Disputes in times of the coronavirus

Germany

The spread of the coronavirus (SARS-CoV-2/COVID-19) in Europe and the world has not stopped the need for dispute resolution and has created enormous challenges for companies, their advisers and the courts. The Court of Justice of the European Union, for example, decided on 13 March 2020 to reduce judicial activities and deal only with particularly urgent cases (https://curia.europa.eu/jcms/jcms/P_97552/). By now we also see similar slowdowns in certain German courts.

In addition to the question of how to deal with the implications of the coronavirus in ongoing court and arbitration proceedings, other practical questions arise in connection with the enforcement of claims and suspension of the statute of limitations.

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By now, many German courts have reduced their operations or entered into „emergency operation“ due to the further spread of COVID-19. According to the competent state departments of justice, courts will only conduct urgent and essential hearings that "must not be postponed“. This primarily applies to matters concerning criminal investigations and imprisonment as well as urgent family matters. Due to COVID-19’s massive impact on economy, similar urgent matters may also arise in labour law and social welfare proceedings.

To safeguard judicial independence, however, these governmental orders constitute recommendations rather than binding directives. The final decision whether proceedings are to be continued or stayed remains with the competent judge or judges, though it seems that, in practice, most judges follow the recommendations. Especially in civil law matters that are not particularly urgent, we see hearings being adjourned and postponed on a daily basis.

Furthermore, there seem to be discussions on federal rules in order to maintain the proper functioning of the judicial system, including the re-introduction of so-called "Gerichtsferien" (court holidays / court-break). The underlying provision (contained in Section 200 of the Act on the Constitution of the Courts) was abolished in 1996. It set out that during the court-break, hearings were to be held only in certain particularly urgent matters. Additionally, procedural time limits, except for peremptory time limits (Notfristen), were suspended during that time (Section 223 of the German Civil Code, repealed). In light of the COVID-19 pandemic, a re-introduction of these provisions for a limited period of time – potentially also extending the provisions‘ effect to peremptory time limits – could be prudent. However, whether these provisions may indeed be re-enacted remains to be seen.

Furthermore, in light of COVID-19, public access to court buildings has been restricted. In Hamburg and North Rhine-Westphalia, people who visited a high risk area or have had contact with an infected person during the last 14 days will be denied access to court buildings. In other states, such as Bavaria, visitors of courts must provide a written disclosure form concerning COVID-19.

With regard to arbitration proceedings, current developments are similarly dynamic. The German Arbitration Institute ("DIS") announced the indefinite shutdown of its Berlin office. The office’s overnight mailbox (Fristbriefkasten) is therefore also closed. The DIS advises that, in order to keep applicable limitation periods, parties intending to commence arbitration should consider submitting Requests for Arbitration via email as per Art. 6.1 and Art. 4.2 of the DIS Rules followed by a hard copy to be sent to the DIS’ main office in Bonn.

For arbitrations conducted under the ICC Rules, the Secretariat of the ICC International Court of Arbitration recommends that all communication with the Secretariat be conducted via email and that requests for arbitration, applications for emergency measures as well as other ADR proceedings be filed electronically. Oral hearings scheduled at the ICC Hearing Centre until 13 April 2020 have already been postponed or cancelled. Other institutions, such as the London Court of International Arbitration ("LCIA"), the Vienna International Arbitration Centre ("VIAC"), or the Hong Kong International Arbitration Centre ("HKIAC") advise to conduct communications electronically. The latter further advises parties to consider using HKIAC’s virtual hearing services.

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Limitation periods, preclusion periods and periods for taking legal action

In light of the spread of the coronavirus, there is a high risk that many companies will not be able to maintain their business operations. In this case, the question arises how this situation will affect running limitation and preclusion periods.

If a claim holder is not able to pursue claims in court due to disruptions in operations, a suspension of the statute of limitations due to force majeure in accordance with section 206 German Civil Code (BGB) may be considered. However, such a suspension will occur only in exceptional cases. The provision will only apply in circumstances that make it impossible to manage one's own affairs and that could not have been foreseen and averted even with the utmost care. In principle, this would be conceivable if operations came to a complete standstill due to the coronavirus, despite appropriate precautionary and preventive measures having been taken and without the claim holder being at fault.

To avoid legal disadvantages, in light of the strict requirements set out by section 206 German Civil Code (BGB), companies should not rely on the fact that courts may be inclined to affirm a suspension in the current circumstances if the virus continues to spread. Instead, appropriate steps should be taken now to extend or suspend limitation periods about to expire. In this respect, companies may consider the conclusion of an agreement with the debtor or the initiation of legal proceedings, such as (European) order for payment proceedings or (arbitration) proceedings.

A suspension pursuant to section 206 German Civil Code (BGB) also occurs when the administration of justice comes to a standstill(Stillstand der Rechtspflege). In principle, however, this is the case only when all courts having jurisdiction over the claim in question have completely ceased activities. A mere delay in the processing and service of written submissions due to a slowdown in the administration of justice does therefore not give rise to any suspension, nor does the mere cessation of sessions or the closure of court buildings to the public. As a result of such a delay, if a statement of claim or other application is not served until after the limitation period has expired, the later service will take effect from the date on which the document was received by the respondent (see section 167 German Code of Civil Procedure, ZPO). Therefore, even if courts or individual bodies within a court are not performing their duties for the time being, parties should still pursue their claims and consider bringing proceedings.

Furthermore, section 206 German Civil Code (BGB) applies to various preclusion periods and periods for taking legal action. For example, the two-week period for avoidance (Anfechtung,section 124 (2) German Civil Code (BGB)) or the period for asserting claims against former shareholders in accordance with section 160 (1) German Commercial Code (HGB) will be suspended if the provision's preconditions are met. By contrast, section 206 German Civil Code (BGB) does not apply to the period for notification of defects pursuant to section 377 (1) German Commercial Code (HGB) and to the period for contesting resolutions pursuant to section 246 (1) German Stock Corporation Act (AktG).

It must therefore be examined on a case-by-case basis whether the spread of the coronavirus can lead to the suspension of a specific period. Companies should therefore take appropriate steps to either ensure that applicable deadlines are met or, where permissible, to extend them by agreement between the parties.

Quarantine, isolation, entry restrictions – delays and disruption of ongoing litigation and arbitration

So far, the impact of the spread of the coronavirus on national court proceedings is still limited. Except for orders issued by individual courts to attend the hearing only with "protective masks", most hearings are still going on as scheduled. Sooner or later, however, there will be delays and disruptions in the course of proceedings due to the illness or the quarantine-isolation of parties, legal counsel or judges or due to the temporary closure of courts. In such cases, various measures to control the proceedings are conceivable. These may range from the transition to proceedings conducted in writing (section 128 (2) German Code of Civil Procedure, ZPO) to the cancellation and deferral of hearings for oral argument (section 227 (1) sentence 1 German Code of Civil Procedure, ZPO) to the interruption of proceedings (section 245 German Code of Civil Procedure, ZPO).

The coronavirus crisis will also be felt in international arbitration proceedings. In particular, governmental measures, such as the recently announced US "entry restrictions ", may prevent parties and their counsel from attending oral hearings. Since arbitral tribunals are generally free to determine the arbitral procedure at its discretion, in such cases a request for a change of date should be submitted to the arbitration tribunal as soon as possible.

Compared to national court proceedings, arbitration procedures offer the parties greater flexibility even in times of crisis. In arbitration proceedings, for example, it would be possible for the parties to agree to move the venue of the negotiations to a region less affected by coronavirus.

Only via Skype – conducting hearings in times of crisis

The coronavirus has led, among other things, to many companies sending their employees home to work and conducting discussions or meetings – where possible – via video conferencing. Even in court or arbitration proceedings, it is possible to conduct oral hearings, including the hearing of evidence, via video conferencing.

For national court proceedings seated in Germany, section 128a German Code of Civil Procedure (ZPO) introduced in 2013, offers this possibility even without the consent of the parties. Its practical implementation often fails, however, due to the inadequatetechnical equipment in most courtrooms.

Here, too, arbitration proceedings can demonstrate their advantages over national court proceedings. Many arbitration rules explicitly provide for the possibility of conducting oral hearings via video conferencing. Article 3 (5) of the ICC Rules reads: "When a hearing is to be held, the arbitral tribunal may conduct it by videoconference, telephone or similar means of communication". Even if the arbitration rules applicable in the individual case do not explicitly provide for such a rule, the parties and the arbitral tribunal may agree on it within a short time. In contrast to national courts, the companies and law firms involved in the proceedings will usually have the necessary technology and experience to efficiently organise and conduct oral hearings that way.

No time to waste – deadline management in ongoing proceedings

The spread of the coronavirus has, in principle,no influence on deadlines in ongoing arbitration or court proceedings. For court proceedings, the situation is different only if the administration of justice comes to a standstill (Stillstand der Rechtspflege). Pursuant to sections 245 and 249 (1) German Code of Civil Procedure (ZPO), this would lead to an interruption of proceedings and equally of all time limits, which would then start again after the interruption has ended.

If it becomes apparent to a party to the proceedings that it will not be able to meet procedural deadlines due to the spread of the coronavirus, for example, due to a shortage of staff, an extension of the relevant deadlines can be considered. This extension is at the discretion of the judges or arbitrators in both court and arbitration proceedings. Although it is probable that requests for extensions of deadlines will be favourably considered by courts and arbitral tribunals as the coronavirus continues to spread, parties should not solely rely on this and should work towards meeting running deadlines in the best possible way as long as they are able to do so.

In contrast, peremptory deadlines (Notfristen) cannot be extended in national court proceedings. These include, among others, the deadline for notification of the willingness to defend oneself in court (section 276 (1) German Code of Civil Procedure, ZPO), the deadline for objecting to a judgment by default (section 339 (1) German Code of Civil Procedure, ZPO) or the deadline for filing an appeal (section 517 German Code of Civil Procedure, ZPO). Only if statutory deadlines are not met without fault, a restitutio in integrum (reinstatement to the previous status) can be considered. Reinstatement is therefore not possible if the failure to meet the deadline is due to negligent conduct. Whether a failure to meet a deadline due to the effects of the coronavirus is deemed to be without fault must be assessed separately in each individual case.

To avoid legal disadvantages, parties to proceedings should, particularly in the context of the current state of uncertainty, try to avoid exploiting deadlines to the fullest extent possible and to take appropriate precautions to ensure that deadlines are met.

By contrast, there are no peremptory deadlines in arbitration proceedings. Arbitration proceedings give the parties the flexibility to adapt the proceedings to changed circumstances, especially with regard to time limits that are already running and deadlines or dates that have already been set.

When time is short – interim measures in times of crisis

The issue of claim enforcement becomes critical in times of crisis, especially when the enforcement of claims is urgent.

The enforcement of requests for interim measures presupposes that the competent court is able to function at least with an emergency staff. This should currently be the case in all German courts. Even in the event of limited operation of the courts, it will therefore be possible to decide on requests for interim measures quickly. In times of crisis, which at the same time lead to a noticeable slowdown in the administration of justice, interim measures could therefore become increasingly important.

Restricted zones imposed by the authorities, such as restrictions on public access imposed by the courts, do not prevent the enforcement of interim measures. According to sections 922 (1) sentence 1, section 936 German Code of Civil Procedure (ZPO), the court always has the option to decide on provisional and protective measures without an oral hearing. Although the respondent must in principle be heard in an oral hearing, this does not apply if an oral hearing might endanger the purpose of the request. This has so far been directed particularly at cases where there is a risk that the respondent could frustrate the enforcement of the interim decision. The same must apply, however, if it is impossible to conduct an oral hearing due to an official order. Otherwise, waiting for a blocking period to end would, in cases of particular urgency, prevent the effective legal protection of the applicant.

Another issue is the extent to which requests for interim relief are justified in times of crisis. This requires an examination of the conclusiveness of the substantive claim (Hauptsacheklage)and the urgency of the particular request. A distinction must be made here during times of crisis. In times of crisis, the particular urgency of performance measures can also be justified, in cases of doubt, by social interests with regard to areas of supply (e.g. food, pharmaceuticals, hygiene products). It is to be expected, however, that courts will critically question the issue of the substantive claim, especially where supply shortages are involved. It is conceivable, for example, that courts will deal with the issue of the impossibility of performance and that in a case of doubt a decision will not be rendered without hearing the other party. If companies fear that interim measures against them could be sought, there is still the option of filing anticipatory briefs(Schutzschrift) with the courts as a precautionary measure. This can also be done centrally in electronic form at the Central Anticipatory Briefs Register (zentrales Schutzschriftenregister).

Interim decisions must be enforced within one month. Exceeding this deadline is generally incurable since it is not a peremptory deadline (Notfrist). If the deadline is exceeded, a new request should therefore be submitted even in times of crisis. The request will be justified if the prerequisites are still met.

Interim decisions may be enforced even before they have been served on the respondent (section 929 (3)). Service must, however, be carried out within one week. If this deadline cannot be met in crisis situations, the interim decision can be enforced again. This is possible as long as the one-month period pursuant to section 929 (2) German Code of Civil Procedure (ZPO) has not expired.

For more information, contract your regular CMS advisor or local CMS experts: Falco Kreis, Dr Christian Piroutek, LL.M., Dr Philipp Pohlmann.