Expert View
A CLAUSE PROVIDING PROTECTION
by Stephen Greenwood, partner at Farleys
Most businesses exist somewhere in a supply chain and, where circumstances outside of their control prevent fulfilment of contractual obligations, there’s a risk of liability for third party losses.
It’s important to assess what that potential liability could be, but also to ensure contracts provide the maximum protection possible against those liabilities.
Force majeure clauses are a useful tool frequently used in contracts to excuse one or both parties from performance, in some way or to some extent, following the occurrence of certain events.
The clause should contain a list of events and as wide a definition as possible to try and ‘catch all’. Care must be taken, however, to ensure that the clause is not so wide as to be meaningless, or it could be unenforceable.
If there’s ambiguity, the burden will lie upon the party seeking to rely upon the
illness or death can be as devastating as any factory fire. Businesses need to think through the scenarios and consider the implications.
Tarnia says: “When planning for factors that affect the continuity of a business, people often think about protecting buildings, stuff, chattels, physical assets.
“The part they tend to forget is protecting themselves, and their people. And not in a public liability sense. In a ‘what would happen if there was illness or death’ sense.
“Businesses are often only successful because of multiple key people, if they are ill and unable to work what effect would that have?
“If someone integral to the business were to die, what effect would that have? If a shareholder were to die, who would their shareholding pass to and is there enough money in the business to buy that person out should it be needed?
“There are a range of products available such as shareholder protection, key person cover, executive income protection, that can ensure that businesses can continue, and continue on a financially sound basis should the worst happen to your key people.
“Granted, it is not always the easiest topic to think about, or discuss openly, however, if you want to protect your business, and properly contingency plan don’t forget your most important asset, your key people.”
Stephen Cutler, client partner at insurance
clause to prove that it’s applicable in the circumstances.
Alternatively, businesses contracting with others need to look at force majeure clauses carefully. Failure of a supplier to fulfil a contract could place the purchaser in breach to others down the supply chain. A widely drafted force majeure clause itself represents a risk to a purchaser in these circumstances.
If a force majeure event arises then the parties to the contract need to look carefully at whether the event is caught by the wording and, if so, consider the extent to which performance is excused or suspended. Applicability is a frequent source of dispute so legal advice should be taken as soon as a potential force majeure event arises.
In the absence of this clause options are limited so, again, it’s important to take legal advice at the earliest sign of difficulty.
company Partners&, says: “The ability to maintain or quickly resume sufficient levels of productivity or service delivery following a disruptive incident, is an underestimated competitive edge, if used correctly.”
He adds: “Business interruption insurance should form part of your risk management programme. Organisations that recover successfully, however, are likely to also have a detailed business continuity plan and recovery procedures in place.”
When it comes to business continuity planning, he says there are ways to effectively prepare for the worst.
By ‘scenario mapping’ a business can identify the risks it faces and how much disruption it can take. Once that has been done contingencies can be worked on.
Selecting an ‘emergency team’ is also important, defining their roles to create clarity.
Then there is ‘solution planning’, looking at how an incident would impact areas such as people, premises and machinery as well as suppliers and stakeholders.
Stephen says: “Having a solution already in place to address these areas gives your business a fighting chance.”
He adds: “If you cannot deliver your products or services, and your clients could go elsewhere, you should invest time into building resilience in your business.”
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