The current turning point – Force Majeure and loss of the basis for business

The "current turning point" in connection with the Russian war of aggression on Ukraine has not only a political but also perhaps an even greater economic dimension. The sharp rise in the price of raw materials and energy has led to a dramatic increase in costs for companies. The interruption of supply chains often causes production downtimes in industry. Delays or failures of deliveries are the result in many industries. In addition, the effects of the coronavirus pandemic continue to play a major role.

In the practice of our legal advice, cases of this kind already take up a large space. For example, our clients submit form letters to us from their suppliers in which not only higher prices are announced, but also halts in delivery are threatened in the event that the buyer side does not accept these price increases. Conversely, clients with delivery obligations are faced with the problem that they are threatened with losses or even a threat to their existence if they do not adjust their prices to their clients.

Our consulting services are multi-faceted in the current situation. These begin with drafting future contracts, in which these new developments must be taken into account with appropriate contractual clauses in line with the interests of the parties. Another focus of our advice ranges from accompanying negotiation processes with the aim of finding an amicable solution to the question of whether price adjustments or contract terminations are enforceable or, conversely, have to be accepted. A core principle that was already valid in Roman law still applies: "Pacta sunt servanda" - contracts must be honoured.

What is decisive is whether and when exceptions to this principle are opened up in the current situation. So far, this has mainly applied to those cases in which the exchange of services between the parties was characterised by force majeure, galloping commodity prices and inflation rates, i.e. between, during or shortly after the world wars. Suddenly, however, the issue is highly topical and will probably keep us busy for a long time to come.

Despite all the harmonisation of laws that has taken place in the last 20 to 30 years, especially in the European legal sphere, this issue has remained untouched by efforts at legal standardisation. The reason for this was apparently a lack of topicality. Therefore, with this newsletter, we provide an overview of how this topic is handled legally with regard to three key questions in the respective countries of our partner law firms:

Conclusion

In conclusion, we would like to make the following recommendations to help you cope with the current situation, irrespective of the preceding country-specific legal situations:

In relation to future framework agreements and legal relationships that are intended to last for a certain period of time, as well as general terms and conditions, you should consider the implementation of force majeure clauses in more detail. We will be happy to provide you with advice and support on this topic. For example, it becomes clear for all contracting parties under what circumstances and to what extent contract adjustments are considered if the framework conditions for the legal relationship change significantly.

In addition, the following checklist provides you a sample overview of those questions for which legal advice is usually recommended:

  • Can a contractual obligation no longer be fulfilled?
  • Does the contract regulate cases of force majeure?
  • Does the respective contract contain specific provisions for default and impossibility?
  • What room for manoeuvring is there to reach an amicable settlement?

Ultima Ratio: Adjustment, termination or cancellation of the contractual relationship.



Autor: Dr. Johannes Thoma