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Effects of Coronavirus on Supply Relationships under German Law

The coronavirus causes considerable uncertainty in business life. In particular in supply relationships, suppliers ask whether they can be released from their contractual obligations by referring to the coronavirus or whether they can demand a contractual amendment. As often, the answer depends on the individual case. Nevertheless, we can provide some general assistance:

Force majeure?

It is likely that suppliers invoke a case of force majeure, for example because their employees are in quarantine and therefore unable to work, or their production site is located in an officially ordered risk area. However, German law does not provide for a general right to refuse performance in cases of force majeure. But often framework supply agreements or general terms and conditions of business contain provisions for cases of force majeure and their legal consequences. If there is a corresponding regulation, it has to be decided, whether an epidemic is to be considered a case of force majeure. Usually that is the case. It exists relevant case law regarding travel contracts where German courts have declared an epidemic as force majeure. These decisions can be transferred to supply agreements. The legal consequences shall then be governed by the respective clause in the contract. Usually, the legal consequences range from rights of deferment and liability exemptions to rights of withdrawal or termination. Only if the contract should exhaustively name certain cases of force majeure, such as environmental disasters, civil wars or strikes, an epidemic is not to be considered as force majeure under these contracts.

Interference with the basis of the transaction?

If a contract does not contain a force majeure clause, an epidemic could interfere with the basis of the transaction according to section 313 of the German Civil Code (BGB). A supplier may invoke this where circumstances which have become the basis of the contract have changed seriously after the conclusion of the contract and the contract would have been concluded with a different content if the contracting parties had foreseen this change. The contract can then be adjusted or even terminated.

The invocation of an interference with the transaction due to the outbreak of the coronavirus is only possible for older contracts. Since mid/end of January the coronavirus has been spreading in Germany. From this point onwards, suppliers would have had the opportunity to price in the risk of delivery difficulties accordingly or to agree on individual arrangements.

For older contracts, the specific effects of the epidemic are decisive: If coronavirus leads to a typical risk, as in the case of a "regular" wave of influenza, inconveniences are at the expense of the supplier. Whereas if the situation changes, for example because individual regions are quarantined in Germany as well, or a large part of the workforce is unable to work due to illness or quarantine, adjustments are possible, e.g. by extending delivery times or even termination of the contract. A claim to price adjustments is conceivable if a service can only be provided by expensive alternative transport routes (e.g. by air instead of sea) or by expensive covering purchases (e.g. from suppliers in Europe instead of China).

Impossibility of performance?

Finally, it is conceivable that a contractual partner may invoke the impossibility of performance. That is the case if the supplier is no longer able to provide performance or can only provide it at an absolutely unreasonable expense. Examples for an impossibility of performance are a prohibition to let trucks roll off the supplier’s yard, because, for instance, the production plant is located in a risk area, or the absence of key employees due to illness. Here, too, an absence caused by illness initially falls under the operating risk of the entrepreneur, who is obliged to compensate the loss of employees by the remaining employees. Only in the case of an "atypical" wave of illness as an epidemic, impossibility can be assumed. As a result of the impossibility of the performance, the obligation to deliver is excluded; at the same time, the contractual partner's obligation to pay is excluded accordingly. Any claims for damages by the contractual partner depend on whether the supplier is responsible for the impediment to performance. This will generally not be the case in the event of an epidemic.

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