Up Again Morocco: Suppliers and Contractors

Restructuring

1. Navigating the supply chain in a distressed market:

a. My company supplies goods and I am concerned about the solvency of my customers. Are there any steps I can take to mitigate risk/my exposure?

Some solutions that may improve a supplier's resilience:

  • Stipulate the exact payment terms of the contract.
  • Reduce payment deadlines (require advance payment or payment on delivery).
  • Retain the goods until the complete payment by the customer.
  • Ask for guarantees (e.g. bank guarantee or a guarantee by a parent company).
  • Implement periodic monitoring.

b. My company relies upon the supply of goods/services and I am concerned about the solvency of my supplier? Are there any steps I can take to mitigate risk?

If the supplier of goods or services is insolvent, take the following steps to mitigate the risk:

  • Avoid advance payments.
  • Consider whether the supplier is a key supplier, and make orders with alternative suppliers to ensure sufficient stock to satisfy clients.
  • Plan for a new supplier (and, where possible, include a provision that requires the supplier to inform you regarding any insolvency issues).

Litigation and Regulation

2. How will legal disputes that have arisen as a result of COVID-19 or its effects (for instance, in relation to force majeure) be affected by restrictions being lifted and resuming business operations in whole or in part?

This depends on the particular circumstances of each case. Several factors would be taken into account, including the specific legal issue in the dispute (withdrawal from the contract, entitlement to damages, entitlement of invoking impossibility) and to what extent this legal consequence was justifiably triggered by COVID-19 in the first place.

The reopening of courts will be carried out gradually and only some cases considered as urgent matters, such as family, employment and real estate matters, will resume in the first weeks after the restrictions are lifted.

3. How should you manage those disputes once COVID-19 restrictions are lifted?

Disputes should be assessed and managed on a case-by-case basis. If there are economic losses on both sides, it may be in both parties’ interests to reach an amicable settlement allowing their commercial relationship to resume, rather than engaging in lengthy and costly litigation.

If a settlement is not possible, the parties should consider whether legal action is required.

4. What should you do when restrictions are lifted if you have suffered loss under a contract as a result of COVID-19 or the restrictions, but have not yet taken legal action in relation to that loss?

Review your contracts, particularly your rights and obligations under the contracts, and assess the validity of the claims with your legal advisor.

Before initiating any indemnification claim, a party should:

  • check applicable law and competent jurisdiction;
  • conduct a review of legal grounds and evidence supporting the claim  to assess its chances of success;
  • collect all required evidence to demonstrate breach and losses incurred; and
  • check if prerequisites for the legal action’s admissibility are fulfilled.

5. Is there any risk of mass claims being brought against your business? If so, how would such claims be brought? Are third party funders able to fund such claims?

Mass claims as they exist in US legal system are not recognised in Morocco. Rather, multiparty litigation is generally carried out by way of representative actions (where one claimant with the same interest as a group brings proceedings on its behalf). It is not common in Morocco to fund legal claims by way of third-party funders.

6. What should I do about recording contractually or otherwise any of the changes put in place during the COVID-19 lockdown period?

Any change implemented during the COVID-19 lockdown period should be recorded in a written amendment to an existing agreement, duly executed by the parties in as many originals as the number of parties. 

7. Any return to normal will likely not be as immediate as the impact of COVID-19 when it started (e.g, sales/orders will take time to ramp up, raw materials will take time to flow through supply chains, etc.) what should I think about and do to best manage this in my contracts?

Customers and suppliers should conduct a full contract audit regarding the existence and scope of force majeure, termination, jurisdiction and governing law clauses, to assess their legal position in respect of each contract.

Keep accurate records of the difficulties being experienced and their impact.

Suppliers and customers may need to have amicable discussions/negotiations to manage the performance of the arrangement and consider upcoming deadlines for deliveries/deliverables.

8. What additional protections or changes to existing provisions (e.g. force majeure) should I put into any new supply arrangements having regard to COVID-19?

Depending on the circumstances, it may be advisable for suppliers to define a pandemic disease explicitly as a force majeure event in future contracts (if this can be agreed with the contractual partner).

In addition, suppliers may want to include a specific termination right if the customer fails to make payment.

Customers should conduct an analysis of the risk distribution and financial equilibrium of the contract, especially in contracts with a successive term or where deferred performance of certain obligations is provided for.

A customer may also want to include a right to relief from any minimum-purchase commitments, or a right to cancel orders where there is a material change in the customer’s circumstances (not just a force majeure event), where there are changes in law or where the customer’s business is affected by emergency legislation.