Docket Entries Since Last Update
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Editor's Note: In the following sample letter, the customer questions the supplier's declaration that a force majeure event has occurred on the basis that the language of the provision did not anticipate a pandemic and requests more information regarding the underlying basis for the claim.
Response to Force Majeure Declaration
Re: Declaration of Force Majeure - Supply Agreement dated [Date]
Dear Contact Person:
We are in receipt of your notification dated [Date] in which you assert that an event in the nature of force majeure has occurred and is preventing your obligation to supply products under the above Supply Agreement. You claim that the novel coronavirus (Covid-19) pandemic has caused the shutdown of manufacturing facilities in [Location(s)] from which you source certain raw materials and parts for your own manufacturing needs. You assert that such an event is a “cause outside the control of a party” which you claim excuses or delays performance.
We note, initially, that Section [xx] of the Supply Agreement does not include [“pandemic” or “epidemic” or “widespread disease”] or similar occurrences in its list of force majeure events. Whether an event is expressly denominated a force majeure event or is included within the phrase “cause outside the control of a party,” the particular event must in fact be the cause of the party's non-performance to invoke the protections of the force majeure provision.
Comment: A party that receives a force majeure declaration may accept or reject the counterparty's assertion that a force majeure event preventing the counterparty's contractual performance has occurred. Alternatively, it may request further information. A close review of the contract's force majeure provision needs to be undertaken and completed prior to responding.
We are without information whether the shutdown of [Location] manufacturing facilities prevents you from performing under the Supply Agreement. In this regard, can you please advise what steps you have taken or are taking to find alternative supply sources? Have you received a force majeure or similar declaration from your sources in [Location], and if so can you please share the details of the extent of the shutdown, its likely duration and remedial steps being taken to re-initiate and bring capacity back to full production?
Comment: The party invoking force majeure typically has the burden of proving that the force majeure provision of the parties’ contract properly applies to the claimed situation and is the cause of the party's nonperformance. See Point of Law (POL). Most courts construe the terms of a force majeure clause narrowly to determine the risks the parties have agreed are outside their control and will excuse performance. In the case of the coronavirus pandemic, it is not enough that the disease has occurred and has affected commerce. The party invoking the benefit of the force majeure provision has the burden of showing the causal relationship between the outbreak of the disease and its performance under the agreement. The recipient party is well within its rights to request further information and/or to challenge the force majeure declaration if it believes the facts do not support the causal relationship.
We look forward to your prompt response and further discussion with you about this matter.