Retreat from Assault hex 14.3 vs. 12.12

[cjsiam]

picture a hex
Germans are dug in
they have an MG
It's Demoralized.....there is a german officer, also demoralized....

There is Soviet SMG unit in the hex
It is also Demoralized....

The Soviet rolls for Recovery....
Fails and must flee....

In circumstances where the Germans were NOT demoralized---
they would get a free shot....

But--- 14.3 says demoralized units may not fire/or attack---except
to defend in an Assault....
12.12 indicates the units "May be assaulted by the enemy units in the Assault hex"....
Thus 14.3 prevents the Dem unit from conducting such....

Is that a correct interpretation?

[Hugmenot]

There is a contradiction in the rules.  

• From 14.3, the demoralized units would not have to flee because the demoralized units could not obtain a result on them using Direct Fire as demoralized units cannot use direct fire. The example makes it clear.
  
• From 14.35, the demoralized units must flee the assault hex.
  

The way I play it is the units must flee but the demoralized units left in the hex do not get a free shot. Just like you, it appears.

14.3 Demoralization
A demoralized unit or leader:
...
If it fails to recover, it must flee (14.31) from enemy combat units that can spot it, are within range to attack it, and are capable of obtaining a combat result against it through Direct or Anti-Tank Fire, including Assault (14.35; exception 14.33). For example, a demoralized AFV is not required to flee from an enemy INF unit unless they are in an assault hex together. Mark the unit as Moved/Fired once it finishes fleeing for the turn.

14.35
Demoralized units in an assault hex that fail a morale check must exit the hex, and may move only one hex when doing so (12.13). On later activations they flee at their full movement rate if they fail to recover.

[cjsiam]

There is a contradiction in the rules.  

• From 14.3, the demoralized units would not have to flee because the demoralized units could not obtain a result on them using Direct Fire as demoralized units cannot use direct fire. The example makes it clear.
  
• From 14.35, the demoralized units must flee the assault hex.
  

The way I play it is the units must flee but the demoralized units left in the hex do not get a free shot. Just like you, it appears.

14.3 Demoralization
A demoralized unit or leader:
...
If it fails to recover, it must flee (14.31) from enemy combat units that can spot it, are within range to attack it, and are capable of obtaining a combat result against it through Direct or Anti-Tank Fire, including Assault (14.35; exception 14.33). For example, a demoralized AFV is not required to flee from an enemy INF unit unless they are in an assault hex together. Mark the unit as Moved/Fired once it finishes fleeing for the turn.

14.35
Demoralized units in an assault hex that fail a morale check must exit the hex, and may move only one hex when doing so (12.13). On later activations they flee at their full movement rate if they fail to recover.

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Yes that is how we played it.... one thing about your 1st contradictory case---the demoralized unit has to flee from ANY enemy unit that can impact it, from assault or DF/AT....so neighboring hexes harboring dangerous gun totting enemy soldiers will cause fleeing--as well as the enemy in the hex (though in this case they are demoralized...)

thanks!