By Stephen Sidkin S
o you’ve been thinking about ending your supply contract. By having regard to the following first, you may make the whole process a lot
more efficient and painless. The starting point is to determine what exactly is the contract in place
between you and your supplier. This is far from being a statement of the blindingly obvious. Take, for example, a situation where the supply contract was due to expire at the end of 2015. But before it expired you and the supplier exchanged thoughts about a new contract and you even sent a draft of a new contract to the supplier.
But then radio silence. More particularly throughout 2016 you continued to place orders, receive goods, and pay your supplier.
So what is the contractual relationship? Is it the case that:
1. The terms of the original contract (which provided for it to expire at the end of 2015) continued to apply throughout 2016 and into 2017? or
2. The terms of the draft contract which you sent to the supplier applied from 1 January 2016 until now?
3. There was no supply contract in place between you and the supplier. Instead there was simply a series of contracts for the sale and purchase of goods?
Answering these questions is the start of getting the termination process right.
If – and it is a significant if – the answer is either 1. or 2. above then the next issue is to determine what is expressly stated in the contract.
contract sets out how the parties may end their relationship, then this will generally be acceptable to the English Courts.
ended in accordance with its terms, the Courts are unlikely to intervene. But if the supplier is based outside the UK, care may be needed even if
the contract is stated to be governed by English Law. The reason for this is that many countries have national rules which may supplant English Law in order to protect the supplier. This will be especially so if the supplier can be regarded as the weaker party.
If the contract does not specify the notice period, then as a matter of
English Law it will be necessary to give reasonable notice to the supplier. What is reasonable notice will depend upon the factual matrix in respect of the particular contract.
In contrast, if the national rules of the supplier’s
country override the reference to English Law in the contract then you may find that complying with the contractual notice period is insufficient. Instead such national rules will require that a longer period of notice is given and if has not been then the supplier may claim damages.
The alternative to terminating a supply contract by the giving of
contractual notice is to rely on a breach of the contract by the supplier. But whether or not this can be done depends very much on the terms of the contract.
24 • FOOTWEAR TODAY • JANUARY 2017
Stephen Sidkin is a partner in Fox Williams LLP and chairs its Fashion Law Group (www.fashionlaw.co.uk
If, therefore, the contract is
As a result it is first necessary to determine whether the contract sets out clearly what amounts to a breach of contract.
If so, it is then necessary to
assess whether or not the circumstances which have occurred amount to a breach and, if they do, what are the consequences. For example, if the termination clause allows a supplier an opportunity to remedy the breach, it will be an abject disaster to claim instead that the breach means that the contract is at an end.
Instead it is far better that you send the supplier
the appropriate notice requiring that the breach be remedied in accordance with the terms of the contract. Unless the contract requires otherwise, you do not need such notice to also state your intention to terminate the contract if the supplier fails to remedy the breach.
If, however, the breach is not remedied, then again it is better that you
pause before acting. This is because it is first necessary to determine what, if anything, the contract states about the means by which the dispute is to be resolved.
Is there, for example, a specific provision that the English
Courts will have exclusive jurisdiction to determine disputes? Even if there is, have you previously checked that the national rules of the supplier’s country do not override such a provision?
Depending on what (if anything) is stated in your contract and where the
supplier is located, it may suit you to commence proceedings in the English Courts. This is not because you want to engage in hostile litigation, but instead to deter or delay the supplier from starting proceedings in the Courts of its own country and, as a result, aid the commencement of settlement negotiations.
Having addressed this issue of dispute resolution, it is important
that you also have regard to what is set out in the contract about post- termination issues – more of which will feature in Part 2 of this article.
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