General state of emergency in Europe due to the novel coronavirus epidemic (Covid-19)
Public life in Europe is currently heavily restricted due to the coronavirus epidemic. There are extensive travel restrictions within the European Union (entry bans for non-EU citizens) and the Union’s external borders are closed. Some countries have imposed nationwide curfews. Shops and schools are closed in almost all European countries.
These restrictions have a significant impact on the business of companies of all sizes. Many companies are experiencing difficulties in their supply chain which also results in liquidity problems. In order to soften this impact, the European governments have already announced and adopted extensive measures.
For example, in Germany, the following measures for companies have already been put into place:
(1) Employers may apply for short-time allowance. This allowance is publicly funded, allows the reduction of worked hours and helps to avoid dismissals of employees and insolvencies of companies.
(2) Employers can ask for generous tax deferrals which supports their company’s liquidity.
(3) The obligation to file for insolvency within the time limit set by the law (three weeks after the commencement of insolvency or overindebtedness, cf. Sec. 15a of the German Insolvency Statute) will be suspended until 30 September 2020.
Further measures such as direct financial support (expansion of existing credit programs and additional special programs) for companies, especially for self-employed persons and small companies, is currently discussed and will be put in place within the next days.
The European Union announced a Coronavirus Response Investment Initiative with a volume of EUR 37 billion, ECB measures to provide liquidity to banks and EIB instruments to help companies affected by the coronavirus outbreak.
The foregoing serves as a general overview of the current situation which evolves daily. In order to keep the business with European trade companies as smooth as possible we have the following recommendations for Chinese exporters:
(1) Review all sales contracts with regards to Retention of Title (and other collaterals) and Force Majeure clauses.
(2) Observe due dates closely. Please do not wait and inform your credit insurer or your lawyer immediately in order to take the appropriate legal measures.
(3) Check financial situation of Buyers and enter into communication. In case of negative information regarding creditworthiness or ability to perform the contract, take legal advice to check if the performance of the delivery can be suspended or if adequate collaterals can be obtained or if the contract can be declared avoided.
(4) In case of conclusion of new delivery contracts: make sure that risks are mitigated by careful contract drafting. It is especially important to agree to security rights – such as Retention of Title rights – so that your company will be protected against nonpayment. We also highly recommend to ask a specialized lawyer in international commercial law to help you draft the contract which corresponds exactly to your needs.
Principal legal obligations for Chinese suppliers due to Covid-19 outbreak
The seller must immediately notify the buyer if the goods cannot be produced and shipped in time due to reasons related to Covid-19 (such as travel restrictions for employees etc.). If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt, cf. Art. 79 sec. 4 CISG. Besides notifying the buyers (also in written form), discussing and negotiating with the contractual partners, we strongly advise to collect any evidence on the occurrence of the Force Majeure event, adopted mitigation measures and incurred own losses.
New EU rules for consumer protection (B2C)
It can be possible to qualify an epidemic such as Covid-19 as a case of Force Majeure according to Art. 79 sec. 1 CISG. However, it is important to note that many sales contracts contain a Force Majeure clause which may modify the legal conception.
In both cases, however, it has to be determined on a case by case basis if the seller is exempt from performance due to Force Majeure. Therefore, there is no general answer to the question raised in the headline.
Certificates issued by CCPIT (China Council for the Promotion of International Trade) can be recognized as circumstantial evidence for a case of Force Majeure. However, the courts are free in their case-by-case assessment (is "force majeure" applicable to the specific case?) and not bound to such certificate issued by foreign agencies.
The certificate should precisely state the specific circumstances and exact timeline leading to the exporter’s impossibility to perform the contract.
It is of utmost importance that Chinese exporters have a proper documentation on all circumstances such as administrative decisions or orders, domestic transportation restrictions, work prohibitions, quarantine orders etc. including the corresponding timeline.
United Nations Convention on Contracts for the International Sale of Goods (CISG): Subject to the interpretation by national courts
例如，违约索赔权（《销售公约》第74条）不需要另一方存在过错。但受损方必须采取一切合理措施减轻损害。德国最近的一项判决中进一步澄清了，如果损害完全是因买方为减轻损害而采取的不合理措施所致，可以完全排除卖方的责任（参见OLG Naumurg, NJW2020，476）。
This Convention contains very relevant legal dispositions which apply to almost all sales contracts between Chinese sellers and European (or other) buyers. Almost all countries have ratified this Convention (exceptions in Europe are notably the United Kingdom and Portugal) which applies automatically to an international sales contract without further ado.
For example, the right to claim damages for breach of contract (Art. 74 CISG) does not require a fault of the other party. However, the injured party has to take all reasonable measures to mitigate the damage. In a recent judgment in Germany, it has been further clarified that the liability of the seller can be completely excluded if the damage was only due to unreasonable measures of the buyer in order to mitigate the damages (cf. OLG Naumburg, NJW 2020, 476).
If the buyer alleges damages, it is therefore highly recommended to verify the legal situation with a lawyer well-versed in CISG.
Supplier can be responsible for the insolvency of a customer due to the shipment of defective goods
In a judgment of 27 November 2019, the Cour de Cassation (highest French court) ordered a supplier (seller) to bear the financial consequences of the insolvency of one of its customers (buyer).
The seller had supplied the customer with defective adhesive, which led to the recall of thousands of products and the almost complete loss of sales. The customer claimed damages from the supplier, who had always rejected the defectiveness and thus refused any compensation. In view of the economic and financial difficulties that this breach of contract had caused, the customer was forced to file for insolvency. The Court found a direct causality between the defective goods and the bankruptcy and therefore ordered the seller to bear the financial consequences of the insolvency.
In the case of damage claims due to defects, it may therefore be preferable to negotiate an amicable settlement, especially if the damages are so severe that they could be a cause for insolvency.
Comprehensive Agreement on Investment (CAI) between China and the EU: Ongoing negotiations
Since 2013, the EU and China are negotiating about a trade agreement in regards to mutual investments which shall replace the current bilateral agreements on the encouragement and reciprocal protection of investments (for example, the bilateral Agreement between China and Germany dates from 2003).
It is intended that negotiations on the CAI will be terminated in the course of 2020. We will closely monitor any developments hereto.
Recent European Anti-Dumping Measures
(1) The European Commission initiated anti-dumping proceedings concerning imports of aluminium extrusions originating in the P.R.C. The product subject to this investigation is bars, rods, profiles (whether or not hollow), tubes, pipes; unassembled; whether or not prepared for use in structures(e.g. cut-to-length, drilled, bent, chamfered, threaded); made from aluminium, whether or not alloyed, containing not more than 99,3 % of aluminium.
(2) The European Commission imposed definitive anti-dumping duty on imports of steel road wheels originating in the P.R.C. The rates of the definitive anti-dumping duty applicable to the net, free-at-Union-frontier price, before duty, of the product are between 50.3 and 66.4%. The amounts already collected by way of the provisional anti-dumping duty shall be definitively collected.
(3) The European Commission has decided to investigate the possible circumvention of the anti-dumping measures imposed on imports of Monosodium glutamate (MSG) originating in the P.R.C. and to make such imports subject to registration.
(4) The European Commission received a request for maintaining the (expiring) antidumping measures in force on the imports of citric acid originating in the P.R.C.
(5) The European Commission informs that it is not intended to impose provisional measures in regards to certain polyvinyl alcohols originating in the P.R.C. but continues investigations.
(6) The European Commission notified that the anti-dumping measures currently in place for
a. wire rods originating in the P.R.C. will expire on 16 October 2020,
b. certain grain-oriented flat-rolled products of silicon-electrical steel will expire on 31 October 2020,
c. acesulfame potassium originating in the P.R.C. will expire on 01 November 2020,
d. seamless pipes and tubes of iron or steel originating in the P.R.C. will expire on 09 December 2020 if no request for maintaining these measures will be lodged in time.
Recent European Anti-Dumping Measures
–Fintyre集团（包括Tyre 1，Reifen 24，RS Exklusiv，Secura，SW Reifenhandel，TyreXpert，Reiff Reifen和Autotechnik等德国子公司）
These companies with a turnover of more than 50M € filed for insolvency:
- Matrix GmbH and
- Fintyre Group (including German subsidiaries such as Tyre 1, Reifen 24, RS Exklusiv, Secura, SW Reifenhandel, TyreXpert, Reiff Reifen and Autotechnik) .
More insolvencies than usual are expected due to the Covid-19 outbreak.The EU and European countries have already announced substantial measures to soften the economic impact.
For more information:
DS Graner Lawyers Avocats
Griegstraße 27 B 70195 Stuttgart / Germany
Tel.: +49 711 16260 - 0 Fax: - 18
This Newsletter is provided for general informational purposes only. Any information contained herein should not be construed as legal advice and is not intended to be a substitute for legal counsel on any subject matter.