A Bitter Draught: Crafting Contractual Protections Amid the UK Guinness Crisis

23rd January 2025

Imagine this: you walk into your favourite pub eagerly anticipating a pint of Guinness. But instead of the smooth, dark stout, you’re handed a ration card or, even worse, told that the stout has run out…This was the unfortunate reality for many during the festive season as the UK faced a Guinness shortage, driven by a surge in demand.

Diageo (owner of Guinness) resorted to tapping into its Irish reserves to alleviate the shortage and even considered diverting shipments bound for North America. This disruption, sparked by a marketing push and social media buzz, highlights how supply chain challenges can leave businesses scrambling.

To navigate such issues and mitigate risks, companies can implement robust contractual protections to safeguard against disruptions, ensuring they can maintain steady operations even when the unexpected occurs.

Force majeure

A force majeure clause seeks to temporarily relieve parties of their obligations where performance is impossible or hindered. The clause will also determine whether the agreement continues, is suspended or is terminated. Events such as natural disasters, war, terrorism, strikes, government actions, or other events that are not within the reasonable control of the parties, should be clearly defined within a contract.

Termination

A carefully drafted termination provision allows a party to terminate a contract early on grounds other than a serious breach. This is essential in situations where delivery delays become untenable, or price increases make the contract unprofitable. In these cases, a termination clause is essential, providing certainty of the contract by specifying clear triggers for termination.

Dispute Resolution

Disputes arising from delivery delays or cost increases due to supply chain disruptions can often be resolved through commercial negotiations. A multi-tiered dispute resolution procedure clause sets out a process for resolving disputes through less formal procedures like internal negotiation and mediation, before or in parallel to court or arbitration proceedings. This can help protect the relationship between the parties and save significant time and money, when compared to litigation or arbitration proceedings.

Sourcing from alternative suppliers

For contracts with exclusive supply provisions, the parties may negotiate a clause which includes a temporary relaxation of exclusivity, where supply chain disruptions cause significant delivery delays, and the supplier is unable to meet supply requirements.

This enables commercial flexibility for both parties and allows the customer to purchase substitute goods from an alternative supplier and recover the customer’s additional costs from the original supplier. This clause should be carefully drafted to specify when and for how long exclusivity will be suspended e.g. where supplier requirements cannot be met, a time frame of 30 days may be proposed to enable the customer to source similar products from other suppliers.

Price adjustment clauses

Suppliers may include a price adjustment mechanism within the contract to account for supply chain costs.

This allows the supplier to pass on increases in supply chain costs and may be linked to indexation or reflect actual additional costs, or discretionary price increases, allowing. These clauses are often included to protect against inflationary and wider macro-economic pressures.

Ongoing monitoring

To minimise the impact of disruptions, it may also be prudent to include a contractual obligation on the supplier to actively monitor potential disruptions.

Conclusion

By including well-drafted clauses, both suppliers and customers can better navigate potential disruptions in the supply chain. Clear, proactive contractual provisions offer greater flexibility and protection for all parties involved.

If you require any further assistance in respect of reviewing your commercial agreements and/or terms and conditions with suppliers and/or customers to ensure that the terms offer protection in the event of risks from supply chain disruption, or whether they need updating generally, please contact a member of the Commercial Team or Dispute Resolution Team at 0161 832 3434 or info@kuits.com.

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