Force Majeure and loss of the basis for business in Austria

When does the obligation to perform the contract cease to apply?

In principle, the following also applies in Austria: pacta sunt servanda. However, the principle of contractual compliance can conflict with situations in which the unchanged adherence to the contract would become unreasonable due to changing circumstances.

While, in principle, each contracting party has to bear the risk of changes in circumstances that fall within its own sphere, cases of force majeure are characterised by the fact that they do not fall within anyone's sphere. Classic cases of force majeure include wars, terrorist attacks or, as most recently, the Covid-19 outbreak.

In Austrian law, there is no legal definition of the term "force majeure" and no generally applicable principle according to which force majeure exempts from the obligation to perform the contract. If the contract itself does not provide for a rule in this respect, at best the legal instrument of the "removal of the basis of the contract" is to be resorted to as ultima ratio, which in exceptional cases allows for the avoidance of contracts.

When may a withdrawal or an adjustment of the contractual relationship be considered?

If, at the time of the conclusion of the contract, the parties assumed the (unchanged) continuation of typical business circumstances without specifically considering them in the contract due to the self-evident nature of the circumstances, the possibility of cancelling or adjusting the contract may exist if this presumed "basis of business" ceases to exist.

It must be an unforeseeable risk that is not attributable to the sphere of either party. Force majeure can constitute such a neutral risk, according to teaching and case law as "an elementary event acting from outside which could not have been prevented even by the utmost reasonable care, and is so exceptional that it cannot be regarded as a typical operational risk".

However, the tool of eliminating the business basis is controversial and is rarely and complementarily used. The legal consequence of a successful rescission depends on the individual case, whereby contract adjustment has priority over contract cancellation, as a rule.

How can future contractual relationships be optimally structured?

In order to avoid disputes over attribution and liability issues, it is advisable to agree on a "force majeure" provision (force majeure clause) in contracts so as to contractually allocate the unforeseen change of circumstances to one of the contracting parties by sharing the risk.

The contractual formulation of force majeure clauses is subject to private autonomy. Force majeure events can be described in a general clause or enumerated explicitly. The contract may also provide that not only unforeseen circumstances but all circumstances beyond the control of a party qualify as force majeure. The standard of care to be applied and the extent of any duties to avert (with a gradation of reasonableness) can also be determined.

As legal consequences, obligations to notify, suspension of the implementation of the contract, rights of rescission, waiver of performance obligations and exclusions of liability are usually agreed.

Autor: Sebastian Hütter
Autor: Alexander Wöß