Germany: Force Majeure - Hardship in relation to Conflict and Sanctions

All war or related sanctions legislation issued in connection to the war in Ukraine has been issued as EU legislative acts. There is no national transposition legislation in this regard. The new EU sanctions regulations are directly applicable in Germany, so there has been no need for purely national legislation to date.

However, there are general provisions of contract law that may also be relevant in cases of war and sanctions. 

1. War and sanctions can constitute a case of force majeure, which in turn can be subject to the statutory provision on impossibility of the contractual performance within the meaning of Section 275 of the German Civil Code (BGB), which relieves the debtor/seller of the contractual obligation to perform (in case of temporary impossibility for the duration of the force majeure event).
2. War and Sanctions can also lead to interference with the basis of the transaction pursuant to Section 313 of the German Civil Code (BGB), which could result in the adaption or even the termination of the contract.

The German Civil Code (BGB) does not provide for special contract law provisions that explicitly regulate cases of war and sanctions.

This guide focuses on the consequences under civil law/contract law.

Section 275: 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: 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.

German statutory law itself does not include a general provision or a definition of force majeure events. 

However, German case law frequently deals with the concept of force majeure. According to the interpretation of German courts, force majeure is an:

• external event that is unpredictable, and 
• unforeseeable and unusual, and which 
• cannot be prevented or rendered harmless by economically acceptable means, even by exercising the utmost care reasonably to be expected in the circumstances.

Force majeure clauses in contracts governed by German law are often based on this definition in German case law. The principles of German case law on force majeure are thus also likely to be of considerable importance in the interpretation of force majeure clauses.

If the above-mentioned requirements are met, war and sanctions may also constitute a force majeure event. However, this always depends on the individual case and its circumstances. 

1. War as an event of force majeure:

If the war does prevent a party from performing its contractual duties (e.g. the factory is located in a war zone and it is impossible for employees to work there in order to manufacture goods) then the concept of force majeure may apply. 

However, if the party is still able to perform its duties despite the war, no force majeure event exists. Therefore, it depends on the individual circumstances. In most cases, the party relying on force majeure bears the burden of proof.

2. Sanctions as an event of force majeure:

EU sanctions that prohibit the parties from delivering goods, may, at least on a legal level, constitute an event of force majeure if the sanctions were imposed after the conclusion of the contract (i.e. if they were still unforeseeable for the parties when the contract was concluded). The same applies to EU embargoes.

The parties are free to stipulate a force majeure provision in the contract. In most cases, the contractual force majeure clause will have priority over the statutory provisions and the statutory rights and obligations of the parties.

Therefore, a force majeure clause, expressly including war and sanctions, is recommended under German law. 

When drafting such clauses for standard contracts, significant restrictions according to statutory and case law in Germany have to be taken into account. 

As mentioned above, there is no regulation or definition in the German Civil Code. 
According to case law, the event must not have already existed at the time of concluding the contract or the parties must not have foreseen its occurrence at the time of concluding the contract.

EU regulations on sanctions override mandatory provisions. This applies to much of EU primary law, and includes many norms of foreign trade law, such as regulations on the import and export of goods, services, capital, means of payment, and regulations on embargoes and sanctions. These provisions cannot be waived by a choice of law clause, so they must be applied to all situations falling within their scope, regardless of the law applicable to the contract.

Any German court would have to apply EU sanctions regulations, regardless of the contract's choice of law. 

I. Sanctioned counterparty:

The main EU regulations comprising sanctions against, i.e. Regulation (EU) 269/2014 and 833/2014, provide respectively in Art. 11 that:” 

1. No claims in connection with any contract or transaction the performance of which has been affected, directly or indirectly, in whole or in part, by the measures imposed under this Regulation, including claims for indemnity or any other claim of this type, such as a claim for compensation or a claim under a guarantee, notably a claim for extension or payment of a bond, guarantee or indemnity, particularly a financial guarantee or financial indemnity, of whatever form, shall be satisfied, if they are made by: 

• persons, entities or bodies targeted by the sanctions;
• any other Russian person, entity or body; [only with regard to Regulation (EU) 833/2014]
• any person, entity or body acting through or on behalf of one of the persons, entities or bodies referred to in point (a) of this paragraph [or with regard to Regulation (EU) 833/2014 also point (b) of this paragraph.]

2. In any proceedings for the enforcement of a claim, the onus of proving that satisfying the claim is not prohibited by paragraph 1 shall be on the person seeking the enforcement of that claim. 

In simplified terms: Sanctioned persons in the EU cannot claim/enforce damages if EU persons are in "breach of contract" due to the sanctions. Furthermore, the regulation provides for a reversal of the burden of proof. Article 11 is therefore intended to ensure that no surrogate in the form of claims for damages leads to the sanctioned persons receiving something else (instead of the originally intended performance), as the EU sanctions regulations actually prohibit the fulfillment of certain contracts.

II. Warring counterparty (if no war related sanctions exist):

If, due to the war, a case of force majeure exists for the obligor in Germany in accordance with the above-mentioned conditions, performance becomes impossible and the obligation to perform (temporarily) ceases. The other party cannot – in the absence of an obligation to perform – assert any claims against the obligor.

In summary, German statutory law does not provide for specific war- or sanctions-related provisions. There are, however, general provisions of contract law, which may apply. In individual cases, war and sanctions may be considered force majeure events and, consequently, German statutory provisions are applicable.

However, these statutory rights do not always and automatically apply in the event of war and sanctions. Moreover, statutory rights often do not provide the desired flexibility for the parties to find an appropriate and economically reasonable solution.  

Therefore, we recommend a well-drafted force majeure clause, including the consequences (i.e. rights and obligations of the parties in these events). 

When drafting a force majeure clause, the following should be considered:

• War, sanctions and embargoes should be included in the enumerative list of possible cases of force majeure.
• Provide for the possibility of mutual release from parts or the entire contract.
• Under certain circumstances, provide for the flexibility to rely on a force majeure event, even if this event was already foreseeable at the time of the conclusion of the contract.

The same principles for contract drafting apply to unforeseen circumstances.