A supplier appears to be unstable but we are tied to an exclusive contract for a product. What are the implications if we breach exclusivity or just terminate?

This depends both on the facts surrounding the situation and on the terms of contract with your supplier. Craig Chaplin, partner at Halliwells law firm, warns that if your concerns are based on nothing more than rumour, you could end up on the receiving end of legal proceedings for breach of contract, the damages for which will be tied to the loss suffered by the supplier. “These damages will clearly be greater if you terminate the contract altogether rather than simply breach exclusivity,” he says.

However, if your worries are based on tangible evidence, then the risk is lessened, particularly where the contract contains a termination clause that allows you to do so on “the reasonable apprehension that your supplier is about to become insolvent”.

Chaplin advises retailers to scrutinise the business’s dealings with the supplier in question over recent months to ascertain if they have breached the contract in any other way, such as persistent late deliveries or failure to comply with specifications. “You may well be in a position to terminate the contract legitimately and without fear of legal proceedings,” he says.

The decision taken will have to be a balancing act between ensuring product continuity and the risk caused by empty shelves and legal proceedings. He says: “Usually there is nothing in the agreement that would prevent you from planning contingencies so operationally this is the first step you should take.”