作者

Julian Randall

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Andrew Howell

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Dr. Philipp Behrendt, LL.M. (UNSW)

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Donata Freiin von Enzberg, LL.M.

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Philippe Glaser

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Wolfgang Kapek

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Hugo Nieuwenhuizen

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Nick Carnell

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作者

Julian Randall

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Andrew Howell

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Dr. Philipp Behrendt, LL.M. (UNSW)

合伙人

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Donata Freiin von Enzberg, LL.M.

授薪合伙人

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Philippe Glaser

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Wolfgang Kapek

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Hugo Nieuwenhuizen

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Nick Carnell

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2020年3月30日

International disputes: How to protect your company's operations during COVID-19

  • IN-DEPTH ANALYSIS

What obligations remain in place and what has changed over the last few weeks? And what are your options to help protect your company, your employees and still meet your duties as a director?

Businesses across the world run according to private agreements – supply contracts, leases, employment contracts and financing arrangements – and a local framework of laws. Some of the duties under those agreements and local laws have suddenly become impossible (or very difficult) to discharge.

Government responses to the pandemic have choked off many businesses' revenues while leaving them liable to pay the rent, their staff and their suppliers. In normal times, a business with no revenue and a lot of obligations would be required to place itself into insolvency very quickly.

Insolvency and company law and the rules governing commercial contracts vary from jurisdiction to jurisdiction across Europe, but in our experience across Europe, the fundamental tension between the need for businesses to do what they agreed to do and the need to preserve good businesses and avoid unfair and destructive outcomes is the same across the continent.

Different systems will attempt to reach a fair outcome by different mechanisms, and this can lead to very different results. For example, in many jurisdictions, the Civil Code will set out a definition of 'force majeure', 'hardship' or 'unforeseen change' which may excuse a party from performing all or some of his obligations under the contract.

On the other hand, in Common Law jurisdictions, the courts will be very reluctant to interfere in the operation of a commercial contract on the basis that the outcome has become unfair, though in some jurisdictions extraordinary legislative measures have been implemented to support commercial parties in these challenging times.

Some of the areas where we're seeing a lot of companies struggling to keep up with the rapid changes to local legislation include:

  • Large transactions: both buy-side and sell-side to unwind or push through specific transactions. This will involve a mixture of local law and an understanding what is strategically and commercially achievable in that environment.
  • Financing issues: in particular security enforcement issues and margin calls. There are already significant issues in this area.
  • Directors' duties: particularly in the context of potential insolvencies. Company directors face very volatile market conditions only partly mitigated by government support packages. Advice on these issues requires a detailed understanding of local insolvency and corporate law, but also the dynamic local political environment.

Czech Republic

Current restrictions (as of 2 April 2020)

  • Retail and retail services are temporarily banned (certain exceptions eg groceries, petrol stations, drugstores, pharmacies, pet shops and other places selling vital products of daily need).
  • Free movement of people is temporarily banned, with only a few exceptions, like commuting to work, basic shopping for daily needs, recreational exercise. If possible, working remotely from home is strongly advised.
  • Personal contact with other people as well as movement in public places must be kept to a minimum. In public, people may only be in groups of up to two people (with certain exceptions eg families) and shall retain a 2 meter distance to others, if possible.
  • Also, in public everyone must wear facemasks or other respiratory protection.
  • Most of these measures will last at least until 11 April 2020 but are likely to be extended.

Effects on existing contracts

  • The effect will primarily need to be reviewed under the specific wording of each contract.
  • A contract whose performance becomes impossible in consequence of the pandemic or measures taken in connection therewith becomes automatically extinct. Mere complication of performance, increase of costs, delay or need of a third person's assistance do not necessarily result in such extinction.
  • In case of an unpredictable significant change of circumstances that occurred after the conclusion of the agreement and which results in a gross disproportion between the parties, the affected party may initiate negotiations on amending the agreement. However, it is a common practice that parties contractually assume the risk of change of circumstances; in such cases, they may not request renegotiation of the agreement.
  • Upon occurrence of a force majeure (which can also mean a pandemic), the breaching party may be released from its obligation to pay damages for breach of contract. It always needs to be assessed individually whether force majeure occurs.
  • If a party materially breaches the agreement, the other party has the right to withdraw from the agreement. A breach is material if the agreement would not have been concluded had the other party foreseen the breach. In case of an immaterial breach of the agreement, the other party needs to be provided with appropriate remedy period.
  • The closure of many shops raises in particular the question of rent payments. Commercial leases usually include a detailed regulation of the above issues, often deviating from statutory provisions. That is why it is of utmost importance to review these contracts now. In general though, it is not possible to simply stop paying the rent with mere reference to the significant change of circumstances. It is further necessary to check the lease contracts with respect to potential regulation of rent reductions or contract termination that could apply under the current circumstances.

Court operations

  • The operation of civil courts has been significantly limited and delays of several months can be expected. Oral hearings take place only in urgent cases; most are being adjourned by several months.
  • Criminal courts are also reduced to handling urgent cases (eg detention issues).
  • Participants must keep in mind that court-related deadlines (such as for appeals, filing motions or further particulars) are currently not influenced and are still in place. In case of civil procedural deadlines, it is however possible in certain situations to send a request to excuse a dismissed deadline because of excusable reasons caused by the COVID-19 pandemic.
  • The Arbitration Court attached to the Economic Chamber of the Czech Republic and Agricultural Chamber of the Czech Republic is currently closed and all hearings thereof are cancelled. This situation is foreseen to last at least until 19 April 2020. It is possible to contact the court in urgent cases only.
Germany

Current restrictions as per order of 22 March 2020

  • Citizens are urged to reduce contacts with other people outside the members of their own household to an absolutely necessary minimum.
  • In public, wherever possible, a minimum distance of at least 1.5 m must be kept from persons other than those mentioned under the first bullet.
  • Being in public areas is only permitted alone, with one other person (so not more than two) not living in the household or in the circle of members of one's own household.
  • The way to work, emergency care, shopping, visits to the doctor, participation in meetings, necessary appointments and examinations, help for other or individual sports and exercise in the fresh air as well as other necessary activities remain possible.
  • Groups of people celebrating in public areas, in apartments and private facilities are unacceptable in view of the serious situation. Violations of the contact restrictions should be monitored by authorities and the police and sanctions are imposed in the event of infringements.
  • Catering establishments will be closed. This does not include the delivery and collection of take-away food for consumption at home.
  • Personal hygiene service providers such as hairdressers, beauty salons, massage parlours, tattoo studios and similar establishments will be closed, as physical proximity is essential in this area. Medically necessary treatments remain possible.
  • In all establishments and especially those open to the public, it is important to comply with hygiene regulations and to implement effective protective measures for employees and visitors.

All these measures will have a minimum duration of 2 weeks.

Effects on existing contracts

  • Important: The effects arise primarily from the specific wording of a contract.
  • German law does not know the term “force majeure”. Therefore, it only becomes relevant through a specific clause in the contract. It must be examined whether the corona pandemic constitutes a case of force majeure within the meaning of the respective clause. In case the clause just mentions “force majeure” without listing any special cases, jurisprudence defines it as an “external event that cannot be avoided even by exercising the utmost care that can reasonably be expected”. In several decisions, epidemics have already been classified as such force majeure. Depending on the content of the clause, the legal consequences may then be any rights of withdrawal, a (temporary) suspension of the contract or claims for damages.
  • In case of no overriding contractual provisions, the scope of rights and obligations is determined in accordance with sections 275 and 313 of the German Civil Code (BGB).
  • Section 275 BGB provides that a claim for performance is excluded if performance is (also just temporarily) impossible for the debtor or for anyone else. Furthermore, the debtor may refuse performance according to this section if it requires an effort that is grossly disproportionate to the creditor's interest in performance. However, debtor is obliged to first try to purchase the missing supply parts elsewhere, even if only possibly at a higher price.
  • According to section 313 BGB, an adjustment of the contract can be demanded if circumstances that have become the basis of the contract have subsequently changed so seriously that one party cannot be expected to adhere to the unchanged contract. If the adaptation of the contract is not possible or reasonable, the disadvantaged party may also withdraw from the contract. This provision, however, is the absolute exception since the seller bears the procurement risk.
  • If non- or late-performance is caused due to restrictions based on the corona crises the debtor will most likely not have to pay damages due to lack of fault.

Update: The Federal government introduced a “moratorium” on the fulfilment of contractual claims for a transitional period, which will entail fundamental amendments to contract law. On 25 March 2020, the Germanl Parliament (Bundestag)unanimously adopted the law that now needs to be approved by the Federal Council (Bundesrat) which is planned for Friday 27 March 2020. Key elements are:

  • With respect to contracts concluded before 8 March 2020, the defaulting party may in principle be granted a temporary right to refuse performance of the contract (Leistungsverweigerungsrecht) until 30 June 2020 if the defaulting party can no longer fulfil its contractual obligations as a result of the pandemic, without jeopardising its livelihood or the economic basis of its business. This right to refuse performance of the contract shall, however, only be granted to consumers, very small businesses, small businesses and medium-sized companies (ie to companies with fewer than 250 employees and a turnover of less than EUR 50 million or with an annual balance sheet below EUR 43 million).
  • With regard to arrears of rent existing for the period from 1 April 2020 through 30 June 2020, landlords may not terminate the lease if the arrears exist due to a pandemic.
  • For consumer loan agreements, the lender's claims for repayment, interest or redemption of a loan falling due between 1 April 2020 and 30 June 2020 are deferred for a period of three months by operation of law from the date on which they fall due. This shall apply to the extent that the borrower suffers a loss of income due to the crisis, which makes it unreasonable to expect the borrower to provide the services owed, whereby a connection between the loss of income and the pandemic is presumed by law.
  • The statutory obligation to file for insolvency is to be temporarily suspended until 30 September 2020 if the reason for insolvency is based on the effects of the corona crisis and there is a reasonable prospect of restructuring.

If it turns out that the period from April through June 2020 is not sufficient to cushion against the economic consequences of the crisis, the possibility is granted to extend the periods mentioned above.

Court operations

  • Civil courts predominantly postponed oral hearings, however, due to their judicial independence they are free in their determination. All other procedural handlings continue.
  • Criminal courts also reduced to urgent cases.
  • Arbitration tribunals are still in operation and increasingly use modern ways of communication including case management conferences and hearing per video conference.
Hungary

Extraordinary measures

  • As a result of the COVID-19 outbreak, the Hungarian Government has declared a state of emergency and adopted several government decrees with the aim of preventing the further spread of the virus, as well as to facilitate the operation of certain sectors most affected by the epidemic and the impending economic downturn.
  • Most importantly in the context of dispute resolution, the Government has ordered an extraordinary court recess, in effect since 15 March 2020. The decree modified several of the most basic provisions of the Hungarian Civil Procedure. Most significantly, it prohibits civil courts from holding in-person hearings and instructs judges to go forward with procedural actions (including trials) via electronic means, unless an in-person hearing is indispensable. Courts, in other words, remain obliged to proceed with procedural steps (apparently including witness testimonies) unless they are practically impossible to perform without an in-person court appearance. The decree expressly states that the court recess does not affect deadlines either, although the possibility to challenge a court order based on the failed delivery of summons has been extended.
  • Despite the continuing operation of courts, the enforcement of any potential judgement may nonetheless prove to be somewhat tricky as currently on-site enforcement procedures are also prohibited, thereby making the enforcement of certain non-peculiar claims (eg vacation of the premises) more difficult than usual.

Upcoming disputes

  • In certain sectors, the legislator has already addressed the economic problems caused by the health crisis, introducing for instance that lease agreements on premises used in the affected sectors (eg tourism, catering, entertainment) cannot be unilaterally terminated until 30 June 2020.
  • In areas lacking specific legislation, only the provisions of the individual contracts and the underlying general laws apply. Therefore, it is imperative to review the individual agreements in order to be able to determine the parties’ obligations and possibilities in the present situation.
  • The COVID-19 epidemic and governmental measures disrupting deliveries resulted in a delay and non-performance of a number of contractual obligations. Hungarian courts and the parties will in all likelihood face the challenge of having to interpret certain, previously rarely applied general provisions of the new Civil Code that entered into effect in 2014. Especially the question regarding the liability for damages for breach of contract (in essence, whether or not force majeure can be relied on) in the given contractual relationship will ultimately have to be decided by the courts in many cases.
  • The Hungarian law provides for a possibility of contract adaptation by the courts if, among others, the legal relationship changed materially and to the detriment of one of the parties. Courts are generally quite hesitant to apply this section of the Civil Code in relation to situations affecting the whole economy, referring to the legislature as better placed to address such issues. At the same time, we cannot completely exclude the possibility that COVID-19 related case law may set a more lenient approach.
  • One of the emerging hotspots for COVID-19 related disputes concerns the closure of commercial shops. On the one hand, people cannot legally visit most commercial shops (except for grocery stores, drugstores etc) due to the limited curfew in effect, thereby forcing most fashion retailers to close down their operations. On the other hand, commercial shops are formally still allowed to stay open at least until 3pm. The situation already led to tensions between landlords and tenants surrounding the question whether the tenants remain obliged to pay the full amount of rent.
  • Under Hungarian law, tenants are not obliged to pay rent if they cannot use the premises due to a reason "outside their sphere of interest". The lack of relevant case law on the exact contours of ‘sphere of interest’ as well as the above described ambiguity of the situation all point to a similar ending: a boom in one sort or another of dispute resolution will arise, be it negotiation, regular lawsuits, arbitration, mediation, conciliation boards, or other ways of deciding contentious issues.
Poland
Slovakia

Current restrictions (as of 4 April 2020)

  • Temporary border control with all neighbouring states (leaving only large border crossings open), entrance is only allowed to citizens with permanent/temporary residence in the Slovak Republic, Slovak passport or for residence permit holders.
  • All international connections (planes, trains, buses, ships) are cancelled until further notice (except transport of supplies).
  • Mandatory 14 days quarantine for people who return to Slovakia from abroad; violation will be punished.
  • All schools and educational establishments are closed until further notice.
  • Closing of social and cultural facilities, cancellation of all mass events.
  • Limited shopping center operation (only groceries, medicines and drugstore items will be available to buy during the weekends). On Sundays, all premises will be closed.
  • Shops will have their opening hours from 9 am to 12 pm reserved solely for the needs of older people.
  • Restaurants will remain open only for delivery, consumers are forbidden to enter.
  • Bureau offices and client centers opening hours will be reduced to 3 hours per day.
  • The Ministry of Health of the Slovak Republic will select three hospitals that would be reserved exclusively for the patients diagnosed with COVID-19. At the entrance of these hospitals, new sample collection testing points will be established with enabled drive-in.
  • Leaving one’s place of residence without wearing a face mask or its similar substitute is strictly forbidden.
  • State of emergency applies to the whole health sector.

Effects on existing contracts

  • Effects on existing contracts will primarily need to be reviewed under the specific wording of each contract. There are, however, some statutory rights, particularly where contracts are silent on certain issues.
  • Where contracts cannot be fulfilled there may be an exception of force majeure, usually by interpretation of the wording in the contract. In Slovakia, the COVID-19 pandemic and the state of emergency constitute a case of force majeure.
  • Where the prevention to fulfilling a contractual obligation is temporary (whenever the crisis will be over) this may result in delay, whereas a force majeure exception (due to the lack of fault) may give relief for delay damages. If a contractual penalty was agreed for the delay, it will still be enforceable (possible mitigation by court). The receiving party will have to extend reasonable deadlines before being able to rescind from the contract.
  • Where the prevention is permanent, contracting parties may be able to rely on the concept of total hinderance, being able to terminate contracts, usually at no costs. This may also apply if there is no force majeure clause.
  • In case of service contracts, the commercial risk of not being able to perform is usually shifted to the service provider with the exception of the construction industry, where under many contracts it may be the principal who will have to bear the extra costs of closure of construction sites.
  • Businesses whose premises are affected by closure due to state quarantine measures (eg shops in shopping malls) are generally not exempted from paying rent.

Court operations

  • Civil courts basically have ceased moving cases forward. Hearings take place only in urgent cases, and without public. However, protocols from hearings shall be made accessible to the public.
  • Criminal courts are also reduced to urgent cases.
  • All court related deadlines (such as for appeals, filing motions or further particulars) are stalled until 30 April 2020. Deadlines for filing claims (eg under statute of limitations) are extended till 30 April 2020.
  • Arbitration tribunals are still in operation.
Ukraine

Current restrictions (as of 2 April 2020)

  • All shopping, entertainment, cultural centers, cafes and other public attendance venues (except food stores, veterinary shops and pharmacies) are now closed. As far as it is possible, people are allowed to work remotely and are strictly advised not to leave their homes except for shopping for daily necessities. All parks are closed and open-air entertainment activities are banned.
  • People must retain a minimum of 1.5 meters distance to others, and are restricted to gather in groups of no more than two in public. Individuals under 16 years of age are allowed to be in public only under adult supervision.
  • The whole territory of Ukraine is under quarantine now. Public transport can be used only by emergency relief workers (eg medical professionals, firemen, policemen, municipal utility workers). International and local air traffic/railroad/bus passenger transportation is prohibited.
  • These measures will remain in place until at least 25 April 2020, but are likely to be extended.

Effects on existing contracts

  • Quarantine measures, introduced by the Government of Ukraine, have been officially defined as a force majeure instance by recent amendments to the legislation of Ukraine. This means, that should any restriction established by the Government of Ukraine restrain the contract’s fulfillment, it could be recognised as force majeure instance (eg ban of medical protection goods export). However, the Ukrainian Chamber of Commerce, which is entitled to issue respective force majeure certificates, recommends to start negotiations with all contractual parties immediately in order to enable an effective mutual resolution to the possible contractual obligations’ default.
  • Also, the companies and individual entrepreneurs whose rented premises or other leased property are temporarily not available for commercial use may be exempt from rent payments while the quarantine is in effect.

Court operations

  • There is no specific governmental regulation regarding the operation of courts. However, the self-governing bodies advise judges to notify concerned parties about the possibility to postpone court hearings. This option has been used a lot apart from some urgent cases in compliance with effective regulations.
  • Furthermore, according to recent legislative amendments, parties involved in a court case are now allowed to participate in hearings remotely. Almost all regulated time bars (such as appeal period, a term for filing motions or further particulars etc) and other procedural time limits have been prolonged until the end of the quarantine restrictions.
  • Limitation periods for filing claims stipulated by law were also extended by the duration of the quarantine restrictions.
  • Criminal case hearings remain unaffected.

Our disputes lawyers across Europe have local expertise that can help cut through the complexity of the many local and international changes, and can keep you updated on what your options are and what duties have changed or remain firmly in place.

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