Preliminary documents | Switzerland | Global Private M&A Guide - Limited External Content

Is it customary to prepare a letter of intent or term sheet and, if so, to what extent are they binding on both parties?

It is common in Swiss transactions to execute a letter of intent or term sheet. A letter of intent or term sheet is usually not binding on the parties with the exception of specific provisions contained therein and explicitly referred to as binding, such as exclusivity, confidentiality, break fee, governing law and jurisdiction.

Does a term sheet, in this context, customarily include provisions on exclusivity, break fee or confidentiality?

Exclusivity: A term sheet typically includes provisions on exclusivity.
Break fee: A term sheet sometimes includes provisions on break fees. If a break fee is agreed, it is usually also included in the term sheet.
Confidentiality: A term sheet typically includes provisions on confidentiality.

Are exclusivity, break fee and confidentiality provisions supplemented with separately negotiated agreements?

If included in the term sheet, there are no separately negotiated agreements on confidentiality, exclusivity and break fees in addition. However, it is possible — and in particular with regard to confidentiality not uncommon — to execute a separate agreement that is already executed ahead of the term sheet. Typically, the term sheet would then refer to such separate agreement(s).

Is there a duty or obligation to negotiate in good faith?

Under Swiss law, and irrespective of the existence (and/or terms) of any document such as a letter of intent or a memorandum of understanding, entry into negotiations imposes certain duties on each party involved. In particular, each party has a general duty to negotiate in good faith, which may mean (for example) advising the other party about any decision not to pursue the transaction and not to continue negotiations in those circumstances.

While the conduct of negotiations does not in itself impose any duty to conclude an agreement or proceed with the contemplated transaction, a bad faith withdrawal from negotiations or other breaches of the pre-contractual duty to negotiate in good faith may cause the relevant party to be in breach of the requirement to act in good faith, so that the party in breach may be obliged to indemnify the other party for losses or damages that result from such breach. Note, however, that such indemnification would extend to costs incurred unnecessarily, as opposed to any lost profits or other potential losses. This form of pre-contractual liability is also known as the 'culpa in contrahendo.'

Global Private M&A Guide - Limited External Content

Switzerland

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