Something that may help alleviate the pain is good contract management and awareness of the roles and responsibilities of those businesses in your supply chain.
Getting ahead of risks and uncertainties can help to put your business in the best position to face the new terrain ahead. Identifying potential potholes and areas of friction now may prevent arguments and delays in the near future.
Terms and conditions of sale or purchase
Take the example of your terms and conditions of sale or purchase. Whilst there will be uncertainty as to the division of roles and responsibilities with unwritten contracts, written contracts can leave gaps that only become obvious when circumstances change.
By way of example, below is a provision in respect of delivery of goods:
“Seller shall deliver goods to Buyer at Buyer’s address.”
What the above provision fails to state is:
- at who’s cost
- which party insures the goods in transit
- when delivery takes place for the purpose of risk of damage or loss – when goods are loaded on to the third party carrier’s lorry, when the goods are available for unloading at the buyer’s address, or when unloaded
- who is responsible for clearing goods for export or import?
Also do your terms and conditions contain a “no oral modification” clause that provides that amendments are to be made in writing and signed by the parties in order to be effective? If not, could it be said that conduct to date has varied the terms and conditions in place? Does this leave you in a more or less favourable position?
In contrast to the above, perhaps the provision on delivery states:
“Seller shall deliver the goods ExW (as defined in Incoterms® 2020).”
Where the buyer is situated in the EU, this would be a favourable outcome to the seller in terms of the burden of logistics and paperwork. However, in practice the seller may need to assist its customer with the process of clearing customs given that it is likely to be the seller that holds the key information, and the seller wants its goods to remain in a good state and for the customer to place orders again in the future. If the seller does assist in this way, it might be appropriate to record that such assistance is offered for a limited time only and does not vary the terms and conditions between the parties.
No oral modification
On a separate point, where there is a “no oral modification” clause in the terms and conditions, and the seller occasionally helped out the odd key customer by delivering to the customer in the EU, where does that leave the seller in terms of its role and obligations going into 2021?
Moving away from the concept of delivery, what about where your contract obliges your counterparty to attend trade shows? For example:
“You shall attend three (3) trade shows each Year.”?
Post pandemic, trade shows are again likely to be a popular forum at which businesses and their products can be displayed to potential buyers. Whilst guidance is to be updated, we anticipate that ATA Carnets will need to be used in order to passport samples from the UK to the EU. Who will be responsible for putting in place the paperwork to ensure that samples can be taken with the attendee where the contractual terms are silent in this respect?
Where you are acting as a distributor under a contract with a manufacturer based in Germany, you will become the importer that places the products on the UK market. As this is a new concept for distributors in 2021, it is unlikely that your role as importer and the additional obligations that will be placed on you, are addressed by the distribution contract.
Such obligations include labelling and conformity processes. Putting to one side the additional burdens that will be placed on distributors in this position, it may be the case that the additional risk that accompanies such burdens would have resulted in a different price or a more favourable position in respect of purchase requirements being negotiated and accepted by you when the contract was put in place.
What does your contract say about VAT?
Changes in VAT payments will need to be understood. Whether importing or exporting goods, VAT rules are likely to change. What are the implications of this in terms of record keeping, VAT returns, and cashflow? Do changes need to be made in terms of your supply chain structure? If you are the seller, what costs are you to put on your customers and how will this reflect on your brand?
Reflecting on the above issues, an open dialogue between businesses in the supply chain is critical at this stage and in the months to come. Businesses will be battling to keep on top of additional paperwork and logistical challenges, but it is important to:
- reflect on terms in place with counterparties in order to highlight potential risk areas; and
- where necessary, agree on the sharing of additional roles and responsibilities moving forwards.
If you have any questions about these issues in relation to your own organisation, please contact a member of the team or speak to your usual Fox Williams contact.