Retail and Consumer Goods16.11.2021 News
Global supply chains are groaning. Corona crisis, semiconductor bottleneck, container shortage, congestion at ports - all this has created supply shortages and is currently having a severe impact on trade. Disputes between producers, traders, transporters and end consumers are not uncommon. Our experts are taking a look at the current legal issues affecting trade.
Scarce raw materials, production stoppages and the crisis in the transport and logistics industry - such factors are throwing a spanner in the works of the global economy. They disrupt the fragile system of closely coordinated supply chains. According to recent reports, the 2021 Christmas season is under acute threat. Consumer electronics and sporting goods in particular are in short supply and in many cases new supplies cannot be expected to arrive in time.
The current causes of these disruptions are the corona pandemic and the semiconductor bottleneck. However, supply chain disruptions can also be caused by other factors, such as machine breakdowns, poor product quality or employee strikes.
What are the legal implications of such supply chain disruptions for the retail and online trade? We are providing you with a compact overview below.
Basically: contracts have to be honoured. In other words: if a trader has ordered goods from its supplier, it is entitled to their delivery, and specifically their delivery at the agreed time. Supply bottlenecks can release the supplier from its delivery obligation. Whether this is the case depends on the cause of the supply bottleneck and needs to be examined in each individual case on the basis of the contractual agreements. Basically, however, the following applies:
Lapse of delivery obligation on grounds of force majeure
Supply bottlenecks can be a case of so-called “acts of God” (in French: "force majeure"). Although the concept of force majeure is fundamentally foreign to German civil law, contracts often contain so-called force majeure clauses which define acts of God and regulate the distribution of risk between the parties for impediments to performance that occur after the contract has been concluded. If the cause of the supply bottleneck is deemed a case of force majeure according to the contract, the contractual partner is usually able terminate the contractual relationship. If it exercises this right, the customer’s delivery claim lapses.
Lapse of delivery obligation on grounds of impossibility
The contractual partner is released from its delivery obligation by force of law if it has become objectively or subjectively impossible for it to provide the service. However, impossibility only exists in cases in which it is permanently impossible for the contractual partner to provide the service (Sec. 275 (1) German Civil Code [Bürgerliches Gesetzbuch - BGB]). A merely temporary "impossibility", for example due to restrictions to combat the pandemic, does not as a rule constitute a case of impossibility and does not lead to the supplier’s permanent exemption from its performance obligation.
Fundamentally no exemption on grounds of debtor’s increased expenditure
In practice, the supplier frequently refuses performance in reference to its increasing procurement costs, for example in the case of increased transport costs, raw material prices or the like. By law, it can only refuse to render performance for this reason if the greater outlay involved in fulfilling its obligation is disproportionate to the customer's interest in being supplied with the goods ordered. This is typically not the case because, as the supplier's outlay increases, the trader's interest in having the performance rendered often increases as well.
Exemption from delivery obligation on grounds of the loss of transaction basis
A supply bottleneck can also establish a so-called loss of the transaction basis (Sec. 313 BGB). In the event of a serious change in the circumstances which, according to the parties, existed at the time of contract conclusion, a party can, under strict conditions, demand that the contract be adjusted. A right to rescind or terminate the contract exists only if an adjustment of the contract is not possible or cannot reasonably be expected of one party.
The application of Sec. 313 BGB is generally ruled out if the change in circumstances results in a risk which has to be borne by one of the two parties. For example, a supplier often contractually assumes the risk of procuring the goods. If the procurement fails due to temporary hindrances, for example in transit due to a container ship congestion, Sec. 313 BGB is regularly not applicable.
Delays in delivery often cause damage to traders. This includes, for example, the loss of profit due to stock shortages. In addition, the trader often incurs additional costs because it has to procure replacements at short notice at a higher price in order to meet its own delivery obligations.
Damage claims against suppliers depend primarily on whether they are responsible for the late delivery or non-delivery. Suppliers are generally only liable in cases of intent and negligence (Sec. 276 BGB). Whether or not they can be accused of this depends on the cause of the delivery delay and the supplier's catalogue of duties. As a rule, a supplier will be able to disclaim culpability. For this, it may suffice if the supplier proves that the delivery delays are due to production defects on the part of the manufacturer and that it took sufficient preventative measures. However, the supplier may also be subject to stricter liability.
This is the case when the supplier guarantees delivery or if it contractually assumes the procurement risk. Moreover, if the supplier does not distribute its scarce goods fairly to its customers, but only supplies the trader with whom it makes the highest profit, this could serve as a jurisdictional basis for liability. However, a detailed examination is required to determine whether the supplier has a duty to allocate products fairly.
In any case, all circumstances of the individual case must be considered, including a scrutiny of one's own behaviour. Own fault in connection with the occurrence of damage can lead to considerable reductions of the claim (Sec. 254 BGB).
Beware of costly warnings during the Christmas season
The hoarding of purchases during the corona year has shown that empty shelves cause unrest among consumers. Typically, this increases the demand at online retailers, which is already high. The risk here is that online shops will display goods as being available and ready for dispatch, whilst their stocks are actually already depleted and subsequent deliveries are delayed indefinitely.
If the trader does not indicate in an easily readable, recognisable and understandable way that the goods offered are not available, it is committing an anti-competitive and thus inadmissible act in the course of business. In addition to dissatisfied customers, the threat of significant financial damage exists, as competitors and associations can issue the provider with a costly warning on the grounds of its unfair competitive conduct.
The German Unfair Competition Act [Gesetz gegen den unlauteren Wettbewerb - UWG] prohibits companies from advertising to consumers with so-called "bait” offers. Bait offers are where a product is advertised at a certain price without informing the potential customer that the product offered is not in stock and/or in sufficient quantity at the advertised price and also cannot be made available within a reasonable period of time at the stated price.
There is therefore no obligation to remove goods from an online shop simply because they are currently out of stock. It only becomes anti-competitive, and thus liable to a warning, if there is no clear indication of the lack of availability of the goods.
Retailers should keep a close eye on their online shops this year and especially check the programming and feedback between stock and offers displayed in the online shop. Due to the reporting of supply bottlenecks in national newspapers, both competitors and consumer protection associations are increasingly adding the topic of bait offers to their agenda, which means that even minor violations can be expected to result in costly warnings.
For further information or questions regarding the enforcement of your claims against your contractual partner, regarding actions and structuring options permitted under competition law or in general regarding the topic of the disruption of supply chains, please do not hesitate to contact us.