The speculation around Donald Trump’s tariff programme continues as each day brings new bases on which tariffs of substantial, and in some cases cumulative, amounts will be levied on imported goods. Whilst on a simple analysis it is reasonable to assume that the greatest pain will be felt by Americans, the domination of Trump’s tariff agenda across the world’s media, the reaction of global markets and extensive commentary from leading economists makes it clear that few on the global stage will escape the fall out.
Undoubtedly, for those exporting to America, demand for goods imported from the UK will be affected, with the car industry leading the charge following the imposition last week of an immediate 25% tariff. That news was quickly followed with a suspension of exports to America by Jaguar Land Rover and, whilst expected to be temporary, it is illustrative of the challenges of dealing with the President’s unpredictable behaviour and the need for executive teams to be prepared to react quickly and decisively.
Wider impact will be felt across all sectors as businesses look to offset shifts in demand and increasing costs in their supply chains by driving up prices to maintain margins. This all, of course, comes hot on the heels of a great many and varied financial challenges that have pounded businesses in the last year creating long term uncertainty and making planning near impossible.
Whilst many of those challenges have to be accepted, being imposed at governmental level, it is sensible for business owners, senior management and commercial teams to take time to review commercial arrangements where there may be an element of control that can be exercised to protect valuable margin and offset other areas of uncertainty.
For those commercial teams, working through contractual arrangements with suppliers and customers is a good starting point and an area where we are often able to help businesses identify opportunities to make key changes to agreed terms. Some of those opportunities may be found in the following contract terms:
Pricing: consider whether the contract contains a pricing review mechanism. This may be expressed by way of a formula linked to the underlying goods being supplied or points in time. In the alternative, there may simply be provision made for inflationary/annual price adjustment.
Minimum quantity requirements: for arrangements that are no longer sustainable as a result of changes in demand or competition in the market or other overhead/cost challenges, it may be possible to make changes to volumes purchased/supplied where the quantity is not set by the contract and there is no other minimum quantity provision.
Term: many contracts will detail the agreed term of the contract and the basis upon which it can be extended by the parties or terminated. In some cases the contract may state that it is for a fixed term, automatically renewable unless notice to terminate the contract is provided by a set date. These provisions should be reviewed carefully to see whether the initial term has expired or there is an option to serve notice to terminate the contract and the notice requirements for doing so.
Termination provisions: some contracts will contain a termination for convenience provision which will allow parties to serve notice of termination in the absence of breach or other cause. In the absence of a termination for convenience provision, other bases for termination should be considered carefully, particularly any potential termination for ‘material breach’ which should be exercised with caution and on the basis of legal advice to avoid opportunity for the other contracting party to assert wrongful termination and pursue a claim for damages. In the case where the contract makes no provision for the parties’ right to terminate this will usually need to be on ‘reasonable notice’. What will be deemed to be ‘reasonable notice’ will be very fact specific, taking into account factors such as the duration of the relationship and the nature of the goods/services. This is again something on which it would be sensible to take legal advice before communicating any intention to terminate on notice.
Force majeure: it is unlikely that the imposition of tariffs or changes to business overheads will be a valid basis upon which to rely on a force majeure clause, but it is certainly something that should be reviewed.
Variation provisions/commercial negotiation: finally, variation provisions may provide an option to revisit a commercial arrangement in discussion with the other contracting party in circumstances where both parties are willing to adopt a flexible and sensible commercial position. Any variation provisions should be reviewed and adhered to, to ensure that any variation considered to be agreed can be relied on and enforced further down the line.
These are just a snapshot of some of the most common bases upon which businesses can look to influence commercial arrangements that have become unviable, and to which commercial teams may want to first turn in the ever-changing economic landscape.
Legal advice should always be taken when considering making changes to contractual arrangements to ensure a party does not inadvertently find themselves in breach of contract and facing a claim for damages or other remedies. Our commercial litigation experts have a wealth of experience advising on a wide variety of contracts and dispute avoidance, as well as dealing with disputes when things go wrong, and would be happy to support your business in identifying options to achieve your commercial objectives.
Where a dispute has arisen and funding support is required we have partnered with a commercial funder and can assist with the funding of your dispute through our Enable product. Litigation funding is a way to finance litigation with funds provided by a third-party litigation funder. It is non-recourse financing; the funder only gets repaid, (and is paid a multiple of its investment amount), if the claim is successful.
