My Supplier Cannot Meet Their Obligations. What Are My Contractual Rights?

As a business owner or manager, it is important to understand your contractual rights against a supplier when things do not go as planned. A supplier is a company or individual that provides goods or services to another company.

There are several ways in which a supplier may fail to meet their obligations under a contract, including:

1. Failure to deliver goods or services: A supplier may fail to deliver the goods or services that have been ordered by the buyer, either in whole or in part. This can lead to delays and additional costs for the buyer.
2. Poor quality goods or services: A supplier may deliver goods or services that are not of the required quality or that do not meet the specifications set out in the contract. This can result in dissatisfied customers and lost sales for the buyer.
3. Late delivery: A supplier may deliver the goods or services after the agreed upon delivery date, causing delays and potentially resulting in lost profits for the buyer.
4. Breach of contract: A supplier may breach the terms of the contract in various ways, such as by failing to provide the required goods or services or by failing to meet certain performance standards.
5. Disputes over payment: A supplier may dispute the amount that the buyer has agreed to pay for the goods or services, or may claim that the buyer has not paid the full amount owed.
6. Intellectual property disputes: A supplier may use the buyer’s intellectual property without permission, leading to a dispute over ownership or licensing fees.

In these cases, the buyer (the company receiving the goods or services) may have certain rights under the contract to seek remedies.

One common remedy is the right to cancel or terminate the contract and seek a refund or damages. This may be appropriate if the supplier has breached a fundamental term of the contract, such as by failing to deliver the goods.

Another remedy is the right to require the supplier to perform their obligations under the contract. This may be appropriate if the supplier has only partially performed their obligations, or if they have performed them poorly.

It is important to carefully review the terms of the contract to determine what rights and remedies are available in the event of a breach. These rights may include the right to terminate the contract, the right to require the supplier to perform their obligations, and the right to seek damages.

To minimize the risk of disputes with suppliers, it is important to carefully review the terms of the contract before signing it, and to ensure that the contract clearly sets out the rights and obligations of both parties. This can help to avoid misunderstandings and ensure that both parties are held accountable for their obligations under the contract.

In summary, understanding your contractual rights against a supplier is important to protect your business and ensure that you receive the goods or services that you have paid for. Carefully reviewing the terms of the contract, seeking legal assistance if necessary, and taking action to enforce your rights can help to minimize the risk of disputes and ensure that your business is protected.

How do Force Majeure clauses work in supply agreements?

The purpose of a force majeure clause is to protect a party from being held in breach of contract if they are unable to perform their obligations due to circumstances beyond their control such as natural disasters, war, pandemics, or other events that could not have been reasonably anticipated or avoided. 

The clause will typically specify the types of events that will trigger the clause and the duration of the excuse from performance. It may also allow either party to terminate the contract if the specified event continues for an extended period of time and prevents either party from performing their obligations under the contract.

If a force majeure event occurs, the supplier may be excused from performing their obligations under the agreement for a specified period of time. This may include their obligation to deliver goods or services to the buyer. The supplier must typically give notice to the buyer as soon as possible after the force majeure event occurs, specifying the nature of the event and the extent to which it has affected their ability to perform their obligations under the agreement.

The force majeure clause may also specify how long the excuse from performance will last. This may be a fixed period of time, or it may continue until the force majeure event has ended or its effects have been mitigated. In some cases, the clause may allow either party to terminate the agreement if the force majeure event continues for an extended period of time and prevents either party from performing their obligations under the agreement.

A key example from the past few years is the global pandemic which caused a range of postal, shipping and delivery issues by suppliers, which resulted from government orders and lockdowns outside of their reasonable control.

It is important to note that a force majeure clause will only excuse a party from performing their obligations if the specified event has caused a true inability to perform. The supplier must show that the force majeure event has caused a genuine inability to perform, and not just an inconvenience or a financial burden. In addition, a force majeure clause will not excuse a party from performing their obligations if they have already breached the contract before the specified event occurred.

If you have a supply agreement that includes a force majeure clause and you believe that it may apply to your situation, it is a good idea to seek legal advice to understand your options and the best course of action to take.

Insurance and Risk

Insurance and risk are important considerations in supply contracts, as they can help to protect the parties involved in the event of unexpected losses or liabilities.

Here are a few ways that insurance and risk can be addressed in a supply contract:

1. Indemnity clause: An indemnity clause in a supply contract may require one party (the indemnifying party) to compensate the other party (the indemnified party) for any losses or liabilities that the indemnified party incurs as a result of the indemnifying party’s actions or inactions. For example, if the supplier’s goods cause damage to the buyer’s property, the supplier may be required to indemnify the buyer for the damages.
2. Insurance: A supply contract may require one or both parties to maintain certain types of insurance coverage, such as liability insurance or property insurance. This can help to protect the parties against potential losses or liabilities that may arise in the course of the contract.
3. Limitation of liability: A supply contract may include a clause that limits the liability of one or both parties for certain types of losses or damages. For example, the supplier may be limited in their liability for damages caused by their goods to the amount of the purchase price of the goods.
4. Risk of loss: The supply contract may specify which party is responsible for bearing the risk of loss for the goods being supplied. For example, the risk of loss may pass to the buyer once the goods have been delivered to them.

Can I make a claim under the Australian Consumer Law? 

The Australian Consumer Law is set out in Schedule 2 of the Competition and Consumer Act 2010 (Cth) (ACL) and provides a set of consumer guarantees that apply whenever goods are supplied to “consumers” as defined under the ACL.

And yes, it is possible to make a claim under the ACL against a supplier. The ACL sets out the rights and obligations of consumers and businesses, and provides remedies for consumers in the event that their rights are breached. 

If you are a consumer (an individual or a small business with an annual turnover of less than $10 million) and you have purchased goods or services from a supplier that are defective, not of acceptable quality, or not fit for their intended purpose, you may be able to make a claim under the ACL. You can make a claim against a supplier if they have breached their obligations under the ACL, such as by:

• Supplying goods that are not of acceptable quality
• Supplying goods that are not fit for their intended purpose
• Supplying goods that do not match their description or sample
• Supplying goods that are unsafe
• Engaging in deceptive or misleading conduct

Section 259 sets out the rights of a consumer to require a supplier to remedy a failure to meet a statutory guarantee in relation to the supply of goods. Under s 274 of the ACL, 

The supplier may also be able to bring an indemnity claim against the manufacturer for defective goods. A supplier has 3 years within which to make that indemnity claim against the manufacturer under section 274(4) of the ACL. 

There are a range of claims available under the ACL and the time limits for bringing such claims vary depending on the type of claim and the jurisdiction in which the claim is brought, so it is best to seek legal advice when disputes arise.

If you are able to successfully make a claim under the ACL, you may be entitled to remedies such as a refund, replacement, repair, or compensation for damages.

Key Takeaways

1. Make sure you have a written contract: A written contract can help to protect your interests and provide a clear record of the terms that have been agreed upon. It is important to carefully review the terms of the contract before signing it, and to ensure that it clearly sets out the rights and obligations of both parties.
2. Know your rights: It is important to understand what rights you have under the contract in the event that the supplier fails to meet their obligations. These rights may include the right to cancel the contract, the right to require the supplier to perform their obligations, and the right to seek damages.
3. Understand the terms of the contract: The terms of the contract will determine what rights you have and how you can enforce them. It is important to carefully review the terms of the contract to ensure that you understand your rights and obligations.
4. Consider seeking legal assistance: If you are unable to resolve a dispute with a supplier, it may be necessary to seek legal assistance. A lawyer can help you understand your options and negotiate a resolution with the supplier.
5. Take action to enforce your rights: If a supplier breaches the contract, it is important to take action to enforce your rights. This may involve cancelling the contract, requiring the supplier to perform their obligations, or seeking damages.

If you have a dispute with a supplier and you believe that your rights have been breached, it is a good idea to seek legal advice to understand your options and the best course of action to take.Contact us at Law Quarter for help with your supplier agreements and advice regarding disputes with suppliers. You can email us at info@lawquarter.com.au or you call (02)