Force Majeure: What is it?
Force majeure is also referred to as an “Act of God” and it is an external event that is beyond the control of the parties involved which has an effect on how the action takes place. 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.
These events will prevent the contract in full or partly from taking place. These events are seen as external events such as wars, revolutions, natural disasters and terrorist attacks. Disease is also seen as a force majeure event as can be seen from the ruling from the case from AG Augsburg (judgement of November 9, 2004 – 14 C 4608/03) which stated that, in the context of the case, the SARs outbreak from 2003 was considered such an event.
In the context of the COVID-19 coronavirus outbreak, the response issued by governments around the world with actions such as event cancellations and the closing of borders, it is clear that in many cases it can be considered a force majeure event. No actions taken by companies could have led to a change in circumstances. However, it is also dependent on the nature of the contract. As we will with supply contracts it may not be as straightforward.
Supply Contracts and Force Majeure
When it comes to sales law and supply contracts it is vital to check the terms of the contract itself. It is often the case that supply contracts will have specific clauses concerning force majeure events. German sales law does not provide for a specific clause on force majeure but there is another legal alternative provided in the form of “impossibility”.
Impossibility is provided for under § 275 BGB and states the following: “A claim for performance is excluded to the extent that performance is impossible for the obligor or for any other person“. Therefore competitors should also be unable to fulfil the requirements of the supply contract even if they were provided with it. This can be shown if for example a route is closed to all companies if the supply chain involves an area that has been closed due to the continuing crisis.
If impossibility can be shown to exist then the company is not liable for the disruption or lack of performance of the contractual obligation. Similarly the customer is also not liable to pay for the non-completed action as can be shown by § 326 BGB. If the customer has paid in advance they are entitled to a refund of the money paid under § 346 BGB.
Impossibility in Supply Contracts and Other Actions
“Impossible” is a very high standard to attain, even in the current crisis. It has to be shown that even if the company made changes that they would not be able to fulfil the terms of the contract. These changes could mean finding new suppliers or taking new routes. It is therefore preferable if there is a specific force majeure clause within the contract. However, it is also not necessary for a firm to take on levels of economic activity which is too great for them to bear.
In some cases it is advisable to look to § 313 BGB which allows companies to seek an adjustment of the contract due to the new circumstances. This section implies that the parties were not aware of the difficulties that would face them and thus need to renegotiate the contractual obligations based on the new reality. One of the requirements provided by this paragraph is that “one of the parties cannot reasonably be expected to uphold the contract without alteration“.
This type of action should be sought where there is no force majeure clause and where continuing the contractual obligations is possible but will bring unreasonable difficulties.
As a full-service law firm we provide our expertise and experience to our clients. For issues on this front, we will examine our clients’ contracts to examine the options available to them. Going forward we provide advice and insight to companies on the terms of their supply contracts. Our contract lawyers can ensure that your supply contracts have force majeure clauses in them where needed.
For those companies facing these issues at the moment it is vital to contact experienced corporate lawyers who will provide the counsel needed. We would recommend resolving issues amicably where possible, especially in the current climate; however should the case go further we also represent our clients in court.
At Schlun & Elseven Attorneys, we are a multidisciplinary and multilingual law firm. Our offices are located in Cologne, Aachen and Düsseldorf and we have conference rooms in Berlin, Munich, Hamburg, Stuttgart and Frankfurt. However, at the moment we would urge our clients to contact us remotely as we can provide our services by phone, through email and by video conferencing. We are committed to providing our clients with support throughout the current crisis and our articles on different legal fields during the developing crisis can be found on our Coronavirus Crisis Lawyer Centre page.
For updates on the COVID-19 coronavirus crisis in Germany as they occur please visit the Robert Koch-Institut website. Updates here can be found in English as well as German.
In the event that further assistance is required with supply contracts, with issues around force majeure or with other corporate law issues make sure to contact us. We operate in a number of languages including English and will remain active through this crisis. Contact us today for further counsel.