Supply Shortages for Certain Products

Using the example of the construction element shortage in 2011, an important question arose that is repeatedly significant for companies: What happens during shortages in procurement markets? How can one protect oneself? What legal options exist for delaying the delivery of products?

This is particularly relevant now due to shortages caused by the Corona crisis and the impending or actual interruptions of supply chains, especially for pre-products.

The consequences of the devastating earthquake in Japan in 2011 dramatically exacerbated the already existing shortages in procurement markets, particularly for construction elements, but also for important raw materials such as silicon. As important factories were damaged or destroyed, a resumption of full production was often not expected before summer or autumn 2011. The same applies to the current situation with production stoppages at various locations worldwide.

The resulting significantly extended delivery times led and lead to problems in manufacturing in Germany as well. Often, it cannot even be said with certainty when or if parts can be delivered at all – not to mention possible quality issues.

Delivery Delay is Force Majeure

The delays caused by this are not the responsibility of the affected company. This applies at least when they were not expected and not foreseeable at the time of contract conclusion. It is therefore a case of force majeure.

To use the example of Japan that we all have in mind: The fact that Japan is located in an earthquake-prone zone does not in itself predict that and when an earthquake of this magnitude would occur and that it would have such dramatic effects.

And for Corona: The fact that a virus would lead to a global lockdown has never happened before and was not foreseeable – especially not concretely at this point in time. Even in December 2019, no one would have expected or could have expected such a lockdown.

However, this possibility of invoking force majeure only exists if the affected company placed the order in a timely manner and one could therefore assume and was entitled to assume that the ordered goods would have arrived on time under normal circumstances. In the event that one could not have expected timely delivery for other reasons, one cannot invoke this.

However, invoking force majeure is not possible if an order is accepted or confirmed without further reservation after knowledge of the circumstances that cause the plea of force majeure.

Legal Implications

If the delivery delay presents itself as a case of force majeure, the affected company is not responsible for the delay. Claims for damages by the customer are then generally eliminated, as compensation under German legal understanding regularly presupposes fault.

International Perspective

This result found for German law will also be valid for many international legal relationships. This is at least suggested by the ICC Force Majeure Clause 2003.

This regulation developed by the International Chamber of Commerce (ICC) in Paris contains in § 3 a list of typical examples of force majeure, which includes in particular earthquakes (Clause 3 e) on the one hand and destruction of machinery (Clause 3 f) on the other hand.

Duty to Inform Customers

If a case of force majeure exists, the affected company is obliged to inform the customers about this. This obligation sometimes arises explicitly from contractual provisions. If a supply contract does not contain such an obligation, informing the customer will, however, be considered an ancillary obligation. It is therefore strongly advised to inform the affected customers immediately as soon as one realizes that a delay will occur due to an event of force majeure.

These information letters should come from or at least be coordinated with the management. In view of the extensive legal consequences, it is advisable to seek legal counsel and have all correspondence or other related customer information reviewed for legal relevance.

For information on the Corona crisis, please also read our special articles.