24.04.2020

Force majeure clauses in maintenance contracts

Background

The current situation surrounding the COVID-19 pandemic makes a previously often neglected "legal instrument" highly topical: the so-called force majeure clause. In essence, such clause is an attempt to include provisions concerning events that are not foreseeable at the time the contract is concluded. This is naturally all the more important the longer the contract period is. The issue is particularly relevant in the case of maintenance contracts (usually ownership and maintenance contracts) with terms based on the normal useful life of rolling stock. With terms of 30 years or longer, the fate of the contract at the time of conclusion can only be captured to some extent over the entire term. Contract law instruments are therefore needed to remedy this situation.

It is true that there exist certain legal instruments to take account of such uncertainty. Particularly in connection with the COVID-19 pandemic, the application of impossibility or contract adjustment due to interference with the basis of transaction are being discussed. However, it quickly becomes clear that the suitability of the legal instruments is very limited. The distortions in daily business due to the COVID-19 pandemic, such as difficulties in procuring materials and parts, are not in themselves sufficient to fulfil the conditions for impossibility. As a consequence, its application is also rather difficult for the contracting parties, as the law only provides for the parties being released from the obligation to perform and withdrawing from the contract; withdrawal, however, also means rescission of the contract, which would be very difficult to implement in a maintenance contract already from a practical point of view. Once a maintenance service was provided, it can no longer be returned. The rules on the interference with the basis of the transaction are also problematic. In this case, the contract is adapted, taking the interests of the contracting parties into account trying to balance the interests of both parties. It is difficult for the contracting parties to foresee the final results of the adaptation of the contract, especially if it is to be adapted by a court.

What remains, are the contractual terms and conditions. Often there is a so-called "force majeure clause" in contracts. However, the quality of such clauses varies greatly.

The first step would be to clearly define the cases for which such a clause shall apply, i.e. to include the events that give rise to force majeure. With regard to the COVID-19 pandemic, the question would be whether such cases are even covered by the force majeure clause. The following points must be observed: for new contracts about to be entered into, no force majeure would apply, since the COVID-19 pandemic currently is no unforeseen event for the contracting parties. However, the fact that the event was unforeseeable at the time, the contract was concluded, is a typical feature of an event covered by force majeure clauses.

The next step would be to examine the consequences of applying the force majeure clause. Often the clause provides for suspension of the obligation to perform for a certain period of time, to start with. This is quite difficult in the context of maintenance contracts. The maintenance of rolling stock cannot simply be suspended, as this would lead to the rolling stock becoming inoperable. In this particular case, it seems appropriate not to suspend the obligation to perform across the board, but rather to open up the possibility of shortening or postponing maintenance. The first step should therefore be to talk about adapting maintenance management to a force majeure situation. In individual cases, this may then need to be coordinated with other parties involved either directly or indirectly such as the rail transport company or a supervisory authority.

Termination of the contract then remains as the last escalation option. Force‑majeure clauses often contain such a provision. What is important at this point is the difference between termination of the contract and withdrawal from the contract: termination only eliminates the maintenance contract for the future and does not lead to the undesirable consequence of contract rescission, which, as already explained, leads to considerable problems in practice.

Overall, it becomes clear that a force majeure clause alone is unlikely to be an appropriate solution for situations such as the COVID-19 pandemic. It is important to back this up with a differentiated model with regard to the legal consequences. However, one thing should be made clear: none of the contracting parties intended a situation such as the COVID-19 pandemic, and these cases do not constitute a case of poor performance or breach of contract. For the contracting parties it should therefore be much easier to seek a reasonable dialogue in these situations to start with. This procedure may also be included in the contract, so that the force majeure clause is linked to a clause concerning reaching mutual agreement. It would be important for the parties in this case to undertake to inform each other immediately if they consider that a case of force majeure has occurred. This is actually a matter of course but may well be included in the contract itself, too. A violation of the immediate obligation to inform will then usually lead to a contractual claim for damages.

Against this background, the COVID-19 pandemic should therefore provide an opportunity to
review existing force majeure clauses in maintenance contracts and, if necessary, make adjustments here. In any case, it should give rise to inclusion of the necessary provisions relating to the COVID-19 pandemic in maintenance contracts to be concluded in the future, and to prevention of any cases of doubt by means of the use of a sensible, balanced force majeure clause.

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