In the manufacturing industry, the reliability of suppliers is crucial for maintaining production schedules and meeting customer demands. When suppliers are reliable, manufacturers can operate more efficiently, reduce costs, and enhance their competitive edge in the market.
However, suppliers can sometimes fail to meet terms and conditions, leading to significant disruption and loss. In this article, Simon Key and Dominic Simon explore the circumstances under which manufacturers might consider taking legal action against a supplier they have a commercial relationship with.
Preserving Commercial Relationships
Before pursuing legal action against a supplier, manufacturers should consider the nature of the commercial relationship between them, and the potential impact of taking legal action, by weighing the potential benefits of legal recourse against the risk of damaging a valued relationship.
If there is an ongoing, valued commercial relationship, and the supplier has generally been reliable and the current issue an anomaly, it might be more beneficial to resolve the matter without legal action, as legal action can significantly strain or even destroy the relationship.
Legal action could also negatively impact business continuity. If the supplier provides niche, specialist parts or materials, finding an alternative supplier could take considerable time. The supplier may be highly familiar with the manufacturers processes, procedures, and subtle preferences. Building a similar relationship with a new supplier could take years, and the new supplier may never meet the manufacturers business standards.
More generally, switching suppliers may lead to greater quality issues and delays, and strain relationships with other business partners. It may be necessary to preserve the relationship with the supplier in the short-term, so that relationships with other business partners or customers are not jeopardised and pursue legal action later. However, the manufacturer will need to ensure that any court proceedings are issued in time, as claims generally have a time limit. Legal advice should therefore be taken.
When Legal Action May Be Necessary
There are several scenarios where legal action may be necessary despite there being an ongoing commercial relationship. These include:
- Where the supplier consistently fails to meet terms and conditions, and loss has been caused to the manufacturer.
- When the supplier’s failure results in substantial financial losses.
- If the dispute is not resolvable through informal discussions or informal negotiations.
- If the supplier is uncooperative or unwilling to engage in discussions to resolve the issue amicably.
- Where the supplier’s failure has damaged the manufacturer’s reputation with customers or other business partners.
- If there is a high risk that the supplier’s behaviour will lead to future issues.
- Where the issue needs to be resolved quickly to avoid further damage, and the supplier is not responsive.
- Where the deadline to bring legal action is about to expire. Legal claims are subject to “limitation deadlines”. A limitation deadline is the date by which a claim must be filed with the court. If a limitation deadline is missed, the right to seek legal redress is, generally, irrevocably lost. The deadline can be “paused” via a “standstill agreement”; however, such agreements must be carefully drafted and require the agreement of all parties involved. In some circumstances, protectively commencing a formal court claim may be necessary.
- If the supplier’s failure has caused or is causing the manufacturer to breach its own contractual obligations to third parties, legal action may be necessary to seek damages and protect the manufacturer’s interests.
- If the supplier is infringing on the manufacturer’s intellectual property rights, legal action may be necessary to protect these assets and prevent unauthorised use or distribution.
In these situations, the potential benefits of legal action may outweigh the risks and costs. It is always recommended to seek legal advice to evaluate the specific circumstances and determine the best course of action.
If legal action is deemed necessary, and the manufacturer is keen on preserving the relationship, a tailored approach should be taken to minimise relationship damage. Open communication and seeking mediation or arbitration instead of litigation may be a viable option. Generally, this approach is preferred by the court.
It may be beneficial for the manufacturer to write to the supplier using its own letterhead, using letters drafted by or reviewed by their solicitors. This approach can appear less hostile than using the solicitor’s letterhead. In other cases, it might be preferable for the solicitor to write to the supplier directly. Regardless of the approach, a skilled and experienced solicitor can adopt the appropriate tone in correspondence and suggest strategies that support the goal of preserving the relationship.
When to Seek Legal Advice
When issues with arise with suppliers, balancing the need to maintain business continuity and relationships with the potential benefits of legal recourse is crucial. Seeking legal advice can help manufacturers navigate these challenges effectively, ensuring that any actions taken align with their long-term business objectives. Whilst the decision to pursue legal action against a supplier is, in part, a commercial decision, legal advice should be promptly sought.
This article is for information only and does not constitute legal/financial advice. Please contact us for advice tailored to your specific position. Some of the content presented on our website has been generated with the assistance of Artificial Intelligence (AI). We ensure that all AI-generated content meets our high standards for accuracy and relevance.
