No Force Majeure in Chinese Hanky-Panky

(CN) – A solar panel maker with five years to go on a $2.6 billion purchase order cannot back out now that Chinese dumping has sunk the market, a Michigan appeals court ruled.
     The dispute stems from a deal Japan-based Kyocera made with Hemlock Semiconductor in 2008 for a 10-year, stable supply of polysilicon, a major component of solar panels.
     At the time there was a worldwide shortage of polysilicon, and Kyocera wanted to expand its manufacturing capacity to meet higher demand for solar panels.
     Under the contract, Kyocera was to pay Hemlock advance payments of $514.8 million for set amounts of polysilicon to be purchased through 2020.
     The deal obligates Kyocera to pay for the product at that specified price, even if it does not take the contracted quantify.
     But after the contract was signed, Kyocera says the Chinese government began massively subsidizing its domestic solar-energy industry to capture market share.
     With Chinese companies now engaging in large-scale “dumping” – meaning that their products sell at prices far lower than the cost of production – China has captured 75 percent of the global solar-panel market, causing more than 20 U.S. and European manufacturers to go out of business, and slashing solar panel prices.
     As a result of this market manipulation, the price of polysilicon to which Kyocera agreed in 2008 is significantly higher than the market price as of 2015.
     Kyocera says Hemlock agreed to amend the price for shipments in 2011 and 2012, but that its management has since changed and the company is now enforcing the terms of its long-term contracts.
     In February 2015, Kyocera notified Hemlock that it was terminating the contract under the “force majeure” clause, saying China’s actions constitute a change in circumstances that has rendered its performance of the contract impossible.
     Facing up to $1.7 billion in liability, Kyocera claims that performance of the contract would force it to quit the solar panel market.
     The Saginaw Circuit Court granted Hemlock summary judgment, however, and a the Michigan Court of Appeals affirmed Thursday.
     “The very essence of a take-or-pay contract is therefore to the buyer the risk of falling market prices by virtue of fixed purchase obligations at a long-term fixed price, and to thereby secure for the buyer a stable supply, while allocating to the seller the risk of increased market prices and, by virtue of the buyer’s obligation to take or pay for a fixed quantity of product, removing from the seller the risk of producing product that may go unpurchased,” Judge Mark Boonstra wrote for a three-judge panel.
     Kyocera claimed that neither party could have foreseen the Chinese government’s actions, but the appeals court said that the foresight is not a basis for invoking the force-majeure clause.
     “We conclude that plaintiff contractually assumed the very market risks that give rise to that liability, and that the plain language of the force majeure clause at issue does not permit relief to plaintiff on the grounds that the market for polysilicon has shifted, regardless of the cause of that shift,” the 10-page opinion states.

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