Effectively securing and enforcing claims in court despite the negative effects of the new coronavirus
***** Update on 30.03.2020: 1. What options are available to quickly secure claims when their fulfilment is at risk? *****
***** Update on 19.03.2020: 2. What effects can Covid-19 have on asserting claims in court and what are the restrictions on court operations at the moment? *****
With the continuing spread of the new corona virus and its negative impact on contractual partners and courts, many companies are facing the question of whether they can continue to effectively enforce their own claims. In the following we will provide information on the possible effects of the corona virus on the enforcement of claims, taking into account the restrictions on the courts which are already apparent, and elaborate on the steps companies can take to secure and enforce their claims.
1. What options are available to quickly secure claims when their fulfilment is at risk?
Factory closures, delivery bottlenecks, imminent bankruptcies and other palpable effects of Covid-19 are being reported in many commercial sectors. It may be advisable for parties to contracts with companies suffering from these effects to use interlocutory relief to secure their claims and thus possibly their entire operations.
For example, if the contractual partner is facing imminent financial difficulties or is likely to transfer its assets abroad, it is possible under certain circumstances to obtain a writ of seizure from a court (section 922 German Code of Civil Procedure – CCP) which orders seizure and attaches the debtor’s receivables (e.g. from a bank). Since the payment claim to be secured does not have to be due and even conditional claims can be subject to seizure, the moratorium in Article 240 (Link is only in German available) Introductory Act to the German Civil Code has no impact on the option to effect the seizure of assets. Also, in cross-border legal transactions with other EU countries, a preliminary account attachment under the Regulation establishing a European Account Preservation Order (Regulation (EU) No 655/2014) has proved to be an effective means of retaining security. The debtor no longer has access to the amount attached while this amount is at the creditor’s disposal when its claim is successfully enforced in the main court proceedings.
A company should also consider interlocutory relief if its suppliers are likely to completely or partially suspend delivery thereby potentially causing severe economic drawbacks. In such a case, it is usually possible to obtain a preliminary injunction that orders the contractual partner to continue delivering or to end an interruption in delivery, respectively. However, this requires that the contractual partner has not been exempted from its obligation to deliver.
Especially companies which heavily rely on continuous and timely delivery of goods should – to the greatest possible extent – consider already to identify any products which are so essential that a delivery bottleneck or a suspension of delivery could cause serious economic drawbacks. A company should also consider taking steps to ensure the availability of the information that is necessary to demonstrate to a court on a (very) short notice the grounds of the claim as well as the fact that the contractual partner’s refusal to fully perform the contract would cause mayor economic drawbacks (e.g. contracts, names of responsible employees, etc.).
Companies can take the following steps to mitigate the risk that their claims might not be successfully enforced:identifying contracts that are essential for their own operations;
- identifying contracts that are essential for their own operations;
- analysing the risks that a continued outbreak of Covid-19 could endanger the fulfilment of the essential contracts;
- identifying contractual partners that are or could be strongly affected by the impact of Covid-19 and assessing the risk of suspension of delivery and the impact if recovery of receivables becomes impossible;
- preparing the information (contracts, lists of names, etc.) that would be necessary to be able to secure claims by means of interlocutory relief, even on short notice.
2. What effects can Covid-19 have on asserting claims in court and what are the restrictions on court operations at the moment?
All federal states in Germany are currently making every effort to keep their courts up and running. In consultation with the courts, most federal states have drawn up recommendations for dealing with Covid-19. These recommendations provide in particular for restricting the operations of the civil courts to core areas and limiting public access (Baden-Württemberg, Bavaria, Berlin, Brandenburg, Hesse, Mecklenburg-Western Pomerania, Lower Saxony, Schleswig-Holstein, North Rhine-Westphalia, Saarland, Hamburg, Thuringia, Rhineland-Palatinate, Saxony, Saxony-Anhalt and Bremen). Links are only in German available. The core area of their work includes in particular activities which cannot be postponed, such as decisions on granting interim injunctive relief.
Decisions to cancel court hearings and grant deadline extensions still remain with the individual judge’s discretion due to the constitutional principle of judicial independence. In practice, many courts are already following the recommendations and cancelling hearings officially and are taking a generous approach to requests for deadline extensions. This may mean delays of several months to current court proceedings.
Depending on how the situation develops, fairly lengthy delays are conceivable if the spread of Covid-19 needs to be tackled with governmental actions, for example, pursuant to section 28 German Infection Protection Act (e.g. quarantines), thus automatically suspending proceedings because courts are forced to completely cease their activities (interruption due to suspension of the administration of law, section 245 CCP). A party may also be unable to leave their current location, which would also result in a suspension of the proceedings (section 247 CCP).
3. When do negative effects on a company’s operations constitute grounds for temporarily discontinuing enforcement of claims despite impending expiry of the statute of limitations?
If the claim is subject to German law, the limitation period may be suspended due to an act of God (section 206 BGB). However, the prerequisites for this are very strict. The claimant must inter alia prove that is absolutely impossible to take care of one’s own matters which could e.g. occur if business operations come to a complete halt. To avoid the legal and material uncertainties that result from invoking section 206 BGB, efforts should be made to agree on a waiver of the statute of limitation defence or to rely on another suitable means to suspend the limitation period (e.g. by starting (European) payment demand proceedings).
4. Does the temporary suspension of business operations by a contractual partner prevent the service of a complaint that suspends the limitation period?
The temporary suspension of operations by a contractual partner does not prevent the service of a complaint that suspends the limitation period. In such a case, the complaint can be served on the defendant by registered letter with return receipt requested (section 175 CCP) or, under certain circumstances, by mere placement in a letter box (section 180 CCP) and thus without the cooperation of the defendant. This means that court proceedings to enforce one’s own claims can be initiated even if the contractual partner temporarily suspends its business operations.
5. Do complaints suspend the running of a limitation period even if the court has temporarily ceased to operate
Even if a court has suspended its work and a complaint can therefore not be served on the contractual partner before the limitation period has expired, the complaint usually still has the effect of suspending the limitation period. If the court later resumes its work, the complaint that is then served is deemed effective as of the date on which it was received by the court (section 167 CCP). Then the complaint is deemed to have been lodged before the limitation period began to run. In other words, the court’s inactivity does not work to the disadvantage of the claimant.
Any questions? Please contact: Hans Christian Kirchner or Tobias Lühmann
Practice group: Litigation, Arbitration & ADR