Independent Bank Guarantees in Switzerland – Pay First, Litigate Later
- AG
- May 8
- 6 min read
Independent guarantees with a Swiss connection are frequent in international commerce. Construction projects and cross-border financings often come with a guarantee on first demand issued by a Swiss bank or insurer, governed by Swiss law, or both. The commercial promise of these instruments is liquidity: the beneficiary calls, the guarantor pays, and any dispute about the underlying contract is fought out afterwards. A recent decision of the Commercial Court of Zurich illustrates how seriously the Swiss courts take that promise, and how rare it is for a debtor to succeed in stopping payment through the courts before the money flows.
The Recent Case
On 18 December 2025, the Commercial Court of Zurich, acting through its single judge, dismissed an application for an interim injunction restraining payment under an advance-payment guarantee and a performance guarantee issued in connection with a construction contract (HE250128). The applicant, the contractor under the works contract, argued that the principal had called both guarantees abusively. The court rejected the application without even hearing the respondent: the case was, in the court's view, manifestly unfounded.
The case is unremarkable on its facts. What makes it worth a closer look is that it is in line with the case law of the Commercial Court of Zurich: interim payment-restraining orders against guarantees are granted only with great restraint, because they cut against the principle that underlies the very instrument: pay first, litigate later ("zuerst zahlen, dann prozessieren").
A Consistent Line of Decisions
The Commercial Court of Zurich is the dominant forum for these disputes in Switzerland, and a review of its published decisions from 2021 through 2025 shows just how consistent the line is. Eleven cases in that period dealt with applications to enjoin payment under a guarantee. None of them succeeded in the ordinary measures phase, where the respondent is heard before the court rules. In nine of the eleven cases, the court dismissed the application immediately, without hearing the respondent at all, on the basis that the application was manifestly unfounded. In the other two – HE240206 of 10 February 2025 and HE210094 of 26 July 2021 – the court did initially issue an ex parte interim order restraining payment, but in both cases the order was set aside once the respondent had filed its position.
The Underlying Doctrine
The doctrinal core of the Swiss approach lies in Article 111 of the Code of Obligations, which is the statutory basis for the independent guarantee, and in two leading Federal Supreme Court decisions.
The first is BGE 122 III 321 of 1996. The Federal Supreme Court held that the very purpose of an independent guarantee is to cover a defined risk, not to make a payment in the abstract; a call on the guarantee is therefore abusive within the meaning of Article 2 of the Swiss Civil Code if it seeks to cover a claim that the guarantee was never intended to secure. The bank or other guarantor is not merely entitled but obliged to refuse payment – but only if the abuse is manifest. Anything short of manifest abuse leaves the guarantor with a duty to pay.
The second is BGE 138 III 241 of 2012. Here the court addressed the formal threshold for calling on a guarantee. Its approach is what the court itself describes as a strictly formalised one: the question whether the guarantee event has occurred is answered exclusively by reference to the wording of the guarantee clause. The beneficiary need only meet – and need not exceed – the conditions set out in that wording. The beneficiary cannot be required to substantiate the merits of the underlying claim beyond what the guarantee text demands. The duty to draft the guarantee carefully lies entirely on the guarantor, not on the beneficiary calling it.
These two cases, taken together, set up an asymmetry that drives the entire system. To call the guarantee, the beneficiary needs only to comply with the wording. To stop payment, the principal must show manifest abuse of right. The first is a low bar by design.
The Narrow Exception
Manifest abuse exists in theory and is occasionally argued in practice, but the bar set by the Federal Supreme Court is exacting. In BGer 4A_111/2014 of 31 October 2014, the court reviewed a Commercial Court of Zurich judgment in a main-proceedings dispute concerning a USD 4 million bank guarantee. The Federal Supreme Court confirmed the lower court's standard for manifest abuse: the facts grounding the abuse must be evident, beyond any doubt, manifest, and immediately provable – and must be so at the moment the guarantee is called, not subsequently. A defence that depends on contested evidence, on disputed contractual interpretation, or on a complex factual reconstruction does not clear that threshold. Plausible arguments are not enough; what is required is something close to a self-evident misuse of the instrument.
In practice, this standard makes the manifest-abuse exception unavailable in most real disputes. Guarantee calls usually arise out of contested facts: alleged defects, contested completion, disputed termination, competing interpretations of the underlying contract. Each of these can become the subject of full litigation – but in the meantime, the guarantee pays.
The Symmetrical Picture
The Commercial Court of Zurich case law is one half of the system. The other half is what happens when a guarantor, despite the case law just described, refuses to pay. In that situation, the beneficiary brings a main-proceedings action against the guarantor for payment of the guarantee sum, and the courts apply the same logic from the opposite direction.
A recent example is the decision of the Commercial Court of Bern of 19 August 2025 (HG 2025/50). A property developer called a CHF 471'250 performance guarantee issued by an insurer for a residential construction project. The insurer refused payment, arguing that its obligation had been discharged when the works were accepted and that the contractor's failures fell outside the scope of the guarantee. The Commercial Court of Bern allowed the action in full. The court applied the formalised approach from BGE 138 III 241: the wording covered the contractor's contractual obligations as such, and the call complied with that wording, so the guarantor was bound to pay. Construction-acceptance arguments were a matter for the underlying contractual dispute, not for the guarantor.
BGer 4A_111/2014 is in the same vein. The Federal Supreme Court there upheld a Commercial Court of Zurich judgment ordering the guarantor bank to pay USD 4 million plus interest, having rejected the guarantor's manifest-abuse defence. Whether one looks at the principal trying to stop payment or at the beneficiary trying to extract it, the same rule applies: the wording of the guarantee, narrowly read, governs.
What This Means for Foreign Counsel
For counsel advising clients in cross-border transactions secured by a Swiss-law independent guarantee, the practical implications follow from the case law in a fairly direct way.
First, the moment for influencing the outcome is the moment of drafting. Once a guarantee on first demand is in place, its wording binds. If the principal expects to need a defence based on the merits of the underlying contract, that defence has to be written into the guarantee text – through conditions, documentation requirements, scope limitations or whatever the parties can negotiate. Hoping to obtain a Swiss court order to stop payment after the call is, on the basis of the case law, an unrealistic plan B.
Second, calling a guarantee in Switzerland is a literal exercise. The beneficiary must do what the wording requires – nothing more and nothing less. The most common failure mode is not arguing the merits but missing a procedural detail in the call: the wrong addressee, the wrong format of the demand, missing accompanying documents, a call after expiry. Where the wording requires a written confirmation of non-performance, that confirmation must be filed; where it requires presentation of an original document, a copy will not do. Counsel should treat the guarantee text as a checklist and verify each element before the call goes out.
Fourth, when a Swiss-law guarantee comes up in a cross-border negotiation, counsel should be aware that the Commercial Court of Zurich is the "natural forum" with a settled body of case law on the topic. Forum-selection clauses in favour of this court, or against it, are accordingly substantive choices, not just procedural ones.
If you are negotiating, drafting, calling or defending a Swiss-law independent guarantee – or considering whether to litigate in Switzerland over one – we can help assess the position before the first move is made.
