At the beginning of 2020, the coronavirus spread around the world. We have now been living with the still ongoing pandemic for more than two years. The consequences of this pandemic and the war in Ukraine are influencing the social lives of millions of people and permanently disrupting economic cycles worldwide.
Supply bottlenecks and the resulting considerable price increases for primary products and raw materials are currently affecting not only so-called global players but also companies in all sectors and sizes.
According to Hildegard Müller, President of the German Association of the Automotive Industry (VDA), the current conflict situation in Ukraine is expected to have “a sensitive impact on supply and logistics chains with repercussions for factories in Germany and Europe”.
Experts estimate that about every seventh wiring harness installed in the EU comes from the Eastern European country. As a result, German car manufacturers are forced to make rapid changes and restructure their supply chains. On the one hand, they are currently trying to win suppliers from other countries; on the other hand, they are supporting the Ukrainian suppliers in finding new, safe locations for their production.
As is well known, not only the original equipment manufacturers and suppliers of the automotive industry are affected by the supply bottlenecks. Due to the price increases for raw materials such as steel, bitumen, or aluminium, it is currently impossible to calculate offers reliably, according to Tim Oliver Müller, head of the Main Association of the German Construction Industry. Companies would also be left with considerable additional costs for current contracts, as they cannot easily pass on the price increases to their contractual partners.
Longer waiting times for ordered raw materials and goods also lead to higher planning efforts. It becomes particularly problematic when existing orders cannot be fulfilled according to contract, and delivery bottlenecks lead to sales losses.
Invoking the Force Majeure Clause
Companies affected by the pandemic and currently by the Ukraine war should first check whether the contracts agreed with suppliers and other contractual partners contain so-called force majeure clauses and whether these apply.
The invocation of such a clause depends, among other things, on the company’s situation triggered by the military conflicts. Force majeure clauses are mainly used when there is an event that the company cannot avert. Such events refer to unforeseeable circumstances for the contracting parties over which they have no influence. These are events of force majeure such as pandemics, wars or natural disasters. In part, the events that lead to the applicability of the above-mentioned clause are listed in it.
Whether the force majeure clause applies must be examined in detail. The question is whether a case of force majeure exists and whether the company’s services can no longer be provided. Indicators for the examination are:
- Availability of company employees,
- possibility of using transport routes and means of transport,
- preservation of the production site – Is it still in a functional condition?
If the contracting party can invoke the clause, this usually leads to the temporary exemption of the latter from performance until the work required to fulfil the contractual obligations can be resumed. The affected company should then contact their contractual partners as soon as possible to avoid possible liability for damages.
Our contract law practice group will be happy to examine how you can invoke the force majeure clause agreed in your contract and what specific legal consequences you should expect here.
§ 275 BGB – Exclusion of the Duty of Performance
Suppose a contract does not contain a force majeure clause, and German law applies. In that case, the contractual partner affected by the war in Ukraine can invoke the right to the exclusion of the duty of performance standardised in § 275 BGB. This presupposes the impossibility of performance. In particular, the circumstances caused by the Ukraine war and the sanctions imposed on Russia are likely to lead to impossibility quite often. If one party to the contract can invoke § 275 BGB, the other party can withdraw from the agreement. The lawyers of Schlun & Elseven will be happy to check whether the norm mentioned above applies and explain your legal options for action.
§ 313 BGB – Interference with the Basis of the Transaction
Suppose an agreement between the parties cannot be reached by peaceful means. In that case, the parties concerned are also free to oppose the fulfilment of the contract by raising the defence of disturbance of the basis of the contract under § 313 BGB. In the past, it was considered an absolute rarity that case law affirmed that the base of the transaction had ceased to exist. However, the unexpected economic consequences of the war in Ukraine (shortage of raw materials, the resulting price increase and the permanent disruption of supply chains) and advancing inflation are now likely to lead to an increased examination of the provision of § 313 BGB.
For a contract adjustment to be considered, there must be credible arguments. The business basis is mainly based on the value relationship (equivalence) between performance and consideration. Due to a substantial increase in the service price (e.g., a price increase of raw materials) or a considerable devaluation of the counter-performance (e.g., inflation), this relationship can become considerably unbalanced.
About the current situation in Ukraine, the disturbance of the basis of the contract is likely to be assumed in many cases already because the contracting parties may have mistakenly considered the following circumstances to be sure at the time of the conclusion of the contract:
- The unrestricted availability of the goods and labour required for the performance of the contract,
- the continuation of previously used transport routes and means of transport.
If both contracting parties were in error about the existing circumstances at the time of the conclusion of the contract (cf. § 313 (2) BGB) and that now – given the current supply bottlenecks caused by the war – one of the two contracting parties can no longer be expected to adhere to the contract, the basis of the contract is to be affirmed to have ceased to exist.
Amendment of the Contract using an Addendum
The following solutions can be considered within the framework of an amendment contract/addendum according to § 313 para. 1 BGB:
- Determination of a new delivery date,
- a downgrading of the quality of the goods,
- a reduction of the delivery quantity,
- deferral of all performance obligations (until deliverability can be guaranteed again).
Although such an addition modifies the contract’s content, the debts’ character does not change. The agreement continues as such, with the securities provided therein (surety, mortgage, etc.) retaining their validity.
Settlements as a Compromise Solution
Suppose the amendment agreement or the addendum is ruled out as a settlement option. In that case, because the contracting party must expect a loss of turnover due to the delayed delivery or cannot pass on the price increase to the end consumer due to existing contracts, the parties still have the option of a settlement in the sense of § 779 BGB.
Thus, the parties involved can agree on a certain amount of money in a “mutual sacrifice”. However, there is no settlement if only one of the contracting parties gives in by granting the other party a deferral without the other party also making a sacrifice.
Legal Support from Schlun & Elseven
Our team of lawyers is at your disposal and your competent partner for all questions regarding the adjustment of contracts and other legal problem areas.
Schlun & Elseven Rechtsanwälte PartG mbB is a multidisciplinary law firm. With offices in Cologne, Aachen and Düsseldorf, and conference rooms in Hamburg, Stuttgart, Berlin, Frankfurt and Munich, we operate nationwide and are always there for our clients. Our lawyers advise you in German, English and other languages. Call us, send us an email or use our online form – we will be happy to give you an overview of your legal options as part of an initial assessment.
