Retail Chain Suppliers Claim Repayment of Supply "Debts".


Legal Update No. 157.

Goltsblat BLP advises that some of the biggest retail chains have lately been subject to numerous claims for payment to be made for goods supplied. Our analysis of court practice and client requests leads us to the conclusion that the overwhelming majority of such claims are based on supposed failure to pay for supplied goods in full, yet the amount of such claims is equal to discounts, bonuses, services rendered and penalties imposed, set off unilaterally by buyers.

A big retail chain will have hundreds and thousands of suppliers, orders being executed by small businesses, and goods supplied in relatively small though numerous consignments. The result is a heavy document flow that is hard to control and leads to deficiencies in execution of business operations and replacement of hard copy documents with electronic versions.

Unfair suppliers are taking advantage of this by denying any offsets of counterclaims and the very fact of services (advertising, information, etc.) being rendered, declaring unlawful accrual of discounts and bonuses and unjustified collection of fines. In this situation, years after the supply date, in the absence of any "direct" proof of breach of the supply dates, statement of provision of services signed by the supplier (such a statement usually constituting the only confirmation of services rendered), or “returned” offset applications sent to the supplier, it is easier for the court to uphold the supplier’s position and recover the "debts". 

On the basis of our experience of acting for clients in similar cases, we can conclude that the need to seek and analyse a large number of financial source and shipping documents makes it difficult to conduct such cases. Defenders incur significant costs in connection with the large number of cases based on claims filed by suppliers. Even though we have managed to win some such cases, the outcome of many pending cases is still unpredictable, as there have not yet been any court decisions in favour of retail chains.

To avoid such situations, we recommend retail chains to verify thoroughly the supply contract terms regulating termination of obligations by offset, check compliance with the conditions determining whether offset transactions are valid and deemed to be concluded, ensure that they hold evidence of services rendered by the retail chains and that fines are imposed justifiably.

In particular, it is advisable:

  • to reconcile settlements on a regular basis and print out the result in hard copy, format with seals and signatures of the parties’ representatives affixed;
  • to sign, from time to time (for example, once a month or quarter), bilateral statements of delivery and acceptance of services;
  • to describe in detail in supply contracts the possibility of a claims offset and the way the supplier accepts this (for example, if the supplier fails to send its objections within the established period).

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