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Force majeure and scarcity of raw materials: delivery entitlement and liability

Buyers and sellers have particularly important tasks in contract management: They must assess the general risk for the purchase and negotiate a legally and commercially secure contract. Important commercials such as prices and delivery times must be binding. At the same time, the contract must also be able to react to unforeseeable events. This includes, for example, the shortage of raw materials due to force majeure events or the failure of the supplier. Successful contract management reduces the risk of liability and is based on a model contract or framework agreement. At the same time, it ensures that every buyer and every specialist lawyer for international commercial law in the company knows and uses this model contract and framework agreement in the future.

In current practice, the shortage of raw materials and components is a particular risk. Companies are linked in supply chains - if one contracting party fails, its supplier cannot fulfill its obligations to customers under international supply contracts. This is the case for many raw materials and components in the ongoing COVID-19 pandemic and poses a particular risk for contractual liability. Force majeure clauses regulate the respective rights and obligations of both contracting parties in the event of a force majeure event. “Force Majeure” and “force majeure” mean the same thing.

Liability and force majeure in the supply chain

In international trade, the legal basis for liability in the event of raw material defects and delivery shortages arise from the contract concluded in each case. In my view as a specialist lawyer in international business law, a contract that creates the company's own purchasing rights towards its suppliers is definitely recommended. Companies that rely on statutory general terms and conditions law, HGB, commercial law, corporate law and private international law cannot find suitable answers to important questions such as entitlement to delivery, liability for force majeure, required care or own fault.

In international legal transactions, German companies are usually both customers of their own suppliers and suppliers of their own customers. If its own supplier fails - either because it is not being supplied or because of a factory malfunction, for example - the company can often no longer deliver as agreed in the delivery contract. The entrepreneur is “between the millstones”: his supplier invokes force majeure in a polite letter and refuses delivery. The customer insists on delivery and threatens compensation. Who now bears the procurement and liability risk?

Procurement risk: Buyers are liable for the damage

German case law is very clear with regard to the procurement risk: the buyer is liable for being able to pay, the seller or manufacturer is liable for being able to deliver. He alone bears the procurement risk and must ensure that he is supplied with all necessary raw materials and components in a timely and complete manner. In this specific case, he has to look for alternative sources of supply. Even under international commercial law, the entrepreneur cannot pass on this procurement risk to his buyer or customer. He cannot unilaterally order the postponement of delivery dates, demand contract or price adjustments or an exclusion of liability. This procurement risk therefore initially creates liability regardless of fault, and the supplier must compensate for the damage caused.

A contract adjustment according to the German Civil Code (BGB) is only possible if there is a disruption or loss of the basis for the transaction. The business basis of every contract is also the issue of procurement risk and that lies with the seller. The business basis will therefore not be disrupted if this risk materialises. Since the legal situation does not help with raw material shortages and delivery bottlenecks, especially during the Corona pandemic, industrial companies should regulate in their contracts and general terms and conditions clauses how such a case should be dealt with.

Force majeure clause in general conditions of sale

Force majeure clauses are often included in international supply contracts and general terms and conditions for purchasing and sales. They define what a so-called force majeure event – also known as a “force majeure” event in international commercial law – is. Examples include war, unrest, embargoes, pandemics, epidemics, strikes, official orders, natural disasters or fire. Such events regularly lead to the impossibility of being able to deliver for a certain period of time or permanently. These are events that are beyond the control and therefore beyond the risk sphere of both contracting parties.

The consequences of force majeure are complex: First, the supplier must immediately inform the customer about the force majeure event and its duration. The supplier is exempt from the delivery obligation for the time specified in the clause. He therefore does not commit a breach of duty if he does not deliver during this time. The customer has no claims. If the event lasts longer than the period of freedom from performance, both contracting parties can terminate the contract. 

However, this clause does not help in practice if the customer is dependent on delivery. As a specialist lawyer in international business law, I therefore recommend that every buyer only accept force majeure clauses that are not too broad and do not apply in particular if the supplier is not supplied. He then just has to look for other sources of supply.

Self-delivery and price adjustment

For a specialist lawyer in international business law and a specialist lawyer in commercial law and corporate law, in addition to a force majeure clause, general terms and conditions clauses for the seller's own delivery and for price adjustments are common. Here, too, the buyer must legally check carefully what he wants to accept. Failure to deliver by a supplier is not an event of force majeure. Because the procurement risk is precisely part of the supplier's risk sphere. 

It has therefore proven successful internationally in contract and commercial law that, in addition to the force majeure clause, the general terms and conditions also contain a clause on the so-called self-supply reservation. The delivery obligation is subject to the condition that the supplier himself is supplied with the required raw material. In addition, it is common practice in international purchasing law to include adjustment clauses when prices for resources and raw materials increase. Especially with general terms and conditions in industry, the agreed prices can be increased accordingly if there is a proven increase in the prices for raw materials and resources. However, price adjustment clauses must also apply if the prices for raw materials fall. In addition, the customer must be granted the right to terminate the contract. 

The customer's general purchasing conditions, on the other hand, will often contain clauses that exclude these reservations and adjustment rights. As a rule, they contractually regulate strict liability for delay in delivery - regardless of whether there is an avertable event or force majeure - and also set contractual penalties or flat-rate damages for this. 

On both sides of the management of a contract - purchasing and sales - attention must be paid to the completeness of your own regulations and the liability risks from the contractual partner's general terms and conditions. In order to prevent a collision of purchasing and sales terms and conditions, which regularly leads to mutual inapplicability, my practice as a specialist lawyer in international business law has recommended excluding the applicability of the respective terms and conditions and regulating the clauses in a uniform contract.

Tips from the specialist lawyer for practice 

Contract management sets the framework within which the company can expose itself to liability risks. The framework contract for purchasing is also linked to the delivery contracts with customers. This creates a uniform level of protection that protects the company against the risks of contractual liability. 

Access to raw materials and components in the supply chain has clearly moved up in priority. Every industrial company should always maintain purchasing and sales conditions and include them in the respective contract in order to reduce the risk of breach of duty and liability in the event of force majeure and non-delivery.

Where no unilateral adjustment rights have been agreed or no reservations apply, there is no way around negotiating with the contractual partner. In practice, it is not uncommon for a contractual partner to agree to higher prices because they are dependent on delivery. 

Anwalt Gesellschaftsrecht und Handelsrecht

dr Andrelang, LL. M

Specialist lawyer for international business law

Specialist lawyer for commercial and corporate law


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