Lucy Pringle and Jonny Gribben at law firm Womble Bond Dickinson ask if a lack of haulage capacity causes you to be late in delivering orders, or failing to perform your contractual obligations completely, is it possible to rely on force majeure to avoid liability?
The current shortage of HGV drivers is well documented. A combination of Covid, Brexit and other factors has meant that there are simply not enough drivers to meet UK demand. The Road Haulage Association estimates that there is now a shortage of 100,000 drivers in the UK, and says that it will take 18 months to train 100,000 drivers. This lack of haulage capacity is putting intense pressure on some supply chains, with conditions predicted to worsen in the run up to Christmas. Is it possible to rely on force majeure to avoid liability?
A four step test
1.First, check whether you actually have a binding contract with a customer to supply goods. You may have binding ongoing supply commitments to some customers, whereas other customers simply place ad hoc orders from time to time (which you can accept or reject at your discretion). Prioritise servicing your binding contractual commitments, and consider declining ad hoc orders in order to manage your capacity to supply.
2.Where you have binding contracts, the next step is to understand whether those contracts contain fixed delivery/performance dates, or whether delivery/performance dates are estimates only. The latter is obviously preferable given the current difficulties. Consider changing your standard terms now to ensure that delivery/performance dates for all future orders are estimates only.
3. If you have a binding contract with firm delivery/performance dates, check whether that contract contains a force majeure clause and whether shortage of haulage availability falls within the scope of that clause. If it doesn’t, then you are unlikely to be entitled to any legal protection from customer claims arising from your late delivery or non-performance, because English law does not provide any default force majeure protection. The protection is either in the contract or it’s not.
4. Finally, even if a driver shortage falls within the contractual definition of a force majeure event, it must be the operative cause of the delay or non-performance (i.e. it must make it impossible not just more expensive to perform) before the clause can be relied upon.
A broadly drafted force majeure clause may capture haulage shortages, but a more tightly drafted force majeure clause is unlikely to. It is essential to read what the clause actually covers. If it is simply more expensive to obtain haulage services, then this is unlikely to class as force majeure. The legal doctrine of ‘frustration’ may assist you if contractual performance is impossible, but this is a high threshold and can rarely be relied upon.
If your suppliers are declaring force majeure to you, apply a similar four step test to rigorously check whether they are actually entitled to declare force majeure. It is often the case that businesses declare that a force majeure event has taken place without having the contractual right to do so, and simply rely on goodwill or lack of legal knowledge to avoid claims.
What should I do to protect my business?
A supply chain is only as strong as its weakest link, and there are weak links stitched through the supply chain at the present moment. This is a critical time to assess the adequacy of the force majeure clause in your standard terms to ensure maximum protection against current supply chain threats.