Avoiding Disputes in your Supply Chain

Supply chain disputes often stem from unclear contracts and conflicting terms, particularly in the food, agriculture, and beverage sector. Proactively reviewing contracts and clarifying risk-sharing can help mitigate risks. Read our expert analysis to ensure your supply chain agreements are clear, enforceable, and fit for purpose.

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Supply chains involve increasingly complex and interconnected contractual arrangements between various stakeholders, often across multiple jurisdictions. Disputes when they arise often flow from misunderstandings or misinterpretation of contract terms.

Common issues

One fundamental issue that can often arise, particularly in the food, agricultural and beverage sector, is whether there is an identifiable and enforceable contract. This sector often relies on more informal trading relationships, which can make this question more complex. Even if a written contract exists, determining its precise terms can be another challenge.

Often because of inconsistencies in approach and in how parties may conduct business in contrast with the clear letter of a contract, this is a fundamental first line of analysis.

For example, the so-called “battle of the forms” often arises when parties trade using purchase orders, or a mixture of different types of purchase orders alongside a written contract. In many cases, the contractual documents may not accurately reflect the actual trading arrangement, leading to disputes over which terms apply.

Mitigation

To mitigate the risk of disputes arising in your supply chain, it is advisable to have clear, concise, accurate and up to date contractual documentation. For example, are compensation and remedies sufficiently clear and enforceable to enable the wronged party to enforce and recover loss? Has risk sharing been considered? Parties should carefully consider at the formation stage how key risks like force majeure, price escalation, liability limitation, insolvency, and termination provisions are dealt with.

Carefully considering how and where a dispute will be resolved is also important. Getting dispute resolution clauses right can save a lot of expense and time. It is important to ensure that disputes are resolved in a familiar and predictable jurisdiction. If contracts are silent on applicable law and/or choice of jurisdiction, it can lead to unintended consequences.

Conclusion

Disruption in supply chains is the new normal. To the extent it is possible to increase certainty of rights and outcome, this will mitigate risk. Proactive and regular audit of supply chain contracts to ensure they are up to date and fit for purpose is key. Including tiered dispute resolution clauses can help prevent conflicts from escalating. These clauses require parties to attempt informal resolution before moving to formal alternatives. This approach can help preserve business relationships and resolve disputes more efficiently.

For more information or expert advice on all related matters, contact a member of our Supply Chain Disputes team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.