Rethinking the relationship between the enforceability of penalty clauses and the debtor's fault in breach of his/her obligation under Swiss law

Abstract

Despite the lack of an explicit provision within the Swiss Code of Obligations (OR), the considerable majority of the Swiss doctrine as well as the Federal Court accept that contractual penalty shall be paid if and only if the debtor’s breach is based on his/her fault. In this paper, we question such dogma and analyze the wording and purposes of Articles 161/2 and 163/2 of the Swiss Code of Obligations by taking their historical background into account. We argue that unless otherwise agreed by the parties, the debtor’s obligation to pay the penalty shall be deemed independent of his/her fault.