Switzerland: Commercial Court of Zurich confirms SARON as an alternative benchmark for LIBOR in a precautionary measures procedure

In brief

In a recent judgment, the Commercial Court of Zurich has dealt with the discontinuation of LIBOR (London Interbank Offered Rate) and the consequences of such discontinuation for interest rate swaps with variable interest rates based on LIBOR.


In essence, the applicant argued that in consequence of the discontinuation of LIBOR, the performance under the interest rate swap becomes impossible pursuant to article 119 of the Swiss Code of Obligations ("CO"). Therefore, it requested the enactment of precautionary measures (Erlass vorsorglicher Massnahmen) by the Commercial Court of Zurich with a view to prohibit the bank (defendant) from debiting interest in connection with the interest rate swap transactions. The key findings of the court can be summarized as follows: 

  • SARON (Swiss Average Rate Overnight) has replaced the CHF LIBOR (London Interbank Offered Rate).
  • SARON is an alternative benchmark to the CHF LIBOR.
  • Performance under CHF LIBOR interest rate swaps does not become impossible as a consequence of the discontinuation of the CHF LIBOR. Rather, the interest rate swaps continue to exist with the variable interest rates to be calculated based on SARON. 


In order to finance a commercial property, the applicant entered into a credit agreement with the bank. On the bank's advice, the applicant subsequently concluded several interest rate swaps. Under such interest rate swaps, the applicant exchanged a fixed interest rate for a variable interest rate with the bank, whereby the variable interest rate was referenced to the CHF 3M LIBOR. This was to enable the applicant to borrow under allegedly more favorable conditions.

In early 2015, the CHF 3M LIBOR fell to negative levels. Consequently, the bank charged the applicant both the fixed and the variable interest rate. As of 1 January 2022, CHF LIBOR was discontinued and contracts based on it had to be switched to alternative reference interest rates, including SARON. In the following, SARON was used as an alternative benchmark for the variable interest rate by the bank. Shortly thereafter, the applicant filed a request for precautionary measures with the Commercial Court of Zurich prohibiting the bank from charging interest under the interest rate swaps. 


The Commercial Court of Zurich has dismissed the application for precautionary measures and the court ruling has become final. The reason for the dismissal of the precautionary measure was that the requirements (1. a claim for disposition and 2. a threat of irreparable disadvantage) could not be made credible by the applicant. The court did therefore not examine the further condition of urgency. With regard to the discontinuation of LIBOR, the applicant argued that no switch to SARON had been agreed after the discontinuation of LIBOR. Therefore, the bank had no basis to charge interest referencing the SARON. Rather, the bank's interest claims had lapsed as a result of impossibility pursuant to Art. 119 CO. This argumentation is not convincing, especially since the fixed interest rates are not affected by the discontinuation of the CHF LIBOR. It is therefore only questionable what should apply with regard to the 'variable interest rates' after the abolition of LIBOR. With reference to the National Working Group for Reference Interest Rates in Swiss Francs (NWG) and SIX, the court states that SARON is an alternative reference rate comparable to CHF LIBOR and that CHF LIBOR was replaced by SARON on 31 December 2021. There is therefore no impossibility within the meaning of Art. 119 CO. Rather, the interest rate swaps are to be calculated on the basis of SARON since 1 January 2022.

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