Contract law & coronavirus

Travel and contract law issues during the coronavirus pandemic

The rapidly increasing spread of the coronavirus is setting off a multitude of political and social reactions. Countries are issuing travel warnings or bans, suppliers are struggling with bottlenecks, and planned events are being cancelled. Whether it be the cost of cancelled flights, the acceptance of alternative offers, the reimbursement of fares, we answer the most important questions relating to contract law issues in connection with the coronavirus below.

Information as of 18 March 2020.

Travel law

First, we need to know:

  1. Was the trip booked as part of a package?
  2. Were individual bookings made with the providers (hotels, airline, airbnb, local organisers, etc.)?
  3. Does Swiss law apply?

Package travel

If you booked a package tour with a Swiss tour operator, and the tour operator cancels the trip, you are entitled to a full refund (without deductions) of services already paid (see Articles 10 and 11 of the Package Travel Act).

Individual trips

If you made independent bookings, the matter is different. If the airline has cancelled your flight due to a travel ban, an official order or warning, you are entitled to an airline ticket refund. Article 119 of the Swiss Code of Obligations (SCO) provides that a claim (e.g. to air travel) is deemed extinguished if it has become impossible to fulfil due to circumstances (e.g. official travel ban) for which the debtor (e.g. the airline) is not responsible.

European Passenger Rights Regulation

For the cancellation of flights, the European Passenger Rights Regulation (Regulation (EC) 261/2004) also applies. It applies to flights:

  • within the European Union (EU); or
  • from a non-EU country to the EU operated by an EU airline; or
  • from the EU to a non-EU country operated by an airline from the EU or a non-EU country.

The European Passenger Rights Regulation was adopted by Switzerland with the Swiss/EC Air Transport Agreement (in force since 01.06.2002). The regulation provides that, in the case of cancelled flights, the passenger is offered a full reimbursement of the air ticket or rerouting, under comparable travel conditions, at a later date at the passenger's convenience.

The application of the European Passenger Rights Regulation to flights from Switzerland to a third country (with/without stopover in the EU) is disputed. One view is that despite adopting the regulation, Switzerland has reserved the right to regulate relations with third countries. At the cantonal level, there are court rulings that limit the scope of application of the regulation to relations between Switzerland and the EU, but the Federal Supreme Court has not yet expressed its opinion on this.

Reservations on site / at a travel agency

For bookings with local organisers (i.e. at a destination abroad), the contractual agreements or general terms and conditions of business apply to each individual case. If they do not contain corresponding provisions, the foreign law of the destination is applicable.

If you have booked your trip through a Swiss travel agency, you will also be entitled to a refund of payments already made if the trip has been cancelled by the travel agency due to a travel ban or similar response. However, the general terms and conditions (GTCs) of the travel agency may stipulate that you must accept a postponement of your trip to an ulterior date.

If you cancelled your trip yourself (e.g. for security or solidarity reasons), the terms of the contract and the GTCs of the airline or tour operator will apply. In such cases, a cancellation fee is usually payable, depending on the date of the cancellation.

If you have taken out travel insurance, it is important that you check the general terms and conditions of insurance to see if the insurance has made any arrangements in the event of a pandemic. Many insurers list epidemic / pandemic as a ground for exclusion from benefits. If no exclusion applies, you may have a claim for payment of any cancellation fees.

Article 119 SCO provides that a claim is deemed extinguished if it has become impossible to fulfil due to circumstances for which the debtor is not responsible. In such cases, the debtor is in particular not obliged to pay damages, but must return the consideration already paid. This applies only if Swiss law is applicable. Foreign legal systems may contain other rules that would have to be taken into account in individual cases.

In many cases, the general terms and conditions or contracts of a tour operator also contain similar provisions, "force majeure clauses". Such a clause gives the organiser the right to withdraw from or temporarily suspend its contractual obligations in a case of force majeure without liability for damages.

The question then is whether the coronavirus is a case of force majeure. What matters is whether the tour operator has explicitly classified an event such as the coronavirus as a case of force majeure in the contract or the GTCs, for example by mentioning epidemics/pandemics or official orders and travel warnings. If not, force majeure occurs under Swiss case law if the event:

  1. is exceptional, unforeseeable and external;
  2. is unavoidable;
  3. is completely unexpected;
  4. is independent of human behaviour (it was outside the parties' sphere of influence and was not preventable despite the greatest possible care).

On this basis, we believe that the coronavirus should be regarded as a case of force majeure. Particularly if the organiser cancelled the trip due to a travel ban or a public travel warning issued by the authorities. If this is the case, only (nonetheless) the direct booking costs such as air tickets, hotel fees etc. are to be reimbursed, but not your additional costs.

If a trip is not started because of illness, cancellation charges are normally charged by the organiser or airline. To answer the question of who bears the costs, it is also necessary to clarify whether or not you have travel insurance. Many travel insurance companies cover the cancellation costs of a trip that cannot be started due to a serious illness of the insured person up to a certain maximum amount. A medical certificate is often required.

If you do not have travel insurance, you normally have to pay the cancellation fees yourself. In the current situation, many companies are accommodating with regard to these fees. There is no legal right to a cost waiver.

Looking after or caring for a person in need in your immediate vicinity is not normally a reason to cancel a trip at no cost. You should check your contract. If the contract can be cancelled, cancellation fees are normally charged by the tour operator/airline. If you have got travel insurance, we advise you to read the general terms and conditions of insurance of the insurance company or to ask the insurance company whether the costs will be covered by the insurance company in your case.

In the current situation, many companies are taking an accommodating approach to the reimbursement of travel/cancellation charges. There is no legal right to a cost waiver.

 

On 11 March 2020, the World Health Organisation (WHO) declared the occurrence of the coronavirus to be a global pandemic. On this basis, the Federal Council has advised the population since 13 March 2020 to refrain from making non-urgent travel abroad. Since 16 March 2020, it has even recommended that all Swiss nationals currently travelling should return to their place of residence. This measure is aimed at preventing people from being blocked abroad and being prevented from returning home.

However, due to the ongoing changes in travel regulations abroad, the federal authorities now refrain from publishing country-specific entry/exit bans, with the exception of the countries bordering Switzerland. If you are still travelling abroad, it is advisable to know the limitations of your destination prior to travelling.

General contract law

In this case, Art. 119 para. 2 SCO provides that a claim is deemed extinguished if it is impossible to fulfil and the contract is to be “unwound." This means that the event organiser must reimburse tickets that have already been paid. However, the organiser is not liable for any further losses suffered by an event participant (such as, for example, a hotel room that was specially reserved for the event and is no longer needed).

Art. 119 SCO is not a compulsory provision. The parties may therefore deviate from the legal text by contractual agreement. Often the organiser’s contract or GTCs stipulate that the event participant must accept a postponement of the event or a voucher or even that no refund is possible. It is therefore advisable to first ascertain whether the organiser has made any arrangements in this regard.

According to Ordinance 2 on Measures to Combat the Coronavirus (COVID-19 Ordinance 2) of 13 March 2020, facilities that are open to the public have been closed, including fitness centres. Accordingly, the fitness centre is currently incapable of or banned from performing the contractually agreed services on the basis of an official order. Many fitness centres have laid down the procedure for such a scenario in their GTCs or in the contract. It must therefore first be examined whether these contain a relevant clause. If not, the following applies.

The measures ordered by the Federal Council are temporary measures which will be lifted once the virus has abated. The fitness centre remains bound by the subscription contracts and its obligation to provide services, and is in so-called default of the obligor (Art. 102 et seq. SCO). The holder of a fitness subscription may request a reasonable grace period for the fitness centre to comply. It is highly likely that the fitness centre will be unable to provide its services within the grace period if the measures taken by the Federal Council have not been revoked in the meantime.

At the end of the grace period, the holder of the fitness subscription may generally withdraw from the contract and demand the reimbursement of the subscription costs on a pro rata basis. It is also conceivable that you continue to demand fulfilment of the contract and have the subscription extended for the duration of the closure of the centre.

 

COVID-19 Ordinance 2 of 16 March 2020 prohibits the holding of private and public events, including sports events and club activities, until 19 April 2020. Therefore, it is (currently) impossible to hold courses.

Reimbursement of course fees

Whether the fees are to be refunded if a course cannot be held depends primarily on whether the impossibility is permanent or temporary. If it is permanent, the course fees already paid must be reimbursed. If it is temporary, repayment may for example be requested on a pro rata basis for the period during which the course did not take place.

To assess whether the provision of the services is permanently or temporarily impossible, the precise contractual arrangements must be looked at. If, for example, all of the courses fall within the period of the ban on attending events, a permanent impossibility is deemed to have occurred. However, if the course is held over a longer period of time (which would normally be the case for music lessons or language courses), then the impossibility is only temporary.

Alternative offer

If the tuition is temporarily impossible, the student can decide to maintain the contractual performance. The question then is when and how the course provider will provide its services. As long as the ban on organising events continues, it is not possible to perform the service in accordance with the contract (execution).

Whether an alternative offer (such as an online dance or language course, or music lessons via Skype) must be accepted depends on the precise contractual arrangements. Depending on the specific wording of the contractual services – in particular the nature of the promised service, the agreed terms of performance and the place of performance – an alternative offer may in our opinion be made within a reasonable spectrum. For example, music teaching via Skype is conceivable if there is no need for direct physical contact with the instrument or musicians. An online language course via Skype can in some circumstances also be regarded as proper performance of the contract.

It is advisable to discuss an alternative offer with the course provider and to discuss the exact terms and conditions. Depending on the structure of the alternative offer, a reduction in the course fees is in our view appropriate, particularly if the course is qualitatively different from the ordinary provision of services. If the alternative offer is not acceptable to the student, it is advisable to refuse the offer and to reclaim the already paid course fees (pro rata).

 

This is currently disputed, particularly as there is no legal precedent.

A legal view currently assumes that the operating ban ordered by the Federal Council constitutes a defect in the rented premises in commercial leases. The tenant would therefore be entitled to a reduction in the rent, as the landlord is unable to fulfil its contractual obligation (to provide the leased property for the contractual use). Whether or not the landlord is at fault for the defect is irrelevant.

The other legal view is that the closure of the premises by the Federal Council does not amount to a defect in the leased property. The landlord is not obliged to guarantee the operation of a given store. He must merely comply with the regulations applicable to landlords or building owners (such as fire regulations, building regulations, etc.). However, the business closure does not relate to the leased property but to the operators of the shop premises. Therefore, the provision falls within their area of responsibility.

Efforts are presently being made at the political level to find a solution to this exceptional situation. In the “COVID-19-Ordinance Leases” of 27 March 2020, the Federal Council decided that if a tenant falls into arrears due to the measures taken by the Confederation, the extension of the deadline for payment of the rent is increased from 30 to 90 days. The termination notice period for furnished rooms and parking spaces was also increased from 14 to 30 days. The extension of the deadline for payment of the rent under usufructuary leases was also increased from 60 days to 120 days.

However, until the situation is fully resolved, it is highly recommended to consult with the landlord and find a satisfactory alternative for both parties. For example, a payment in instalments or a deferral of the rent could be agreed, while at the same time extending the lease.