In today’s global environment, volatility is the rule rather than the exception. Businesses face a widening range of legal and commercial risks: geopolitical tensions, technological disruption, climate risks, shifting regulatory frameworks, economic instability… all challenges to the resilience of even the most robust organisations.
A critical competitive advantage lies in routinely reviewing contracts and templates – not just reactively, but proactively. Below, we outline five key considerations drawn from recent client engagements to help future-proof your contracts.
Supply shocks are the new normal
The pandemic, raw material shortages and logistics disruptions have revealed global supply chain vulnerabilities. By default, and subject to several other conditions, Belgian contract law entitles a party to renegotiate a contract if a change in circumstances makes performance of the contract excessively onerous, to such an extent that performance can no longer reasonably be required. This general rule can be confirmed, fine-tuned or excluded in your contracts.
Whereas the conditions for applying this default rule are not particularly well articulated, a more detailed contractual arrangement is advisable. While many contracts include general force majeure or hardship clauses, they do not always address real-world events like supply delays due to logistics backlogs, or government-imposed trade restrictions or embargoes. Hence, you should ensure that your contracts clearly define force majeure and hardship: think of extending or narrowing down the possibilities for renegotiation, modification or termination of your various contract types in case of prolonged disruptions, and account for both supplier-side and customer-side obligations.
Beyond the contract, assess your suppliers’ ability to meet obligations, have a plan that sets out what recourse you can take, both legally and operationally, and consider your own customer-facing commitments.
Tariffs can shift overnight – who bears the risk?
Review your customer and supply contracts, including delivery terms referencing Incoterms. These have an impact on who assumes responsibility for additional trade tariffs or, conversely, who benefits if tariffs are reduced or eliminated.
If your contracts do not clearly allocate this risk, you could face unintended financial exposure. Explicit clauses addressing trade policy changes can avoid disputes and protect margins.
Deal certainty vs. strategic flexibility
In M&A and other strategic transactions, sellers seek deal certainty, while buyers may want several options in case of adverse developments. A key mechanism in balancing these interests is the “material adverse change” clause, also known as the MAC clause.
Since Covid-19, MAC clauses generally reference pandemics and lockdowns as potential trigger events. But today’s world presents other risks as well, e.g. sudden trade policy reversals, sanctions or geopolitical conflicts, or drastic regulatory shifts that alter business viability.
Buyers and sellers will have to bridge the gap and agree which events justify walking away from the deal, and which do not. Limiting MAC triggers to events with a company-specific impact could be a middle way but may also entail difficulty in proving the exact consequences of a global event on the company. Break fees – payments triggered upon withdrawal – may be a useful tool to balance risk and commitment.
Foreign investment is not as “foreign” as you may think
Legal frameworks like the EU’s Foreign Direct Investment (FDI) Regulation and Foreign Subsidies Regulation (FSR) are intended to target transactions with parties from “unfriendly” jurisdictions. But the scope of these regulations is broad. Due to changes in the geopolitical landscape, today’s reliable trading partners may fall under tomorrow’s scrutiny.
Even if you are only transacting with businesses from familiar markets at present, be cautious. Key questions to ask include:
- Could your counterparty fall within the scope of the FDI or the FSR now or in the future?
- How might this affect transaction timelines and closing risk?
- Do your contracts include appropriate covenants and representations to navigate this uncertainty?
- Have you established internal tracking systems for non-EU state support, to avoid data gaps during transactions?
Anticipating the unforeseeable
The foregoing are just a small sample of the spectrum of emerging risks to which businesses are exposed. There are plenty of others, such as:
- Financial: soaring energy costs, high inflation, forex volatility.
- Regulatory: export controls, tax changes.
- Operational: cybersecurity breaches, AI-driven disruption.
- Reputation: misalignment between ESG policy and evolving geopolitical realities (e.g. defence sector investments).
It might seem tempting to build very broad rights and safeguards into your contracts. However, overly broad protections may not hold up in court. Both general Belgian contract law and specific B2C and B2B regulations aspire contractual balance to some extent. Besides, stipulating far-reaching rights may be unpalatable to your counterparty, or invite reciprocal demands. Thus, more is not always better. The advisable approach is a business-specific risk analysis, followed by tailored contractual responses that reflect the real threats your operations face, such as specific force majeure and hardship definitions, allocating certain risks via indemnity provisions for technology-outages, or price adjustment mechanisms tied to industry-standard cost indices.
In sum, while volatility may be inevitable, legal clarity can still be achieved. Businesses that anticipate uncertainty, audit their contracts, and engage proactively with counterparties will be best positioned to manage risk and seize opportunity.
As a full-service law firm with experts across industries and transaction types, we help businesses identify risks, adapt their contractual frameworks accordingly, and manage unexpected problems, including seeking resolutions for their disputes. Should you wish to discuss your specific situation, please reach out to your usual Eubelius contact, or to any of the authors of this contribution.
