Commercial contracts: protecting your business from liability risks

What do businesses in a supply chain need to consider when using contractual protection to shield themselves from potential product liability risks? Partner and Head of Corporate and Commercial at Coodes Solicitors, Kirsty Davey, shares some insights.

Companies that supply, manufacture or create a component of a product have a responsibility to ensure that it is safe for public use. All parties involved in a supply chain are at risk of a dispute with an individual or group, if they provide a sub-standard or defective product.

Liability risks can be managed in a variety of ways, one of which is through contractual protection, where businesses can set out the responsibilities of each party within the supply chain.

Taking the time to create a detailed contract, with the help from an experienced lawyer, will minimise the risk of liability and protect your business.

What do I include in a supply chain contract?

When drafting a contract, it is important to consider the terms of the agreement, identify the risks and state what your responsibilities include. In a supply chain, one company could be responsible for a specific component while another could have delivered the final product, so their considerations and responsibilities will differ.

Manufacturers, distributors and retailers will all have concerns specific to their role in the supply chain and each party should detail what risks they exclude, accept and cap.

It is important to illustrate the limits of your company’s responsibilities to help outline where any potential fault could lie in the event of litigation. As well as identifying risks, it is also important to consider other ways to minimise risks of something going wrong. Parties can allocate or control risks by:

• Conditions and warranties
• Limitations of liability
• Indemnities
• Insurance
• Product recall clause
• Jurisdiction and governing law clause

Business to business supply chain contracts

If you are supplying a component of a product to another company within the supply chain to complete the final design, you will have to construct a business to business contract.

Companies who are working together to produce a product should determine in their initial agreement who will be responsible for liability resulting from a product failure. This can vary depending on the nature of your businesses involvement.

Businesses have to ensure they follow the conditions of selling goods. The product must correspond to the description, be of satisfactory quality and meet with the quality of the sample. Clauses can be included into the contracts as long as they are considered reasonable under the Unfair Contact Terms Act 1977.

Business to consumer supply chain contracts

There is a higher level of protection for consumers compared to businesses. When selling a product to a consumer, businesses have to comply with the Consumer Rights Act 2015 which has replaced a great deal of previous consumer legislation.

The Consumer Rights Act outlines the requirements all products must be:

• Of satisfactory quality
• As described
• Fit for purpose

Contracts cannot exclude or limit liability for goods not meeting the above requirements. Liability for death, personal injury, fraud can never be excluded in any contract.

Wherever your business fits in the supply chain, it is vital that you seek specialist legal advice to ensure your contracts reflect your needs and protect your company.

If you have any issues or you have a potential dispute regarding supplier contracts then please do contact Peter Lamble in the Commercial Dispute Resolution & Insolvency team at Coodes on 01872 246200 or peter.lamble@coodes.co.uk.

For more information or advice contact Kirsty Davey at Coodes Solicitors in the Corporate and Commercial on 0800 328 3282 or email kirsty.davey@coodes.co.uk