What are the Legal Consequences of the Official Measures to Curb the Spread of COVID-19 for Entrepreneurs for their Commercial Contracts? Who is Liable for Delivery Failures? 

March, 2020 - Veit Öhlberger

Are delivery obligations between businesses still to be fulfilled?

In principle, commercial contracts and the rights and obligations contained therein remain legally binding, despite the official measures taken to prevent the spreading of COVID-19.

However, in connection with travel contracts, the Austrian Supreme Court qualified the outbreak of the infectious disease SARS as a force majeure event that made it unreasonable to perform the contract. Due to the similarity of events, this categorization may also be applied to the current situation. If measures to prevent the spreading of COVID-19 are a force majeure event, the question remains as to which contracting party will have to bear the consequences of any delivery failures resulting therefrom.

In this context, possible contractual provisions, such as a force majeure clause, must be taken into account (see the next question below).

In the absence of a contractual provision, Austrian contract law provides the following starting points for a possible exemption from delivery obligations:

  • According to Section 1447 ABGB (Austrian Civil Code), contractual obligations are mutually waived in case of accidental loss of an object. However, the provision is only applicable to so-called specific obligations (Speziesschulden), for example if a particular order cannot be delivered due to imposed export embargos. It does not apply to products which are described according to general criteria (so-called generic obligations, Gattungsschulden). According to the Austrian Supreme Court this includes, for example, also new serial produced cars of a certain brand.

  • The official measures taken by the authorities to prevent the spreading of COVID-19 could mean that the underlying basis of the transaction ceased to exist (Wegfall der Geschäftsgrundlage). If this is the case, the contract can be adjusted or terminated if it can no longer be maintained.

The contract contains a force majeure clause. Does this waive the delivery obligation? What needs to be taken into account?

A force majeure clause gives the parties the right to suspend the obligation to perform the contract or - depending on the wording - even to terminate the contract if unforeseen events occur over which the parties have no influence and which prevent, hinder or delay the fulfilment of the contract.

When a party considers invoking a force majeure clause, it should, in particular, take into account the following factors: (i) the scope of the force majeure events (does the wording chosen in the contract also include e.g. epidemics or official measures to control them), (ii) do contractual obligations, in particular delivery obligations, cease to exist in whole or in part, and (iii) is the application of the force majeure clause subject to any further conditions (such as specific deadlines and notification obligations).

Irrespective of any expressly agreed notification obligations, suppliers should inform their purchasers early about possible delivery failures. This enables the purchaser to take measures to minimize the damage (e.g. through replacement purchases).

Also, different countries and regions are affected differently in terms of duration and intensity by the official measures to prevent the spreading of COVID-19. Anyone wishing to invoke force majeure should therefore collect official announcements, press reports and other similar information for the specific region in order to be able to provide evidence of the cause of the delivery problems.

Can the purchaser hold the supplier liable for damages resulting from non-delivery?

If a delivery obligation continues to exist (see the above questions), the supplier - in the absence of any other contractual provision - is generally not liable under Austrian law for any damages that the purchaser may incur as a result of non-delivery. Under Austrian law, liability for damages requires negligence or willful misconduct. The outbreak of the coronavirus and the official measures taken to prevent its spreading are beyond the control of a contracting party, just like natural disasters. However, in contractual relationships it is the alleged injuring party who has to prove the absence of fault (reversal of burden of proof in favor of the injured party) and who must therefore demonstrate that the failure to comply with the delivery obligations is attributable to the outbreak of the coronavirus and the related official measures.

Can the purchaser rescind the contract for lack of delivery?

In order to answer this question, it must also first be examined whether the contract contains any provision on this issue (see above on force majeure clauses).




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