Coronavirus – Legal consequences of supply shortages – Germany

• Germany

• Commercial and IT
• Coronavirus - Contractual issues

19-03-2020

1.1 What impact might production downtime or circumstances with similar effect have on supply contracts?

Reduced production or similar measurements and resulting supply shortages can cause severe problems to distributors or intermediaries, as they might not be able to fulfil their contract obligations due to receiving own orders with quantitative or temporary limitations, or perhaps even not at all.

This can result in contract violations being committed by the affected product vendors themselves.

1.2 Are the affected distributors liable for this kind of contact breaches?

Contract breaches related to problems caused by Coronavirus might fall within the scope of “Force Majeure” or the German law equivalent “impossibility/impracticality”.

Result would be a final or temporary suspension of all contractual obligations for the concerned vendor or distributor, as the contract breach arises from circumstances that are beyond reach of the contractual party. Therefore neither a delivery of the affected goods nor payment of a remuneration would be owed. However, in this case, the distributor would not be liable for any supply deficiency.

1.3 What are the precise requirements and consequences of being exempt from the affected supply obligation?

Each contract and obligation must be reviewed on a case-by-case basis, as different circumstances play a role.

However, in any case the ability of complying with contractual obligations must be either impossible or at least connected to an unreasonable effort.

Depending on the concrete obligation, for example delivery time or purpose of purchase, the obligation can be temporarily suspended or completely cancelled.

1.4 Do other possibilities of responding exist for affected distributors?

Depending on concrete impediments and the increased effort to comply with contractual obligations, the affected party might be allowed to request an amending of contractual agreements in order to compensate the difficult situation.

In case any amendment is unreasonable for either party, a right of withdrawal from the contract might appear.

This as well depends on the given circumstances in each particular case.

1.5 Despite the exemption from supply obligations, might affected distributors face damage claims by their contract partners?

Under German law, the possibility of damage claims against affected distributors depends on their fault. In general, this means that if the contract breach is related solely to circumstances that lie beyond the reach of the breaching party, no liability for caused damages exists. However, if the contract violation is at least also connected to negligence in maintaining or ensuring own supply capacities, damage claims might arise.

1.6 What do vendors have to consider when distributing quantitatively limited products?

As a result of supply shortage and limited deliveries, distributors might have to choose which of their different contractual obligations to fulfil. It is important to note that this selection can be relevant under competition law, and must be executed impartially and transparently if the affected company is in a dominant position in the relevant market.