The revised Unfair Competition Act (UCA) will come into force on 1st of April 2012. This revision introduces new provisions for providers of services by means of electronic commerce and increases the protection against certain unfair practices. The centerpiece of the revision is the introduction of a stricter provision against abusive general terms and conditions (GTC). This could result in currently used GTC being qualified as unfair. It is therefore advisable to have the conformity of currently used GTC checked before the revision comes into force.

1. OVERVIEW

1.1 Aim of Unfair Competition Law

The Unfair Competition Act (UCA) and the Cartel Act were promulgated to guarantee effective competition in Switzerland. Whilst the Cartel Act protects the quantity of competition, i.e. the functioning of markets, Unfair Competition Law guarantees its quality. The aim of the UCA is to guarantee fair and undistorted competition in the interest of all participants, i.e. of the economy, the consumers and the community. To this effect, Articles 3 to 8 UCA contain a non-exhaustive list of commercial practices and behaviors which are deemed unfair. Generally, any conduct which is misleading or which is contrary to good faith and which affects the relationship between competitors or between suppliers and customers is considered unfair and thus illegal (Article 2 UCA).

1.2 Aim of Revision

The objective of the revision is an increased protection against certain unfair commercial practices and, with regard to abusive general terms and conditions (GTC), a stricter regulation in the interest of consumer protection.

In the past years, unfair commercial practices have appeared against which the hitherto applicable legislation provided insufficient protection. The revised law provides for better protection against address book fraud, snowball systems, deceptive winnings promises, as well as against unsolicited marketing calls. Moreover, an obligation to provide detailed information will be introduced in relation to electronic commerce to enable the identification of the business partner.

Abusive GTC were already deemed unfair under the current legislation (Article 8 UCA), however only if they were deceptive. The revision abandons the deception requirement. "In the future, it will be possible to review the content of GTC that are The propositions of the Federal Council regarding the new commercial practices to be qualified as unfair met large approval within the Parliament. The revision of the provision governing abusive GTC caused controversy until the very end of the revision process. It was on the one hand argued that a stricter provision governing GTC was necessary to guarantee an effective protection of consumers. On the other hand, it was objected that judicial review of GTC would too heavily hamper freedom of contract. Any party would be able to read a contract and, if need be, refuse to enter into it. In the end, the National Council and the State Council agreed to limit the new stricter provision on GTC to transactions with consumers. GTC applicable between businesses are therefore not affected by the new regulation.

1.3 Entry into Force of the Revision

After no referendum had been called, the Federal Council decided that the revised UCA would enter into force on 1 April 2012. The provision on GTC will however only become effective on 1 July 2012 in order to leave time to the concerned businesses to review their GTC and adapt them to the new legal requirements, if necessary.

2. REVISION RELATING TO GENERAL TERMS AND CONDITIONS

2.1 Background of the Revision of Article 8 UCA

The centerpiece of the revision is the new rule on abusive GTC in Article 8 UCA. Pursuant to this new rule, the use of GTC, which, contrary to the requirement of good faith, create a significant and unjustified imbalance between contractual rights and obligations to the detriment of the consumer, is to be considered as unfair. Until now, the use of abusive GTC was only deemed unfair, if such use was misleading. Non-misleading clauses were therefore not considered as unfair under Swiss law even if they seriously disadvantaged the counterparty. Because the current Article 8 UCA was thus practically without effect, the need for a tougher control of GTC was repeatedly expressed.

The tougher regulation enables the review of too one-sided GTC. As a consequence, the protection of the consumer as the typically weaker party will be increased.

Whilst in the EU, the EEC Directive of 5 April 1993 on unfair terms in consumer contracts, as implemented by the individual EU Member States, has been providing for judicial review of GTC for years, this was until now impossible in Switzerland. The revision brings Switzerland in line with the level of protection in the EU. The wording of the revised Article 8 UCA essentially corresponds to that of Article 3(1) of the Directive on unfair terms in consumer contracts.

2.2 New Provision in Relation to the Control of GTC

The revised Article 8 UCA requires that the problematic clause must be part of GTC and therefore of contractual provisions which are preformulated by a party with respect to an undefined number of contracts.

Moreover – and differently from what had been hitherto the case – the contract in question must be a consumer contract. Consumer contracts are those relating to goods and services intended for the personal or family use of the consumer and supplied by the counterparty in the context of its professional or commercial activity. The new GTC provision is not applicable to contracts between businesses.

There is unfairness when the GTC create a significant and unjustified imbalance between contractual rights and obligations. Contrary to the EEC Directive on unfair terms in consumer contracts, the revised UCA does not contain an indicative list of unfair terms. The unfair terms listed in the appendix to the Directive are likely to serve as a starting point for the case law which will have to shape the new Swiss GTC law in the years to come. The following terms can for instance be seen as breaching the new article 8 UCA:

  • a right of the author of GTC to unilaterally alter the GTC at any time;
  • the levying of interest on the total amount originally due even if a partial payment has been made; or
  • the automatic and significant extension of a contract of fixed duration, especially when the deadline for the consumer to express his/her desire not to extend the contract is set at a date long before the end of the initial contract term.

2.3 Consequence of a Breach of Unfair Competition Law

The UCA mentions various rights of action against unfair acts but does not expressly indicate the legal consequence of the use of unfair GTC on the validity of the terms in question. It is to be assumed that unfair clauses in GTC are null and void.

Because judicially altering the content of an abusive clause to what is legally permissible (i.e. in the sense of a partial nullity) is hardly reconcilable with the aim of improved consumer protection and prevention, there is the risk that unfair clauses will be considered completely null and void with the effect that statutory law would apply.

2.4 Applicability of Swiss Unfair Competition Law in an International Perspective

In an international perspective, the question arises as to when the Swiss provisions on unfair competition apply. Under the so-called doctrine of "effects", the Swiss provisions on unfair competition apply when the acts of a market participant have an effect on the Swiss market. Thus, companies that do not have their registered seat in Switzerland but that enter into contracts with Swiss consumers, fall under the UCA. The UCA also applies to companies registered in Switzerland even if they only use the questionable GTC towards foreign consumers. This is because unfair commercial practices abroad may damage the reputation of Swiss industry and commerce.

2.5 Concluding Remarks Concerning the Revision Related to GTC

It appears sensible, in the light of contractual freedom, that the revised provision on GTC should not apply to contracts between businesses. The Parliament's compromise to merely protect consumers with the new GTC-rule, however, appears to be to the detriment of small and medium-sized enterprises (SME). SME can as well require protection in doing business with large enterprises, as they often find themselves being the weak party in contract negotiations, just like consumers.

"GTC used until now should be reviewed before the revision comes into force." The strengthening of the law on GTC can have the effect that GTC used so far will be qualified as unfair and thus null and void. It appears therefore advisable to check existing GTC before the amendment become effective on 1 July 2012.

It should be noted that not only can the unfairness of GTC be invoked by affected consumers but consumer protection organizations also have the right to have GTC reviewed by courts. It will have to be seen to what extent and in which business areas the consumer protection organizations will be active in this respect.

3. ELECTRONIC COMMERCE

The revision of the UCA should also achieve improved transparency in electronic commerce. This development is welcome in view of the steadily increasing importance of commerce on the internet.

Under the revised law, providers of goods or services online will have to comprehensively inform on their identity and contact details and on the technical steps to follow to enter into a contract. Moreover, technical means for identifying and correcting input errors prior to the placing of orders must be made available. Orders need to be confirmed without undue delay and by electronic means (Article 3(1) (s) UCA).

It should be noted that the new provision does not apply to contracts entered into exclusively by exchange of e-mail or by equivalent individual communications.

The new provision should not come as anything new to companies already active in the EU region as the revision has more or less brought the UCA in line with the EC-Directive of 8 June 2000 on electronic commerce.

4. FURTHER INNOVATIONS

4.1 Address Book Fraud (Article 3(1)(p) and (q) UCA) An advertiser or a supplier of inscriptions in registers or advertising orders who does not point, at a place with good visibility, in big print and in an intelligible language, to the fact that payment is required and to the duration of the contract, is to be regarded as acting unfairly. The sending of an invoice for such registers without having been instructed is similarly considered an unfair act. This new provision responds to the recurring misuse observed in the past years of unclear forms suggesting a free inscription in a business register or advertising an inscription in a useless register, as well as to offers disguised as invoices.

4.2 Snowball System (Article 3(1)(r) UCA)

The unfairness of snowball and pyramid-systems is expressly mentioned in the revised UCA. It will thus be considered unfair to make a bonus or another kind of performance conditional on the beneficiary first recruiting other persons for the business system.

4.3 Winnings Promises (Article 3(1)(t) UCA)

Who promises winnings in the context of a competition cannot link the cashing of the winnings to the use of a premium- rate service number, to the purchase of goods or services or to the participation at a sales event.

4.4 Phone Calls (Article 3(1)(u) UCA)

It is an unfair act to ignore the note in the telephone book according to which marketing calls are not desired, or consumer data cannot be passed on for advertising purposes.

5. LEGAL ENFORCEMENT

The revision will expand the government's right to sue: the government will now have the right to proceed on a civil or criminal level against unfair commercial practices, if collective interests (such as those of domestic members of an industry sector) are threatened or violated.

In addition, the government can inform the public of enterprises which act unfairly (Article 10(3) and (4) UCA).

6. SUMMARY

The Federal Council has decided that the revision of the UCA will come into force on 1 April 2012. The provision on abusive commercial terms will become effective only on 1 July 2012.

Of utmost importance for businesses is the introduction of the possibility of legal review of the GTC in the light of the new wording of Article 8 UCA. Currently used GTC should be checked as to whether they comply with the revised law. In the context of the revision various rules for providers in electronic commerce will be put into place that shall improve transparency.

The revision also makes it possible to better handle unfair commercial practices such as address book fraud, snowball systems, unsolicited phone calls as well as dubious winnings promises. Moreover, legal enforcement by the government is reinforced.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.