Hand­ling of Long-Term Sup­p­ly Obli­ga­ti­ons in Case of Pandemic-Related Difficulties

The coro­na­vi­rus con­ti­nues to hold the glo­bal eco­no­my firm­ly in its grasp. Near­ly every com­pa­ny is con­ten­ding with the impact of the pan­de­mic, par­ti­cu­lar­ly sup­p­ly shorta­ges, and hig­her cos­ts are making it dif­fi­cult for com­pa­nies to meet their sup­p­ly obli­ga­ti­ons (which are fre­quent­ly dic­ta­ted by long-term con­tracts). In this con­text, you will find infor­ma­ti­on below about some issues in Ger­man law which are the topic of inten­si­ve dis­cus­sion at the moment, sum­ma­ri­zed in over­view form.

Basic Prin­ci­ples of Con­trac­tu­al Agreements

A key prin­ci­ple is pac­ta sunt ser­van­da: con­tracts must be hono­red. Under the gene­ral prin­ci­ples of the Ger­man legal sys­tem, deve­lo­p­ments which result in added cos­ts for one of the con­trac­ting par­ties, or even los­ses, typi­cal­ly have to be tole­ra­ted and do not fur­nish ade­qua­te grounds for (uni­la­te­ral) adjus­t­ments of any kind.

But ano­ther prin­ci­ple is also play­ing a key role right now: con­trac­tu­al agree­ments (whe­ther in the form of indi­vi­du­al­ly nego­tia­ted con­tracts or set down by means of stan­dard terms and con­di­ti­ons) gene­ral­ly take pre­ce­dence over gene­ral prin­ci­ples. Alt­hough the vali­di­ty of stan­dard clau­ses is sub­ject to review to a cer­tain ext­ent, even in the b2b sphe­re (espe­ci­al­ly in case of liti­ga­ti­on), com­pa­nies should nevert­hel­ess look for and con­sider appro­pria­te for­mu­la­ti­ons in a “top-down” manner.

Acts of God and Force Majeure

In times when sup­p­ly is con­sis­tent, pri­ces are rising and mate­ri­als are dif­fi­cult or impos­si­ble to obtain, com­pa­nies are eager to find a way out of their sup­p­ly obli­ga­ti­ons or to secu­re a pri­ce adjus­t­ment. This is always pos­si­ble if the con­trac­ting par­ties agree, but it can rare­ly be done uni­la­te­ral­ly. Whe­ther such pos­si­bi­li­ties exist depends pri­ma­ri­ly on the pro­vi­si­ons of the con­tract. Very careful exami­na­ti­on is requi­red to deter­mi­ne whe­ther and which of the requi­re­ments spe­ci­fied in the rele­vant clau­ses have been met. For exam­p­le, if the ques­ti­on invol­ves the “fore­seea­bi­li­ty” of extre­me cir­cum­s­tances due to the pan­de­mic, it is neces­sa­ry to ask whe­ther such cir­cum­s­tances were actual­ly unfo­re­seeable, cer­tain­ly in the case of con­tracts con­cluded after March 2020.

If the­re are no con­trac­tu­al pro­vi­si­ons in this regard, then the legal situa­ti­on beco­mes rele­vant. The Ger­man Civil Code and Com­mer­cial Code do not express­ly address the issues of “force majeu­re” or “acts of God” in this con­text. Ins­tead, they con­sider issues such as “ina­bi­li­ty” in terms of § 275 of the Civil Code, “frus­tra­ti­on of con­tract” in accordance with § 313 of the Civil Code and ordi­na­ry (or extra­or­di­na­ry) ter­mi­na­ti­on of con­tracts in accordance with § 314 of §§ 623 and 724 of the Civil Code. Howe­ver, it is neces­sa­ry to pay clo­se atten­ti­on to the requi­re­ments and con­se­quen­ces of the various statutes.

Once again: under the law, typi­cal entre­pre­neu­ri­al risks do not fur­nish ade­qua­te grounds for the uni­la­te­ral adjus­t­ment of exis­ting obligations.

Pro­cu­re­ment Obligation/Procurement Risk

If a sup­pli­er is sub­ject to a pro­cu­re­ment obli­ga­ti­on, it is requi­red to adhe­re to this obli­ga­ti­on even if this means incur­ring an addi­tio­nal finan­cial expen­se. All (reasonable) opti­ons for pro­cu­ring the goods must be con­side­red and exer­cis­ed. This duty appli­es regard­less of whe­ther the sup­pli­er is respon­si­ble for a hin­drance to sup­p­ly. By law, strict requi­re­ments app­ly for releasing sup­pli­ers from their pro­cu­re­ment obli­ga­ti­ons: the afo­re­men­tio­ned sta­tu­tes, § 275 of the Civil Code and § 313 of the Civil Code, come into con­side­ra­ti­on in this regard, for exam­p­le. As a result, sup­pli­ers which are bound to sup­p­ly cer­tain mate­ri­als should con­sider sug­gest­ing alter­na­ti­ve mate­ri­als to their cus­to­mers and dis­cuss whe­ther they can be released from their obligations.

Dama­ges

In Ger­man law, a duty to pay dama­ges for non-performance of con­trac­tu­al obli­ga­ti­ons typi­cal­ly depends on negli­gence, i.e. the con­trac­ting par­ty­’s fail­ure to adhe­re to an appro­pria­te ext­ent to the due dili­gence requi­re­ments which it is expec­ted to per­form. With regard to sup­p­ly chains, pri­ce chan­ges, the avai­la­bi­li­ty of mate­ri­als on the one side and sup­p­ly obli­ga­ti­ons on the other, sup­pli­ers can be expec­ted to set up and mana­ge their sup­p­ly chain in a man­ner con­sis­tent with their rele­vant situa­ti­on (and know­ledge), i.e. to make reasonable efforts in order to com­ply with their obli­ga­ti­ons. Sup­pli­ers would be well-advised to docu­ment the rele­vant measures.

Uni­la­te­ral Con­trac­tu­al Adjus­t­ments or Extra­or­di­na­ry Termination

Uni­la­te­ral adjus­t­ment of exis­ting con­tracts or extra­or­di­na­ry ter­mi­na­ti­on con­flicts with the basic prin­ci­ples men­tio­ned abo­ve and is the­r­e­fo­re pos­si­ble to just a limi­t­ed extent.

  • Efforts to secu­re con­trac­tu­al adjus­t­ments based on “frus­tra­ti­on of con­tract” in accordance with § 313 of the Civil Code often fail due to an ina­bi­li­ty to meet the appli­ca­ble requi­re­ments. In par­ti­cu­lar, the con­trac­ting par­ty must show that con­ti­nuing to adhe­re to the con­tract would lead to an unbe­ara­ble result which is “sim­ply incom­pa­ti­ble with law and jus­ti­ce.” To date, the courts have ten­ded to view even dra­stic increa­ses in the pri­ce of raw mate­ri­als as a typi­cal entre­pre­neu­ri­al risk, and the­r­e­fo­re one which the sup­pli­er can reason­ab­ly be expec­ted to assume.
  • A simi­lar situa­ti­on appli­es for the pos­si­bi­li­ty of extra­or­di­na­ry ter­mi­na­ti­on for good cau­se in accordance with § 314 of the Civil Code. In this case as well, the sup­pli­er must show that it can­not be reason­ab­ly expec­ted to con­ti­nue the con­trac­tu­al rela­ti­onship to the end after taking all cir­cum­s­tances into account and weig­hing the inte­rests of both parties.

Ordi­na­ry Termination

The law does not express­ly address the ordi­na­ry ter­mi­na­ti­on of frame­work sup­p­ly con­tracts. In accordance with recent case law, howe­ver, this pos­si­bi­li­ty does come into con­side­ra­ti­on through ana­log­ous appli­ca­ti­on of §§ 623 and 724 of the Civil Code. In this case as well, cer­tain requi­re­ments have to be met:

  • the con­tract must not con­tain any clau­se which excludes ordi­na­ry termination;
  • the sup­p­ly con­tract must repre­sent a con­ti­nuing obli­ga­ti­on, i.e. ces­sa­ti­on of the con­trac­tu­al rela­ti­onship must not be defi­ned in advan­ce (whe­ther in the form of a spe­ci­fic expi­ra­ti­on date or through an iden­ti­fia­ble event, such as a defi­ned sup­p­ly quantity);
  • an “ade­qua­te” noti­ce peri­od must be obser­ved in each case. This peri­od may be based e.g. on the time nee­ded to make chan­ges to the com­pany’s pro­duct range.

The who­le cli­ent infor­ma­ti­on by Dani­el Wuhr­mann can be down­loa­ded here.

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