Scottish independence – be prepared

The question of Scottish independence is taking centre stage as the Supreme Court considers whether it is competent for the Scottish Parliament to legislate for another independence referendum without Westminster’s backing. Even if the Supreme Court decides it is not competent for the Scottish Parliament to do that, or concludes that the question has been asked too early as we only have a draft bill rather than an Act of the Scottish Parliament, first minister Nicola Sturgeon has made it clear that she intends for the next general election to be treated as a de facto referendum on the issue. Clearly, the question of Scottish independence is not going away, and the debate is going to be on the agenda for the foreseeable future.

What should businesses do about this? Prepare for change. For those businesses that have fought hard to get back on track following the changes imposed by Covid-19 and Brexit, they will not want to lose momentum now. Bargaining positions of parties in ongoing negotiations may well be impacted, particularly where one party is in Scotland and the other in another part of the UK. Of course, it is not just ‘new’ contracts that will impacted – it is likely that the dynamics between parties to long-standing contracts will also change. Clearly, change of any kind is likely to give rise to commercial implications.

Long-running large contracts can be difficult to rebalance, because they are typically ‘business critical’, involving services that are central to a company’s business. A multi-million-pound north-shoring contract which outsources a core business process to a Scottish provider will almost certainly have taken months (if not longer) to put into place and, once up and running, is not easily reversed.

How might contractual variation work in this scenario? It is very likely that a robust and frank discussion on contractual terms will be needed while, at the same time, both parties to the contract will be commercially motivated to preserve both the working relationship and the contract itself.

How can this balance be achieved? Simply ignoring the change event is not an answer. Over time, unworkable contract terms may gradually start to reduce the value of the contract to one party, then ultimately to both. At the same time, being too aggressive in demanding change to the contractual terms can threaten the commercial relationship, putting the contract at risk with all that would entail for the client company’s business. So, there’s a lot on the line.

One way to deal with this, and avoid as much uncertainty as possible, is to ensure that the contract anticipates future change from the very outset. Variation of contracts which are up and running is fairly common but, in most cases, it requires the agreement of both parties. If a discussion on contract variation does get bogged down, then does the contract set out a mechanism for resolving these differences?

From experience, disputes clauses tend to simply set out which forum and law is to govern any disagreements, so an English court or a Scottish court, and English law or Scottish law. However, in order to deal with the situation where a contract needs to be varied to take account of a change event, as opposed to a fight over simply bringing it to an end, perhaps arguing force majeure or frustration, then something more than such a simple clause is needed. Parties are looking to enhance the contract and continue to move forward together, not blow the whole thing up. With that in mind, it is clear that there needs to be a balance found between the parties and also competing interests. That’s where mediation, or another form of ADR, may come into play since it allows for frank and direct discussions about any changes needed to the contract at the same time as trying to preserve a commercially important relationship.

In addition, parties should be encouraged to think about the following points during negotiations for a new contract, or in the wording of the contract itself:

• Plan for the future – at the beginning of the process (ie, before the contract is signed off), both parties should consider and discuss what should happen in the event of a number of future scenarios.
• Agree and document a roadmap – this could reflect how these different imagined scenarios during the term of the contract should be dealt with. That roadmap could cover how to deal with dispute resolution and, in the event a dispute arises, whether mediation should be attempted.
• Balance flexibility with certainty – although a contract should be sufficiently flexible to cover future change events, parties need to ensure that there’s still ample certainty in the contract wording in order to avoid unnecessary arguments.
• Invest in the relationship – collaboration is always the most likely way to find win-win solutions in the event of challenges. To achieve that, both parties should invest in the relationship over the life of the contract, communicate regularly and build a mutually beneficial partnership that both sides value. That way, in the event of challenge, a mutually beneficial resolution is much more likely to be found.
• Early warning alert – the contract could include specific wording which asks both parties to give early warning of situations that could give rise to a future variation and to start a dialogue early.

It is impossible to know precisely what the future will hold. However, if both parties to a commercial relationship take the time to think ahead and plan for future change in collaboration with one another then, when change inevitably comes, a lot of pain might be avoided.

Nicola Ross is a partner at Morton Fraser, Glasgow