I. Business Disruptions as the New Normal
 

Global supply chains have become increasingly complex, while the political environment has shifted towards a landscape in which regulatory intervention and power politics frequently override predictability and stability. Business disruptions caused by pandemics, armed conflicts, trade wars, sanctions regimes, and other regulatory measures are no longer exceptional but constitute a structural risk of international commerce.
 

Economic sanctions imposed on states, companies, or individuals frequently trigger contractual performance obstacles. Typical examples include export and import bans, payment prohibitions, the exclusion of banks from the SWIFT system, shortages of raw materials or key components, and restrictions on logistics and transportation. Against this background, contracting parties are compelled to consider how legal risks and economic consequences can be mitigated, in particular through force majeure and hardship mechanisms.
 

II. Conceptual Framework: Force Majeure and Hardship

1. General Observations

Business disruptions are by no means a novel phenomenon. This is reflected in a variety of legal concepts developed under national laws, international soft law instruments, and contractual practice. Since the suspension or avoidance of contractual performance under force majeure or hardship concepts constitutes an exception to the fundamental principle of pacta sunt servanda, the applicable thresholds are traditionally high.
 

Swiss statutory law does not contain an explicit definition of force majeure. By contrast, international instruments such as the UNIDROIT Principles of International Commercial Contracts (UPICC) provide a structured conceptual framework.

Force majeure generally requires foreseeability and an impediment that could not reasonably have been taken into account at the time of contract formation. Typical events include natural disasters, pandemics, wars, large‑scale labour disturbances, and governmental or regulatory interventions.

This approach is consistent with longstanding Swiss case law and has been reaffirmed in recent decisions of the Swiss Federal Supreme Court, including judgments addressing the legal consequences of the COVID‑19 pandemic and the termination of long‑term supply contracts.
 

2. Distinction from Related Concepts

Unlike doctrines such as commercial impracticability under certain common law systems, force majeure traditionally presupposes objective impossibility rather than mere economic inconvenience. Hardship, by contrast, addresses situations in which performance remains possible but has become excessively onerous due to a fundamental alteration of the contractual equilibrium.
 

Despite the widespread use of force majeure and hardship clauses in international practice, their legal classification and effects depend decisively on the applicable law and, above all, on the precise contractual wording.

III. Force Majeure under Swiss Law

1. Legal Basis and Requirements

Force majeure clauses typically apply where an external event renders contractual performance objectively impossible and where the affected party bears no fault. Classic examples include natural catastrophes, armed conflicts, epidemics, or binding governmental prohibitions. An export ban that legally prevents delivery constitutes a paradigmatic force majeure scenario.
Under Swiss law, force majeure is subsumed under the doctrine of subsequent objective impossibility pursuant to Article 119 of the Swiss Code of Obligations (CO). Performance must have become impossible after the conclusion of the contract and for reasons not attributable to the obligor. Article 119 CO provides, in essence, that an obligation is extinguished where performance is rendered impossible by circumstances not attributable to the obligor, subject to restitution and risk allocation rules.

A prerequisite for the application of Article 119 CO is the absence of fault. If the impossibility is attributable to the obligor, the general liability regime under Article 97 CO applies.
 

2. Sanctions Related Force Majeure

In the context of economic sanctions, the decisive question is whether the sanctions legally prohibit performance or merely render it more difficult or expensive. Where sanctions impose binding export or payment prohibitions that objectively preclude performance, force majeure may apply, provided that such measures are either expressly covered by the contractual force majeure clause, fall within a broadly drafted category (e.g. “governmental measures”), or, in the absence of contractual regulation, meet the requirements of Article 119 CO.
 

IV. Hardship under Swiss Law

1. Concept and Legal Foundation

Hardship clauses address situations in which performance remains possible but only under fundamentally altered economic conditions. Typical examples include extreme cost increases, severe supply bottlenecks, or extraordinary price fluctuations. In such cases, performance may still be feasible, but only at a disproportionate economic burden.
 

Swiss law does not codify the principle of hardship. Instead, it is addressed through the judge made doctrine of clausula rebus sic stantibus. According to established case law, a contract may be adapted where:

• circumstances have changed fundamentally and unforeseeability after the conclusion of the contract;
• the change occurred without fault on either side; and
• insisting on strict performance of the original contract would lead to a manifest and severe imbalance between performance and counter performance.

Hardship does not result in an automatic release from performance. The primary remedy is adaptation of the contract, and only exceptionally its termination. Ordinary market fluctuations do not suffice; only drastic and exceptional changes qualify.

2. Sanctions Related Hardship

In sanctions scenarios, hardship is often more relevant than force majeure. A party may still be able to perform, but only at dramatically increased costs due to alternative supply routes, substitute materials, or compliance measures. Whether such circumstances justify contractual adaptation depends on a stringent assessment of unforeseeability, causation, and severity.

Swiss law applies the hardship doctrine restrictively. Tribunals expect parties to demonstrate that sanctions were the genuine cause of the economic imbalance and that reasonable mitigation efforts were undertaken.
 

V. UNIDROIT Principles as Interpretative Guidance

The UPICC provide a clear functional separation between hardship and force majeure. Hardship is regulated in Articles 6.2.1–6.2.3 UPICC, while force majeure is addressed separately in Article 7.1.7 UPICC.

Under the UPICC, hardship arises where events occurring after contract formation fundamentally alter the contractual equilibrium, provided that the events were unforeseeable, beyond the disadvantaged party’s control, and not contractually assumed. The disadvantaged party is entitled to request renegotiation but must continue to perform pending agreement. If renegotiations fail, a court or tribunal may adapt or terminate the contract.

Force majeure under the UPICC excuses non performance where an impediment beyond the party’s control could not reasonably have been foreseen or overcome. Notification duties apply, and temporary impediments may also qualify.

Even where Swiss law governs the contract, arbitral tribunals frequently use the UPICC as an interpretative aid.
 

VI. Practical Implications and Drafting Considerations

1. Contract Drafting

Force-majeure and hardship clauses are key risk allocation mechanisms in international contracts. Poorly drafted clauses may blur the distinction between impossibility and excessive onerousness, leading to legal uncertainty. While this may favourable to one party, it can certainly be at detriment of the other one. Therefore, as a rule, force majeure and hardship should be carefully considered and addressed, taking into account the interest of the respective party. Clear definitions, non exhaustive lists of events (including sanctions), notification requirements, and well defined legal consequences provide for legal certainty.

If the parties wish to allow for contractual adaptation in hardship situations, this should be expressly provided for. In such case, the parties should carefully consider and design the mechanism for this purpose, because otherwise, the contract might be voided for lack of party consent. Conversely, if contract adaptation is to be excluded, the contract must clearly reflect that intention.

2. Arbitration Practice

In arbitration, tribunals closely scrutinise whether performance was truly impossible or merely more burdensome, whether the relevant risk was contractually assumed, and whether notification obligations were complied with. Failure to give timely and substantiated notice may defeat an otherwise valid force‑majeure defence.

Parties affected by sanctions should comprehensively document the applicable regulatory measures, the causal link to non‑performance or increased costs, and all mitigation efforts undertaken. Such documentation is often decisive.
 

VII. Conclusions

Economic sanctions and comparable disruptions are a structural feature of contemporary international commerce. Swiss law offers two distinct legal mechanisms to address their contractual impact: force majeure under Article 119 CO and hardship under the doctrine of clausula rebus sic stantibus. These mechanisms pursue different objectives which must be clearly distinguished.

The assessment of the business and legal risks involved followed by careful and precise contractual drafting is an effective safeguard against future disputes and provides the foundation for a strong procedural position in arbitration. If conflicts cannot be avoided, Swiss arbitration offers a predictable and internationally compatible framework, supported by extensive experience and alignment with international soft‑law instruments such as the UNIDROIT Principles.

A proactive assessment of sanctions (and other) risks and the implementation of appropriately tailored contractual clauses enable parties to navigate an increasingly volatile geopolitical environment with greater legal certainty.