LEGAL
unsung heroes of supply chain management
signi cant disruption. Di erent companies
within the supply chain will respond
in di erent ways, making it di cult to
predict the impact on your contractual
relationships. Whatever happens, exibility
and agility are essential.
Seeking advice early on
will give you time to plan. This
is where having a detailed understanding
of your contractual agreements pays
o . Regular contractual reviews and
good communication throughout the
supply chain should ensure that your
agreements have not only been drafted to
avoid inadvertently waiving your rights or
varying the contract, but also to allow you
to make amendments to re ect changing
circumstances. A well-drafted variation
clause (often referred to as ‘change
control’) could allow you to recoup costs or
increase charges to mitigate the impact of
disruption.
FORCE MAJEURE
Many contracts include a force
majeure clause (such as the recent
case highlighted in OE’s Summer 2020
Legal Report: www.is.gd/gamubo).
Colloquially referred to as an ‘Act of
God’ clause, it caters for events such as:
natural disasters, including hurricanes,
earthquakes, tsunamis and volcanic
eruptions; wars; industrial action; and
subcontractor or third-party failure to
supply.
In practice, the drafting of force
majeure clauses may vary greatly. If
engaged, a force majeure clause is
hugely signi cant because it can release
a party (or both parties) from
their obligations under
the relevant contract.
If a disaster strikes,
you may be inclined
to use it as an
excuse to shrug
o unhelpful
contracts – but
that works both
ways.
However,
as there is no
recognised legal
de nition of force majeure,
and no common law principle
of force majeure as such under English
law, the courts will not imply one into a
contract.
Therefore, each clause will need
careful legal analysis to determine
whether the cause of the disruption
is covered by the wording. In other
words, to bene t from a force majeure
situation, the contract must actually
contain a clause which deals with those
circumstances. If it does not, and you
attempt to terminate on that basis
anyway, there may be severe legal
consequences.
FRUSTRATION, WRONGFUL
TERMINATION & WILFUL DEFAULT
In contract law, the doctrine of ‘frustration’
is a way of returning both parties to
the position they were in before the
performance, or partial performance, of
their respective obligations under the
contract. Frustration can only be used
in very speci c circumstances and the
legal hurdle is extremely challenging to
meet. The general rule of thumb is that if a
contract contains a force majeure clause, a
claim for frustration will in all probability not
be possible as the parties will be deemed
to have agreed to be bound by that.
Most contracts will include express
termination provisions. If these are tackled
incorrectly, you may well face a dispute:
it is vital to check that, contractually, you
are able to terminate before doing so, and
that you adhere to any notice provisions.
Similarly, if you simply do not supply
your goods or do not pay your suppliers
contrary to the terms of your contracts
with them, then you may be in wilful
default.
While some businesses might seek
to exploit a serious situation such as the
current pandemic to extract themselves
from unfavourable contracts, the majority
of companies who have entered into
agreements are likely to want to seek to
complete them for their mutual bene t.
Most successful supply chains are built
on collaboration and communication,
and their interdependency means
that early contract considerations
and discussions between parties are
strongly recommended. Active contract
management should make the task of
nding suitable, alternative solutions
easier. Taking a commercial view and
working with the other parties to mitigate
the impact of the disruptive event should
actually improve a relationship and embed
it for the long term.
Autumn 2020 www.operationsengineer.org.uk 95
/gamubo)
/www.operationsengineer.org.uk