Commercial Contracts – Addressing some of the key issues arising out of the HGV driver shortages

The government has tried to address the core issue (i.e. shortage of qualified drivers in the UK), by implementing a new visa scheme for HGV drivers from Europe, getting soldiers to drive fuel trucks and expediting the testing process for drivers amongst others. With the festive season approaching fast and the fact that it is estimated that it may take months or perhaps even years to tackle the current shortage of drivers in the UK, it is important to plan ahead to minimise risk and any impact from the crisis.

For several weeks issues such as storage costs, late delivery charges and demurrage have become common causes of dispute amongst businesses and it is therefore vital for all parties to know their rights under their contract so they can face the current challenges and prepare for what may be coming.

How do you determine who is liable?

The first course of action should be to check whether you have a binding contract for the relevant supply. An ongoing supply commitment would be binding but supplies based on orders that can be accepted or rejected by a supplier may not.

If you have a binding contract, review its terms to understand whether it contains fixed performance obligations and if it allows the supplier to pass on any additional costs incurred to you. Given the challenges and disruptions we have experienced in the last 18 or so months as a result of the pandemic, especially within the logistics sector, it wouldn’t be a surprise to see contractual clauses addressing such issues.

Is driver shortage force majeure?

In order to rely on force majeure the contract must contain a suitable cause that deals with that concept as it is not a concept recognised under English common law, in contrast with countries that apply a civil code which specifically recognise force majeure.

If the contract contains a force majeure clause, you need to pay close attention to the type of events that are force majeure and check if shortage of haulage drivers is one of them. In most cases, even if driver shortages are explicitly covered under the force majeure clause, it may not necessarily mean that the clause is triggered. The shortage must be the operative cause impacting performance and not just an event that makes performance more expensive.

What about Frustration?

Although not an absolute rule, the English courts usually consider frustration only if the contract doesn’t contain a force majeure clause or other similar provisions. Each contract is unique in nature and requires in depth analysis on a case by case basis to consider arguing frustration. Having said that, it should be noted that the threshold for establishing whether or not a contract is frustrated is extremely high.

What can you do to minimise these risks in future?

Going forward, it is pivotal to review your existing contracts with local as well as international suppliers (as we have been witnessing similar issues happening across the EU) and have a formal discussion to update the terms accordingly to address these issues.

With the festive season around the corner, procurement teams should look to manage the ongoing supply chain challenges especially as limited storage space in warehouses, distribution centres and ports are expected to become more common.

You should look to address these issues in your commercial discussions with suppliers and negotiate them in your contracts as well. Given the circumstances, it is not unreasonable to expect your supplier to plan ahead and schedule their deliveries in order to avoid prolonged storage at ports or distribution centres and mitigate additional costs.