Swiss law provides a great deal of importance on the freedom of contract principle. Negotiations may become liable if one party terminates them in good faith before they are completed. Damage claims must be enforced in a complicated manner due to the high requirements for liability. An obligation to act in another’s interest limits the freedom of contract. There are certain reciprocal obligations involved in that pre-contractual relationship.

During negotiations, parties should not boost the expectation of the other party that a contract will be negotiated contrary to their actual intentions. When expressing willingness to conclude a contract, a party should not be overly enthusiastic. According to the doctrine of culpa in contrahendo, a party that terminates contract negotiations in violation of these principles may be liable for damages.

A preexisting contractual relationship between the negotiating parties cannot be construed as a basis for liability. Taking a long time to negotiate a contract does not imply liability. Despite knowing that the other party has already invested (substantially) in the prospective agreement, a party who terminates the contract negotiations will not be deemed in bad faith.

When negotiations are broken off, who is liable?

Negative interest may be claimed by the other party if the violating party fails to fulfill its precontractual obligations. In addition to expenses incurred during contract negotiations (travel costs, legal fees, etc.), damages may also include loss of income arising from the inability to do business with third parties. Swiss law requires fairly high substantiation requirements for damages, so enforcing liability for breaking off negotiations will often be a difficult process.

How to negotiate effectively – practical tips

Keep your commitment to signing a contract in check. Honesty is the best policy. Let the other side know from the beginning what clauses you are most concerned about.

If you still have doubts about signing the contract, or if you are unwilling to do so, do not tell the other party. Make sure you only sign if you are convinced.

Negotiations should not be undertaken on your behalf by another person (e.g., your representative, employee, branch office, etc.). You should monitor the negotiations and intervene when needed.

Be careful not to make costly investments before concluding a legally binding contract. The conclusion of an interim contract should be considered if, for time or other reasons, such investments must be made before an agreement is concluded. The agreement may not be completed in the event of failure.

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