COVID-19 coronavirus is affecting life in Germany and across the world in countless ways. The measures taken by countries from closing businesses, encouraging social isolation, closing borders and reducing travel will have a huge legal impact. This impact will unfortunately last for the foreseeable future.
Commercial contracts have been disrupted hugely due to factors outside the control of businesses. Such disruptions include the cancellation of contracts and the inability to fulfill contractual terms. When an external event, outside the control of the company, forces such measure to occur it can be possible to argue that it constitutes a “force majeure” or Act of God.
We have already outlined COVID-19’s effect on Employment Law in Germany and also on visa extensions due to COVID-19. On this page, we will outline what a force majeure is, how it can differ depending on the jurisdiction, whether COVID-19 coronavirus constitutes a force majeure and what actions should you take.
If you have a particular issue or legal question concerning events related to the COVID-19 coronavirus, please contact our law office directly. Our lawyers can be reached by phone, email and also provide video conferencing options. For more legal information on the Corona crisis, please visit our Crisis Dashboard.
Force Majeure: The Definition
Force majeure events are also called “Acts of God”. On the international stage the definition of force majeure can be found under § 79 United Nations Convention on Contracts of International Sale of Goods (CISG). This Article states;
“A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.”
In German law they are seen as external events which:
- are not related to the company,
- could not have been foreseen,
- and which cannot be prevented or rendered harmless by economically bearable means,
- even by the utmost care that can reasonably be expected in the circumstances.
Essentially force majeure events are ones which could not be predicted and are outside the control of the companies involved and that prevent the contract from being fulfilled. In force majeure events, even if the company took reasonable actions they could not protect the company from the external forces.
Generally, it is determined that proposed steps would be impractical, it does not need to be shown that they are impossible to take. Examples of force majeure events include war, terrorist attacks and natural disasters. In a force majeure claim, it should be shown that these events prevented the completion of some aspects (or all) of the contract in question.
Should force majeure be shown to be the decisive factor in contract conditions being unfulfilled the contracting party is released from a certain amount (or all of) their liability. The extent will be determined by the facts of the case. Normally, it can be challenging to show that force majeure is the reason and can be difficult to prove. However, with the current COVID-19 coronavirus causing such disruption around the world, these are not normal times.
Under German law the spread of diseases can be seen as a force majeure event. The case from AG Augsburg (judgement of November 9, 2004 – 14 C 4608/03) showed how the SARs outbreak from 2003 was considered such an event. Again this was based on the facts of the case as the party had a disruption which prevented them from fulfilling parts of their contract and it was caused by these external events.
Using force majeure is more straightforward when there is a force majeure contractual clause in the contract. If you are facing difficulties with a commercial contract due to COVID-19 coronavirus then make sure to check the contractual agreement as to whether a force majeure clause is included. As we will see this is particularly important when dealing with some common law jurisdictions.
The actions taken by governments to combat the spread of COVID-19 coronavirus have hugely disrupted business and supply chains. We have mentioned them earlier such as the closing of borders, employees having to work from home and offices closing down. For many current contracts, these events would not have been predictable in advance. For example, businesses which have dealings with Italian companies or companies based in Italy may not have been able to predict that these countries were essentially closed down completely. Nothing that they did would have changed these facts
However, to fully prove force majeure factors ranging from when the contracts were agreed and to what extent the business has been disrupted by the COVID-19 outbreak will really determine the result of the action. Contracts that were agreed prior to the outbreak (and that were not updated since then) would have a more foreseeable chance of having the unforeseeable aspect determined in their favour.
Does this View of Force Majeure Apply in All Cases?
In some jurisdictions (primarily common law jurisdictions) force majeure is based more on the contractual relationship between the parties. In these matters what is in the contract is of vital importance. Some jurisdictions may not recognise a general term of force majeure when it comes to commercial contracts.
Therefore, when determining whether to take action, it is vital to know which law is valid for the contract. Under which jurisdiction will the case take place? How does jurisdiction regulate for force majeure? Contacting our commercial lawyers will help you determine whether taking a lawsuit in your circumstances is the best course of action.
What Actions Can I take as Regards Commercial Law, COVID-19 and Force Majeure
The first step we would recommend is to communicate amicably with business partners and other concerned parties. Every business is facing huge challenges at the moment. Any complication that has arisen may be resolvable once this crisis is over and a non-amicable resolution could be more damaging to the business long-term. However, such advice is of course dependant on the situation.
If a party aims to make a force majeure claim they should inform their contractual partner as soon as possible that the disruption will occur. In most cases this will allow the contractual partner to make alternative arrangements due to the disruption. During the time of COVID-19 coronavirus this may of course be more difficult as so many companies are facing disruptions.
In order to determine your chance of liability or the strength of your case it is advisable to check your contracts for force majeure clauses. If your contract has such a clause check to see what it specifically covers. Having a force majeure clause that covers disease or infections specifically will be of great assistance to the company in stating force majeure. However, some jurisdictions do have force majeure as a general legal term.
Merely having the clause or the legal term may not be enough as the company claiming force majeure if brought to court would have to prove that it applies. They would have to demonstrate how the COVID-19 coronavirus outbreak has made it impossible or impractical to complete their contractual obligations. They would also have to show that they could not have changed what happened through the means of reasonable business decisions- Once again, it is vital to contact our commercial lawyers when determining whether the force majeure claim is valid.
The current climate is particularly difficult for businesses as there is no certainty. What businesses need above all else to flourish is certainty. Contracts are being cancelled, deliveries disrupted, businesses are being closed down and borders are shut. Furthermore, workers are facing the prospect of not working from their offices or meeting their clients face-to-face. Many people have questions about how this outbreak will impact their jobs, their businesses and their investments.
At Schlun & Elseven, we are determined to provide the legal advice you need during this time.If you have any further questions about force majeure and COVID-19 make sure to contact our firm directly. We know this is a difficult time for everyone and we hope to help our clients through it.
Commercial Law Firm in Germany
At Schlun & Elseven Attorneys we are a multidisciplinary law firm in Germany. Our main offices are in Aachen, Cologne and Düsseldorf and we also have conference rooms in Berlin, Munich, Stuttgart, Frankfurt and Hamburg. However, due to current conditions we are aware that meeting in person may not be possible. Therefore, we offer our clients the opportunity to communicate with us from distance via email, telephone and through video conference. Our lawyers will discuss your commercial law case in more detail and discuss whether force majeure applies in your case.
Negotiating the field of German commercial law is a challenge. This is especially the case in such difficult times. Availing of legal support where possible is vital to ensure that you gain a fair outcome in your legal disputes.
Our lawyers can provide their services in English, French, Spanish, Portuguese and Turkish as well as German. Therefore, if you need assistance when it comes to a commercial law case, or in any other legal dispute arising due to COVID-19, make sure to contact our firm directly. Our lawyers are looking forward to working with you.