Time to Revisit Your Contractual Obligations
In addition to ensuring you comply with the relevant freight movement code and protocol in relation to domestic border control, it is also a good time to proactively review your supply contracts.
Some key issues to look out for are:
- ‘Time of the essence’ clauses – if your contract expressly has a clause which stipulates that ‘time is of the essence’ then it is important to understand that failure to comply with any times stipulated in the contract will mean that you are in default. You may wish to seek an extension of time under the contract to satisfy the obligations (however this will depend on whether the other party consents to such extension or not). If an extension of time cannot be achieved, depending on the drafting of the clause the innocent (non-defaulting) party may elect to terminate or rescind the contract and sue for damages. It is particularly important when delay is being alleged that the non-defaulting party is ready, willing and able to perform their own obligations and has not contributed to the delay.
- Force Majeure Clauses - whether a ‘time is of the essence clause’ is expressed in the contract or not, given the unpredictable consequences of COVID-19, it is important that you consider including a ‘force majeure’ clause in your contracts. In basic terms, this clause covers a list of disruptions that are considered beyond a party’s control for example a pandemic, war, acts of God. The consequence of this clause is that it allows a party affected by such events to be excused from performing (or delayed in performing) their contractual obligations. Unless a contract contains this clause it will not be implied. Depending on the drafting of your contract, these clauses can vary in scope and severity. If you are seeking to enforce a force majeure clause then it is critical to understand the drafting of the force majeure clause in your contract to ensure that you comply with any requirements stipulated (such as notice requirement and loss mitigation) to ensure it is effective and you are not in breach of the contract and liable for any damages.
- Notice – typically contracts will have a ‘notice’ clause which can set out specific requirements in relation to notifying the other party of a variation or enforcement of a force majeure clause for example. It is critical that the requirements set out in that clause are complied with to ensure what you are providing notice for is in fact effected.
- Loss mitigation - Freight forwarders and logistics operators need to ensure that they maintain written records to demonstrate that all reasonable actions have been taken to mitigate losses in the supply chain both up-stream and down-stream including records of communication with and notices sent to supply chain stakeholders of the steps taken which can include evidence of alternative solutions or “workarounds” being considered/provided.
- Indemnity clauses – this clause is often a key source of dispute in a contract and understandably given that its effect is to alter the common law or statutory rights of parties in relation to recovering their losses. Therefore, if you have a contract with an indemnity clauses (or are in the middle of negotiating one) then you should consider its scope, whether there is a limitation on the amount of the indemnity, whether one party is indemnified notwithstanding its contributory negligence and importantly whether there is an express obligation to mitigate losses. It is important that indemnity clauses should not be ambiguous or vague in nature as it presents a risk to the indemnifier being held to cover losses that were not within initial contemplation.
- Insurance – in the context of freight and logistics operators you should check whether you have adequate insurance coverage for example through Protection and Indemnity Insurance for those involved in shipping otherwise business interruption insurance may also offer cover for interruptions related to COVID-19.
It is important that businesses in the logistics and transport industry are pro-actively reviewing their contracts as well as keeping abreast with the current rules and reforms taking place. If you require assistance with any of the above, please do not hesitate to contact a member of Coleman Greig’s Commercial Advice Team who would be more than happy to assist you today.
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