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Ukraine and Russia the commercial impact of conflict
With the partition of Ukraine becoming ever more likely, brands selling into Ukraine and Russia need to plan for how this may impact on their agreements.
Whether the agreement is one of distributorship, agency, franchise, or licence, the starting point is to determine the extent of the “territory”. If eastern and, possibly, southern parts of Ukraine follow Crimea into the Russian Federation, a brand may face competing claims from its Ukrainian and Russian counterparts. Meanwhile, resolution may only come after some time via a decision of the UK Government, a judgment of the English courts, or even a UN resolution. But even before then it will be no surprise if some Ukrainian or Russian companies look to take advantage of the situation and decide to hold on to monies which would otherwise be payable to the brand.
In turn, where the agreement is one of distributorship or franchise, the brand should be looking to secure payment of outstanding invoices as quickly as possible in respect of SS14 deliveries.
Where orders have been taken for AW14, hopefully either or both of the distributorship or franchise agreement or the brand’s standard terms and conditions of sale will be such that secure terms of payment can be relied on.
But even when this is the case, the detail of letters of credit in particular need to be checked. Conflict in Ukraine may be sufficient to enable the banks (or credit insurers) involved to escape their obligations to the brands which have supplied goods.
If, however, the agreement, standard terms and conditions of sale, or means of secure payment are not so secure, there may be no alternative other than to refuse to supply and push the pieces which would otherwise have been delivered to Ukraine or Russia on to another market.
However, this will not be a solution where royalties are due to be paid by a licensee or franchisee or even in the case of an agent who had collected monies on behalf of a brand.
Depending on how the conflict progresses, the next issue is one of force majeure. But are both the events of force majeure and the consequences of the occurrence of an event of force majeure adequately spelt out in the agreement? If so, can they be relied on to the same extent by both brand and counterparty?
Finally, three further consequences of the conflict should not be overlooked.
One is sanctions (see here).
The second is that a partition of Ukraine can be expected to result in an increased supply of branded products reaching the grey market.
Finally, for brands with retail assets in Russian or Ukraine, is there a need to write down these assets in their accounts or to start to make provisions?
Whatever happens in the next few weeks and months, brands which have put in place adequate agreements with distributors, agents, franchisees, and licensees will be better placed to protect the integrity of their brands and businesses and reduce the amount of management time that the conflict may otherwise cause.