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Coronavirus – COVID-19 and sales chain risks - Austria

  • Austria
  • Coronavirus - Contractual issues
  • Coronavirus - Country overview

24-04-2020

The current COVID-19 measures of the Federal Government will have a massive impact on the sales chains in the Austrian industry. Manufacturers continue to produce goods, which are delivered directly or indirectly via intermediaries to the final seller, who sells the goods to the end customer.

Companies are confronted with a lot of issues due to the COVID-19 measures. In particular, manufacturers continue to produce goods in order to be able to sell them to the final sellers. But, the final seller cannot sell the goods to the end customer at the moment, due to low demand and often due to a mandatory business closure according to COVID-19 measures. The final seller therefore tries to buy as few goods as possible, although these were ordered before the crisis.

COVID-19 vs. pacta sunt servanda (Agreements must be kept)

In Austrian law, the principle “pacta sunt servanda” – agreements must be kept - applies, but this is not possible for many companies due to the COVID-19 pandemic. A look at contract is often useless, because risk allocation in the event of a pandemic is almost always missing due to lack of predictability.

Therefore, it is necessary to apply dispositive law. The risk assignment rules in Sec 1064 in connection with Sec 1048 General Civil Code (Allgemeines Bürgerliches Gesetzbuch, ABGB) have to be considered in this context. However, these are targeted at permanent damage or a legal ban on the sale of the goods, which is why they are not applicable to the COVID-19 measures. Thus, the only option is to apply the doctrine regarding the commercial basis of the contract (Lehre der Geschäftsgrundlage).

Frustration of contract as a way out?

In any case, the frustration of contract requires a gap in the contract concluded as well as the absence of any other legal regulation. Only those circumstance may lead to frustration of contract. What happens if the commercial basis of the contract (Geschäftsgrundlage) is no longer applicable? There is a wide range of case law and contradictory discussions in the academic world on this topic.

Commercial basis of the contract means, that both parties have accepted the existence, continuation or occurrence of certain circumstances, which are typical for the business at the moment of the conclusion of the contract and have not made them a condition for the contract, simply because nobody thought of the necessity of an explicit regulation. Of course, this circumstance must neither be foreseeable nor attributable to the sphere of one party.

According to Austrian case law, contracts in which an entrepreneur, as the purchaser of goods, who is prevented from reselling them by circumstances beyond his control, can demand an amendment of the contract. So far, this has mainly concerned cases of transactions for delivery by a fixed date where a later sale is no longer possible (e.g. chocolate Easter bunnies after Easter) or at least only at considerably lower sales prices.

Whether this allows a contract amendment for suppliers in transactions concluded by force has to be examined on a case-by-case basis. For perishable goods, however, this will probably be a permissible consequence.

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