November 4, 2020
We are currently living in a world where we are having to constantly adapt and change our behaviour. In many respects we are simply unable to do what we used to.
In a business context, this might mean that:
- a supplier is not able to fulfill all of the commitments it has made to its customer;
- a customer no longer has the same requirement for the supplier’s products or services or cannot afford to pay the same price as before for them; or
- the relationship just needs to work on a completely different basis compared to how it once did.
Businesses and their staff are having to be flexible with one another, move with the changes and accept compromises (and in some instances the imposition of wholesale changes) that in “normal” circumstances they would not even consider, just in order to survive.
But, to what extent are the changes to these working relationships just short term practical solutions to the problems caused by the COVID-19 pandemic and the government’s restrictions? Or are the businesses who are adopting these changes making binding commitments with one another to modify their trading relationships so that the future trading relationship has been fundamentally altered?
In many instances, quite rightly, the focus for most businesses will be on just finding a way to keep trading, maintain some (reduced) turnover and retain customers and staff, without any thought being given to how the contractual relationship has been, or might need to be, changed.
Written supply contracts often contain two key provisions that are relevant for anyone who is looking to make these sorts of changes. They are:
- a “no waiver” clause, the effect of which is that if a party excuses the other’s failure or delay to fulfil its strict contractual obligations on one occasion (or more), it is not prevented from holding the other party to their strict contractual obligations at a later date if it so chooses; and
- a clause that requires any variations to the contract to be in writing and signed by the parties in order for them to be binding.
Therefore, any changes that are agreed on an informal basis may not have the effect of permanently changing the parties’ obligations to one another. This means that the original contract terms might still be enforced at some point in the future and arguments could be raised that there has been a breach of the original contract in order to terminate it and/or bring a claim for damages for the losses allegedly caused by the breach.
The commercial and economic landscape is going to change, for the better, over time. In the meantime, it would be wise to ensure that any changes that have been informally agreed on a “needs must” basis are formally recorded in a written document that all parties have signed up to.
As we come out of these restrictions and circumstances change, as we learn what the “new normal” for each of us is going to be, ensuring that any further variations that are needed to any contracts are formally agreed would be prudent, to ensure that the underlying contractual obligations of the parties remain in line with the reality of how they are trading with one another in practice.
If you would like any further support with contract disputes, our commercial litigation experts can help.