Up Again Austria: Suppliers and Contractors

Restructuring

1. Navigating the supply chain in a distressed market:

a. My company supplies goods and I am concerned about the solvency of my customers. Are there any steps I can take to mitigate risk/my exposure?

We recommend discussing solvency issues with your customer to assess any risks related to their insolvency.

b. My company relies upon the supply of goods/services and I am concerned about the solvency of my supplier? Are there any steps I can take to mitigate risk?

We recommend discussing solvency issues with your customer to assess any risks related to their insolvency.

Litigation and Regulation

2. How will legal disputes that have arisen as a result of COVID-19 or its effects (for instance, in relation to force majeure) be affected by restrictions being lifted and resuming business operations in whole or in part?

In principle, the lifting of the restrictions will not have a direct effect on claims that have arisen during the restrictions. However, with the lifting of the restrictions, force majeure will probably no longer be a basis for claims arising in the future. Courts will be fully operational from 30 June 2020, so we assume that potential delays and backlog will decrease over the coming months.

3. How should you manage those disputes once COVID-19 restrictions are lifted?

Since liquidity has decreased in many companies, it might be expedient to enforce claims rather quickly to most efficiently cope with the insolvency risk of counterparties. However, if a party wins, there remains a risk that the payment to that party may be challenged later on by the insolvency receiver.

4. What should you do when restrictions are lifted if you have suffered loss under a contract as a result of COVID-19 or the restrictions, but have not yet taken legal action in relation to that loss?

Consider whether a compensation claim can be made against the state on the basis of the current legal situation (there is six-week deadline from the lifting of the relevant measures). It is still unclear whether adopted legal provisions are constitutional. Some of the restrictions for compensation by public bodies may, in future, be lifted.

With regard to losses under contracts, review the contract and identify a legal basis on which a claim can be filed (in particular, force majeure) or payments may be reduced (like rents). However, invoking force majeure may also release the contractual partner from any contractual obligation.

5. Is there any risk of mass claims being brought against your business? If so, how would such claims be brought? Are third party funders able to fund such claims?

In Austria, there are no class actions, but somewhat comparable mass actions that can either be commenced by an association that promotes the interest of a group of persons suffering damages (such as consumers or employees), or by several claimants having the same interest in the proceedings.

The same interest does not need to arise out of the same action or transaction, but requires a shared interest in the determination of some question of law or fact. In contrast to the class-action system in the US, Austrian claimants must take positive steps to get involved in a mass action.

In Austria, a single law firm often represents several claimants in the same case. Though this is not a typical mass action, it is similar, because usually several model cases are chosen and the others are then settled on their basis.

There are several third-party funders who would probably fund such claims.

6. What should I do about recording contractually or otherwise any of the changes put in place during the COVID-19 lockdown period?

All contractual amendments resulting from COVID-19 should, if at all, be included in supplementary agreements to the contract. However, this must be mutually agreed by both parties.

Any contractual breaches should be documented and the contracting party should be notified as soon as possible, otherwise it could be considered as silent acceptance of the breaches.

7. Any return to normal will likely not be as immediate as the impact of COVID-19 when it started (e.g, sales/orders will take time to ramp up, raw materials will take time to flow through supply chains, etc.) what should I think about and do to best manage this in my contracts?

Deadlines should be extended in consideration of COVID-19, in order to avoid consequences of delay. Exit clauses based on COVID-19 should be included in the contract if necessary, such as force majeure clauses covering epidemics and pandemics and the respective government measures. The parties may still become subject to (authoritative or factual) restrictions. A mechanism or contractual provisions dealing with these restrictions should be agreed on.

8. What additional protections or changes to existing provisions (e.g. force majeure) should I put into any new supply arrangements having regard to COVID-19?

Epidemics/pandemics clauses can be explicitly included as a reason for terminating the contract or as a limitation of liability. It should always be explicitly agreed that epidemics and pandemics and the respective government measures are a case of force majeure, regardless whether the underlying transaction may still be lawfully performed or not.