A law firm which offers more

Call us: 0113 246 0622

Contract Variation - avoid becoming a cropper to the heatwave when your suppliers are looking to change the deal

Comments

The global effects of the continuous high temperatures of late have been well reported in the media and at Clarion we’ve been seeing how some of our own food manufacturing clients have been suffering as a result of the heat.

The issues which a number of food manufacturers have recently been experiencing, due to the heatwave, revolve around contractual relationships with suppliers. Across our clients’ requests for advice, there have been several prevailing themes: crop failure due to sustained hot weather; inability of suppliers to deliver products either in the agreed quantities or at agreed prices; and pressure exerted by suppliers to agree contractual variations on significantly less favourable terms in order to guarantee continuity of supply.   

If you are a food manufacturer and find yourself in similar circumstances, this blog explains the legalese which will invariably be quoted by suppliers.  It will also tell you, how, if it all, that terminology applies to you as well as some of the legal concepts and issues that you need to consider if you end up in a position where you need to bring a claim against one of your suppliers.

‘Force Majeure’

Often cited by the supplier, this phrase literally translated means ‘superior force’; in a legal context it denotes an event which is outside the control of the parties. 

A force majeure clause in a contract will identify the nature of circumstances or define events upon the occurrence of which one party to a contract can refuse to render performance of its contractual obligations. 

The doctrine of force majeure is not automatically recognised and applicable in this jurisdiction as it is in other jurisdictions.  So, if your suppliers turn around and try to convince you that they don’t have to perform under their contract because the recent freak hot weather constitutes a force majeure event, you need to check the contract and any applicable terms and conditions carefully – if there isn’t a force majeure provision in there, then the supplier has no proper basis to refuse to perform. Even if there is a relevant provision incorporated into your contract, check whether a persistent dry spell is specifically identified as a force majeure event or, if not, such an event could otherwise be construed as a force majeure event under the relevant clause.

‘Economic duress’

If you are in a position where your supplier is telling you that its crop yield has been significantly reduced due to the dry conditions and it is threatening to refuse to honour its contractual supply obligations then this may, depending on the validity of the contract, be an anticipatory breach of contract, in which case you can either accept the breach to terminate the contract or you can elect to affirm the contract (with both parties required to continue to perform) and claim damages upon later termination. 

Choosing the best course of action in these circumstances is far from straightforward and, in such cases, it is crucial that you obtain legal advice as soon as possible to properly manage the breakdown of the contractual relationship. If the commercial imperative favours a termination solution then you need to make sure you get termination right; get it wrong and it can come back to bite you with significant adverse financial consequences. 

Where duress of this nature is being applied to you by your supplier, you may have no choice but to agree to the terms the supplier is looking to impose upon you.  For example, in order to avoid breaching your contractual commitments to your own customers, because there is no credible alternative supplier and you need to preserve your commercial relationship with your customer.  Again, in such circumstances, you need to tread very carefully to protect your position and preserve your ability to bring claims against the supplier later down the line. 

One of the most important things to consider if you are in such a position, is to ensure that you create a clear paper trail of your complaints to the supplier so that if you are forced into acceding to the supplier’s demands you can, in the future, clearly identify the pressure which was exerted upon you by reference to cogent documentary evidence in order to make out a claim for economic duress.

If you have already entered into, or you end up entering into, a contract/contractual variation made under duress, that contract or contractual variation is voidable and can be set aside upon satisfying the court that the pressure was illegitimate and that it caused you to accede to the supplier’s demands.  In many cases that means that you will be able to recover the difference between what you would have paid under the original contract and the sums actually paid under the set aside contract/variation. 

As stated, knowing what to do and getting it right when your supplier tries to wriggle out of the bargain you have negotiated can be a legal minefield, so please do not hesitate to get in touch. The sooner we are involved, the better the outcome for you.

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.