I can stop supplies if I'm not paid, right?

I can stop supplies if I'm not paid, right?

I can stop supplies if Im not paid, right?

If your business is the manufacture of a product which is key to your customers’ business, you may think that you can always threaten to withhold supplies to ensure your invoices get paid. If so, the recent first instance decision in the case of Medina Dairy Ltd v Nampak Plastics Europe Ltd serves as a reminder that this isn’t necessarily the case and you may need to think again.

 

Whilst a refusal to supply product in those circumstances may well amount to a breach of contract giving rise to a potential liability for damages, examples of a manufacturer being ordered to continue supplies against its will (and therefore being deprived of the leverage which the threat of stopping supplies might give) are quite rare. Less rare will be an order for “specific performance” in a straightforward sale scenario where the asset being sold is to a greater or lesser extent unique so that the buyer is unable to easily source a replacement and/or where the mechanics of transfer are straightforward.

However, in the Medina Dairy case the Court granted an injunction to force a bottle manufacturer to continue to supply a dairy customer despite its failure to pay numerous invoices. The dairy appears to have satisfied the judge that it had no other source of supply and that damages could not properly compensate it for the losses it would, therefore, suffer if the manufacturer suspended supplies.

The lessons of this case for commercial parties agreeing supply contracts are straightforward. For manufacturers, aim for an express term which allows you to at least suspend supplies, if not terminate the contract, where invoices are unpaid; and/or, for an express exclusion of specific performance as a remedy for any actual or threatened breach of contract (as non-supply would in this case have been). The buyer will want to resist the inclusion of such terms.

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