Late Supplier Gets You Penalized by Your Customer: Pass-Through Claims — A raw-material supplier delivers three weeks late, the production line stops, and the company is penalised by its end customer under the output contract. The company wants to pass the entire penalty and loss upstream to the late supplier, but its purchase contract says very little about late-delivery liability.
Applicable legal framework
Liability for late delivery in commercial relations comprises a breach penalty under Articles 300 and 301 of the Law on Commerce 36/2005/QH11 (agreed rate, capped at 8% of the value of the breached obligation part) and damages under Articles 302 to 306 of the same law, where damages include actual loss and direct lost profits. The Civil Code 91/2015/QH13 adds the principle of full compensation and the injured party’s duty to mitigate loss. The penalty the company must pay its own customer is an actual loss claimable from the supplier if direct causation and foreseeability of the loss are proven.
Why this situation needs separate handling
This article is about pass-through claims: the company’s loss sits in a second contract with its customer, not in the late shipment itself. The focus is the causation chain from late delivery to the downstream penalty, why the 8% cap applies only to the purchase relationship, and how to draft pass-through indemnity clauses for future contracts.
Key questions and answers
Can I claim from the supplier the penalty my customer charged me?
Yes, if three elements are proven: the supplier breached the delivery deadline; the customer penalty is an actual loss that has arisen or will certainly arise under a genuine output contract; and a direct causal link runs from the late delivery to being penalised. The element that breaks most often is foreseeability: if the supplier never knew the shipment served an output contract with a specific penalty milestone, it will argue the loss was beyond contemplation at signing, so evidence that the schedule and the consequences of delay were notified is crucial.
How is the penalty against the supplier calculated when the purchase contract is thin?
If the purchase contract has a penalty clause, the agreed rate applies but cannot exceed 8% of the value of the breached obligation part under Article 301 of the Law on Commerce 36/2005/QH11 — that part being the value of the late-delivered goods, not the whole contract. If the contract has no penalty clause, no penalty can be claimed at all, only proven damages; this gap is exactly how overly brief purchase contracts strip away the cheapest layer of protection.
What evidence makes a pass-through claim succeed?
A closed evidence chain: the purchase contract and order confirmation stating the delivery date; actual delivery documents proving the days of delay; the output contract with its penalty clause and the customer’s penalty notice or deduction record; production records showing the line was affected by the lack of that very material; and the chasing notices sent to the supplier during the delay proving urgency and forewarning of consequences. Missing one link, courts or tribunals usually award only part of the claim.
What must I do to keep the claim from being cut down?
You carry a duty to mitigate: once delay looms, the company must seek reasonable substitute supply, negotiate with the customer to extend milestones or reduce the penalty, and record all those efforts. If the company sits idle while a feasible substitute exists, the avoidable part of the loss will be deducted from compensation, because the law does not protect a passive injured party that lets loss balloon and then shifts all of it to the breaching party.
Practical handling steps
Practical steps: the moment delay risk appears, send a written chasing notice naming the output contract and the penalty that will arise; collect and lock the causation evidence chain day by day; pay or record the customer penalty in a separate written instrument to create a recovery voucher; send the compensation claim to the supplier with the full evidence chain before considering set-off against later payments; and amend the purchase contract template with a pass-through indemnity and a late-delivery penalty for all future orders.
This article has been quality-reviewed by the FLAW AI Legal Council