Law and regulation of force majeure in Germany

Force majeure events are not directly regulated under German statutory law. Under German law, such events can be subject to statutory provisions on impossibility of performance (section 275 German Civil Code (BGB)), and provisions dealing with circumstances where the events in question interfere with the basis of the transaction, (section 313 German Civil Code).

According to section 275 German Civil Code, performance of the obligations under a contract is excluded to the extent that it is impossible for the obligor or for any other person to perform such obligations. The obligor may also refuse to perform its contractual obligations to the extent that these require unreasonable expense and effort. 

Section 313 German Civil Code stipulates that if the circumstances forming the basis of the contract have significantly changed, the contract may be amended (if possible) or terminated if one of the parties cannot reasonably be expected to uphold the contract.

In both of these cases, the parties are obliged to return any element of the performance (where applicable) or payment received or to provide compensation where the performance cannot be “returned”.

Furthermore, if an event of force majeure caused a breach of contract, for example delay in delivery, the other party cannot claim damages if the event and its consequences were beyond the reasonable control of the obligor (e.g. the supplier). This means that the party claiming force majeure relief has to prove that it has taken all necessary and reasonable steps to avoid the effects of the force majeure event.

Section 275 German Civil Code

Exclusion of the duty of performance

(1) A claim for performance is excluded to the extent that performance is impossible for the obligor or for any other person.

(2) The obligor may refuse performance to the extent that performance requires expense and effort which, taking into account the subject matter of the obligation and the requirements of good faith, is grossly disproportionate to the interest in performance of the obligee. When it is determined what efforts may reasonably be required of the obligor, it must also be taken into account whether he is responsible for the obstacle to performance.

(3) In addition, the obligor may refuse performance if he is to render the performance in person and, when the obstacle to the performance of the obligor is weighed against the interest of the obligee in performance, performance cannot be reasonably required of the obligor.

(4) The rights of the obligee are governed by sections 280, 283 to 285, 311a and 326.

Section 313 German Civil Code

Interference with the basis of the transaction

(1) If circumstances which became the basis of a contract have significantly changed since the contract was entered into and if the parties would not have entered into the contract or would have entered into it with different contents if they had foreseen this change, adaptation of the contract may be demanded to the extent that, taking account of all the circumstances of the specific case, in particular the contractual or statutory distribution of risk, one of the parties cannot reasonably be expected to uphold the contract without alteration.

(2) It is equivalent to a change of circumstances if material conceptions that have become the basis of the contract are found to be incorrect.

(3) If adaptation of the contract is not possible or one party cannot reasonably be expected to accept it, the disadvantaged party may revoke the contract. In the case of continuing obligations, the right to terminate takes the place of the right to revoke.
 

In general, parties are free to regulate force majeure clauses. 

In individually negotiated contracts, the parties can regulate force majeure clauses to the extent that the clauses do not constitute unconscionable provisions or violations of good faith. 

However, if the clauses are considered "standard terms" (meaning they are part of standard contracts which are used in several cases in an identical fashion), the strict rules on standard contracts under German law (see below) apply.

German case law defines force majeure as an “external, unavoidable and unforeseeable event”.

In individually negotiated contracts, there is a difference between B2B and B2C transactions which relates to the level of reasonableness and fairness. The principles of consumer protection and the level of business experience of the contracting parties, respectively, have to be taken into account.

Regarding standard contracts, German law provides for distinctions between B2B and B2C transactions. A clause is more likely to be considered invalid because it imposes an unreasonable disadvantage on the other party if the clause is part of a B2C contract, as consumers enjoy a high level of protection under European/German law. However, B2B contracts are also restricted significantly if they are subject to the regulations on standard contracts under German law (see below). 

German law provides for strict regulation of standard contracts, such as T&Cs. Please note that under German law, the restrictions on standard contracts not only apply to typical T&Cs but to all contracts in which a party unilaterally imposes more than two obligations on the other parties.

All clauses that constitute an unreasonable disadvantage for a particular party are deemed invalid under German law. An unreasonable disadvantage is usually assumed if a clause deviates from the core principles of a statutory provision. Even if there is vast case law on this matter, it is in many cases not easy to reliably predict whether a German court would consider a specific provision to be invalid. 

However, there are some indications, as follows: 

• Clauses that extend the scope of force majeure to events that could have been prevented by one party or that provide for a right to terminate the agreement even if the event of force majeure is only temporary are likely to be invalid as they contradict the binding effects of the contract. Please note that the contract may validly stipulate that the supplier's obligation to deliver goods is subject to the supplier being supplied with the goods or raw materials by its sub-suppliers, as long as the supplier is not at fault.
• On the other hand, clauses that restrict the scope of force majeure to the extent that acts beyond the reasonable control of one party would not be covered are also likely to be invalid as they circumvent the provisions on impossibility of performance and the principle that liability is always dependent on fault.
• Furthermore, clauses that exclude the right to terminate or the obligation to return payments received in the event of force majeure bear a risk of being found to be invalid. 
• Clauses that provide for a temporary suspension of contractual obligations for the duration of the event of force majeure are very likely to be deemed valid as long as they provide for a termination right if the parties cannot foresee when the event will end. 
• In order to reduce the risk of a clause being deemed invalid, the force majeure clause should always apply to both parties. 

Please note that if both parties refer to their T&Cs and both T&Cs provide for an exclusion of the counterparty's T&Cs (battle of the forms) under German law, the knock-out rule applies. This means that, as a result, neither party's T&Cs would apply in most cases. Therefore, it is very likely that neither party’s force majeure clauses would apply, but instead German statutory provisions (see above) would apply by default in the case of a battle of the forms. 

The obligations of both parties under the contract may be suspended by either party without liability if the performance is obstructed or rendered impossible by events beyond the reasonable control of such party, e.g. act of god, war, riots, fire, explosion, epidemic, flood, strike or lockout. Each party agrees to notify the other party in the event of the suspension of any deliveries to be made under this contract and agrees to apply all reasonable efforts towards prompt resumption of such delivery after removal of the cause of suspension; provided however, that if any such delivery is delayed for more than [insert a reasonable time limit], then either party may elect, by written notice to the other party, to cancel such delivery without liability.

Any clause addressing the COVID-19 issue needs to be drafted on a case-by-case basis under German law, in particular as COVID-19 is not an unforeseeable event anymore. Therefore, it may not qualify as Force Majeure in contracts entered into now.
The parties need to agree on tailor-made solutions due to the restrictions of German law on terms and conditions.

Possible remedies in case of force majeure under German law include (see question 1 above): 

• Termination/withdrawal
• (Temporary) release from the obligation to perform under the contract

Both Chambers of the German parliament passed a law on 27 March 2020 to mitigate the negative consequences of the COVID-19 pandemic for consumers and businesses.

The new law (which comes into effect retroactively as of 1 March 2020) provides for measures in different fields of law, e.g.:

• Consumers and small businesses (i.e. less than 10 employees / up to EUR 2 million annual turnover) are entitled to refuse fulfilling certain continuing contractual obligations until 30 June 2020 (e.g. monthly payments) if (i) the contract was concluded before 8 March 2020 and (ii) the fulfilment of the obligation would endanger the economic basis or the livelihood of the respective consumer or small business due to the COVID-19 pandemic.
• Consumer and commercial rental/ lease agreements cannot be terminated due to delayed payments of the rent for the period from 1 April until 30 June 2020 if the non-payment is caused by the effects of the COVID-19 pandemic. This provision is mandatory and cannot be deviated from by the contractual parties. Other rights of the lessor, including termination for other reasons, remain unaffected.

The duty of companies to file for insolvency was suspended until 30 September 2020 if: (i) the insolvency situation is caused by the COVID-19 pandemic; and (ii) it can be reasonably expected that the reason for insolvency could be remedied in the future. The suspension was extended to 31 December 2020 through a law passed on 25 September 2020 by the German parliament. The extension was only applicable from 1 October  to 31 December 2020 for companies with debt overloads but are not already insolvent. 

What jurisprudence developed in relation to the COVID-19 pandemic in Germany?

Different (lower) courts in Germany have already published decisions regarding the temporary or permanent impossibility of performance during the COVID-19 pandemic. The decisions of the different courts vary even on the same topic. The Federal Court of Justice has not yet ruled on the matter, leaving some uncertainty as to the outcome of the court cases. However, it is only a matter of time before the Federal Court of Justice rules on matters surrounding COVID-19 and provides a more unified approach.

The lower court of Bremen decided that the cancellation of concert events due to the COVID-19 pandemic without a replacement date falls under Section 313 German Civil Code as an interference with the basis of the business transaction. The court allowed the buyer of the ticket to get a full refund of the purchase price (AG Bremen, 1 December 2020 – 9 C 284/20).
In the case of a sponsoring contract for a soccer club, the fact that the games were played without any visitors in attendance justified the refund of the sponsored amount, despite the fact that the game was being aired on television. The refund was mainly based on a clause in the sponsoring contract. (LG Paderborn, 26 October 2020 – 3 O 252/20). 

Regarding commercial leases, the regional courts have not yet taken a unified approach. In one case, the regional court of Munich I decided that the mandatory closing of a store, based on an order by the State of Bavaria because of the COVID-19 pandemic, did qualify as a defect in the rental property, which allowed the tenant to reduce the lease amount. (LG München I, 22 September 2020 – 3 O 4495/20). In another similar case, the regional court of Frankfurt decided that such a mandatory closing did not qualify as such or even as an impossibility of performance by the landlord to allow use of the rented property according to Section 275 German Civil Code. Instead, the court found that a renegotiation of the terms of the contract could be requested based on Section 313 German Civil Code, if the situation could potentially lead to significant consequences for the tenant, which could threaten the tenant's commercial existence. (LG Frankfurt, 2 October 2020 – 2-15 O 23/20).