Contributed by Graf Patsch Taucher, member of PONTES
How might businesses in your jurisdiction be impacted by the Covid-19 pandemic?
Companies can be affected by the virus in many ways.
This may include, among other things:
a. Employment relationships
Among other things, loss of employment issues around continued payment, short-time work, the implementation of home offices, missing employees due to sickness.
b. Loss of revenue
The fact that many retailers and organizers of major events have to close their outlets/premises for at least one week currently strongly affects restaurants, bars, shops, organizers of major events and conferences and the sports industry. Only supermarkets, gas stations, post offices, pharmacies, banks and certain other fundamental businesses may be kept open.
c. Impact on management issues
Stock companies and limited liability companies are currently not allowed to hold their annual general meetings or general assemblies if they expect more than 100 people to be present.
d. Border controls or border shutdowns to neighbor countries
This may affect in particular companies operating across borders. Exporting products may be delayed or not work at all. Employees from neighboring countries may not be able to get to work because of restricted access to Austrian territory.
e. Contractual obligations
Companies may generally not be able to meet their contractual obligations due to the current restrictions in place. Certain activities may no longer be permitted at all, companies from regions under quarantine will not be able to service their customers, sick employees may lead to enterprise shutdowns and production losses.
In your jurisdiction, if it becomes impossible for a party to perform its contractual obligations because of an external event beyond its control (such as the Covid-19 pandemic), can that party cancel its contract?
To answer these questions, three things need to be clarified in advance:
a. Is the virus to be regarded as force majeure under Austrian law?
According to case law, force majeure is to be assumed if an extraordinary external event occurs which does not occur or cannot be expected to occur in a certain regularity and which cannot be averted or rendered harmless in its consequences even by exercising the utmost reasonable care. Any event is deemed unavoidable if it cannot be averted despite all conceivable expertise and precautionary measures.
b. Is there a contractual agreement on the legal consequences in case of a force majeure event?
A right to terminate or suspend an agreement is usually embedded in a force majeure clause if upholding the contractual obligation is no longer reasonable for either party. Usually a party may only terminate an agreement in case of a force majeure event after observing a certain grace period. At the end of such a grace period the agreement may be terminated in case the force majeure event still continues. Where a termination right has been agreed only in favour of the party that is still able to perform its obligations the following applies (c. below).
c. No contractual provision on force majeure
In this case, statutory law applies, which offers the following options for all parties:
1) Frustration of purpose
The basis on which parties enter into a transaction is a set of circumstances typical for such a transaction which both parties assume when concluding an agreement. If the fulfillment of the agreement has become useless for a party due to a misconception about such circumstances, that party may be entitled to contest or adjust the contract (e.g. fulfillment after the force majeure event), provided that these circumstances are not attributable to a party and the force majeure event was not foreseeable at the time when the contract was concluded.
If, however, the fulfillment of the contract is generally no longer possible, the provisions on subsequent frustration shall apply.
2) Subsequent Frustration
Subsequent frustration shall be deemed to exist if the performance of a contract is impossible due to a permanent obstacle.
If performance becomes frustrated due to a force majeure event the parties´ obligations are no longer valid. The economic disadvantage shall be borne by the party whose performance is thwarted by the force majeure event.
In your jurisdiction, if a party’s performance of its contractual obligations is adversely affected by an external event beyond its control (an “FM Event”) but does not become completely impossible, can that party typically seek relief from compliance with its obligations?
See our answers to the point above (In your jurisdiction, if it becomes impossible for a party to perform its contractual obligations because of an external event beyond its control (such as the Covid-19 pandemic), can that party cancel its contract?)
If yes, what considerations should be borne in mind by such parties, in particular in relation to:
Any notification obligations (Is the affected party typically required to notify any counterparties of the FM Event within a specific time period?)
There is no specific provision under Austrian law in this respect. In principle, however, the parties should try to find a solution as quickly as possible. If the affected party does not inform the other party in due course it may be in default, which would entitle the other party to withdraw from the contract after a reasonable grace period. Also, the mitigation obligation described below may apply.
Any causation requirements (Is the affected party typically required to demonstrate that it would have performed its contractual obligations but for the FM Event?)
In general, no.
Any mitigation obligations (Is he affected party typically required to demonstrate that it took specific steps to avoid the impact of the FM Event as far as possible?)
Generally, yes. There is no duty to mitigate damages in the sense of a legal duty. However, in the Austrian legal system, the obligation to mitigate damages applies.