As a result of the recent devastating earthquake, tsunami, and nuclear threat in Japan, commerce throughout parts of Japan is being hard hit. This includes production shutdowns and shipping stoppages. As a result, Japanese suppliers may experience delays in meeting certain supply obligations to their customers. In turn, their customers may experience delays in obtaining products necessary to satisfy their own customers further down the supply chain.
In light of the above, we would recommend to our clients, both suppliers and customers, that they promptly review their supply contracts and other related contracts. Many such contracts contain a so-called "force majeure" clause. Such a clause generally will define in what circumstances, and to what extent, a party can be excused from performing under a contract as a result of supervening causes not under its control. Events of "force majeure" often are defined to include natural disasters and governmental orders preventing contractual performance. In some instances events of force majeure may be used by a party to justify delayed performance and/or even allow for a contract's termination. Such a clause may also define what action, such as the prompt giving of notice of force majeure events, must be undertaken to excuse performance under the contract.
Additionally, even if there is no force majeure clause in the supply contract, the principles of force majeure may apply in some circumstances as a matter of law. For example, in the United States, the Uniform Commercial Code excuses a seller from timely delivery of goods under a contract of sale where its performance has become commercially impractical because of certain unforeseen supervening causes. Similarly, the U.N. Convention on the International Sale of Goods, to which both Japan and the United States are signatories, contains similar provisions.
Whether or not the specific supervening causes for the delay would be covered, either by a contractual force majeure clause, or by the principles of force majeure as provided by law, will depend on various factors, including the specific circumstances of the case. For example, one specific circumstance to consider is whether or not the unforeseen supervening cause affects only part of the party's capacity to perform under its contract. Another factor to consider is whether a party is nonetheless able to perform but at a higher cost than desired.
Finally, parties considering invoking principles of force majeure should consider providing timely notice of force majeure. Such notice may be required under certain contracts. We would be happy to further discuss your particular situation and contracts, including the preparation of any force majeure notices, as may be appropriate in connection with your particular circumstances.