The coronavirus not only poses major challenges for society in general, but also for the economy. Companies are increasingly faced with the situation that they are unable to fulfil concluded contracts on time or have to decide to postpone the fulfilment of contracts for reasons of caution. In addition to the certainly primary health policy component, entrepreneurs are therefore faced with the specific question of how to deal with such problems in the provision of services.

Case constellations

The most common cases in practice can be divided into the following categories:

  • The debtor of a service (supplier, contractor, service provider) does not perform the service at the agreed time and is therefore in default ("debtor default").
  • The creditor of a service (customer, client) does not accept the offered service and is therefore in default of acceptance or cannot provide agreed cooperation services ("default of acceptance" or "lack of cooperation")
  • The service can finally no longer be provided ("impossibility")
  • The basis on which the contract was concluded shall cease to exist ("Loss of the basis for the transaction").

Assessment

1. Is there force majeure?

First of all, the question arises whether the appearance of the coronavirus is a case of "force majeure". In doctrine and jurisprudence, the following definition has become generally accepted: "Force majeure is an elementary external event which could not be prevented even by exercising the utmost reasonable care and is so extraordinary that it cannot be considered a typical operational hazard" (Kletecka, Schadenersatz versus höhere Gewalt, ÖJZ 2015/138, H 23-24 / 2015, 1061). In a decision in 2005 the Austrian Supreme Court assessed the occurrence of the infectious disease SARS as a case of force majeure (OGH 4 Ob 103/05h). We can therefore basically assume that the occurrence of the coronavirus is a case of force majeure.

This assessment is relevant because it usually leads to the fact that the debtor who defaults on a service is not liable for any consequences of this default.

Important note: In each individual case, it must therefore be carefully examined (i) whether the occurrence of the coronavirus has actually prevented or delayed the performance of the service in the specific case to be assessed and (ii) whether the debtor could not have prevented the occurrence of the event. The second aspect in particular can be a basis for the argument that a diligent entrepreneur must also for contractual reasons take measures (with the utmost reasonable care) to prevent the occurrence of this event.

2. Debtor's default

There may be many different reasons why a debtor cannot fulfil his contractual obligations. Examples: an official measure which prevents the agreed performance of services, absence of employees due to illness or problems upstream in the service chain which affect the own performance of services. If the debtor is not at fault (e.g. because an event of force majeure has actually occurred), this is called an "objective default".

In this case the creditor can either agree to a later performance or withdraw from the contract by setting a reasonable period of grace. The creditor does not have any claims for damages in the case of objective default of the debtor. Only if the debtor is responsible for the default, the creditor has claims for damages ("subjective default)".

Important note: Regardless of the reason for the delay, it is important that the debtor informs the creditor about the (imminent) delay as soon as possible, otherwise he runs the risk of being liable for breach of his duty to warn. Furthermore, the debtor must help to keep the creditor's loss as low as possible. Finally, it should also be mentioned that the law presumes that the default was caused by fault - the debtor therefore bears the risk of whether he can prove that a case of force majeure exists and that he is not at fault.

Special case 1 - Fixed-date transaction: The case is to be assessed partly differently if it is a fixed-date transaction, i.e. one in which the creditor already at the time of conclusion of the contract declares his withdrawal in case of delay or if the nature of the contract or the purpose of performance known to the obligor indicates that the creditor has no interest in late performance. In this case the contract is cancelled with immediate effect and without the need for a declaration of withdrawal (unless the creditor immediately declares that he is still interested in performance).

Special case 2 - Delay in performance for "precautionary reasons": Many companies are faced with the difficult question of what precautionary measures they have to take to contain the coronavirus and what contractual consequences, for example, a postponement of performance may have which, at the time of the decision, is not yet absolutely necessary (e.g. due to obligations under labour law or official orders) but, after weighing up various considerations, appears "necessary" or "advisable". Particular caution is required here. In principle, contracts must be observed and cannot be unilaterally suspended without risking claims for damages. Even if precautionary measures are understandable from a moral perspective, this does not mean that the debtor is released from his obligation to perform in this respect.

3. Creditor default

In principle, the creditor cannot be forced to accept a delivery or service. However, if he does not accept performance at the appointed time and despite the debtor's willingness to perform, he is in so-called default of acceptance. Default of acceptance also exists if the creditor fails to provide the cooperation required for performance by the debtor (e.g. he refuses the craftsman access to the apartment or does not appear at the doctor's appointment).

In case of delivery of goods, the debtor can deposit the goods (at court or in a public warehouse or otherwise in a safe manner) and can also demand from the debtor the reimbursement of the necessary expenses which he has incurred in the interest of the debtor for the goods from the time of the agreed delivery. Furthermore, the debtor shall be entitled to have the goods auctioned publicly for the account of the buyer after prior warning or - if the goods have a stock exchange or market price - to sell them by private contract at the current price after prior warning.

As a rule, the debtor does not have a right of acceptance. Only if the debtor has a recognizable interest in performance that goes beyond that of receiving the consideration can he enforce acceptance. However, the contract remains in force and the debtor can demand payment from the creditor who is in default of acceptance. Furthermore, creditors in default of acceptance bear the risk that the object is lost by accident or through slight negligence on the part of the debtor.

Special case 3 - Lack of cooperation in complex projects: Especially in complex projects, the debtor's performance often requires the (sometimes in-depth) cooperation of the creditor. If the creditor does not comply with his obligation to cooperate, this often also has consequences in the debtor's sphere in such cases; the debtor cannot continue the project work, for example, because he lacks information to be provided by the creditor. Usually the legal consequences of such a lack of cooperation are specifically regulated in the contract. If this is not the case, the question will have to be asked whether the creditor's obligation to cooperate is an independent contractual obligation and whether the creditor in this case is the debtor of the cooperation performance and is in debtor's rather than creditor's default with respect to this performance.

4. Impossibility

If the provision of services becomes impossible after conclusion of the contract but before fulfilment, this is referred to as "subsequent impossibility". For example, the cancellation of major events such as concerts or theatre performances due to an official prohibition will usually be considered such a case of impossibility. In this case the contract is cancelled and the debtor is not obliged to perform. If the debtor is not responsible for the impossibility of performance or is otherwise responsible (e.g. because he has assumed the risk by contract), he is not liable for damages. However, he is not entitled to compensation either, provided that the creditor is not responsible for the impossibility of performance either.

If a concert does not take place because the authorities prohibit large events, the price of the tickets is to be refunded, but the organiser is not obliged to compensate the visitors for frustrated travel costs or to pay the musicians the agreed fee. However, if the organizer decides to cancel the event without such a prohibition, this is not a case of impossibility, but of debtor's default and it must be examined whether the organizer is at fault and therefore he is also exposed to claims for damages by the visitors due to frustrated costs and claims for remuneration by the artists.

5. Loss of the basis of the transaction

An event of force majeure can, in addition to the default described above, also lead to the loss of the basis for the transaction. A force majeure event leads to the loss of the basis of the contract if it is no longer reasonable to expect a party to be bound by the contract as a result of the change in the contract due to this event. In this case, however, only those cases are relevant which concern a change of circumstances which everyone associates with the conclusion of such a transaction and which were not foreseeable at the time of conclusion of the contract. A typical example is the outbreak of war in the destination country of a trip. The case of a massive outbreak of a highly infectious disease will be comparable. In this case, the affected party can contest the contract or demand its adaptation.

6. Note: contractual agreements

The above comments summarise in brief the basic legal model. However, it is permissible and common practice, particularly between entrepreneurs, to adapt this basic model by contract. Therefore, if you are faced with the situation of having to assess one of the above cases, it is essential that you also assess the concrete contractual agreements in addition to the basic legal model. These can usually be found in the contract concluded for the individual case, in any framework agreements or in general terms and conditions. Business terms and conditions are also usually agreed when purchasing tickets for large events.

Test steps:

  • Is my service provision affected and am I in danger of falling behind?
  • What requirements exist on the basis of concluded contracts?
  • Do I have to warn the creditor?
  • What measures can I take to minimise the damage?
  • Is the principle of force majeure actually applicable in the specific case?
  • Does the insurance company have to be informed?