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Supply Chains Force Majeure, what to do if?

Provided that external, unforeseeable circumstances not susceptible by supplier have an impact upon the proper fulfillment of a delivery commitment towards the customer, the question is typically arises who will be liable for any disturbances caused by this.

BELFOR Solutions asked Thomas Schmitz, Head of Corporate Legal & Insurance of BELFOR Europe GmbH about these situations and their effects on supplier relations.

Solutions: What is the aim of Force Majeure?

Thomas Schmitz: The question is flawed. Actually the question is: What does „Force Majeure“ mean? To answer the question it should be mentioned first that the term „Force Majeure“ is coming from the French language and that its German equivalent is Höhere Gewalt 1) (Latin = vis major). In German law the term „Force Majeure” refers to the contract law governed by the Civil Code (“BGB”) or more precisely the law concerning the content of contractual obligations. The obligation to perform is specified there. The term „ Force Majeure“ is understood to mean an external obstacle in respect of discharging a performance obligation which the supplier can neither avoid nor prevent. The criteria „external“ is not requiring that the related event need to be non-controllable by human beings. Rather this requirement shall merely exclude any obstacles for which the supplier is responsible. In terms of avoiding and overcoming any „Force Majeure“ the standards pertaining to negligence specified in § 276 Abs. 2 BGB must be observed. According to this rule anyone is acting negligently who is failing to exercise reasonable care. It is the aim of „ Force Majeure” as a legal instrument to protect the supplier in terms of its obligation to perform assumed towards the customer. This also applies to any supplier being part of a supply chain.

1) Hereafter we use the term Force Majeure only for the reader’s convenience.

Solutions: Which situations (according to German law und internationally) are deemed to be Force Majeure: any natural phenomena like heavy rain, flooding, storm but also military interventions, terrorism, trade embargoes?

T. Schmitz: The term „Force Majeure“ is not legally defined within the BGB. In some places, e. g. in § 206 BGB (suspension of limitation in case of Force Majeure) or in § 651j BGB (termination of package travel contracts due to Force Majeure) the term is being used. The German Federal Supreme Court (BGH) defines the term in its recent jurisdiction as an incident coming from outside with no operational connection that cannot be prevented by utmost care that can be reasonably be expected. Hence one sensibly cannot completely forecast all occurrences that fall within the meaning of this term. The actual circumstances of the individual case are decisive. For instance, technical defects of an airplane cannot relieve an aviation company, however, bird strike may do so. Typically natural disasters like heavy rain, flooding, storm but also military intervention, terrorism and trade embargoes are deemed to be „Force Majeure“. However, there are also court cases that deny the existence of „ Force Majeure“ in case of a wind force of 8 - 9, whereas „Force Majeure“ has been affirmed in case of Hurricane Kyrill in 2012.

Force majeure

Internationally one can find a rule on „Force Majeure“ in Art. 79 sec. 1 CISG (United Nations Convention on Contracts of International Sale of Goods). Accordingly a contract party is not liable for the non-fulfilment of its obligations, provided it is able to proof, that the non-fulfilment is based on an impediment coming from outside its sphere of influence and that one could not reasonably expect from that contract party to consider this impediment when entering into the contract or to avoid or to overcome this impediment and its effects.

The CISG very often is explicitly excluded from contracts and replaced by a national regulation.

Solutions: The burden of proof is resting with the supplier; what does he need to proof?

T. Schmitz: The supplier when invoking „Force Majeure“ must proof the existence of facts according to which he could not discharge his performance obligation when due because of an external incident with no operational connection that cannot be prevented by utmost care that can be reasonably be expected. In other words already slight negligence will exclude the supplier from invoking „Force Majeure”.

Thomas_SchmitzSolutions: Provided the supplier cannot deliver due to an impediment having affected his sub-suppliers, is that automatically deemed to be Force Majeure or must this be specifically addressed by contract?

T. Schmitz: There is no Force Majeure in case of sub-supplier failure causing difficulties in conjunction with the procurement of the performance object on the ground that this will be principally attributed to the business risk of the supplier. Provided something different is intended this need to be explicitly agreed by contract. Under this premise it is therefore recommended to explicitly govern the topic Force Majeure by contract.

Solutions: When does Force Majeure have to be reported? Are there any deadlines?

Force Majeure will not be considered per se. The supplier must invoke Force Majeure towards its customer, ideally in writing! This is called Force Majeure-declaration. Provided the supplier refrains from making that Force Majeure declaration, supplier may become liable to the customer due to violation of a contractual collateral obligation.

Force Majeure must principally be reported immediately!

There are no definitive deadlines for the Force Majeure declaration unless contractually agreed.

Solutions: Mr. Schmitz, thank you very much for taking the time to talk to us!

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