27. Apr 20

Contract law and force majeure amidst the coronavirus crisis

Many contracts cannot be performed due the coronavirus crisis. This raises the issue of liability, with “force majeure” taking center stage.

The coronavirus pandemic is hitting the economy hard. There are a number of reasons why it may no longer be possible to perform contracts, including broken supply chains, events being cancelled, or the inability to maintain normal production and provide services. This raises the issue of liability, with force majeure taking center stage in a lot of cases.

Of course, the first question is how does one define force majeure? According to a ruling of Germany’s Federal Supreme Court, the Bundesgerichtshof (BGH), from May 16, 2017, force majeure is constituted by an external event with no operational connection that cannot be avoided even by exercising the utmost care that can reasonably be expected (Az.: X ZR 142/15). This does not mean, however, that contracts automatically become obsolete because of the crisis surrounding the coronavirus. We at the commercial law firm MTR Rechtsanwälte note that it ultimately comes down to the specific contractual provisions in individual cases and whether they include clauses dealing with force majeure.

But even if force majeure clauses have been contractually agreed, this does not necessarily mean that the provisions in question also cover pandemics, quarantines, etc. As such, it is necessary to examine whether the contractual arrangements are relevant.

In the absence of relevant clauses, the issue of whether force majeure comes into play can also turn on which country’s national laws apply. This is particularly important in cases involving international contracts.

German law provides for the exclusion of the obligation to render performance pursuant to section 275 of the German Civil Code (Bürgerliches Gesetzbuch, BGB) if it is impossible for the obligor or any other person to render performance as agreed, or if performance would entail unreasonable effort. However, the fact that it is impossible must not have been either intentionally or negligently caused by the obligor.

The UN Convention on Contracts for the International Sale of Goods (CISG) often applies in the case of international contracts. It requires the obligor to demonstrate that nonperformance is due to an event beyond their control.

The coronavirus raises many questions, including in relation to contract law. Experienced lawyers can offer advice.

For more information:

https://www.mtrlegal.com/en/legal-advice/commercial-law/corona-and-contract-law.html

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