Supply problems caused by COVID-19: Are suppliers able to invoke force majeure?

18.03.2020

In the course of the coronavirus pandemic, some suppliers are experiencing difficulties in meeting their supply obligations. This is frequently discussed under the aspect of force majeure where suppliers are supposedly able to be released from their duties by invoking it. Is this correct?

While the concept of force majeure is not governed by German sales law, supply contracts or general terms and conditions of sale frequently contain provisions on this topic. Within the scope of legal admissibility, particularly under the law on general terms and conditions, answers to these questions must primarily be sought in such contractual provisions.

Unless the contract contains a specific provision in this respect, the question of whether suppliers may be released from their supply obligations caused by COVID-19 does not depend on whether the cause may be understood as a case of force majeure under the laws of Germany. The question is rather whether impossibility is given. If it is impossible for suppliers to perform the contract, they will be released from their obligation to perform. It is not sufficient in these cases, however, for a product to be unavailable from the supplier’s originally intended source. Unless delivery from a certain production has been agreed, impossibility is only to be presumed if procurement from other sources is not possible. Suppliers are generally obligated to procure their goods, which may require them to switch to other sources. This also applies where such switch is associated with significantly higher purchase prices for suppliers. These financial losses may not be passed on to the customer either. If no other source of supply is available, however, suppliers will be released from their obligation to supply on the basis of imputed impossibility of supply (Section 275 German Civil Code). Similarly, customers will also be released from their obligation to pay the purchase price (Section 326 Civil Code). In cases where customers have paid the purchase price in advance, it is to be reimbursed (Section 346 Civil Code). In cases of impossibility, suppliers do not have to pay damages either, if they can prove that they did not cause the impossibility or are responsible for it on other legal grounds.

[Update March 19, 2020] Below the threshold of impossibility, a claim of the supplier for contract adjustment under the doctrine of frustration (Section 313 Civil Code) may be considered. This may be the case, for example, if the execution of the contract is not impossible, but the effort and costs are so disproportionate that it is no longer reasonable to expect the supplier to execute the contract with the original content. However, this is a high hurdle. In such a constellation, e.g. a participation of the buyer in the increased costs is possible if he insists on an execution.

Status: March 19, 2020