Any delay in the delivery of goods is invariably costly for all parties concerned.
For the retailer, the delay means that the pieces may not get to the shop floor when required and consumers may look elsewhere. When late delivery does occur, it is possible that, depending on the length of the delay and given the seasonality of the fashion industry, that the goods are no longer in demand.
For the seller, the delay is likely to impact on their cash flow as full payment is unlikely to be made until delivery of the goods.
Where the delay is due to the fault of the seller the buyer may have a remedy under its contract with the seller. However, what if the delay is due to an unexpected event outside of the seller’s control? Check the contract for a force majeure clause.
Whilst force majeure clauses are viewed as bog standard boilerplate on a widespread basis, such view represents a commercial myth. The general principle of a force majeure clause is that a party to an agreement should not be liable for the non-performance of its obligations due to an unexpected event outside of its control. But there is no recognised meaning as to the term “force majeure” and, as a result, a force majeure clause should specify a non-exhaustive list of events which the term force majeure is intended to include. Typical events of force majeure would be, for example, war, fire, and flood.
The force majeure clause will often provide that the brand has the right to defer the date of delivery of goods ordered by the retailer during the continuance of the force majeure event, and if the brand is prevented from or delayed in carrying on its business due to the occurrence of such force majeure event for a specified period, the retailer may give notice to the brand to terminate the contract. It is quite common for the period of the force majeure event to be stated to last up to six months before the retailer has the right to terminate. However, is such period reasonable? If not, does this matter?
Whether or not such period is reasonable will depend on each individual situation. However, the answer to the latter question is yes it does!
As the force majeure clause enables one party to avoid liability to the other, it amounts to an exclusion clause. As a result, where the contract is on one party’s standard terms and conditions, a force majeure clause will be governed by the Unfair Contract Terms Act (“UCTA”). Under UCTA, the exclusion clause must be reasonable in order to remain valid. It follows that if the clause is not reasonable, it will be void and the brand will not be able to rely on the clause. As a result the brand will be exposed to a claim for damages.
Given the seasonal nature of the industry, a clause specifying that the force majeure event is to last even two months before the retailer has the right to terminate the contract may be unreasonable. A retailer will have little use for AW stock which, due to events outside of the brand control, were delivered at the end of that AW season. In contrast, a far shorter period of, say, three weeks, following which the retailer may terminate the contract is more likely to be reasonable.
It is understandably all too easy for the parties to spend little time focusing on a force majeure clause, preferring to spend more time considering the provisions relating to, for example, price of the goods. However, all too often considered as such, a force majeure clause is more than simply boilerplate.
Brands should review their standard terms and conditions of sale in order to ensure that the force majeure clause is reasonable under UCTA. Subject to this, the brand will want the clause to specify the force majeure event is to be as long as possible before the retailer has the right to terminate the contract. In contrast, the retailer will look for a far shorter period.