09.03.2020

Cancellations of events due to COVID-19

In view of the corona epidemic, numerous major events have already been cancelled. In addition to the organisers themselves, this affects in particular the operators of the event areas, trade fair organisers, various service providers and contractors such as booth builders, IT service providers and caterers and, of course, visitors, insofar as they have already purchased an admission ticket, booked hotel accommodation and rail or air travel. In contrast to the neighbouring countries of Switzerland or France, where major events with more than 1,000 visitors have been banned, Germany currently has few, let alone uniform, binding regulations for the staging or prohibition of events. The organisers and their contractual partners are therefore dependent on their own assessment of the situation and must resolve disputes about this with the normal instruments of civil law. Various factors determine who will have to bear the economic consequences of a cancelled event. Where the parties have not already made contractual arrangements for such a case, only the legal institutions of the impossibility of performance or the interference with the basis of transaction (Störung der Geschäftsgrundlage), possibly also the agreement of a ‘force majeure’ clause, can offer a solution.

A. The reason for the cancellation of the event

Of central importance is of course the reason for the cancellation. Is the organiser obliged to cancel the event, be it a trade fair, concert, football match, congress etc., because the competent authority has prohibited the holding of that event or of events in general? Is there a specific recommendation not to hold events with more than "X" participants in the region "Y"? Official requirements that make it almost impossible to hold a specific event? Or does the authority responsible for the venue not express an opinion, but the organiser considers the holding of the event to be too dangerous for his own reasons, in particular because of an increased risk of infection, especially since other comparable events have already been cancelled? Is the venue "sealed off", like the regions in northern Italy affected by the virus?

B.B. Legal basis

I. Force majeure clauses

When can a party invoke ‘force majeure’ and thus release itself from its contractual obligations? In many contracts the parties have agreed a so-called ‘force majeure’ or ‘act of God’ clause. These clauses are usually divided into two parts and regulate on the one hand the conditions of their application and on the other hand the legal consequences thereof.

 

If the requirements of a ‘force majeure’ clause are met, it usually provides for all or at least some of the following points:

 

  • that the parties are (temporarily) released from their performance obligations;
  • that, if possible, an alternative date is found or the venue of the event is changed;
  • that there is a right of termination or withdrawal after a certain period of time; and/or
  • that damages in the event of ‘force majeure’ shall be excluded.

Epidemics are rarely explicitly mentioned in these clauses as a case of ‘force majeure’. If the clause therefore exhaustively enumerates those cases that are to be considered ‘force majeure’ according to the contract, this can lead to epidemics not being covered by it. If, on the other hand, the contract does not contain a precise definition or if a list is not - as is usually the case - designed to be exhaustive, general principles must be applied. In German law, ‘force majeure’ is understood as an external event that was not foreseeable at the time of the conclusion of the contract and is unavoidable and insurmountable. For example, in the explanatory memorandum to the German Federal Government's bill on the tour operator contract, epidemics are mentioned as cases of ‘force majeure’ alongside war, civil unrest, strikes, sovereign orders, natural disasters and the like.

 

The outbreak of the COVID-19 virus has been classified as an epidemic in Germany since the legislative decree passed by the Federal Ministry of Health on 1 February 2020. An epidemic is defined as the widespread occurrence of an infectious disease that is limited in time and place.

 

However, the decisive factor for the application of a ‘force majeure’ agreement is that the ‘force majeure’ event does not just affect the contract in question in some way. Rather, the ‘force majeure’ must make it temporarily impossible or unreasonable for the party who wishes to withdraw from its contractual obligations to fulfil these. Whether this is the case can only be assessed in relation to each individual case.

 

Therefore, a precise examination of each individual case is required to determine whether the contract in question contains a ‘force majeure’ clause at all, whether the conditions defined therein are fulfilled and what legal consequences the contractual provision then provides for.

 

It should also be noted that contractual ‘force majeure’ clauses will generally be part of the General Terms and Conditions of one of the contracting parties. Therefore, with regard to the legal consequences determined in the clause, the question is perfectly permissible whether the respective legal consequences are actually effective from the point of view of GTC law in the individual case, for example with regard to regulations that determine which party ultimately bears the economic loss.

 

However, it is of utmost importance that the party who wishes to invoke the occurrence of the event of ‘force majeure’ must inform its contractual partner of this immediately (in writing). If it does not make a ‘force majeure’ report as soon as possible after it becomes aware of this, it shall be liable for any damage resulting from such late reporting.

 

II. Impossibility

But what applies if the contract does not contain a ‘force majeure’ clause? Then the legal consequences are basically governed by the statutory provisions. In the event that performance is impossible for the debtor or anyone else, the law stipulates that the claim for performance is excluded. This also applies if the performance would require such an effort that this would be disproportionate to the creditor's interest in performance, taking into account the nature of the obligation and the requirements of good faith - this may be the case, for example, where authorities impose particularly far-reaching conditions for the holding of an event. The same applies if the debtor has to perform the service personally, as in the case of a concert, for example, and it simply cannot be expected of him.

 

Particularly in the case of major events, which are firmly scheduled in the calendar of events, it will regularly be a matter of fixed transactions in terms of time (Fixgeschäft). In this case, a temporary obstacle to performance typically already results in (permanent) impossibility.

 

If a case of impossibility exists, the debtor is released from his obligation to perform and the respective creditor is entitled to withdraw from the contract with the consequence that the entitlement to counterperformance lapses.

 

However, what is essential for the individual case is whether it actually is a case of impossibility with regard to the contractual obligations of the party who wishes to release itself from its contractual obligations. This will depend not only on the nature of the event and its location, the number of participants and the resulting risk of infection, but in particular on which of the two sides wishes to invoke a case of impossibility.

 

III. Adjustment of contract due to interference with the basis of transaction (Störung der Geschäftsgrundlage)

A termination of concluded contracts or at least an adjustment of the same may, under certain conditions, also be requested on grounds of the principles of interference with the basis of transaction.

 

Whether a contract can be amended or even cancelled on the grounds of the principles of interference with the basis of transaction depends on various factors. First of all, the contract would need to be based on a particular factor that had changed significantly since the conclusion of the contract. In the present context, the contracting parties involved probably shared the idea that the general economic, social and, in particular, health situation in Germany basically allows the holding of corresponding (large-scale) events. Whether the actual effects of the epidemic in a specific case have already led to interference with such expectations must be examined in detail and cannot be answered in general terms here either. The next step would be to examine what risk allocation applies between the parties - whether by contract or otherwise - according to general principles by which the typical risk of a contract is to be determined. In other words: Is the actual risk that has become a reality here allocated to one of the two parties alone? Only when the party affected by the interference can no longer be reasonably expected to fulfil the contract unchanged on the basis of a comprehensive weighing of interests, can a contract adjustment or even termination be considered. An adjustment of the contract can therefore only be considered as in exceptional cases where circumstances beyond the control and sphere of risk of the respective debtor result in such a blatant imbalance between services rendered and consideration that it is no longer possible to adhere to the unaltered contract. Since in mutual contracts the idea of equivalence of performance and consideration is part of the basis of each transaction, the contract must be adapted to the changed circumstances if the equivalence relationship is disturbed by unforeseeable circumstances so seriously that the interference exceeds the risk to be borne by the disadvantaged party. However, the hurdles set by case law are quite high. And even in this case, a court will first consider an adjustment of the contract (and not necessarily a termination), which will share the burden between the parties.

IV. Damages

Whether in one of these scenarios the party who does not fulfil the agreed obligation is obliged to pay damages depends first of all on whether it is entitled to one of the rights described above and whether the party is responsible for the respective impediment to performance. In principle, the debtor is liable only when he is at fault. This means that in case of actual or legal impediments to performance for which he is not at fault, e.g. in the event of operational disruptions due to ‘force majeure’ or an official entry ban, he will not be held liable. However, the debtor will be liable if he has assumed a warranty or the procurement risk, which in turn must be examined for each contract on a case by case basis.

V. Contracts between organiser and service providers

The same legal instruments - impossibility of performance, ‘force majeure’ clauses, interference with basis of transaction (Störung der Geschäftsgrundlage) - must also be used to examine the legal relationship between the organiser and service providers, booth builders, etc. If necessary, special features must be taken into account here which result from the nature of the contractual relationship depending on whether the party owes a specific work (Werkvertrag) or has to provide a specific service (Dienstvertrag), since for example the customer of a contract for work (i.e. in this case the organiser) can terminate this contract at any time, but the contractor retains the claim to the consideration, reduced by saved expenses.

VI. Contracts between organiser and visitors

If it is impossible for the organiser to hold the event, the visitor will usually be able to withdraw from the event contract and demand a refund of any tickets already paid. If the organiser cancels the event, although it would still be possible to hold it, he is generally liable for damages to the visitors. This may well include the reimbursement of so-called "frustrated expenses", such as the costs of travel bookings that can no longer be cancelled or accommodation costs. If the organiser is not responsible for the cancellation of the event, claims for damages by the visitors are excluded. The extent to which the event contract limits the organiser's liability in a permissible manner must be examined. However, before a hasty affirmation of a liability for damages is made, it must also be examined here according to the principles presented above to what extent an adjustment or even cancellation of the contract is possible.

D. Looking ahead: Event planning - and now?

From the above comments on contracts concluded before the outbreak of the epidemic, the importance of careful contractual arrangements for events that are currently being negotiated is evident. This is all the more true since, with agreements yet to be concluded, the outbreak of the Covid-19 epidemic can certainly no longer be considered an unforeseeable event. At present, it is uncertain how long the virus will continue to affect everyday life; unfortunately, it seems certain that it will continue to do so for some time. It is therefore essential that you make use of the possibilities offered by individual contractual arrangements, such as agreeing on risk allocations. Against the background of current events, it also seems to make sense in principle to examine the possibilities and economic viability of insurance cover.

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