Top 5 questions from Germany on COVID-19, contracts, and supply chains

1. What are general recommendations?

In general, it is important to determine at an early stage which processes must be maintained, which people are needed to maintain operations and which measures are necessary to do so. An emergency plan should be developed. Especially in the event of illness or other unforeseen prolonged absence of the managing director, important documents should be compiled (such as powers of attorney, a representation plan, information on customer and supplier structures and a document folder with bank details, passwords) and deposited for a possible representative.

2. What export restrictions must be observed in connection with COVID-19?

By order of 4 March 2020, the German Federal Ministry of Economics and Energy restricted the export of the following goods from the Federal Republic of Germany in view of the COVID-19 outbreak (BAanz AT 04.03.2020 B1)

  • Goggles/sights,
  • Face shields
  • Mouth and nose protection products (surgical masks/surgical masks)
  • Filtering Face Pieces, Class 2 (FFP2 masks)
  • Filtering Face Pieces, Class 3 (FFP3 masks)
  • Gown,
  • Protective suits,
  • Gloves.

Exports can only be approved by the German Federal Office of Economics and Export Control in exceptional cases, e.g. in the case of concerted EU aid operations.

The order is intended to ensure the maintenance of a functioning health care system in the Federal Republic of German. At the German Federal Ministry of Health a central contact has been created for the topic of personal protective equipment at the following email address [email protected].

3. Is the COVID-19 outbreak a case of force majeure?

International supply contracts regularly contain force majeure clauses which provide for the suspension of the affected performance obligations (e.g. supplier's obligation to deliver) for the duration of force majeure. We consider it very likely that the outbreak of COVID-19 will be considered a case of force majeure by German courts. In this respect, a parallel can be drawn to the SARS pandemic, which was predominantly - also by German case-law - considered as a case of force majeure.

In the absence of a contractual force majeure clause, German law does not provide for a general rule for force majeure. Rather, what will matter - for German courts - are the general regulations on obstacles to performance. It is questionable whether Sec. 275 German Civil Code (“BGB”) leads to a lapse of the obligation to perform. The virus outbreak does not lead to an automatic lapse of contractual obligations. This is because the temporary virus outbreak does not make the provision of services impossible in the legal sense (Sec. 275 German Civil Code ('BGB')), but merely delays it. It is unlikely that this so far only temporary obstacle to performance will change into a permanent one and thus establish a legal impossibility. At the time the pandemic comes to an end, fulfilment will be possible again.

In terms of possibilities to catch up with the performance, we will regularly rather see relatively fixed dates for performance ("relatives Fixgeschäft") than absolutely fixed dates for performance ("absolutes Fixgeschäft"). This is because, despite fixed delivery dates and essential on-time deliveries, the purpose of a contract can in most cases still be fulfilled even if delivery is delayed. An impossibility due to an absolutely fixed date for performance resulting in an automatic lapse of obligations to perform could only be assumed in exceptional cases, such as e.g. special Easter offers. In this case, the nature of the goods could practically exclude their marketing where delivery would actually take place after the respective holidays.

However, a statutory right of withdrawal in the case of delayed performance despite a fixed date of performance is not only set forth in Sec. 376 (1) Sentence 1, Old. 1 German Commercial Code ('HGB'), as well as in Sec. 326 (2) no. 2 BGB, irrespective of any fault on the part of the supplier and thus also in the case of force majeure. Such a withdrawal can even be declared before the due date of the performance, if future non-compliance with the fixed time is obvious for an indefinite period of time (Sec. 323 (4) BGB). The fixed character of the obligation to perform is essential here, which means that the transaction "stands and falls" with adherence to the delivery periods determined or determinable by the calendar.

If considering the equivalence ratio, Sec. 313 BGB can lead to an adjustment of contractual regulations. In numerous cases this may lead to a solution most reasonably considering the interests of all parties. Due to the outbreak of COVID-19 and the resulting production stoppage with the consequence of considerable delays in delivery, the general economic conditions have changed fundamentally. The decisive factor is whether adherence to the contract and thus acceptance of the goods at a later point in time can be classified as unreasonable hardship.

4. What can I do to compensate for failures in my supply chain?

It is possible that some of your suppliers - as mentioned above - may have to discontinue/reduce production and may not be able to deliver. If you are looking for new business partners, especially internationally, to compensate for the failures in your supply chain in the short or long term, the German Chambers of Industry and Commerce recommend the network of Foreign Chambers of Commerce (AHKs) as an option. The AHKs link German and local companies in more than 90 countries worldwide:

5. Is there export cover also for COVID-19 risk areas?

Anyone who has business contacts in risk areas can currently suffer from delivery problems. This may be where government export guarantees (Hermes Cover) can help.

The State Export Credit Guarantees are a central foreign trade promotion instrument of the Federal Government. They insure exporters against bad debt losses caused by economic or political factors.

The State Export Credit Guarantees are in principle available to all German exporters, irrespective of the size of the company or the transaction. They are granted in accordance with national and international regulations and are linked to specific conditions.

The State Export Credit Guarantees will continue to be granted by the Federal Government and will also apply to exports to COVID-19 risk areas.

You can find further information on this at the portal of the Foreign Business Insurance of the Federal Republic of Germany.

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