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A key 'Black Friday' lesson to be learnt: Revisit your delivery agreements

Retail events like ‘Black Friday’ have led to a rise in law suits, and highlight the importance for retailers to revisit their current agreements with delivery companies.

The US trend of ‘Black Friday’ had an ever increasing impact on retail sales as the UK saw a record-breaking ‘£810 million spent on 28 November 2014. In particular, the level of online shopping was up 37.5% on ‘Black Friday’ in 2013 which placed a huge burden on retailers and their supply chains.

This unprecedented demand in 2013 came at a time when customers’ expectations for services such as ‘same-day’ and ‘next-day’ deliveries were rising, whilst the logistics industry suffers an estimated shortage of 60,000 drivers, according to the Road Haulage Association. Several retailers and delivery companies struggled with this level of demand.

Terms and conditions

Retailers need to have carefully thought out standard terms and conditions when dealing with their customers, which include appropriately drafted force majeure provisions which specifically refer to non-performance of delivery companies. Retailers can include clauses in terms and conditions which enable them to offer alternative goods in the event of delivery problems can help to ease the potential for breaches of obligations.

As the high pressure and fast pace of the retailing industry increases, it is particularly crucial for retailers to feel comfortable that the contracts underpinning their supply chains are ready to address delivery issues.

Ensuring that standard terms and conditions reflecting current legislation are used consistently throughout a company is a simple but invaluable step. Specific delivery deadlines should be set out in delivery contracts to minimise the risk of any uncertainty in the event of delay or failure to deliver. In the absence of a specific deadline, the statutory position sets out only that delivery must be made within ‘a reasonable time’. Furthermore, the general common law rule for commercial contracts is that the time for performing the contractual obligations is ‘of the essence’, making obligations such as delivery a condition of the contract, and therefore allowing the injured party to claim far better remedies in the event of a breach.

Insurance: Who is responsible?

Retailers should give particular thought to the insurance position. Which party in the supply chain is to be responsible for insuring the goods at each stage? Are adequate programmes of insurance in place for the delivery of perishable or bespoke goods? Where there is potential for delayed delivery and increased volumes, e.g. during in festive seasons, retailers may want to consider specifically insuring the risk in the event that perishable goods are not delivered in time, or bespoke goods are irretrievably lost or damaged.

Three ways to improve your service delivery agreements

1. Plan for suspended service

Contracts need to provide for all eventualities, such as an unprecedented ‘suspension’ of services, and the likely consequences. They also need to ensure there are clear obligations and remedies where retailers are facing inability to fulfil their obligations due to a third party problem. For example, in the event the contractor has to suspend services, there should be a limit on the amount of time a suspension can last, before it amounts to a repudiatory breach allowing the retailer to terminate the contract.

2. Provide for the recovery for costs

The contract should also detail provisions for the retailer to seek recovery for the costs of contracting a new delivery company, in order to satisfy orders on time, from the original company. Although likely to be at a premium considering the urgency of such a situation, retailers should bear in mind that in order to have the best chance of recovering their costs they should still seek out a reasonably priced replacement contract.

3. Include clauses regarding ownership

Any contract in the supply chain should have watertight clauses regarding ownership of goods and retention of title to enable the recovery of any goods as in such a situation the retailer is still liable to its customers. For example, if customer A bought goods from retailer B but delivery company C went into administration whilst the goods were still in company C’s possession, delivery operations would cease and customer A would not receive their purchase. Customer A would claim a refund from retailer B for whom it would be pointless to claim damages from company C as it is in administration. Therefore retailer B’s best remedy would be to recover the goods from company C in order to re-sell them and thus minimise its losses.

A thorough and well-drafted retention of title clause can allow the retailer to physically reclaim goods and prevent them becoming part of the failed company’s debt repayment.

If retailers do suffer breaches by their supply chain contractors they should undertake a comprehensive analysis of what loss can be claimed from the breaching party. Beyond the simple cost of the goods, there are likely to be consequential losses such as new contract prices, and perhaps reputational damage which can be hard to quantify. If contractual relationships breakdown, retailers will need to seek legal advice in drafting pre-action letters of claim and making formal steps to recover their losses.

It may well be that we see an increase in legal proceedings between supply chain parties as these demands on retailers increase.

If you have any questions or would like more information, please contact one of our specialists below.

Authors: Jonathan Moss and Lucy Martin

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Retail

There has been a revolution in retail. The convergence of bricks and clicks, emergence of dark stores and increase of convenience stores, reliance on multi-channel platforms, increased consumer choice, economic changes, extended supply chains and the increasingly complex regulatory framework that surrounds them present opportunities for retailers.

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Jonathan Moss

Partner - Head of Transport Sector

I act for international traders, charterers, shipowners, insurers and reinsurers, handling commercial disputes. I also advise on day-to-day issues arising in the context of the sale of goods and their transportation.