Coronavirus: Consequences in Contractual Relationships

The coronavirus "SARS-CoV-2" is becoming an increasing burden for human beings and the economy. In view of the rapid development, an illness of employees or the official order of quarantine can lead for the contractor to the fact that obligations can no longer be met fully. But also principals may be subject to cooperation duties which they possibly can no longer fulfil. Claims of the respective other contracting party may be the consequence.

In the light of recent events, we provide you with a brief overview of the main questions arising in this context. Below you will also find a list with recommendations which we have compiled based on the legal requirements and our experiences.

1. Information requirements

As soon as it becomes evident that the fulfilment of contractually owed duties is delayed or stopped, you should inform your contract partners immediately and as a precautionary measure.

Many agreements contain information requirements, for instance for the case that there is a threat of default of performance.

If information requirements are not explicitly regulated in an agreement, then they may also stem from statutory provisions. Since each contracting party is obliged to be considerate of the interests of the other party.

If the contracting party concerned does not sufficiently comply with these contractual or statutory duties, then contractual penalties may be set off. In addition, claims for damages are impending.

2. Obligation to provide services

For many contractors, the question arises at what point in time they are no longer obliged to provide services and whether this applies permanently or only temporarily.

As is so often the case: It depends on the particular case. Under no circumstances, however, contractors should assume in general that they are no longer obliged to provide services. Claims for damages of the principals may be impending.

2.1 Contractual guarantees

In many cases, contractors have assumed a contractual guarantee for the provision of services, in particular a provision of services at a certain point in time. Depending on the content, this can result in a liability without fault in the event of services not provided or not provided in time.

2.2 Contractual clauses on force majeure

Many agreements provide for so-called force majeure clauses. In the event of force majeure, these clauses should exempt the parties from their service obligations partially or entirely, often limited to the duration of the event.

Force majeure is an event inflicted from outside which cannot be averted even with the utmost diligence that can reasonably be expected and which cannot be attributed to the spheres of the contracting parties. The consequences of epidemics may lead to the assumption of force majeure in individual regions. Whether and when you are actually exempt from a service obligation - and to which rights your contract partner is entitled in this case - depends on the arrangement of the clause, its effectiveness, the applicable law and the specific circumstances of the case.

Agreements should be examined for the existence and the effectiveness of force majeure clauses. Nevertheless, you should not recklessly rely on a force majeure clause under no circumstances. In many cases, these clauses are for the purposes of clarification only and they do not extend the release from the service obligation of the parties beyond the legal requirements. In addition, a general classification of the coronavirus as a case of force majeure is not possible.

2.3 Impossibility to provide services

German law requires that a debtor does no longer have to provide a service if the provision of the service is impossible for him/her. This can also apply temporarily. The debtor may also refuse the performance if the debtor´s necessary expenditure is grossly disproportionate to the interest in performance of the creditor.

In the event of a loss of personnel, individual services or entire projects may be quickly jeopardised. It involves a lot of effort to find suitable replacement staff. Also due to other circumstances, the provision of services can be disrupted or - allegedly - be made impossible.

Nevertheless, the principle applies here too: For your own safety, do not assume in general that you are not obliged to the provision of services. The legal requirements for an "impossibility" or a disproportionate effort of the provision of services are high. If you wrongly refuse the provision of services, you may be exposed to claims for damages - and apart from that you may be further obliged to provide Services.

3. Liability, rescission, termination, contractual adjustments

If you cannot meet your service obligations, this may result in claims for damages of the other party.

Please note: In principle, the law assumes that you are also responsible for the deficient provision of services. You will possibly have to provide evidence that you did not cause the failure to provide services with deliberate intent or with gross negligence.

It can only be determined on a case-by-case basis which diligence requirements can be expected and which operational measures are to be taken. However, please document all measures in order to be able provide evidence in the case of dispute that you were not at fault if you were no longer able to provide a service.

In addition, deficient provision of services may lead to a contractual or statutory right of rescission or right of termination. In the worst case, for instance in case of corresponding contractual provisions, a warning of the other party is not even necessary for this purpose. The assessment whether and to what extent an agreement can be terminated or the other party can rescind, depends on many factors. In the individual case, also a - mutual - right to contractual adjustments may exist.

Our recommendations:

• Please examine your contractual relationships for the existence of:
  - guarantees
  - force majeure clauses
  - contractual penalties
  - information requirements
  - cooperation duties
  - service times

• Carry out a risk assessment on the basis hereof. Do not hastily assume - despite a force majeure clause - that you are no longer obliged to provide services.
• Inform your contract partners early on threatening failures to provide services: By contacting your principals early, a constructive environment and solutions for both sides can be created.
• Document all operational measures taken to maintain your business operations. In the event of a dispute, you will possibly have to set out and prove these measures.
• Examine whether for the case of a closure of the company or failures to provide services an insurance exists which covers possible damages on your part.

Should you have any further questions, please do not hesitate to contact our experts.