Food For Thought - Food Supply Chain Contractual Considerations

This is the first in a three-part series looking at key clauses to consider in standard contracts for the supply of food as a result of Brexit and COVID-19.

The series will cover:

1. Brexit renegotiation and termination clauses
2. material adverse change clauses; and
3. force majeure clauses.

First, we will consider Brexit renegotiation and termination clauses. Brexit has brought widespread uncertainty to all businesses and especially to those in the food sector who import and export produce.

In general, the implications of Brexit on food supply contracts are likely to impact the labelling of goods (including CE Marks), price changes (which may be driven by supply and demand), increased haulage costs, import and export licences, tariffs, changes in VAT rules, new customs process and procedures.

A Brexit clause changes the parties' obligations as a result of a specific event related to Brexit occurring (the Trigger Event). The Trigger Event will depend on the particular situation but in the case of food supply, could relate to: (i) the imposition of tariffs; (ii) a change in regulatory requirements; and/or (iii) a party's costs increasing (short supply of a particular food product).

A Brexit clause typically has the following structure:

1. the Trigger Event
2. a right for the affected party to request renegotiation of the contract; and
3. if no variation can be agreed, the right for the affected party to terminate the contract.

Before suggesting a Brexit clause is included in standard contracts, consideration will need to be given as to how the clause may affect the parties' performance and costs. In the event of a Trigger Event, the unaffected party will have the choice of accepting less favourable terms or early termination which is not likely to be in a supplier's best interests.

Due to the uncertainty of Brexit, now is the ideal time to update your standard contracts and consider whether a Brexit clause should be included.