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    TV EDWARDS SOLICITORS LLP

    Business Contracts in Uncertain Times: 4 Terms with increasing importance in 2023

    Uncertainty is permeating the business landscape of 2023.

    Back to News & Blogs 21st March 2023

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    TV Edwards Blog
    Blog Dispute Resolution

    Uncertainty, already the defining word for the economy in 2023

    With ongoing strike actions across the country, record high inflation and now with concerns in the banking sector, uncertainty is permeating the business landscape of 2023. Uncertainty can spell doom for businesses unprepared for it but also significant opportunities for those willing and able to navigate it.

    In order to survive this rapidly changing landscape, flexibility is more important then ever and businesses will be looking again at the reliable contract to assist them.

    Contracts are essential for transactions ensuring certainty of supply, costs, and sales. However not all contracts are equipped to handle changing circumstances and rising costs. Of course, renegotiating and varying contracts can help updating older contracts for modern circumstances, but negotiating a settled contract again can just increase costs and relies on the other party agreeing.

    This is why incorporating adjustable and flexible features into contracts can be lifesaving for businesses in difficult climates. In light of this, here are four terms businesses should be considering for their contracts in 2023.

    Price Variation

    The rapid rise of inflation has ballooned costs for many producers and suppliers. However long-term supply contracts might not have been adjusted for the new operating costs and the costs of materials.

    A price variation term could assist in this case. A term like this could automatically adjust the prices a purchaser pays for your businesses goods, potentially pinning it to inflation. This could allow the offsetting of increased costs, to be ingrained in the contract from the start ensuring profitability even as prices rise.

    Without such an express term it may be likely that any such increase would require renegotiation, incurring costs and taking valuable time.

    Interest for Late Payments

    With rising inflation, comes rising interest rates to try and tackle it. This can pose a problem for businesses as many contracts stipulate that interest is to be paid on late payments and this is often tethered to interest rates.

    Now with swiftly rising interest rates this could pose a problem for businesses, should they fail to make a payment on time the associated interest would be far higher than they may previously have anticipated. To combat this, adjusting this contract term to adjust less relative to interest rates, could prove critical for businesses if they have been struggling paying monies due.

    This would require negotiation when drafting the contract, however as it is likely to be of the most impact on one’s business when the business is suffering the most, it is essential to consider it during the drafting stage.

    No Fault Termination

    With turbulence and instability, comes unexpected costs and change of circumstances. This is why having a flexible contract is essential, and the most flexible contract is one that can be ended for no fault. Without an express term ending a contract, it can only be ended should both parties agree. This means that if one finds themselves unable to afford a contract’s obligations, one could still be burdened with fulfilling those obligations under threat of being sued for losses.

    This is the benefit of a no-fault termination clause, this allows a party to a contract to terminate it at any time without imposing fault for the termination on either party. These can come with risks, particularly if the other contracting party is also able to access this clause it can mean contracts might be terminated against your wishes.

    Altogether however, a no-fault termination clause can be a very useful tool in navigating economic uncertainty.

    Alternative Dispute Resolution Clause

    Even parties with the best of intentions can end up in disputes particularly in economically uncertain times. Litigation can be time consuming and costly, so when there is a dispute, it may be preferable to arrange an alternative means to resolve it.

    Alternative dispute resolution (ADR) are alternative paths to litigation which can lead to legally binding resolutions. There are two main paths of ADR, these are mediation and arbitration. Mediation involves a mediator who is not involved to make a decision on the matter but is working with both sides of a dispute and attempting to find common ground and ultimately to assist in reaching a mediated agreement, which can be legally binding. Arbitration, on the other hand involves an arbitrator, unlike a mediator they do make a final decision on the matter which is legally binding.

    The advantage of these methods are that they are often significantly cheaper to use, faster to resolve and can result in confidential settlements. However, to pursue these legal routes it requires agreement between the parties, which may not always be forthcoming, but express terms in a contract can require using one of these methods. Such an express term could require the parties to use either method of ADR before pursuing litigation through the courts.

    Why these are needed, Breaches of Contract

    Considering how one would enforce a contract, is just as important as considering what is in the contract. Breaching a term of a contract can lead to damages being sought, while enforcing a breach can lead to significant legal costs not all of which may be recoverable.

    That is why considering these above terms is growing in importance and ensuring that they are well drafted is more important than ever.

    Our dispute resolution department understand the issues which are facing businesses throughout the country, and we are well placed to bring our years of expertise into the work we do assisting with issues exactly like these. We pride ourselves on handling dispute resolution cases, with excellence, diligence, and an eye for business.

    Should you need assistance with drafting a contract, enforcing a contract’s terms, or navigating alternative dispute resolutions, please contact our dispute resolution team.  

    Related Services:

    Dispute Resolution Solicitors

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    © 2022 TV Edwards LLP is authorised and regulated by the Solicitors Regulation Authority (465533) and is a Limited Liability Partnership registered in England and Wales number OC325696. Details of the SRA Code of Conduct can be found at sra.org.uk. Registered name: TV Edwards LLP. Registered Office: 35-37 Mile End Road, London, E1 4TP.
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