Up Again: Suppliers and contractors

Suppliers and contractors Q&A

Navigating the supply chain in a distressed market: My company supplies goods and I am concerned about the solvency of my customers. Are there any steps I can take to mitigate risk/my exposure?

Which steps you could take depends on the contractual conditions. If the contractual conditions allow it, you could take on or more of the following steps: Require advance payment, require down payment in whole or in part of the purchase price upon delivery, require a bank guarantee or require another form of security.

Navigating the supply chain in a distressed market: My company relies upon the supply of goods/services and I am concerned about the solvency of my supplier? Are there any steps I can take to mitigate risk?

Which steps you could take depends on the contractual conditions. You should not make any payments in advance. A possible step to mitigate the risk is to expand the period of credit. If the supplier demands an advance payment, make sure the goods are individualized. This will be useful if the supplier goes bankrupt.

How will legal disputes that have arisen as a result of COVID-19 or its effects (for instance, in relation to force majeure) be affected by restrictions being lifted and resuming business operations in whole or in part?

In general, the legal disputes will be settled based on the facts at the time of the commencement of the dispute. As such, if the dispute is for example due to a matter of force majeure, it will still need to be decided by the courts so generally legal disputes will not be affected by restrictions being lifted.

How should you manage those disputes once COVID-19 restrictions are lifted?

We always recommend that you try to seek an amicable solution to a dispute with your suppliers or customers to secure and maintain future business relations.

Irrespective of restrictions being lifted, the disputes will continue with the courts until they have been settled or until the court has made its decision.

What should you do when restrictions are lifted if you have suffered loss under a contract as a result of COVID-19 or the restrictions, but have not yet taken legal action in relation to that loss?

In any circumstance, you should give notice to your contracting party if you have suffered a loss under the contract.

Depending on the position of your contracting party, you should contact your legal advisor to seek guidance to initiate legal proceedings.

Is there any risk of mass claims being brought against your business? If so, how would such claims be brought? Are third party funders able to fund such claims?

Norwegian law does provide for mass claims being raised. However, our view is that the risk of facing mass claims due to COVID-19 or the restrictions is very limited.

What should I do about recording contractually or otherwise any of the changes put in place during the COVID-19 lockdown period?

We recommend that you record the changes made to contracts due to COVID-19 and incorporate the changes in future contract management to be prepared if a situation like the COVID-19 occurs.

Any return to normal will likely not be as immediate as the impact of COVID-19 when it started (e.g, sales/orders will take time to ramp up, raw materials will take time to flow through supply chains, etc.) what should I think about and do to best manage this in my contracts?

During the process of returning to normal, we recommend you consider managing your contracts in accordance with previous principles and refrain from deviations from previous processes in order not to expose the business to unnecessary risks.

What additional protections or changes to existing provisions (e.g. force majeure) should I put into any new supply arrangements having regard to COVID-19?

We recommend considering the wording in the force majeure clause to include specific and relevant wording related to pandemic situations like the COVID-19. In particular, the force majeure clause might need to take into account that the Covid-19 pandemic is no longer an unforeseen event.

If you supply products, we recommend you include the COVID-19 situation in the definitions of force majeure in relevant contracts. If you are a consumer on the other hand, we recommend you exclude such wording to secure delivery and remedies in the event of non-delivery. It could also be pertinent to conduct a due diligence of the supply chain, and to considered whether any priority in delivery should be discussed in case of a situation where the supplier is unable to fulfil some of its obligations to due to a force majeure event.

In addition, it might be useful to assess the contractual mechanisms for price adjustments and invoicing. As there are currently more market volatility and currency fluctuations the ability to amend prices more frequently than every half year or year is advisable or at least clear clauses on how to deal with large currency fluctuations and who is to benefit from these customer or supplier. Further, it might be wise to review general terms concerning invoicing, to ensure that you get paid for your goods and services faster than under normal circumstances.