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A Better Partnership
December 07, 2015

COA - Unprofitability due to deflation of market prices is not a force majeure event in a “take-or-pay” contract dispute

Changing market conditions precipitated by foreign government action were not a “force majeure” event that excused Kyocera Corporation from its contractual obligations, according to the Court of Appeals decision in Kyocera Corporation v. Hemlock Semiconductor, LLC, No. 327974.  The sharp decline in market prices for solar panels only made Kyocera’s business less profitable or sustainable; it did not prevent Kyocera’s performance, such that the “force majeure” provisions in the contract would trigger.  Ruling otherwise would defeat the purpose of Kyocera’s “take or pay” contract with Hemlock—which was intended to ensure a steady supply of polysilicon for Kyocera and a fixed price for Hemlock.
Between 2005 and 2008, Kyocera entered into multiple “take-or-pay” contracts with Hemlock, which required Kyocera to purchase a set quantity, each year, of polysilicon for use in the manufacture of solar panels.  The purpose of the “take-or-pay” contracts was to ensure that Kyocera had no interruption in the supply of polysilicon; the trade-off being that there was a fixed price for the polysilicon and an obligation to pay, for a number of years, whether or not the product was needed.  One of the long-term contracts, executed in 2008, contained a force majeure provision that eliminated liability under the contract for either party if “an act of God; acts of the Government or the public enemy,” and other causes beyond the parties control, occurred.  Sometime after the contract was executed, the global solar panel market changed significantly and there was a decline in prices.  Kyocera contended that this was due to actions of the Chinese government in aiding Chinese companies in gaining a large share of the market. 
Due to this change in the market, in early 2015, Kyocera sent notice to Hemlock that it was discontinuing its obligations under the contract and invoking its rights under the force majeure provision.  Kyocera also filed a complaint for declaratory judgment seeking a declaration that the acts of the Chinese government caused a force majeure event and that it was relieved of its obligations under the contract.  In response, Hemlock filed a motion for summary disposition for failure to state a claim under MCR 2.116(C)(8).  The trial court granted Hemlock’s motion and held that there was not a sufficient event to trigger the force majeure provision.  Kyocera then filed an appeal.
On appeal, Kyocera argued that its pleadings were adequate and that the acts of the Chinese government caused a force majeure event that excused its performance under the contract. The Court of Appeals disagreed and held that Kyocera did not allege any act of the Chinese government that directly prevented its performance, as required by the force majeure provision.  Rather, the Court found, Kyocera simply alleged that the decline in prices in the solar panel market “caused performance by plaintiff to become unprofitable or unsustainable as a business strategy.”  In addition, the Court concluded that if this event was enough to trigger the provision, then the entire purpose of a “take-or-pay” contract is defeated.  The Court then affirmed the trial court’s grant of Hemlock’s motion for summary disposition.

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