time-barred as the absolute limitation period had been reached 10 years after the end of the exposure to asbestos. It is only by bringing their claims before the European Court of Human Rights that his heirs won their case (European Court of Human Rights, Howald Moor and others against Switzerland from 11 March 2014). Whilst asbestos is the first toxic that jumps to mind as a cause to delayed damages, pesticides and chemicals of all sorts could also lead to delayed health damages which, under the 10 years absolute limitation period, would not be indemnified. In addition to be obviously unjust for victims of toxic substances, the 10 years absolute limitation period, is, from a public policy point of view, hardly an incentive for companies to refrain from using and exposing people to damaging substances.
The initial revision of limitation periods was aimed at unifying the statutory limitations and extending the absolute limitation from 10 to 30 years. Clearly, the Federal Council gave up however the idea of have consistent limitation periods for all claims irrelevant of their cause of action and came up with a less ambitious project.
- New rules for claims following death or injury based on tort or contractual law
From 1 January 2020 on, claims based on tort law will be time-barred 3 years (against 1 year before) since the injured party became aware of the damage and the identity of the author of the damage.
The absolute limitation will be of 10 years for pecuniary damages and compensation for moral damages and of 20 years in case of death or injury since the damaging event occurred or ceased. The initial 30 years absolute limitation period in case of death or injury would have been more consistent with idea of better protecting victims of delayed damages but it was replaced in the course of the legislative process with a less ambitious 20 years deadline. In the case Howald Moor against Switzerland, Mr. Moor developed his cancer 26 years after his exposure to asbestos and his claim would also have been time-barred today despite the new statute of limitations.
Claims for death or injury based on contract law will be also subject to the 3 years relative statute of limitations and the 20 years absolute deadline. This new limitation does not bring more consistency to the current complex situation since, as a result, claims based on a contractual cause of actions shall be time-barred after 10 years for pecuniary damages but only after 3 years for death and injury which is hardly the aim of the revision!
Finally claim based on unjust enrichment shall also be time-barred after 3 years.
- Interruption of limitation periods, new rules on stay and waiver
Limitation periods may be interrupted when the creditor initiates enforcement proceedings against the debtor either by having a payment order served against him or by initiating legal action before the competent court. The word “interruption” might be confusing. In fact, the limitation period is not only interrupted but starts again as of the date of interruption.
The statute of limitations may also be stayed for specific reasons and for specific periods of time.
Among others, the limitation period will be newly stayed during out-of-court settlement discussions provided however that the parties enter into a written agreement. This possibility was introduced to facilitate mediation and negotiations between the parties. The agreement will need to specify the exact period during which the statute of limitations is stayed and the claims which are stayed. The stay only extends to the debtor and creditor and not to related parties such as guarantors (Federal Council Dispatch 29 November 2013, FF 2014 p. 245). For those the statute of limitations continues to run despite the stay. It is important to note in that respect that an exchange of emails does not comply with the requisite of the written form.
Finally, the debtor may waive its right to use the statute of limitations as a defence before court. The waiver shall be valid for a maximum of 10 years, renewable. This faculty given to the debtor plays an important role in practice as the creditor does not need to commence aggressive enforcement proceedings to safeguard his rights against the debtor and by avoiding costly, time and nerve consuming litigation can pursue negotiations. The revised Swiss Code of Obligations clarifies that the debtor may not waive his right prior to the initial start of the limitation period and that the waiver must be made in writing, which means with an original signature (email and facsimile not being enough).
An important point is the precision that the limitation period waiver cannot be introduced in general business conditions against the user of the services, in line with Art. 8 of the Unfair Competition Act.
- Transitional regime
If providing a longer period of limitation, the revised statutes of limitations are immediately applicable to all claims except for those where the limitation period is already reached before or on 31 December 2019.
The new limitation periods do not change drastically the legal landscape as we currently know it. However, the new rules relating to stay and waiver will have an impact on settlement and out-of-court discussions. The less formal regime of waiving the limitation periods will be now replaced by a qualified written agreement or waiver. Creditors will need to ensure appropriate written documentation on stay or waiver if they don’t want to see their claims being time-barred because of they did not comply with the mandatory new formalities.