Coronavirus COVID-19 and Supply Chain Disruption DLA Piper – 12 March 2020
Today's Webinar - Introduction Stephen Wright Partner Manchester T: +44 (0) 161 235 4233 stephen.wright@dlapiper.com www.dlapiper.com 2
Force majeure Is there a force majeure clause in my contract? • No default right to force majeure under English law. • Typically include specified “force majeure events”. • Would the Coronavirus COVID-19 outbreak constitute a force majeure event? • Do the force majeure events include epidemics, pandemics or work stoppages? • Has the event prevented performance of the contract? • Each contract will be taken on a case-by-case basis. • Proof is often required by the clause. Keep an audit trail. • Could the event have been mitigated by preventative action? • Consider including in future contracts. www.dlapiper.com 3
Force majeure Considerations before invoking • Has a force majeure event occurred? • What do the contracts say? There is no one-size fits all approach. • From a commercial perspective, is claiming force majeure the best option? • Have you communicated with your customers and suppliers? Their supply chains are likely to have been affected too. • If no solution can be found, are there any other remedies available to you under your contract or its governing law? • If you choose to invoke your force majeure rights, does your contract specify a procedure for doing so? Is prior notice required? www.dlapiper.com 4
Frustration Considerations • Common law remedy. • Frustration vs force majeure. • Proof – generally more difficult to prove. • Is there an alternative method of performance? • Will not apply simply if one of the parties has not been able to perform its obligations. • Frustration may not be available to parties when they have made express provision for the consequences of the particular event which has occurred i.e. by including this in the force majeure provision. • “Self -induced frustration” cannot not be a reason for bringing the contract to an end. Performance must be rendered “radically different”. www.dlapiper.com 5
Coronavirus COVID-19 - Contracts Negotiation • First consideration: Can the issue be sorted out on a commercial/relationship basis with my supplier or customer? • Customer considerations: • Do I need to worry about accidentally waiving rights by trying to negotiate a solution? • Might I inadvertently vary my contract by negotiation or minor changes to the way they are performed? • What happens if any interim arrangements with my suppler aren’t documented? • Supplier considerations: • When would it suit me to formally document any interim arrangement I reach with my customer? • How can I turn what might be a problem for me into an opportunity? www.dlapiper.com 6
Other Contractual Considerations Change of Control Procedures/Variation • If a commercial arrangement can be reached to resolve the supply chain issues, consider whether such agreement is likely to be a variation of the underlying contract. • Does your contract contain a clause requiring variations to be made in writing? • Do you want the variation to become permanent? • How can/should you document a short-term arrangement to resolve issues experienced as a result of the Coronavirus COVID-19 outbreak? • Would you be waiving any rights under your contract in coming to a short term arrangement? www.dlapiper.com 7
Other Contractual Considerations Liquidated Damages • Customer considerations: • Does my contract provide for liquidated damages? • When do liquidated damages start and finish accruing? • How would liquidated damages be calculated? • Suppler considerations: • What liquidated damages may I be exposed to? • Are there any defences available to me? • When do liquidated damages start and finish accruing? • Might my customer have any additional remedies available? www.dlapiper.com 8
Other Contractual Considerations Exclusivity & Sole Purchasing Clauses • What options are available where a contract has exclusivity provisions and the supplier claims that the Coronavirus COVID-19 outbreak constitutes a force majeure event? • Customer considerations: • Are alternative suppliers available in the current circumstances? • If I need to procure goods/services from elsewhere in breach of my contract, how can I do this? • How can I get my supplier to allow me/a new supplier to use IPR or confidential information required for the supply of the goods? • Supplier considerations: • If I claim force majeure, can I enforce my customer’s exclusivity obligations? • Can I refuse to provide any alternative supplier with any IPR or confidential information? www.dlapiper.com 9
Other Contractual Considerations Most Favoured/Preferred Customer • Customer considerations: • How can I ensure that my supplier is complying with the clause? • Are they still required to comply if the Coronavirus COVID-19 outbreak is likely to constitute a force majeure event in our contract? • Supplier considerations: • Do any of our contracts contain most favoured or preferred customer clauses? • If so, do I need to absolutely comply with such clauses in the circumstances? www.dlapiper.com 10
Other Contractual Considerations Customer Responsibilities/Dependencies • Customer Considerations: • You are still obliged to perform responsibilities and dependencies (e.g. IT provision & home working) • What are the consequences of not doing so? • Repudiation • £££s • Contractual relief • Supplier Considerations: • What are the contractual relief regimes available to you? • Consider the importance of Variation and Change of Control Procedures. www.dlapiper.com 11
Other Contractual Considerations Business Continuity and Disaster Recovery • Have yours been tested and are they resilient? (e.g. can your VPN cope with home working in sufficient volumes?) • When should these procedures be invoked? • How well do these procedures align with those of your suppliers/customers? (processes, technical solutions, etc.?) www.dlapiper.com 12
Other Contractual Considerations Liability under the contract • Customer considerations: • Is my supplier’s liability to me under our contracted limited in any way? • What if my losses exceed the cap on liability? • When would be best for me to make my claim? • If I make a claim for breach of contract, what will be the effect on the future relationship with my supplier? • Supplier considerations: • What is my potential exposure under the contract? Is it limited in any way? • Do I have a duty to mitigate? If so, how can I do this? • Can I pre-emptively approach my customer to seek a commercial solution to avoid legal action? www.dlapiper.com 13
Other Contractual Considerations Termination • Customer considerations: • Commercially, is terminating the contract the best option available? • If I want to terminate, are there any procedures that I must follow to do this? • Do I have other options available if I don’t want to terminate the contract? • If the supplier wants to terminate the contract, is there any way that I can stop it doing so? • Time is of the essence • Supplier considerations: • Does my customer have the ability to terminate our contract in the circumstances? • If so, how do I respond? • Do I have any grace period to try to remedy my breach under the contract? • If I want to terminate the contract but my customer does not, is there any way that I can unilaterally terminate? www.dlapiper.com 14
Concluding thoughts • Commercial resolution – likely to be the most beneficial outcome. Can the matter be resolved commercially and amicably? Businesses throughout your supply chain are likely to be affected. • Consider contract triage to assess priority (artificial intelligence). • Preparation – what are your desired outcomes and tools to achieve those. How can you preserve your position throughout? • Following discussions/negotiations – formalise those agreements. • If commercial resolution fails, think about the boilerplate terms referred to above. • If I am both a supplier and customer, can I “back -to- back” any potential exposure? • There is no silver bullet. www.dlapiper.com 15
Q&A www.dlapiper.com 16
Thank you www.dlapiper.com 17
Recommend
More recommend
