Hemlock Semiconductor Operations, LLC v. SolarWorld Industries Sachsen GmbH

United States Court of Appeals for the Sixth Circuit

867 F.3d 692 (6th Cir. 2017)

The frustration-of-purpose defense requires an alleged unforeseeable event to substantially frustrate the parties’ primary purpose in making the contract.

Relevant Facts

Hemlock Semiconductor Operations, LLC (the plaintiff) entered into multiple agreements to supply SolarWorld Industries Sachsen GmbH (the defendant) with polysilicon for 14-years. Under the terms of the agreements, the defendant agreed to a take-or-pay provision that required the defendant to purchase a minimum amount of polysilicon each year, even if it took actual delivery of less than the amount purchased. Additionally, the liquidated-damages provisions contained in the agreements obligated the defendant to pay the plaintiff the price of the minimum amount of polysilicon plus any future years remaining on the agreement in the event the defendant failed to pay the minimum amount in any given year.

Several years later, the Chinese government began subsidizing polysilicon production in China, causing the price of polysilicon to drop significantly. As a result, the parties negotiated a temporary downward price adjustment effective for one year. However, the parties were unable to agree on amendments to any future agreements.

Next year, the defendant failed to pay the contractual minimum amount and the plaintiff sued for breach of contract, seeking damages under the liquidated-damages provision. The defendant claimed that the Chinese government acted illegally in dumping massive amounts of polysilicon on the market and acted illegally in committing criminal espionage, and that those illegal actions were unforeseeable events sufficient to raise the defenses of impracticability, impossibility, and frustration of purpose.

The district court determined that the defenses were inapplicable because the parties’ primary contractual purpose was to provide the defendant with a stable supply of polysilicon at a predictable price and as a result, all market shifts were a basic assumption of the parties’ agreements. The defendant appealed.

Issue

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Holding & Reasoning

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Concurrence

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Dissent

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Last updated:

December 22, 2020

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Procedural History

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Citations

867 F.3d 692 (6th Cir. 2017)