The importance of having tailored commercial contracts in a world of political, economic and environmental uncertainty

It is well known that a large number of commercial agreements in the UK and worldwide are “handshake” agreements and include no written terms or legal contracts. Whilst this type of arrangement may have worked for businesses in previous years, the volatility of markets and the disruptions in supply chains that we are frequently seeing highlighted by all major news broadcasters, poses a threat of instability and uncertainty for suppliers, manufacturers, service providers and contractors.

Accordingly, it could be argued that now more than ever, it is crucial to ensure that businesses have thought about these increased risks and they have addressed them in the contracts which govern their relationships with third parties.

Unfortunately, the possibility of recession, natural disasters and hostile relationships between countries around the world are common themes that can lead to businesses becoming insolvent, supply chain disruption and more frequent restrictive economic sanctions being imposed. A well-advised commercial contract can deal with these risks, including:

• What happens if a party can’t perform its obligations under a contract due to factors outside of its control, such as earthquakes, tsunamis, epidemics and wars.
• The options available to an innocent party when the other party doesn’t perform its obligations, such as the right to terminate, the right to be indemnified or the right to suspend services.
• How cash flow issues or insolvency will affect the commercial agreement. Sometimes parties don’t necessarily want a valued commercial relationship to end if a payment has been missed, so there are ways to give a business options to make commercial decisions in the event that there has been a failure to make payment, instead of automatic termination.
• How current and future economic sanctions will affect the commercial agreement.

It is imperative that businesses ensure that the risks from external factors as detailed above, have been addressed in the contracts they enter into.

The Commercial Team at Kuits work closely with the Litigation Team and we often see first-hand how failure to obtain legal advice when contracting with another business results in litigation, which could have easily been avoided had the parties sought legal advice at the outset.

If you would like more information on anything mentioned in this article, please contact Stanley Stephens on 0161 912 6357 or email stanley.stephens@kuits.com