Member Article

The outbreak of the coronavirus and the measures taken by the Chinese government to contain it have brought production in China as the world's workbench to a complete standstill. Companies that operate in China or purchase such goods are currently facing delivery shortfalls.

A similar situation could soon threaten Italy, where the first factory closures have already taken place.

Restrictions on personal freedom and mobility would also be possible in Austria under the Epidemic Act, which was passed in 1913 (!) And published again in 1950. The law provides for extensive measures by the state to prevent the spread of notifiable diseases and the new coronavirus has been declared a notifiable disease by the Federal Minister's decree. For example, educational establishments and kindergartens can be closed, apartments vacated, traffic restrictions (also vis-à-vis abroad) can be ordered and, above all, the surveillance and separation of sick people can be ordered (more detailed regulations regarding the imposition of a quarantine are regulated in a separate regulation, the Separation Ordinance).

From a legal point of view, companies face particular questions regarding liability for the damage caused by non-delivery and whether and if so what rights and obligations exist towards their employees.

Liability for delivery failures?

Austrian law does not provide a clear answer to the question of liability, but offers different starting points:

The outbreak of the coronavirus is beyond the control of either party. In connection with travel contracts, the OGH had classified the outbreak of the SARS infectious disease as unacceptable as a result of force majeure. Due to the similarity of the events, this categorization can also be applied to the current situation. If the delivery failures caused by the coronavirus are an event of force majeure, the question remains which contracting party has to bear the negative consequences.

In principle, if a thing accidentally perishes, contractual obligations are canceled (Section 1447 ABGB). However, the provision only applies to species debt, for example, if a specific order cannot be delivered due to imposed export restrictions. However, this does not apply to products that are described according to general criteria, which include the OGH, for example, brand-new series-produced motor vehicles of a certain brand. If the reason for the delivery freeze is therefore due to the suspension of production, customers - according to general legal considerations - would have to be supplied proportionately with the remaining stock. 

Alternatively, the lack of delivery of products due to the virus can be an unforeseeable force majeure event that leads to the loss of the business basis. If the answer is affirmative, the contract can be adjusted or terminated if it can no longer be maintained.

In addition, irrespective of the possible legal basis, compensation law considerations speak for an exemption without liability. Liability is generally only at fault. The outbreak of the coronavirus and the subsequent measures by the Chinese government, like natural disasters, are beyond the control of a contracting party. However, the alleged perpetrator must prove his fault in contractual relationships, and must, therefore, demonstrate that the failure to comply with the contractual obligations is due to the outbreak of the coronavirus and the following government measures.

In addition, it should be noted that even if there is no liability for a delivery failure, a contractual partner can declare the withdrawal from the contract by setting a grace period.

Force majeure clause

The existing legal ambiguities can be largely eliminated by including a force majeure clause that is quite common in commercial contracts. Such a clause gives the parties the right to suspend the obligation to perform or to withdraw from the contract if unforeseen events occur, over which the parties have no influence and which prevent, hinder or delay the performance of the contract.

When drafting the contract or when invoking such a clause, the following should be observed in particular: (i) how far does the term force majeure extend (does the wording used in the contract include, for example, epidemics?) and (iii) an application is linked to other requirements (such as certain deadlines and notification requirements).

Recommendations for avoiding liability

If it turns out that the supply chain is affected by the measures related to the coronavirus, we particularly recommend the following measures:

• Review your contracts to see if you or your contractor can rely on a force majeure clause or other non-liability contract.
• Inform customers in good time of an impending delivery failure. Corresponding measures to mitigate damage (e.g. through replacement purchases) can be implemented.  
• Not all regions of a country are equally affected by administrative measures in terms of duration and intensity. Collect official announcements, press reports and the like for the specific region in order to provide proof of the cause of your delivery problems. For example, in China, the China Council for the Promotion of International Trade (CCPIT) issues a certificate stating that there is a force majeure event under certain conditions. This is not a personal license, of course, but it does support the evidence that an establishment is affected by the Chinese government's measures to curb the coronavirus.
  
  

Effects on employees?

In principle, the employer is obliged to take care of the health of his employees. An employer will therefore currently not be able to arrange a business trip to high-risk areas affected by the coronavirus, as has previously been the case for areas with an express travel warning. Rather, the duty of care of the employer results in the obligation to take appropriate preparatory and protective measures for the employees. This may include completely refraining from certain trips.

If, however, it can be determined that a certain business trip or posting is very reasonable and - objectively - there is no danger, an employee will very well have to follow the instructions given by his employer, such as attending an international trade fair or conference.

In addition, the employer's duty of care may result in an obligation to bring workers back from affected areas. The other only applies if the employee's stay is solely due to private reasons.
In such a case, if an employee is stuck in a quarantined location and is therefore unable to perform his work, he will retain his entitlement to the remuneration in any case for a certain (relatively short) time.

If work is not performed because an employee has COVID-19 and the employer has already complied with his obligation to continue paying wages, he may be able to apply for reimbursement from the federal government on the basis of the Epidemic Act.