Contracting in difficult times
It’s no surprise that contracting in a commercial environment has become challenging over the past few years, due to the effects of COVID-19, the Russia-Ukraine war, Brexit and, a general “living crisis”.
In this article we set out a number of recommendations for businesses at the-pre contract stage, to effectively manage their contractual negotiations and leave room in their contracts to deal with events outside of their control.
Often parties see force majeure clauses as a boiler plate provision, without giving much thought to its relevance and ability to support the parties in the event of uncertainty.
In drafting the force majeure clause a party should always:
- Look at what eventualities are defined as a “force majeure event”. Are there any missing from the list that should be included as an event outside of the parties reasonable control and, are there any other included within the definition, that are not in fact uncontrollable events (for example staff shortages).
- Ascertain what the true impact is of any government sanctions or rules that are used as triggers within the force majeure clause. For example, a party should be certain about whether force majeure can be invoked when action is ‘advised’ by government or, only when it is a strict prohibition.
- Consider the wording of any notification requirements. This is important because a party must ensure they follow any duty to notify accurately and speedily to avoid inadvertently giving up rights.
Although in many circumstances it is wise to draft specifically to ensure that you are minimising the risk of ambiguity on how a clause is interpreted, there can also be pitfalls to drafting too specifically. Parties should make sure that they draft into contracts measures that are consistent with market practice, so that you are not trying to be too accurate when you can only attempt to foresee what may happen in the future.
Parties should check whether there are any ‘first-party’ insurance policies that may cover a crisis or disruption related costs or losses (for example, business interruption policies) and, also consider other policies such as:
- supply chain insurance, which can provide cover for losses resulting from disruption to the supply chain;
- force majeure insurance; and
- event cancellation insurance.
Should you require any support with negotiating and/or entering in to a contract, please contact the Commercial Team who would be happy to assist.